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                                                                   EXHIBIT 10.10

                              SUBLEASE AGREEMENT

                  ARRIS PHARMACEUTICAL CORPORATION, Sublessor

                   EXELIXIS PHARMACEUTICALS, INC., Sublessee

                        260 Littlefield Avenue, Suite A

                        South San Francisco, California

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                              SUBLEASE AGREEMENT

     This Sublease Agreement ("Sublease") dated as of June 1, 1997 (the
"Commencement Date"), is entered into by and between Arris Pharmaceutical
Corporation, a Delaware corporation (hereinafter "Sublessor"), and Exelixis
Pharmaceuticals, Inc., a Delaware corporation (hereinafter "Sublessee"), and is
subject to the terms and conditions of that certain Lease (the "Master Lease")
dated June 22, 1993 (as amended by that certain First Amendment to Lease dated
October 25, 1993) entered into by Utah Partners, Ltd., a California limited
partnership ("Master Lessor"), and Khepri Pharmaceuticals, Inc., a Delaware
corporation, as Lessee.  A copy of the Master Lease has been delivered to
Sublessee. Sublessor is the successor by merger to Khepri Pharmaceuticals, Inc.

     1.   Premises.

          (a) Phase I Premises. As of the Commencement Date, Sublessor hereby
leases to Sublessee, and Sublessee hereby hires from Sublessor, on and subject
to the terms and conditions hereinafter set forth, those certain premises
(hereinafter referred to as the "Phase I Premises"), situated in the City of
South San Francisco, County of San Mateo, State of California, commonly known as
260 Littlefield Avenue, and consisting of approximately 9,497 rentable square
feet, as more particularly described on Exhibit "A" hereto.

          (b) Phase II Premises. As of April 1, 1998, or such earlier or later
date upon which actual delivery to Sublessee occurs pursuant to Section 2(c)
below (the "Phase II Delivery Date"), Sublessor hereby leases to Sublessee, and
Sublessee hereby hires from Sublessor, on and subject to the conditions
hereinafter set forth, those certain premises adjacent to the Phase I Premises
(hereinafter referred to as the "Phase II Premises"), as more particularly
described on Exhibit "A" hereto. For all purposes hereof, until the Phase II
Delivery Date, the term "Premises" shall refer to the Phase I Premises.
Thereafter the term "Premises" shall refer to both the Phase I Premises and the
Phase II Premises.

          (c) Common Areas. Sublessee shall have the right, in common with other
tenants of Master Lessor, to use the Common Areas of the property (as defined in
the Master Lease).

     2.   Sublease Term; Delivery of Possession.

          (a) Term. The term of this Sublease shall begin on the Commencement
Date and end on July 15, 2005 (the "Expiration Date"), unless sooner terminated
pursuant to any provision of this Sublease or of the Master Lease.

          (b) Delivery of Possession.

              (1) If for any reason Sublessor cannot deliver possession of the
Phase I Premises by the Commencement Date, or possession of the Phase II
Premises by the Phase II Delivery Date, Sublessor shall not be subject to any
liability therefore, nor shall such failure

                                       1.
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affect the validity of this Sublease or the obligations of Sublessee hereunder
or extend the term hereof, but in such case Sublessee shall not be obligated to
pay rent until possession of the applicable portion of the Premises is tendered
to Sublessee; provided, however, that if Sublessor shall not have delivered
possession of the Premises within ninety (90) days after either the Commencement
Date or the Phase II Delivery Date, as applicable, Sublessee may, at Sublessee's
option, by notice in writing to Sublessor within ten (10) days thereafter,
cancel this Sublease, in which event the parties shall be discharged from all
obligations hereunder. Notwithstanding the foregoing, Sublessee's cancellation
of this Sublease as to the Phase II Premises shall not terminate this Sublease
as to the Phase I Premises.

              (2) The Premises shall be delivered by Sublessor subject to all
applicable zoning, municipal, county and state laws, ordinances and regulations
governing and regulating the use of the Premises, and Sublessee accepts the
Premises subject thereto.  Sublessee shall accept the Premises in "as-is"
condition.  Sublessor has made no representation or warranty as to the condition
of the Premises, their compliance with existing federal, state or local laws,
ordinances or regulations (including without limitation the Americans with
Disabilities Act), or the suitability of the Premises for the conduct of
Sublessee's business.  Sublessor shall have no obligation to improve, restore,
repair, paint or clean the Premises.  At the request of Sublessee, Sublessor
shall deliver to Sublessee a copy of the closure report from the City of South
San Francisco if such report has been received by Sublessor.

          (c) Early Possession.

              (1) In the event Sublessee, with Sublessor's consent, takes
possession prior to the Commencement Date, such occupancy shall be subject to
all the provisions of this Sublease except for the payment of rent due
hereunder. Sublessee's early possession shall not advance the termination date
of this Sublease.

              (2) In the event the Phase II Premises become available prior to
April 1, 1998, Sublessor may offer the Phase II Premises to Sublessee, and if
such earlier date is on or after February 1, 1998, and Sublessee has received
not less than three weeks prior written notice of the date such possession will
be delivered, Sublessee shall accept possession of the Phase II Premises on such
earlier date. If such date is earlier than February l, 1998, Sublessee shall
have the right but not the obligation to accept possession of the Premises on
such earlier date. The Phase II Delivery Date shall be the date the Premises are
delivered to Sublessee in accordance with this Subsection 2c(2).

              (3) Without limitation of any other provision of this Sublease,
failure of Sublessee to occupy the Phase II Premises on the Phase II Delivery
Date shall constitute a default under this Sublease.

     3.   Rent.

          (a) Base Rent. Sublessee shall pay to Sublessor without deduction, set
off, prior notice or demand, as rent for the Premises, monthly rent ("Base
Rent") as set forth in the rent schedule below. Sublessee shall pay Sublessor
upon the execution hereof the sum of Sixty

                                       2.
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Thousand Two Hundred Forty Dollars ($60,240.00) as rent for the first full
calendar month after the Phase II Delivery Date.

              (1) From the Commencement Date until the Phase II Delivery Date,
Sublessee shall pay to Sublessor the sum of $16,144.90 per month, prorated for
any partial month.

              (2) From and after the Phase II Delivery Date, Sublessee shall pay
to Sublessor Base Rent as follows:

                                 Rent Schedule
     Time Period                                    Base Rent Per Month
     -----------------------------------------    ------------------------
     Phase II Delivery Date to 9/30/98 *                   $60,240
     10/01/98 to 7/31/00                                   $61,660
     8/01/00 to 7/31/01                                    $63,200
     8/01/01 to 7/31/02                                    $65,000
     8/01/02 to 12/31/02                                   $72,238
     1/01/03 to 7/31/03                                    $75,210
     8/01/03 to 7/31/04                                    $76,845
     8/01/04 to 7/15/05 **                                 $78,480

     *prorated if Phase II Delivery Date is not the 1st day of the month

     **prorated during last month

         (b) Operating Expenses. Sublessee shall pay as additional rent the
amounts for which Sublessor is liable to Master Lessor pursuant to Section 6
(Operating Expenses) of the Master Lease, together with other expenses of the
Premises for which Sublessor is responsible (excluding any late charges or
penalties not caused by Sublessee), including without limitation utilities,
trash removal, phone, water, sewer, security, access and fire control systems
(maintenance and lease payments). When incorporated into this Sublease,
references to "Landlord" in Sections 6.b. and 6.c. of the Master Lease shall be
deemed to include Master Lessor and/or Sublessor. With respect to Section 6.e.
as incorporated into this Sublease, Sublessor shall have fifteen (15) days
following receipt of Master Lessor's annual reconciliation within which to
provide Sublessor's reconciliation to Sublessee. Notwithstanding the foregoing,
until the Phase II Delivery Date, Sublessee shall only be liable for 29% of the
Operating Expenses and other expenses, that being the percentage allocable to
the Initial Premises. Following the Phase II Delivery Date, Sublessee shall be
liable for all Operating Expenses and

                                       3.
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other expenses allocable to the Premises. Sublessee's obligation to pay its
share of Operating Expenses shall be prorated annually based on actual days.

     4.  Security Deposit. Sublessee shall deposit with Sublessor upon execution
hereof the sum of Seventy Five Thousand Dollars ($75,000.00) as security for
Sublessee's faithful performance of Sublessee's obligations hereunder. Sublessee
hereby grants Sublessor a security interest in the Security Deposit to secure
performance of Sublessee's obligations hereunder. If Sublessee defaults with
respect to any provision of this Sublease, Sublessor may use, apply or retain
all or any part of the Security Deposit for the payment of any Rent or other sum
in default, for the payment of any amount which Sublessor may expend or become
obligated to expend by reason of Sublessee's default, or to compensate Sublessor
for any loss or damage which Sublessor may suffer by reason of Sublessee's
default. Sublessor shall have no obligation to apply the Security Deposit in
such manner and may exercise any right or remedy available under this Sublease
or at law or in equity with or without resort to the Security Deposit. The
Security Deposit does not constitute prepayment of the last month's rent (or any
other). If any portion of the Security Deposit is used or applied, Sublessee
shall deposit with Sublessor, within ten (10) days after written demand
therefor, cash in an amount sufficient to restore the Security Deposit to its
original amount. Sublessor shall not be required to keep the Security Deposit
separate from its general funds. The Security Deposit, or such much of it as may
remain, shall be returned, without interest, to Sublessee within thirty (30)
days after expiration of the term hereof. If any bankruptcy, insolvency,
reorganization, receivership or other similar proceedings shall be instituted by
or against Sublessee, the Security Deposit shall be applied first to the payment
of rent and additional charges due to Sublessor for the period prior to the
institution of such proceedings, and any balance of the Security Deposit may
thereafter be retained and held by Sublessor in accordance with the terms of
this section.

     5.  Use. The Premises shall be used and occupied only for laboratory,
research and development, wet chemistry, biological laboratories, related
offices and uses which are ancillary thereto, and which are consistent with the
requirements and limitations set forth in the Master Lease, and for no other
purpose without the prior written consent of Sublessor and Master Lessor.
Sublessor agrees not to unreasonably withhold, delay or condition its consent to
any such requested change.

     6.  Master Lease.

         (a) Sublease Is Subordinate to Master Lease. This Sublease is subject
and subordinate to the Master Lease. Sublessee represents and warrants to
Sublessor that it has read and is familiar with the terms and conditions of the
Master Lease. Sublessee shall not commit or permit to be committed on the
Premises any act or omission which shall violate any term or condition of the
Master Lease. If the Master Lease terminates, this Sublease shall terminate.
Sublessor shall have no liability to Sublessee if the Master Lease terminates
without fault of Sublessor.

         (b) Application of Master Lease Provisions. Except as otherwise
expressly provided in this Sublease, Sublessee shall assume and perform the
obligations of Sublessor as Lessee under the Master Lease. Therefore, except as
otherwise provided, for the purpose of this Sublease, wherever in the Master
Lease "Landlord" is used, it shall be deemed to mean

                                       4.
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Sublessor, and wherever in the Master Lease "Tenant" is used, it shall be deemed
to mean Sublessee, and wherever in the Master Lease "Lease" is used, it shall be
deemed to mean this Sublease.

         (c) Incorporation of Master Lease Provisions.

             (1) All of the terms and conditions in the Master Lease are
incorporated herein except for: Basic Lease Provisions; 1 (Premises); 3 (Term);
5 (Base Rent); 8 (Tenant Improvements); 9.a. and 9.e. (Use of Premises); 10.c.
(Ownership of Alterations) 11.b. (Landlord's Ongoing Obligations); 11.c.
(Landlord's Delivery Obligations); 12 (Damage or Destruction); 13 (Eminent
Domain); 14.c. (Casualty Insurance); 15.e. (Payment on Sublet); 18 (Security
Deposit); 19 (Acceptance of Premises); 20 (Holding Over); 36 (Notices); 39.h.
(Entire Agreement); and Schedule A; Exhibit D (Construction Rider); and Exhibit
E (Memorandum).

             (2) Except as otherwise provided herein, Sublessor is responsible
for all financial obligations of the tenant under the Master Lease. Whenever any
provision of the Master Lease has not been incorporated herein, except as
otherwise provided, any provision of the Addendum which pertains to a provision
of the Master Lease which has not been incorporated herein, shall not be
incorporated herein. In addition, Master Lease Addendum Section 25 (stated to
pertain to Section 14.b., but really pertaining to Section 14.c.), Master Lease
Addendum Section 42 (pertaining to Master Lease Section 34) and Master Lease
Addendum Section 46 (pertaining to options to extend) shall not be incorporated
into this Sublease.

         (d) Indemnity. Without in any way limiting Sublessee's assumption of
the indemnity set forth in the Master Lease, Sublessee hereby agrees to defend,
indemnify and hold Sublessor and Master Lessor harmless from and against any and
all losses, liabilities, causes of action, judgments, costs, damages, expenses,
claims or demands, including reasonable attorney's fees, arising out of
Sublessee's failure to comply with or perform Sublessee's obligations under this
Sublease.

         (e) Master Lease in Effect.  Sublessor represents to Sublessee that the
Master Lease is in full force and effect and that, to Sublessor's knowledge, no
default exists on the part of any party to the Master Lease.  Subject to the
terms and provisions of this Sublease, Sublessor agrees to keep the Master Lease
in full force and effect during the term of this Sublease, subject, however, to
any earlier termination of the Master Lease without the default of Sublessor.

          (f) Default. Any act or omission by Sublessee which would constitute a
breach or default by Sublessor under Section 16 of the Master Lease shall
constitute a default on the part of Sublessee hereunder. In the event of any
breach or default by Sublessee hereunder or under the Master Lease, Sublessor
shall have all of the rights and remedies afforded Master Lessor under the
Master Lease, and in addition Sublessor shall have the right, but without any
obligation to do so, to cure any such breach or default by Sublessee, with
Sublessee to be obligated to reimburse Sublessor immediately upon demand for all
costs which Sublessor may incur in effecting the cure of such breach or default.

                                       5.
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     7.   Alterations.  Notwithstanding the provisions of Section 10.a. of the
Master Lease, any alteration which requires Master Lessor's approval pursuant
to the Master Lease shall not be commenced by Sublessee unless and until such
consent is obtained.  Any alteration made by Sublessee shall become a part of
the Premises, and at Sublessor's election, shall be surrendered to Sublessor at
the end of the Sublease term.  Notwithstanding the foregoing, except as
otherwise provided in the Master Lease, any alteration made by Sublessee shall
remain Sublessee's property throughout the Sublease term.  In the event
Sublessor is (or becomes) obligated under the Master Lease to remove any of
Sublessee's alterations, Sublessee shall be obligated to remove same at
Sublessee's sole cost and expense and to restore the Premises to its condition
prior to the alteration.  Sublessee shall (i) pay to Sublessor, or at direction
of Sublessor, directly to Master Lessor, an amount equal to one percent (1%) of
the total cost of the alterations (and for purposes of calculating the total
costs, such cost shall include architectural and engineering fees but shall not
include permit fees) as compensation to Master Lessor for miscellaneous costs
and time incurred by Master Lessor in connection with the alterations, and (ii)
reimburse Master Lessor any reasonable amounts it pays to architect, engineers
or other consultants in connection with reviewing such alterations.  Such
amounts shall be paid in advance of, or during or upon completion of the
alterations, as Master Lessor shall determine and Sublessee shall submit such
evidence of the cost of the alterations as master Lessor may reasonably require.

     8.   Repairs.  Pursuant to Section 11.b. of the Master Lease, Master Lessor
is responsible to repair and maintain the roof, exterior walls, foundation and
HVAC system (including distribution ducts) (provided that the cost of
maintaining, repairing and replacing the HVAC system shall be included in
Operating Expenses, pursuant to the terms of Section 6 of the Master Lease),
unexposed portions of the building plumbing and electrical systems (except to
the extent installed or modified by Sublessor or Sublessee), the Common Areas,
and structural portions of the Building.  Master Lessor also has the obligation
to repair certain categories of items as provided in Section 17 of the Addendum
to the Master Lease.  Sublessor's sole obligation to Sublessee shall be to
request performance of such obligations by Master Lessor.  In the event Master
Lessor breaches its obligations, Sublessor will assign to Sublessee its right to
enforce such obligation and shall otherwise cooperate with Sublessee in
connection therewith, provided, however, Sublessee, at its sole cost and
expense, shall be responsible for enforcement thereof without reimbursement from
Sublessor.  Sublessee, not Master Lessor, shall be responsible for the repair of
the roof and structural portions of the Building to the extent the need for
maintenance or repair is caused in whole or in part by the act, neglect, fault
or omission of any duty of Sublessee, its agents, servants, contractors,
subcontractors, employees or invitees, in which case Sublessee shall pay to
Sublessor the cost of the maintenance and repairs caused in whole or in part by
Sublessee (except (i) to the extent the damage is covered by any insurance
maintained by Master Lessor, or, (ii) if Master Lessor fails to maintain the
insurance required to be maintained by Master Lessor pursuant to the terms of
the Master Lease, to the extent the damage would have been covered by insurance,
if Master Lessor had maintained the required insurance).  There shall be no
abatement of rent and no liability of Master Lessor or Sublessor by reason of
any injury to or interference with Sublessee's business arising from the making
of any repairs, alterations or improvements in or to the fixtures, appurtenances
and equipment therein, provided that Sublessor shall request Master Lessor to
use reasonable efforts to minimize the interruption of Sublessee's use and
occupancy of the Premises in connection with its performance of the repairs and
maintenance (although nothing contained herein shall be deemed

                                       6.
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to obligate Master Lessor to pay any overtime costs in order to minimize such
interference, or otherwise to perform the repairs or maintenance during hours
other than normal business hours).

     9.   Insurance.

          (a) Property Insurance. Sublessee shall, at its sole cost and'
expense, obtain and maintain in force a policy or policies of fire and property
damage insurance providing protection against those perils included within the
classification of "all risk" insurance from an insurance company or companies
reasonably satisfactory to Sublessor and Master Lessor and in a form reasonably
satisfactory to Sublessor and Master Lessor insuring the Tenant Improvements (as
defined in the Master Lease) and all other improvements, in an amount equal to
the full replacement cost thereof (which amount shall be subject to Sublessor's
and Master Lessor's approval). The insurance policy or policies shall name
Master Lessor and Sublessor and the lenders of either of them, if any, as
additional insureds and shall provide that the policy or policies may not be
canceled on less than thirty (30) days prior written notice to Master Lessor,
Sublessor and the lenders of either of them. If Sublessee fails to carry the
insurance or to furnish Sublessor with copies of all the policies after a
request to do so, Sublessor shall have the right to obtain the insurance and
collect the costs thereof from Sublessee as additional rent.

          (b) Liability Insurance. In addition to the above referenced
insurance, Sublessee shall maintain liability insurance coverage as required by
Section 14 of the Master Lease which has been incorporated into this Sublease by
reference. Each policy of insurance which Sublessee is required to maintain
pursuant to this Lease shall name both Sublessor and Master Lessor as additional
insureds (including cross-liability endorsements). Sublessee's insurance
coverage shall be primary and non-contributory as respects any insurance
maintained by Sublessor and/or Master Lessor. Sublessee shall deliver evidence
of the coverage required hereunder (i) within seven (7) days after execution and
delivery of this Sublease by Sublessor and Sublessee, and (ii) within ten (10)
days of the renewal date for each policy of insurance required hereunder.

          (c) Master Lessor Insurance. Pursuant to the terms of the Master Lease
as provided in Section 25 of the Addendum thereto, Master Lessor is obligated to
maintain certain insurance coverage with respect to certain perils and to
maintain a certain level of liability coverage. Sublessor's sole obligation to
Sublessee with respect to Master Lessor's obligations pursuant to said Section
25 shall be to request performance of such obligations by Master Lessor. In the
event Master Lessor breaches its obligations, Sublessor will assign to Sublessee
its right to enforce such obligation and shall otherwise cooperate with
Sublessee in connection therewith, provided, however, Sublessee, at its sole
cost and expense, shall be responsible for enforcement thereof without
reimbursement from Sublessor.

          (d) Evidence of Insurance. Upon the Commencement Date (or upon the
date of early possession if early possession is granted hereunder), Sublessee
shall deliver to Sublessor and Master Lessor certificates of insurance showing
that Sublessee has the insurance required hereunder.

                                       7.
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     10.  Damage or Destruction.

          (a) Master Lessor Has Obligation to Restore. If the Premises are
damaged or destroyed, Master Lessor has the obligation pursuant to Section 12 of
the Master Lease to promptly and diligently repair the Premises, unless Master
Lessor has the right to terminate. If Master Lessor fails to perform its
obligations pursuant to Section 12 of the Master Lease, Sublessor's sole
obligation to Sublessee shall be to request performance of such obligations by
Master Lessor. In the event Master Lessor breaches its obligations, Sublessor
will assign to Sublessee its right to enforce such obligation, provided,
however, Sublessee, at its sole cost and expense, shall be responsible for
enforcement thereof without reimbursement from Sublessor.

          (b) Termination of Master Lease. If the Master Lease terminates
pursuant to Section 12 of the Master Lease, this Sublease shall terminate
concurrently with the termination of the Master Lease.

          (c) Sublessee Notice; Right to Terminate.  In the event that Sublessor
receives notice from Master Lessor pursuant to Section 12 of the Master Lease of
Master Lessor's determination that repair of the Premises or the Building cannot
be completed within two hundred seventy (270) days after a casualty, Sublessor
shall so notify Sublessee in writing and shall request Sublessee to notify it
whether Sublessee agrees to continue this Sublease in effect.  Within twenty
(20) days following written request from Sublessor, Sublessee shall give notice
to Sublessor in writing whether Sublessee agrees to continue this Sublease in
effect if Master Lessor reasonably determines that the repair of the Premises or
the Building cannot be completed within two hundred seventy (270) days after the
casualty.  If Sublessee does not so agree to continue this Sublease in effect,
then Sublessor may elect to terminate the Master Lease and this Sublease.  If
Sublessee agrees to continue this Sublease in effect as aforesaid, then
Sublessor shall have no right to exercise its right to terminate the Master
Lease or this Sublease.  If (i) Master Lessor reasonably determines that the
repair of the Premises or the Building cannot be completed within two hundred
seventy (270) days after the casualty, (ii) neither Master Lessor nor Sublessor
have elected to terminate the Master Lease, and (iii) Sublessee agrees to
continue this Sublease in effect notwithstanding the time to reconstruct, then
this Sublease shall continue in effect, and Sublessee shall fulfill all of the
obligations of Sublessor pursuant to the provisions of Section 12 of the Master
Lease.

          (d) Limited Obligation to Repair.  Master Lessor's obligation, should
Master Lessor elect or be obligated to repair or rebuild, shall be limited to
replacing/restoring the Building shell and Building systems so that the Building
shell and Building systems as repaired and restored are comparable (in scope of
improvements) to the Building shell and Building systems which were in existence
on the Master Lease Commencement Date.  Master Lessor shall have no obligation
to replace or restore the Tenant Improvements or any other alterations installed
by Sublessor or Sublessee.  If this Sublease has not been terminated, Sublessee
shall be obligated to (i) with respect to those portions of the Premises which
are damaged and were built out for office use as of the Master Lease
Commencement Date, either: (A) promptly build-out those portions with new tenant
improvements approved by Master Lessor and Sublessor in accordance with Exhibit
D to the Master Lease, and spend an amount equal to or greater than the Building
Standard Improvements Allowance (defined below) on the build-out; (B) promptly
build-out-those portions with new tenant improvements approved by Master Lessor
and

                                       8.
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Sublessor in accordance with Exhibit D and spend an amount less than the
Building Standard Improvement Allowance (in which case promptly upon completion
of the Tenant Improvements, Sublessee shall pay to Sublessor the difference
between the amount spent by Sublessee for new tenant improvements and the
Building Standard Improvements Allowance); or (C) pay to Sublessor an amount
equal to the Building Standard Improvements Allowance multiplied by the rentable
square footage of the office space so affected; and (ii) with respect to those
portions of the Premises which are damaged, but were not built out for office
use as of the Master Lease Commencement Date, either: (A) promptly construct new
tenant improvements approved by Master Lessor and Sublessor in accordance with
Exhibit D in the space so affected (and expend no less than the Tenant
Improvement Allowance for the improvements); (B) promptly construct new tenant
improvements approved by Master Lessor and Sublessor in accordance with Exhibit
D in the space so affected, expending less than the Tenant Improvement Allowance
(in which case Tenant shall pay to Sublessor the difference between the amount
expended and the Tenant Improvement Allowance promptly upon completion of the
construction); or (C) pay to Sublessor an amount equal to the Tenant Improvement
Allowance applicable to the affected space. Any payment by Tenant to Sublessor
in accordance with subsections (i) (C) or (ii) (C) of the preceding sentence
must be made upon the earlier of ten (10) days following Sublessee's receipt of
insurance proceeds thereof, or ninety (90) days after the occurrence of the
damage or destruction, or Sublessee shall be deemed to have elected to restore
and rebuild the portions of the Premises which were damaged. As used herein, the
term "Building Standard Improvements Allowance" shall have the meaning set forth
in Section 12.c. of the Master Lease. Sublessee shall at its sole cost and
expense restore all improvements made by Sublessee.

          (e) Abatement of Rent. Rent under this Sublease shall abate to the
same extent as the rent owing by Sublessor under the Master Lease abates.

          (f) Damage Near End of Term.  In addition to the rights to terminate
specified in Section 10.c. of this Sublease, either Sublessor or Sublessee
shall have the right to cancel and terminate this Sublease as of the date of the
occurrence of destruction or damage if the Premises or the Building is
substantially destroyed or damaged (i.e., there is damage or destruction which
Landlord determines would require more than four (4) months to repair) and made
untenantable during the last twelve (12) months of the term of the Master Lease.
Sublessor and Sublessee shall give notice of their election to terminate this
Sublease under this subsection f.  within thirty (30) days after Master Lessor
or Sublessor determines that the damage or destruction would require more than
four (4) months to repair.  If either Master Lessor or Sublessor elect to
terminate the Master Lease pursuant to Section 12.e. of the Master Lease, this
Sublease shall terminate concurrently with the termination of the Master Lease.
If neither Master Lessor nor Sublessor terminates the Master Lease and if either
Sublessor or Sublessee elects to terminate this Sublease, the repair of the
damage shall be governed by Sections 12.c. or 12.e. of the Master Lease, as the
case may be.

          (g) Insurance Proceeds. If this Sublease is terminated, Master Lessor
and Sublessor may each keep all their respective insurance proceeds resulting
from the damage except for those proceeds, if any, which specifically insure
Sublessee's personal property and trade fixtures which Sublessee has a right .or
obligation to remove upon the expiration of the Sublease term. Sublessor shall
be entitled to receive from Sublessee the proceeds of insurance carried by
Sublessee with respect to Tenant Improvements or other alterations installed in
the

                                       9.
<PAGE>

Premises by Sublessor or at Sublessor's expense. To the extent that Sublessee
has paid for any alterations regardless of whether the alterations may become
the property of Sublessor upon termination of this Sublease, Sublessee shall
receive any portion of the insurance proceeds payable with respect to the then
unamortized cost (based on an 8-year, straight line, amortization schedule) for
the applicable alterations, reduced by the amounts necessary to pay off any
equipment lease or other lien against the applicable alteration, and the balance
of the proceeds, if any, will be payable to Sublessor. With respect to those
alterations which Sublessee is obligated to remove at the end of the Sublease
term which are the property of Sublessee, all proceeds shall be paid to
Sublessee.

          (h) Uninsured Casualty. If the Master Lease terminates pursuant to the
provisions of Section 12.g. of the Master Lease, this Sublease shall terminate.
Sublessor shall have no obligation to deposit funds with Master Lessor pursuant
to said Section 12.g.; provided, however, if Sublessor and Sublessee have so
agreed that Sublessee will provide the funds for deposit with Master Lessor in
that amount which Sublessor is permitted to contribute to repairs in order to
keep the Master Lease from terminating pursuant to Section 12.g., then upon
Sublessee providing such funds, this Sublease shall continue in effect.

     11.  Eminent Domain.  If all or any part of the Premises is taken for
public or quasi-public use by a governmental authority under the power of
eminent domain or is conveyed to a governmental authority in lieu of such
taking, and if the taking or conveyance causes the remaining part of the
Premises to be untenantable and inadequate for use by Sublessee for the purpose
for which they were leased, then Sublessee, at its option and by giving notice
within fifteen (15) days after the taking, may terminate this Sublease as of the
date Sublessee is required to surrender possession of the Premises.  If a part
of the Premises is taken or conveyed but the remaining part is tenantable and
adequate for Sublessee's use, then this Sublease shall be terminated as to the
part taken or conveyed as of the date Sublessee surrenders possession; Master
Lessor is obligated, at no cost or expenses to Sublessor or Sublessee, to
restore the Premises (other than any Tenant Improvements) to a complete
architectural unit of a design comparable to the design of the Premises (other
than any Tenant Improvements or alterations) immediately prior to the
condemnation, and the rent shall be reduced based on any decrease in use to
Sublessee of the Premises.  All compensation awarded for the taking or
conveyance shall be the property of Master Lessor and Sublessor, as their
interests may appear, and Sublessee hereby assigns to Sublessor all its right,
title and interest in and to the award, unless the governmental authority makes
only one (1) award, and the award contains compensation for the value of moving
expenses, Sublessee's personal property, trade fixtures and alterations, in
which case, subject to the rights of any mortgagee or beneficiary of a deed of
trust holding a lien, Sublessee shall be entitled to the compensation paid for
Sublessee's moving expenses, trade fixtures, personal property and the portion
of the award attributable to the then unamortized cost of alterations and
improvements constructed at Sublessee's expense (which are to be amortized on a
straight line basis over the term of this Sublease).  Sublessee shall have the
right, however, to recover from the governmental authority, but not from
Sublessor or Master Lessor, except as provided in the preceding sentence, such
compensation as may be awarded to Sublessee on account of the interruption of
Sublessee's business, moving and relocation expenses and removal of Sublessee's
trade fixtures and personal properly.

                                      10.
<PAGE>

     12.  Assignment and Subletting.  Sublessee shall obtain the consent and
approval of Sublessor and Master Lessor pursuant to Section 15 of the Master
Lease prior to any further sublease or assignment of this Sublease.
Notwithstanding any provision of this Sublease to the contrary, if Sublessor
consents to a sublease or assignment, Sublessee shall pay to Sublessor on a
monthly basis as additional Rent, on the date Base Rent is due, an amount equal
to fifty percent (50%) of the amount by which the rent payable to Sublessee
("Subrent") under the sublease or assignment exceeds the rent due for the
applicable portion of the Premises after deducting from the Subrent (A) the
reasonable out-of-pocket costs incurred by Sublessee for brokerage commissions
and tenant concessions (which concessions are not reflected in the reduced
Subrent), and (B) the costs of any additional improvements constructed by
Sublessee in connection with the sublease or assignment (amortized on a straight
line basis over the term of the sublease).  Sublessor shall not unreasonably
withhold, delay, or condition such consent.

     13.  Access to Premises.  Master Lessor shall have the same right of access
to the Premises as Sublessor.

     14.  Surrender at End of Term.  Sublessee shall surrender the Premises to
Sublessor in the same condition received, broom clean, except for any
alterations Sublessee is not required to remove, normal wear and tear, acts of
God, damage, destruction (except to the extent Sublessee is obligated to restore
the same under Section 10 of this Sublease) and eminent domain covered by the
provisions of this Sublease.  Sublessee shall remove from the Premises all of
Sublessee's personal property and trade fixtures and any alterations and
improvements Sublessee is required to remove, and shall repair all damage caused
by the removal.  Sublessee shall obtain and deliver to Sublessor a closure
certificate if required by the City of South San Francisco.  Sublessee shall
indemnify Sublessor against all loss or liability resulting from delay by
Sublessee in so surrendering the Premises, including without limitation, any
claims made by any succeeding tenant, losses to Sublessor due to lost
opportunities to lease to a succeeding tenant, and attorneys' fees and costs.

     15.  Signs.  Master Lessor shall have the same approval rights with respect
to signs as Sublessor.

     16.  Holding Over.  This Sublease shall terminate without further notice at
the expiration of the Sublease term.  Any holding over by Sublessee after the
expiration or sooner termination of this Sublease without the consent of
Sublessor shall be construed to be a tenancy at sufferance.  Rent for the
Premises during any tenancy at sufferance, or if Sublessor shall have consented
to Sublessee's holding over, shall be at a rate equal to 150% of the Base Rent
for the last month of the term, and shall otherwise be on the terms and
conditions herein specified insofar as applicable, including, without
limitation, those providing for additional rent.

     17.  Brokers.  For the purposes of Section 29 of the Master Lease as
incorporated into this Sublease, Cornish & Cary Commercial-Oncor International
is the only broker to whom a Commission is owing, which commission shall be paid
by Fibrogen, Inc.

     18.  Notices.  All notices or demands of any kind required to be given by
Sublessor or Sublessee hereunder shall be in writing and shall be delivered
personally or sent by registered or certified mail, return receipt requested, to
Sublessor or Sublessee, respectively, at the following

                                      11.
<PAGE>

addresses, or at such other address as such party shall designate by written
notice to the other party. Such addresses are:

     Sublessor:

     180 Kimball Way
     South San Francisco, CA 94080
     Attention: Chief Financial Officer

     Sublessee:

     260 Littlefield Road
     South San Francisco, CA 94080
     Attention: Mr. Remi Barbier

Personal delivery may be accomplished by means of commercial "overnight" or
"express" delivery services.  Notices shall be deemed delivered upon receipt or
refusal to accept delivery.  All rent and other payments due under this Sublease
or the Master Lease shall be made by Sublessee to Sublessor at the above
address.

     19.  Attorneys' Fees.  Without in any way limiting the provisions of
Section 28 of the Master Lease, if there is any legal action or proceeding
between Sublessor and Sublessee to enforce any provision of this Sublease, or to
protect or to establish any right or remedy of either party hereunder, the
prevailing party in such action or proceeding shall be entitled to recover from
the other party all costs and expenses, including reasonable attorneys' fees and
expert witness fees incurred by such prevailing party in connection with any
such action or any appeal in connection therewith.

     20.  Consent of Master Lessor.  This Sublease is contingent upon Sublessor
obtaining the consent of Master Lessor.  Sublessee shall pay all costs and
expenses payable by Sublessor to Master Lessor or Simeon Commercial Properties
pursuant to Paragraph 8 of the Consent to Sublease and Agreement executed by
Master Lessor, Sublessor and Sublessee, up to a maximum amount of $5,000.

                                      12.
<PAGE>

     In Witness Whereof, the undersigned have executed this Sublease as of the
dates set forth below.

Sublessor:

Arris Pharmaceutical Corporation,
a Delaware corporation

By: /s/ Fred Ruegsegger                 Date:      July 6, 1997
   --------------------------------          ----------------------------------

Its: VP + CFO
    -------------------------------

Sublessee:

Exelixis Pharmaceuticals, Inc.,
a Delaware corporation

By: /s/  Remi Barbier                   Date:     July 6, 1997
   --------------------------------          -----------------------------------

Its:    Chief Operating Officer
    -------------------------------

Landlord:

Utah Partners Limited a California Limited Partnership, by Simeon Commercial
Properties, A California Corporation, General Partner

By: /s/ Curt B. Setzer                  Date:     July 6, 1997
   --------------------------------          ----------------------------------

Its:   VP
    -------------------------------
                                     13.<PAGE>

                                                                   EXHIBIT 10.11

     THIS BUILD-TO-SUIT LEASE ("Lease") is made and entered into as of May ___,
1999, by and between BRITANNIA POINTE GRAND LIMITED PARTNERSHIP, a Delaware
limited partnership ("Landlord"), and EXELIXIS PHARMACEUTICALS, INC., a Delaware
corporation ("Tenant").

     THE PARTIES AGREE AS FOLLOWS:

1.   PROPERTY
     --------

     1.1  Lease of Buildings and Property.
          --------------------------------

          (a) Landlord leases to Tenant and Tenant hires and leases from
Landlord, on the terms, covenants and conditions hereinafter set forth, (i) the
building ("Building 1") to be constructed pursuant to Article 5 hereof and
Exhibit C attached hereto on the real property described as the Phase 1 Property
in Exhibit A attached hereto and designated as the Phase 1 Property in Exhibit B
attached hereto (the "Phase 1 Property"), and (ii) at Tenant's option (as
hereinafter set forth), the building ("Building 2") to be constructed pursuant
to Article 5 hereof and Exhibit C attached hereto on either the real property
described as the Phase 2-A Property in Exhibit A attached hereto and designated
as the Phase 2-A Property in Exhibit B attached hereto (the "Phase 2-A
Property") or the real property described as the Phase 2-B Property in Exhibit A
attached hereto and designated as the Phase 2-B Property in Exhibit B attached
hereto (the "Phase 2-B Property"). Building 1 and Building 2 are sometimes
hereinafter collectively called the "Buildings" (although such term shall
generally be construed to include Building 2 only if Tenant exercises its option
under Section 1.1(c)(ii) or (iii), as applicable, unless the context clearly or
reasonably requires otherwise); the Phase 2-A and Phase 2-B Properties are
sometimes hereinafter collectively called the "Phase 2 Properties," and the one
of those two properties on which Building 2 is actually constructed (if Tenant
exercises its option under Section 1.1(c)(ii) or (iii), as applicable) is
sometimes hereinafter called the "Phase 2 Property"; and the Phase 1 Property
and the Phase 2-A and/or Phase 2-B Properties, as applicable, are sometimes
hereinafter collectively called the "Property" or the "Properties," as the
context may require. Building 1 shall consist of a three (3) story office and
laboratory building containing approximately 70,000 square feet. Building 2 is
presently intended to consist of a two (2) story office and laboratory building
containing approximately 45,000 square feet, but the size and configuration of
Building 2 cannot be finally determined until the site for Building 2 is finally
identified. The location of the Phase 1, Phase 2-A and Phase 2-B Properties is,
and the location of the proposed Buildings on those respective Properties (to
the extent presently known or contemplated) is intended to be, substantially as
shown on the site plan attached hereto as Exhibit B (the "Site Plan"). The
Properties are located on Harbor Way in the City of South San Francisco, County
of San Mateo, State of California, adjacent to and across the street from the
Britannia Pointe Grand Business Park (which is also owned and operated by
Landlord) on East Grand Avenue and Harbor Way. The Buildings and the other
improvements to be constructed on the applicable Properties pursuant to Article
5 hereof and Exhibit C attached hereto are sometimes referred to collectively
herein as the "Improvements." The parking areas, driveways, sidewalks,
landscaped areas and other portions of the Properties that lie outside the
exterior walls of the Buildings to be constructed on the Properties, as depicted
in the Site Plan and as hereafter modified by Landlord from time to time in
accordance with the provisions of this Lease, are sometimes referred to herein
as the "Common Areas"; provided, however, that the term "Common Areas" shall
also include the parking areas, driveways, sidewalks, landscaped areas and other
portions of the remainder of the Britannia Pointe Grand Business Park that lie
outside the exterior walls of the other buildings existing from time to time in
the Britannia Pointe Grand Business Park.

          (b) As an appurtenance to Tenant's leasing of the Buildings pursuant
to Section 1.1(a), Landlord hereby grants to Tenant, for the benefit of Tenant
and its employees, suppliers, shippers, customers and invitees, during the term
of this Lease, the non-exclusive right to use, in common with others entitled to
such use, (i) those portions of the Common Areas improved from time to time for
use as parking areas, driveways, sidewalks, landscaped areas, or for other
common purposes, and (ii) all access easements and similar rights and privileges
relating to or appurtenant to the Property and created or existing from time to
time under any access easement agreements, declarations of covenants, conditions
and restrictions, or other written agreements now or hereafter of record with
respect to the Property, subject however to

                                       1
<PAGE>

any limitations applicable to such rights and privileges under applicable law,
under this Lease and/or under the written agreements creating such rights and
privileges.

     (c) The parties acknowledge that as of the date of this Lease, Landlord
does not own either of the Phase 2 Properties.  Landlord agrees to use its best
efforts (including a willingness to pay the fair market value of the respective
Phase 2 Properties, as such value may exist from time to time) to Acquire the
Phase 2 Properties, either by private negotiation or by invoking condemnation or
other assistance from the City of South San Francisco, within a time frame
consistent with the time frame contemplated in this Lease for the construction
of Building 2 for occupancy by Tenant under this Lease.  If Landlord, despite
the exercise of such best efforts, is delayed in its Acquisition of either or
both of the Phase 2 Properties or is ultimately unable to Acquire either or both
of the Phase 2 Properties, Landlord shall not be liable for any damages caused
by such delay or inability, nor shall any such delay or inability affect the
validity of this Lease or the obligations of Landlord and Tenant hereunder with
respect to the Phase 1 Property and Building 1.  If Landlord is able to Acquire
one or both of the Phase 2 Properties, then the procedure for identifying the
site of Building 2 and determining the parties' rights and obligations with
respect thereto shall be as follows:

         (i)  The parties mutually acknowledge that their first preference for a
site for Building 2 is the Phase 2-A Property, that their second preference for
a site for Building 2 is the Phase 2-B Property, and that the MetaXen Building
Option provided in Section 1.3 hereof with respect to the MetaXen Space is
intended primarily as a possible solution for Tenant's space needs in the
unlikely event that Landlord's efforts to Acquire the Phase 2 Properties are
unsuccessful as to both of the Phase 2 Properties.  Landlord agrees to keep
Tenant informed, on a regular basis (and promptly following any material change
in circumstances), regarding Landlord's efforts to Acquire the Phase 2-A
Property and the Phase 2-B Property and regarding the availability of the
MetaXen Space.

         (ii) If Landlord Acquires the Phase 2-A Property, then Landlord shall
promptly give Tenant written notice thereof (the "Phase 2-A Acquisition Notice")
and Tenant shall have an option (the "Phase 2-A Option"), during the period
extending from the date Tenant receives the Phase 2-A Acquisition Notice until
the date three (3) months thereafter (the "Phase 2-A Option Period"), to elect
to have Building 2 constructed on the Phase 2-A Property.  The Phase 2-A Option
shall be conditional upon Landlord's Acquisition of the Phase 2-A Property,
shall not apply during any period in which Tenant is in default, beyond any
applicable cure period, under this Lease and shall be exercisable only by
written notice from Tenant to Landlord prior to 5:00 p.m. local time in Oakland,
California on the last day of the Phase 2-A Option Period.  During the Phase 2-A
Option Period, Landlord and Tenant shall negotiate, diligently and in good
faith, regarding the size, location and general layout of the building to be
constructed as Building 2 on the Phase 2-A Property, the proposed timing of the
construction of the building shell and tenant improvements in such Building 2,
the terms for construction of the tenant improvements to be constructed in such
Building 2 and the rent and other economic terms to be applicable to such
Building 2.  Subject to the outcome of such negotiations, it is generally the
intention of the parties that the size and general layout of Building 2 would be
designed to maximize the square footage of Building 2, consistent with
applicable local laws and requirements; that the timing of the construction of
the building shell and tenant improvements (or at least the first phase of
tenant improvements, if applicable) would provide for completion and delivery
thereof twelve (12) months after the Phase 1 Rent Commencement Date as
hereinafter defined; that the term of the lease with respect to Building 2 would
be coterminous with the term of this Lease as it is then in effect with respect
to Building 1; that the tenant improvement allowance and other terms relating to
the construction of tenant improvements in Building 2 would be no less favorable
to Tenant in any material respect than the terms set forth in this Lease with
respect to Building 1; and that the rent and other economic terms applicable to
Building 2 would be substantially the same as the economic terms applicable to
Building 1 as set forth in this Lease, but (w) adjusted to take into account
differences in the size of the respective buildings and in Landlord's reasonably
estimated costs of land acquisition (provided, however, that to the extent the
acquisition costs for the applicable property cannot then be estimated with
reasonable precision because the property value is to be determined through an
eminent domain proceeding which has not yet been completed, the acquisition
costs would be estimated based on the land value established by the appraiser
for the City of South San Francisco or its Redevelopment Agency in connection
with the eminent domain proceeding and the parties would agree that to the
extent Landlord's actual acquisition costs eventually paid to the owner of the
subject property exceed that estimated amount, the rent and other economic terms
would be

                                       2
<PAGE>

adjusted to reflect an increase in the estimated acquisition costs by one-half
(1/2) of such excess, such adjustment to be made in a manner and to an extent
appropriate to the relative weighting of the land acquisition costs in the
overall determination of the rent and other economic terms), costs of
construction (including any necessary fill), costs of demolition of any then
existing improvements and cost of money (determined by reference to changes in
the Bank of America prime rate in effect in the San Francisco Bay Area from time
to time) with respect to the Phase 2-A Property, and (x) implemented in such a
matter that on the Phase 2 Rent Commencement Date (as hereinafter defined), the
rental rate applicable to Building 2 shall be the same rental rate per square
foot then applicable to Building 1 as set forth in Section 3.1(a) hereof (the
intentions of the parties as described in the foregoing sentence, including any
adjustments expressly contemplated therein, being sometimes hereinafter
collectively called the "Baseline Terms and Conditions"). Effective upon the
date Landlord delivers the Phase 2-A Acquisition Notice to Tenant, any remaining
rights and obligations of the parties with respect to the Phase 2-B Property and
the MetaXen Space under Section 1.1(c)(iii) and Section 1.3 of this Lease,
respectively, shall terminate and be of no further force or effect (except to
the extent that any rights of Tenant with respect to the Phase 2-B Property
and/or the MetaXen Space have previously been exercised by Tenant in a final and
binding manner pursuant to Section 1.1(c)(iii) or Section 1.3 of this Lease, as
applicable).

          (A) If Landlord and Tenant reach mutual agreement during the Phase 2-A
Option Period on all material terms and conditions to be applicable to Building
2 as contemplated in the preceding paragraph, then Tenant's written exercise of
the Phase 2-A Option prior to the expiration of the Phase 2-A Option Period
shall create an obligation binding on both parties for the construction and
leasing of Building 2 on such agreed terms and conditions, in which event
Landlord and Tenant shall promptly (and in all events within sixty (60) days
after Tenant's exercise of the Phase 2-A Option) enter into a lease amendment
covering such Building 2 and incorporating such agreed terms and conditions.  If
Landlord and Tenant fail to reach mutual agreement during the Phase 2-A Option
Period on any material terms or conditions to be applicable to Building 2 as
contemplated in the preceding paragraph, then Tenant's written exercise of the
Phase 2-A Option prior to the expiration of the Phase 2-A Option Period shall
create an obligation binding on both parties for the construction and leasing of
Building 2 on the Baseline Terms and Conditions, applied in accordance with the
provisions of Section 1.1(c)(v) hereof, in which event Landlord and Tenant shall
promptly proceed to determine the applicable Baseline Terms and Conditions in
accordance with Section 1.1(c)(v) and thereafter shall promptly (and in all
events within sixty (60) days after such determination) enter into a lease
amendment covering such Building 2 and incorporating the applicable Baseline
Terms and Conditions as determined under Section 1.1(c)(v).

          (B) If, at the time Landlord gives Tenant the Phase 2-A Acquisition
Notice, Tenant has already exercised the Phase 2-B Option under Section
1.1(c)(iii) hereof but Landlord has not yet commenced actual construction of
Building 2 on the Phase 2-B Property pursuant to such exercise, then Tenant may
elect, by written notice to Landlord at any time prior to the earlier of (y)
Landlord's commencement of actual construction of Building 2 on the Phase 2-B
Property or (z) the expiration of the Phase 2-A Option Period, to rescind
Tenant's exercise of the Phase 2-B Option (and any lease amendment or other
documents to the extent they implement or reflect that exercise) and
concurrently to exercise the Phase 2-A Option under this Section 1.1(c)(ii);
following Landlord's commencement of actual construction of Building 2 on the
Phase 2-B Property pursuant to an exercise of the Phase 2-B Option by Tenant,
however, Tenant's sole rights with respect to the Phase 2-A Property under this
Section 1.1(c)(ii) shall be to have the Phase 2-A Option construed, at Tenant's
option, as an option to lease a third building to be constructed on the Phase 2-
A Property for occupancy by Tenant under this Lease, in which event the
existence, exercise and/or non-exercise of such option by Tenant shall have no
effect on the parties' respective contractual obligations with respect to the
Phase 2-B Property pursuant to Tenant's exercise of the Phase 2-B Option.  To
the extent the provisions of this Section 1.1(c)(ii), including (but not limited
to) those relating to Baseline Terms and Conditions, are then to be applied to a
third building for tenant to be constructed on the Phase 2-A Property, the
parties assume and intend (notwithstanding any other provisions of this Section
1.1(c)(ii) to the contrary) that the lease term with respect to such third
building would be seventeen (17) years and would not be coterminous with the
lease terms for Buildings 1 and 2, that the projected delivery date for such
third building would not bear any necessary relationship to the Phase 1 Rent
Commencement Date or the Phase 2 Rent Commencement Date (since the Phase 2-A
Option could arise a number of years in the future) but would be no more than
(and might be

                                       3
<PAGE>

materially less than) fifteen (15) months after execution of the lease or lease
amendment providing for such third building (subject to provisions comparable to
those set forth in this Lease and in the Workletter attached hereto as Exhibit C
for force majeure, tenant delays and similar factors), that the nature and scope
of tenant improvements and the amount of the tenant improvement allowance would
be comparable to those contemplated in this Lease for Building 2 (but without
necessarily having any contemplated phasing of tenant improvements in such third
building) and that the rental rate for such third building, upon occupancy,
would not be determined with reference to the then applicable rate per square
foot for Buildings 1 and 2 under Section 3.1(a) hereof but would instead be the
then prevailing fair market rental rate for properties in the City of South San
Francisco with shell and office, laboratory and research and development
improvements and site (common area) improvements comparable to those to be
constructed in and around such third building, taking into account for such
determination all tenant improvements to be constructed at Landlord's expense
and paid for by Landlord or by Tenant through additional rent (including, but
not limited to, equipment and laboratory improvements to be installed as part of
the initial tenant improvements in such third building except to the extent, if
any, paid for by Tenant in cash), but excluding from such determination any
tenant improvements to be constructed by Tenant at its sole expense or paid for
by Tenant in cash. If Landlord and Tenant are unable to agree upon such then
prevailing fair market rental or upon any other terms and conditions to be
applied to such third building, the applicable terms and conditions shall be
determined in accordance with the procedure set forth in Section 1.1(c)(v) for
Baseline Terms and Conditions, subject to any restrictions or criteria specially
applicable to such third building in accordance with this Section 1.1(c)(ii)(B).

               (C) If Tenant does not exercise the Phase 2-A Option prior to the
expiration of the Phase 2-A Option Period, then the parties' rights and
obligations with respect to the Phase 2-A Property shall terminate and be of no
further force or effect and Landlord shall be free to lease and/or develop the
Phase 2-A Property without further obligation to offer the same to Tenant or to
enter into any further negotiations with Tenant with respect thereto.

         (iii) If Landlord Acquires the Phase 2-B Property prior to the
termination of Tenant's rights with respect to the Phase 2-B Property pursuant
to any other applicable provisions of this Lease, then Landlord shall promptly
give Tenant written notice thereof (the "Phase 2-B Acquisition Notice") and
Tenant shall have an option (the "Phase 2-B Option"), during the period
extending from the date Tenant receives the Phase 2-B Acquisition Notice until
the later of (A) five (5) months after the date Tenant receives the Phase 2-B
Acquisition Notice or (B) December 31, 1999 (the "Phase 2-B Option Period"), to
elect to have Building 2 constructed on the Phase 2-B Property.  The Phase 2-B
Option shall be conditional upon Landlord's Acquisition of the Phase 2-B
Property, shall not apply during any period in which Tenant is in default,
beyond any applicable cure period, under this Lease and shall be exercisable
only by written notice from Tenant to Landlord prior to 5:00 p.m. local time in
Oakland, California on the last day of the Phase 2-B Option Period.  During the
Phase 2-B Option Period, Landlord and Tenant shall negotiate, diligently and in
good faith, regarding the size, location and general layout of the building to
be constructed as Building 2 on the Phase 2-B Property, the proposed timing of
the construction of the building shell and tenant improvements in such Building
2, the terms for construction of the tenant improvements to be constructed in
such Building 2 and the rent and other economic terms to be applicable to such
Building 2.  Subject to the outcome of such negotiations, it is generally the
intention of the parties that the terms and conditions applicable to Building 2
on the Phase 2-B Property would be the Baseline Terms and Conditions as defined
above, but with all references in such definition to "the Phase 2-A Property" to
be construed instead as referring to "the Phase 2-B Property."  Effective upon
the date Landlord delivers the Phase 2-B Acquisition Notice to Tenant, any
remaining rights and obligations of the parties with respect to the MetaXen
Space under Section 1.3 of this Lease shall terminate and be of no further force
or effect (except to the extent that any rights of Tenant with respect to the
MetaXen Space have previously been exercised by Tenant in a final and binding
manner pursuant to Section 1.3 of this Lease).

               (A) If Landlord and Tenant reach mutual agreement during the
Phase 2-B Option Period on all material terms and conditions to be applicable to
Building 2 as contemplated in the preceding paragraph, then Tenant's written
exercise of the Phase 2-B Option prior to the expiration of the Phase 2-B Option
Period shall create an obligation binding on both parties for the construction
and leasing of Building 2 on such agreed terms and conditions, in which event
Landlord and Tenant shall promptly (and in all events within sixty (60) days
after Tenant's exercise of the Phase 2-B Option) enter into a lease amendment
covering such Building

                                       4
<PAGE>

2 and incorporating such agreed terms and conditions. If Landlord and Tenant
fail to reach mutual agreement during the Phase 2-B Option Period on any
material terms or conditions to be applicable to Building 2 as contemplated in
the preceding paragraph, then Tenant's written exercise of the Phase 2-B Option
prior to the expiration of the Phase 2-B Option Period shall create an
obligation binding on both parties for the construction and leasing of Building
2 on the Baseline Terms and Conditions, applied in accordance with the
provisions of Section 1.1(c)(v) hereof, in which event Landlord and Tenant shall
promptly proceed to determine the applicable Baseline Terms and Conditions in
accordance with Section 1.1(c)(v) and thereafter shall promptly (and in all
events within sixty (60) days after such determination) enter into a lease
amendment covering such Building 2 and incorporating the applicable Baseline
Terms and Conditions as determined under Section 1.1(c)(v).

              (B) If, following Tenant's exercise of the Phase 2-B Option but
prior to Landlord's commencement of actual construction of Building 2 on the
Phase 2-B Property pursuant to such exercise, Landlord gives Tenant a Phase 2-A
Acquisition Notice, then Tenant shall have certain rights as set forth in
Section 1.1(c)(ii)(B) above, which rights may include, notwithstanding any
contrary provisions of this Section 1.1(c)(iii), the rescission of Tenant's
exercise of the Phase 2-B Option (and the concurrent rescission of any lease
amendment or other documents to the extent they implement or reflect such
exercise) in accordance with the terms of such Section 1.1(c)(ii)(B).

              (C) If Tenant does not exercise the Phase 2-B Option prior to the
expiration of the Phase 2-B Option Period, then the parties' rights and
obligations with respect to the Phase 2-B Property shall terminate and be of no
further force or effect and Landlord shall be free to lease and/or develop the
Phase 2-B Property without further obligation to offer the same to Tenant or to
enter into any further negotiations with Tenant with respect thereto.

         (iv) For purposes of this Section 1.1(c), the term "Acquire" and
related forms of that term shall mean or refer to (in a manner appropriate to
the context), with respect to any property, the earliest of (A) the date on
which fee title to such property is conveyed to Landlord, or to the City of
South San Francisco or its Redevelopment Agency subject to a binding agreement
of such entity to retransfer the applicable property to Landlord, or (B) the
date on which either Landlord or the City of South San Francisco or its
Redevelopment Agency has executed a binding purchase and sale agreement with the
owner of such property, providing for the purchase or other acquisition of such
property by Landlord, or by the City of South San Francisco or its Redevelopment
Agency subject to a binding agreement of such entity to retransfer the
applicable property to Landlord, as applicable, or (C) the date on which the
City of South San Francisco and/or its Redevelopment Agency has obtained an
Order for Prejudgment Possession or substantially equivalent relief with respect
to such property pursuant to an eminent domain proceeding initiated against such
property and/or the owner(s) thereof, subject to a binding agreement of the City
of South San Francisco or its Redevelopment Agency to retransfer the applicable
property to Landlord.

         (v)  If Landlord and Tenant fail to agree upon the terms and conditions
applicable to Tenant's lease of a building on the Phase 2-A Property as
contemplated in Section 1.1(c)(ii)(A) above or to Tenant's lease of a building
on the Phase 2-B Property as contemplated in Section 1.1(c)(iii)(A) above, then
in either such event either Landlord or Tenant may give a written notice to the
other electing to have the Baseline Terms and Conditions applicable to such
lease be determined under this Section 1.1(c)(v) (a "Baseline Terms and
Conditions Determination Notice").  Within seven (7) days after delivery of the
Baseline Terms and Conditions Determination Notice, each party, at its cost and
by giving written notice to the other party, shall appoint a real estate
appraiser with at least five (5) years experience appraising similar commercial
properties in northeastern San Mateo County to determine the applicable Baseline
Terms and Conditions in accordance with the provisions of this Section
1.1(c)(v); provided, however, that if Landlord and Tenant at the time are able
to agree upon a single appraiser to make such determination, then they shall
jointly appoint such appraiser to act as the sole determiner of the applicable
Baseline Terms and Conditions and they shall share equally the costs of such
single appraiser.  If either party fails to appoint an appraiser within the
allotted time, the single appraiser appointed by the other party shall be the
sole appraiser.  Within twenty-one (21) days after delivery of the Baseline
Terms and Conditions Determination Notice, Landlord shall deliver to each of the
appointed appraiser(s) and to Tenant a written statement specifying Landlord's
position on the correct interpretation and application of each element of the
Baseline Terms and Conditions as applied to the Phase 2-A Property or Phase 2-B
Property, as applicable, together with copies of any supporting documentation
reasonably necessary to support Landlord's position (for example, with respect
to changes in acquisition costs, costs of money based on the Bank of America
prime rate, etc.).  Within fourteen (14) days after delivery of Landlord's
position statement and supporting materials, Tenant shall deliver to each of the
appointed appraiser(s) and to Landlord a written statement specifying Tenant's
position on the correct interpretation and application of each element of the
Baseline Terms and Conditions as applied to the Phase 2-A Property or Phase 2-B
Property,

                                       5
<PAGE>

as applicable, together with copies of any supporting documentation reasonably
necessary to support Tenant's positions where they differ from Landlord's
positions. Within five (5) days after delivery of Tenant's position statement
and supporting materials, Landlord may, if it so chooses, deliver to each of the
appointed appraiser(s) and to Tenant a written rebuttal to Tenant's position
statement. Within fourteen (14) days after their receipt of all such position
statements and Landlord's rebuttal (if applicable), the appointed appraisers
shall issue a joint written decision specifying their joint determination as to
the correct interpretation and application of the Baseline Terms and Conditions
with respect to each element addressed in the position statement of either party
and, if they are unable to agree with respect to any element of such Baseline
Terms and Conditions, specifying their respective separate determinations with
respect to such element. If the appraisers have reached a joint determination as
to all elements of the Baseline Terms and Conditions, then their determination
shall be final and binding on the parties and Landlord and Tenant shall
thereafter promptly (and in all events within sixty (60) days) enter into a
lease amendment incorporating the terms and conditions specified in such
determination. If the appraisers have been unable to agree with respect to any
element of the Baseline Terms and Conditions, then they shall jointly appoint a
third similarly qualified appraiser within five (5) days after issuance of their
determination; if they are unable to agree upon such a third appraiser within
such 5-day period, then either party may, upon not less than three (3) days
notice to the other party, apply to the Presiding Judge of the San Mateo County
Superior Court for the appointment of a third qualified appraiser. Each party
shall bear its own legal fees in connection with the appointment of the third
appraiser and shall bear one-half of any other costs of appointment of the third
appraiser and of such third appraiser?s fee. The third appraiser, however
selected, shall be a person who has not previously acted for either party in any
capacity. Within fourteen (14) days after the appointment of the third
appraiser, the third appraiser shall review the joint determination of the first
two appraisers and, to the extent he or she deems appropriate, all position
statements and supporting materials submitted by either party to the first two
appraisers and shall issue his or her written determination specifying, as to
each element of the Baseline Terms and Conditions on which the first two
appraisers were unable to agree, his or her determination as to the correct
interpretation and application of the Baseline Terms and Conditions with respect
to such element, which determination shall be limited to selecting from one of
the two separate determinations issued with respect to such element by the first
two appraisers. Upon issuance of the third appraiser's determination, the joint
determination of the first two appraisers as to all elements on which they
reached agreement shall be final and binding on the parties, the determination
of the third appraiser as to all elements on which the first two appraisers were
unable to reach agreement shall be final and binding on the parties, and
Landlord and Tenant shall thereafter promptly (and in all events within sixty
(60) days) enter into a lease amendment incorporating the terms and conditions
specified in such binding determinations.

        (d) The parties acknowledge that Landlord does not presently own the
property described as Parcel Four of the Phase 1 Property on Exhibit A attached
hereto and designated as the Marble Master Property on Exhibit B attached hereto
(the "Marble Master Property").  Landlord has represented to Tenant, however,
that Landlord presently has a binding contract (subject to customary conditions)
to acquire the Marble Master Property, that Landlord's acquisition of the Marble
Master Property is presently scheduled to close on June 28, 1999, that Landlord
will redesign the footprint of Building 1 and its surrounding grounds to exclude
the Marble Master Property if Landlord for some reason is ultimately
unsuccessful in acquiring the same, but that any such redesign shall not reduce
the size of Building 1 below the approximately 70,000 square feet contemplated
in this Lease.

  1.2   Landlord's Reserved Rights.  To the extent reasonably necessary to
        --------------------------
permit Landlord to exercise any rights of Landlord and discharge any obligations
of Landlord under this Lease, Landlord shall have, in addition to the right of
entry set forth in Section 16.1 hereof, the following rights:  (i) to make
changes to the Common Areas, including, without limitation, changes in the
location, size or shape of any portion of the Common Areas, and to relocate
parking spaces on the Property and in the Common Areas (but not materially
decrease the

                                       6
<PAGE>

number of such parking spaces in areas of the Property generally adjacent to the
Buildings); (ii) to close temporarily any of the Common Areas for maintenance or
other reasonable purposes, provided that reasonable parking and reasonable
access to the Buildings remain available; (iii) to construct, alter or add to
other buildings and Common Area improvements on the Property (including, but not
limited to, construction of site improvements, buildings and Common Area
improvements on portions of the Property and/or on adjacent properties owned by
Landlord from time to time); (iv) to build in areas adjacent to the Property and
to add such areas to the Property or operate such areas, for maintenance,
access, parking and other purposes, on an integrated basis with the Property;
(v) to use the Common Areas while engaged in making additional improvements,
repairs or alterations to the Property or any portion thereof or to any adjacent
properties owned by Landlord from time to time; and (vi) to do and perform such
other acts with respect to the Common Areas and the Property as may be necessary
or appropriate; provided, however, that notwithstanding anything to the contrary
in this Section 1.2, Landlord's exercise of its rights hereunder shall not cause
any material diminution of Tenant's rights, nor any material increase of
Tenant's obligations, under this Lease or with respect to the Improvements.

  1.3   MetaXen Building Option.  Landlord grants to Tenant the option to
        -----------------------
lease space in the building designated as the MetaXen Building on Exhibit B-1
attached hereto (the "MetaXen Space" or the "MetaXen Building"), which building
is located on the real property described as the MetaXen Property on Exhibit A
attached hereto, when and if such space becomes available, subject to the terms
and conditions set forth in this Section 1.3.  Landlord has represented to
Tenant that the MetaXen Space is at present fully leased under a long-term lease
to MetaXen, LLC, subject to subleases of a portion of such space to Tenant and
of a portion of such space to Cytokinetics, Inc.  If, at any time during the
Phase 2-B Option Period, MetaXen, LLC abandons or surrenders its leasehold
interest or its existing lease of the MetaXen Space is otherwise terminated for
any reason with respect to all or any portion of the MetaXen Space, Landlord
shall give written notice of such fact to Tenant (the "MetaXen Option Notice"),
which notice shall specify how much (all or a specified part) of the MetaXen
Space is thus available (the "Offered Space"), shall identify any existing
occupancies or other leasing arrangements to which the Offered Space is subject
in whole or in part (as contemplated in the final two sentences of this Section
1.3), and shall specify Landlord's position as to the then prevailing fair
market rental rate for comparably improved space in the Britannia Pointe Grand
Business Park.  Tenant shall then have an option, exercisable only by written
notice to Landlord within a period of thirty (30) days after the date Tenant
receives the MetaXen Option Notice (the "MetaXen Option Period"), in which to
elect to lease the Offered Space, subject to the existing occupancies and other
leasing arrangements (if any) as specified in the MetaXen Option Notice, in "as
is" condition, at a rental rate equal to the fair market rental rates then
prevailing for comparably improved space in the Britannia Pointe Grand Business
Park and for a term equal to, at Tenant's election (to be specified in Tenant's
notice of exercise of such option), either fifteen (15) years or the then
remaining term applicable to Building 1 under this Lease.  During the MetaXen
Option Period, Landlord shall, if Tenant so requests, negotiate diligently and
in good faith with Tenant regarding the fair market rental rates then prevailing
for comparably improved space in the Britannia Pointe Grand Business Park and
regarding any material variations that Tenant wishes to implement from the terms
set forth in the preceding sentence, but in the absence of any contrary written
agreement between Landlord and Tenant with respect to specific terms, a timely
written exercise by Tenant of its option with respect to the Offered Space shall
create an obligation binding on both parties for the leasing of the Offered
Space to Tenant for the permissible term specified in such exercise notice and
on the other terms set forth in the preceding sentence; provided, however, that
if Tenant in its notice of exercise objects to Landlord's position as to the
fair market rental rates then prevailing for comparably improved space in the
Britannia Pointe Grand Business Park and elects to have such fair market rental
rates determined in accordance with the procedure set forth in Section 3.1(b)
hereof, then within ten (10) days after Tenant's exercise of its option to lease
the Offered Space, each party shall appoint a qualified real estate appraiser as
contemplated in Section 3.1(b) hereof, after which the two appraisers (and a
third appraiser, if necessary) shall appraise and set, for purposes of Tenant's
lease of the Offered Space, the fair market rental rates then prevailing for
comparably improved space in the Britannia Pointe Grand Business Park in
accordance with the procedures set forth in Section 3.1(b) hereof and such
determination shall be final and binding on the parties.  Meanwhile, within
sixty (60) days after Tenant's exercise of its option to lease the Offered
Space, Landlord and Tenant shall enter into a new written lease, in form and
substance substantially identical to this Lease except to the extent changes are
reasonably necessary to reflect the different locations and sizes of the
buildings and the different terms and conditions

                                       7
<PAGE>

applicable to the Offered Space, incorporating the terms and conditions which
apply to Tenant's lease of the Offered Space under this Section 1.3. To the
extent the applicable rental has not been determined under Section 3.1(b) hereof
within such 60-day period, the lease shall provide for an initial rental rate
equal to Landlord's good faith estimate of the then prevailing fair market
rental rate for comparably improved space in the Britannia Pointe Grand Business
Park and shall also provide for any necessary adjustment of such rent,
retroactive to the commencement of such lease, to be made upon completion of the
fair market rental determination under Section 3.1(b) hereof. If Tenant fails to
exercise its option with respect to the Offered Space during the MetaXen Option
Period, then Landlord shall thereafter have the right to lease the Offered Space
to a third party at any time and on any terms that Landlord may deem
appropriate, without any further obligation to offer such space to Tenant.
Notwithstanding any other provisions of this Section 1.3, the provisions of this
Section 1.3 shall not apply during any period in which Tenant is in default,
beyond any applicable cure period, under this Lease, nor shall they be construed
to prohibit, invalidate, supersede or take priority over any other occupancies
or leasing arrangements in effect prior to the MetaXen Space becoming available
(including, but not limited to, the presently existing occupancies of MetaXen,
LLC as tenant and of Cytokinetics, Inc. as subtenant), or any leasing
arrangements that Landlord may enter into on a direct basis with Cytokinetics,
Inc., following any termination of Landlord's lease with MetaXen, LLC, to permit
Cytokinetics, Inc. to continue to occupy its then existing space for the balance
of the then existing term of its sublease. Landlord represents to Tenant that
the sublease between MetaXen, LLC and Cytokinetics, Inc. presently provides for
an expiration date of August 31, 2000, although Landlord also understands that
Cytokinetics, Inc. has requested that MetaXen, LLC extend that expiration date
to December 31, 2000, and that in the event of an early termination of the
master lease of MetaXen, LLC for the MetaXen Space, it is Landlord's intention
to honor, on a direct basis with Cytokinetics, Inc., the remaining term (if any)
of the Cytokinetics, Inc. sublease as it then exists; the foregoing information
is provided solely for Tenant's information and benefit, however, and is not
intended to benefit or to create any enforceable rights on the part of
Cytokinetics, Inc. or any other third party.

2.   TERM
     ----

     2.1     Term. The term of this Lease shall commence upon mutual execution
             ----
of this Lease by Landlord and Tenant and shall end on the day (the "Termination
Date") immediately preceding the date seventeen (17) years after after the Phase
I Rent Commencement Date (as hereinafter defined), unless sooner terminated or
extended as hereinafter provided.

             (a) Tenant's minimum rental and Operating Expense obligations with
respect to Building 1 and the Phase 1 Property shall commence on the earlier of
(i) the date which is six (6) months after the date Landlord delivers to Tenant
a Structural Completion Certificate for Building 1 pursuant to the Workletter
attached hereto as Exhibit C (subject to any adjustments authorized or required
under the provisions of such Exhibit C), correctly notifying Tenant that
Landlord's construction of the shell of Building 1 pursuant to Article V and
Exhibit C is substantially complete, or (ii) the date Tenant takes occupancy of
and commences operation of its business in Building 1, the earlier of such dates
being herein called the "Phase 1 Rent Commencement Date."

             (b) Tenant's minimum rental and Operating Expense obligations with
respect to Building 2 and the Phase 2 Property, if Tenant exercises its option
under Section 1.1(c)(ii) or (iii) to have Building 2 constructed on the Phase 2-
A Property or the Phase 2-B Property, shall commence in accordance with the
terms and conditions determined to be applicable to Building 2 under the
applicable provisions of Section 1.1(c). Subject to such determination, it is
generally the expectation of the parties that such obligations would commence on
the earlier of (i) the date which is six (6) months after the date Landlord
delivers to Tenant a Structural Completion Certificate for Building 2 pursuant
to the Workletter attached hereto as Exhibit C (subject to any adjustments
authorized or required under the provisions of such Exhibit C), correctly
notifying Tenant that Landlord's construction of the shell of Building 2
pursuant to Article V and Exhibit C is substantially complete, or (ii) the date
Tenant takes occupancy of and commences operation of its business in Building 2,
the earlier of such dates being herein called the "Phase 2 Rent Commencement
Date," and would end on the Termination Date, unless sooner terminated or
extended (if applicable) as hereinafter provided. The parties presently
contemplate that the delivery of the Structural Completion Certificate for
Building 2 and the Phase 2 Rent Commencement Date, respectively, will occur
approximately one (1) year after the

                                       8
<PAGE>

corresponding dates or events with respect to Building 1, subject in all events
to the provisions of Section 1.1(c) and the terms and conditions determined
thereunder for Building 2.

   2.2    Early Possession.  Tenant shall have the nonexclusive right to occupy
          ----------------
and take possession of the respective Buildings from and after the date of
Landlord's delivery of the respective Structural Completion Certificates
described in clause (i) of each of Section 2.1(a) and Section 2.1(b), even
though Landlord will be continuing to construct the balance of Landlord's Work
in the applicable Building as contemplated in Exhibit C, for the purpose of
constructing Tenant's Work as contemplated in Exhibit C and for the purpose of
installing fixtures and furniture, laboratory equipment, computer equipment,
telephone equipment, low voltage data wiring and personal property and other
similar work related to the construction of Tenant's Work and/or preparatory to
the commencement of Tenant's business in the applicable Building.  Such
occupancy and possession, and any early access under the next sentence of this
Section 2.2, shall be subject to and upon all of the terms and conditions of
this Lease and of the Workletter attached hereto as Exhibit C (including, but
not limited to, conditions relating to the maintenance of required insurance),
except that Tenant shall have no obligation to pay minimum rental or Operating
Expenses for any period prior to the applicable Rent Commencement Date as
determined under Section 2.1; such early possession shall not advance or
otherwise affect the applicable Rent Commencement Date or the Termination Date
determined under Section 2.1.  Tenant shall also be entitled to have early
access to the Phase 1 Property or the Phase 2 Property, as applicable, at all
appropriate times prior to Landlord's delivery of the respective Structural
Completion Certificate for the Building to be constructed on such applicable
portion of the Property, subject to the approval of Landlord and its general
contractor (which approval shall not be unreasonably withheld or delayed) and to
all other provisions of this Section 2.2, solely for the purpose of performing
work preparatory to the construction of Tenant's Work or necessary for the
orderly sequencing of such work, and Tenant shall not be required to pay minimum
rental or Operating Expenses by reason of such early access until the applicable
Rent Commencement Date otherwise occurs; without limiting the generality of the
preceding portion of this sentence, Tenant shall be entitled to have early
access to the Phase 1 Property or the Phase 2 Property, as applicable, and the
applicable respective Building as soon as the roof metal decking is in place in
order to begin hanging electrical, mechanical and plumbing services from the
overhead structure, subject to all of the provisions of this Section 2.2.
Tenant shall not interfere with or delay Landlord's contractors by any early
access, occupancy or possession under this Section 2.2, shall coordinate and
cooperate with Landlord and its contractors (who shall similarly coordinate and
cooperate with Tenant and its contractors) to minimize any interference or delay
by either party with respect to the other party's work following Landlord's
delivery of the applicable Structural Completion Certificate, and shall
indemnify, defend and hold harmless Landlord and its agents and employees from
and against any and all claims, demands, liabilities, actions, losses, costs and
expenses, including (but not limited to) reasonable attorneys' fees, arising out
of or in connection with Tenant's early entry upon any portion of the Property
hereunder.

   2.3    Delay In Possession.  Landlord agrees to use its best reasonable
          -------------------
efforts to complete its portion of each respective phase of the work described
in Section 5.1 and Exhibit C promptly, diligently and within the respective time
periods set forth in the Estimated Construction Schedule attached hereto as
Exhibit D and incorporated herein by this reference, as such schedule may be
modified from time to time by mutual written agreement of Landlord and Tenant,
and subject to the effects of any delays caused by or attributable to Tenant or
any other circumstances beyond Landlord's reasonable control (excluding
financial inability); provided, however, that except to the extent caused by a
material default by Landlord of its obligations set forth in this Lease
(including, but not limited to, its obligations set forth in this Section 2.3
and in Section 5.1 and Exhibit C), Landlord shall not be liable for any damages
caused by any delay in the completion of such work, nor shall any such delay
affect the validity of this Lease or the obligations of Tenant hereunder.
Notwithstanding any other provision of this Section 2.3, however, if Landlord
fails to deliver the Structural Completion Certificate for Building 1 and tender
possession of the completed structural portions of the Building Shell (i.e.,
those portions required to be completed as a condition of delivery of the
Structural Completion Certificate) for Building 1 to Tenant by the date which is
twenty-one (21) months after the date of this Lease, then Tenant shall have the
right to terminate this Lease without further liability hereunder by written
notice delivered to Landlord at any time prior to Landlord's delivery of the
Structural Completion Certificate for Building 1 and tender of possession of the
completed structural portions of the Building Shell for Building 1 to Tenant;
provided, however, that the 21-month period set forth in this sentence shall be
extended, day for day, for a period equal to the length of

                                       9
<PAGE>

any delays in Landlord's design and construction of the Building Shell for
Building 1 that are caused by any material default by Tenant in the performance
of its obligations under this Lease, including (but not limited to) any failure
of Tenant (i) to provide to Landlord, within three (3) months after the date of
this Lease, details of any Building Shell modifications that will be required
for Building 1 in order to accommodate Tenant's needs with respect to HVAC,
plumbing and other building systems, and/or (ii) to make prompt and timely
delivery to Landlord of all other information reasonably necessary for Landlord
to complete the preparation of all drawings, designs and specifications for the
Building Shell for Building 1, and/or (iii) to respond in a prompt and timely
manner to any requests by Landlord or its architect for approval of drawings,
designs, specifications, changes or other matters requiring Tenant's review or
approval under the provisions of Exhibit C as they apply to Building 1.

   2.4    Acknowledgement Of Rent Commencement.  Promptly following the Phase 1
          ------------------------------------
Rent Commencement Date, Landlord and Tenant shall execute a written
acknowledgement of the Phase 1 Rent Commencement Date, Termination Date and
related matters, substantially in the form attached hereto as Exhibit E (with
appropriate insertions), which acknowledgement shall be deemed to be
incorporated herein by this reference.  Promptly following the Phase 2 Rent
Commencement Date, Landlord and Tenant shall execute a written acknowledgment of
the Phase 2 Rent Commencement Date and related matters, substantially in the
form attached hereto as Exhibit E (with appropriate modifications and
insertions), which acknowledgement shall be deemed to be incorporated herein by
this reference.  Notwithstanding the foregoing requirement, the failure of
either party to execute any such written acknowledgement shall not affect the
determination of the applicable Rent Commencement Date, Termination Date and
related matters in accordance with the provisions of this Lease.

   2.5    Holding Over.  If Tenant holds possession of the Property or any
          ------------
portion thereof after the term of this Lease with Landlord's written consent,
then except as otherwise specified in such consent, Tenant shall become a tenant
from month to month at one hundred ten percent (110%) of the rental and
otherwise upon the terms herein specified for the period immediately prior to
such holding over and shall continue in such status until the tenancy is
terminated by either party upon not less than thirty (30) days prior written
notice.  If Tenant holds possession of the Property or any portion thereof after
the term of this Lease without Landlord's written consent, then Landlord in its
sole discretion may elect (by written notice to Tenant) to have Tenant become a
tenant either from month to month or at will, at one hundred fifty percent
(150%) of the rental (prorated on a daily basis for an at-will tenancy, if
applicable) and otherwise upon the terms herein specified for the period
immediately prior to such holding over, or may elect to pursue any and all legal
remedies available to Landlord under applicable law with respect to such
unconsented holding over by Tenant.  Tenant shall indemnify and hold Landlord
harmless from any loss, damage, claim, liability, cost or expense (including
reasonable attorneys' fees) resulting from any delay by Tenant in surrendering
the Property or any portion thereof (except to the extent such delay is with
Landlord's prior written consent), including but not limited to any claims made
by a succeeding tenant by reason of such delay.  Acceptance of rent by Landlord
following expiration or termination of this Lease shall not constitute a renewal
of this Lease.

   2.6    Option To Extend Term.  Tenant shall have the option to extend the
          ---------------------
term of this Lease, at the minimum rental set forth in Section 3.1(b) and (c)
and otherwise upon all the terms and provisions set forth herein with respect to
the initial term of this Lease, for up to two (2) additional periods of five (5)
years each, the first commencing upon the expiration of the initial term hereof
and the second commencing upon the expiration of the first extended term, if
any.  Exercise of such option with respect to the first such extended term shall
be by written notice to Landlord at least twelve (12) months prior to the
expiration of the initial term hereof; exercise of such option with respect to
the second extended term, if the first extension option has been duly exercised,
shall be by like written notice to Landlord at least twelve (12) months prior to
the expiration of the first extended term hereof.  If Tenant is in default
hereunder, beyond any applicable notice and cure periods, on the date of such
notice or on the date any extended term is to commence, then the exercise of the
option shall be of no force or effect, the extended term shall not commence and
this Lease shall expire at the end of the then current term hereof (or at such
earlier time as Landlord may elect pursuant to the default provisions of this
Lease).  If Tenant properly exercises one or more extension options under this
Section, then all references in this Lease (other than in this Section 2.6) to
the "term" of this Lease shall be construed to include the extension term(s)
thus elected by Tenant.  Except as expressly set forth in this

                                       10
<PAGE>

Section 2.6, Tenant shall have no right to extend the term of this Lease beyond
its prescribed term.

3.   RENTAL
     ------

     3.1  Minimum Rental.
          --------------

          (a) Rental Amounts. Tenant shall pay to Landlord as minimum rental for
              --------------
the Buildings, in advance, without deduction, offset, notice or demand, on or
before the Phase 1 Rent Commencement Date and on or before the first day of each
subsequent calendar month of the term of this Lease, the following amounts per
month, subject to adjustment in accordance with the terms of this Section 3.1:

      Months                Monthly Minimum Rental

     001 - 012             $168,700  ($2.41/sq ft)
     013 - 024              196,000  ($2.80/sq ft)
     025 - 036              200,900  ($2.87/sq ft)
     037 - 048              205,800  ($2.94/sq ft)
     049 - 060              210,700  ($3.01/sq ft)
     061 - 072              216,300  ($3.09/sq ft)
     073 - 084              221,200  ($3.16/sq ft)
     085 - 096              226,800  ($3.24/sq ft)
     097 - 108              207,200  ($2.96/sq ft)
     109 - 120              212,800  ($3.04/sq ft)
     121 - 132              219,800  ($3.14/sq ft)
     133 - 144              200,200  ($2.86/sq ft)
     145 - 156              207,200  ($2.96/sq ft)
     157 - 168              189,700  ($2.71/sq ft)
     169 - 180              197,400  ($2.82/sq ft)
     181 - 192              205,100  ($2.93/sq ft)
     193 - 204              213,500  ($3.05/sq ft)

     If the obligation to pay minimum rental hereunder commences on other than
the first day of a calendar month or if the term of this Lease terminates on
other than the last day of a calendar month, the minimum rental for such first
or last month of the term of this Lease, as the case may be, shall be prorated
based on the number of days the term of this Lease is in effect during such
month.  If an increase in minimum rental becomes effective on a day other than
the first day of a calendar month, the minimum rental for that month shall be
the sum of the two applicable rates, each prorated for the portion of the month
during which such rate is in effect.  The rental amounts set forth in this
Section 3.1(a) are applicable only to Building 1.  If Tenant exercises its
option under Section 1.1(c)(ii) or (iii), as applicable, for construction and
leasing of Building 2 on either the Phase 2-A Property or the Phase 2-B
Property, then the rent and other economic terms of such construction and
leasing shall be determined in accordance with the applicable provisions of
Section 1.1(c) and embodied in a written lease amendment as contemplated
therein.

          (b) Rental Amounts During First Extended Term.  If Tenant properly
              -----------------------------------------
exercises its right to extend the term of this Lease pursuant to Section 2.6
hereof, the minimum rental during the first year of the first extended term
shall be equal to ninety percent (90%) of the fair market rental value of the
Buildings (as defined below), determined as of the commencement of such extended
term in accordance with this paragraph, and during each subsequent year of the
first extended term shall be equal to one hundred three percent (103%) of the
minimum rental in effect during the immediately preceding year of such extended
term.  Upon Landlord's receipt of a proper notice of Tenant's exercise of its
option to extend the term of this Lease, the parties shall have sixty (60) days
in which to agree on the fair market rental for the Buildings at the
commencement of the first extended term for the uses permitted hereunder.  If
the parties agree on such fair market rental, they shall execute an amendment to
this Lease stating the amount of the applicable minimum monthly rental
(including the indexed amounts applicable during subsequent years of the first
extended term as described above).  If the parties are unable to agree on such
rental within such sixty (60) day period, then within fifteen (15) days after
the expiration of such period each party, at its cost and by giving notice to
the other party, shall appoint a real estate appraiser with at least five (5)
years experience appraising similar commercial properties in northeastern San
Mateo County to appraise and set the fair market rental for the Buildings at

                                       11
<PAGE>

the commencement of the first extended term in accordance with the provisions of
this Section 3.1(b). If either party fails to appoint an appraiser within the
allotted time, the single appraiser appointed by the other party shall be the
sole appraiser. If an appraiser is appointed by each party and the two
appraisers so appointed are unable to agree upon a fair market rental within
thirty (30) days after the appointment of the second, the two appraisers shall
appoint a third similarly qualified appraiser within ten (10) days after
expiration of such 30-day period; if they are unable to agree upon a third
appraiser, then either party may, upon not less than five (5) days notice to the
other party, apply to the Presiding Judge of the San Mateo County Superior Court
for the appointment of a third qualified appraiser. Each party shall bear its
own legal fees in connection with appointment of the third appraiser and shall
bear one-half of any other costs of appointment of the third appraiser and of
such third appraiser's fee. The third appraiser, however selected, shall be a
person who has not previously acted for either party in any capacity. Within
thirty (30) days after the appointment of the third appraiser, a majority of the
three appraisers shall set the fair market rental for the first extended term
and shall so notify the parties. If a majority are unable to agree within the
allotted time, the three appraised fair market rentals shall be added together
and divided by three and the resulting quotient shall be the fair market rental
for the first extended term, which determination shall be binding on the parties
and shall be enforceable in any further proceedings relating to this Lease. For
purposes of this Section 3.1(b), the "fair market rental" of the Buildings shall
be determined with reference to the then prevailing market rental rates for
properties in the City of South San Francisco with shell and office, laboratory
and research and development improvements and site (common area) improvements
comparable to those then existing in the Buildings and on the Property, taking
into account for such determination all tenant improvements constructed at
Landlord's expense and paid for by Landlord or by Tenant through additional rent
(including, but not limited to, equipment and laboratory improvements installed
as part of the initial Tenant Improvements pursuant to Section 5.1 and Exhibit C
except to the extent, if any, paid for by Tenant in cash), but excluding from
such determination any Tenant Improvements constructed by Tenant at its sole
expense or paid for by Tenant in cash.

     (c) Rental Amounts During Second Extended Term.  If Tenant properly
         ------------------------------------------
exercises its right to a second extended term of this Lease pursuant to Section
2.6 hereof, the minimum rental during such second extended term shall be
determined in the same manner provided in the preceding paragraph for the first
extended term (including the indexation provision for years after the first year
of such second extended term), except that the determination shall be made as of
the commencement of the second extended term.

     (d) Rental Adjustment Due to Change in Square Footage.  The minimum rental
         -------------------------------------------------
amounts specified in this Section 3.1 are based upon an estimated area of 70,000
square feet (the estimated area of Building 1 alone).  If the actual area of any
Building (measured from the exterior faces of exterior walls and from the
dripline of any overhangs, except that in the case of any two-story recesses or
overhangs, the area to the dripline of the overhang shall be counted as part of
the area of the first story but not as part of the area of the second story),
when completed, is greater or less than the estimated area used in establishing
rental amounts and schedules for such Building under this Lease (as amended from
time to time), then the minimum rentals otherwise applicable under this Lease
(as amended from time to time) with respect to such Building shall be adjusted
for each rental period in strict proportion to the ratio between the actual area
of such Building (determined on the basis of measurement described above in this
sentence) and the assumed area of such Building reflected in the previously
established rental amounts or schedules.  Measurement of building area under
this paragraph shall be made initially by Landlord's architect, subject to
review and approval by Tenant's architect.

     (e) Rental Adjustments Due to Tenant Improvement Costs.  If Tenant
         --------------------------------------------------
exercises its option under Section 1.1(c)(ii) or (iii), as applicable, with
respect to the Phase 2-A Property or the Phase 2-B Property and elects, in
accordance with Section 5.1 and Exhibit C, to have the Tenant Improvements in
Building 2 constructed in two phases, then for purposes of the rent structure
established for Building 2 under Section 1.1(c)(ii) or (iii), as applicable, the
parties intend that during the period from the Phase 2 Rent Commencement Date
until the earlier to occur of (x) the first anniversary of the Phase 2 Rent
Commencement Date or (y) the date construction of the Phase 2B Tenant
Improvements is certified by Landlord's architect as being substantially
complete (i.e., complete subject only to the completion of "punch list" items
which do not, in the aggregate, materially interfere with Tenant's ability to
occupy and use the Phase 2B Tenant Improvements for the uses contemplated
hereunder), Tenant's "fully loaded" minimum monthly rental otherwise established
under Section 1.1(c)(ii) or (iii), as applicable, for

                                       12
<PAGE>

Building 2 as a whole shall be reduced each month by an amount equal to the
product of the square footage of Building 2 (measured in accordance with Section
3.1(d) hereof) multiplied by whichever of the following factors is applicable,
depending upon the Cost of Improvements for the Phase 2A Tenant Improvements:

        (i)  if Landlord's share of the Cost of Improvements for the Phase 2A
Tenant Improvements is less than One Hundred Fifteen and No/100 Dollars
($115.00) per square foot times the square footage of Building 2 (measured in
accordance with Section 3.1(d) hereof) but not less than Ninety-Five and No/100
Dollars ($95.00) per square foot times the square footage of Building 2
(measured in accordance with Section 3.1(d) hereof), the applicable factor shall
be $0.0185 per square foot per month for each dollar per square foot (or
fraction thereof) by which Landlord's share of such Cost of Improvements is less
than One Hundred Fifteen and No/100 Dollars ($115.00) per square foot;

        (ii)  if Landlord's share of the Cost of Improvements for the Phase 2A
Tenant Improvements is less than Ninety-Five and No/100 Dollars ($95.00) per
square foot times the square footage of Building 2 (measured in accordance with
Section 3.1(d) hereof) but not less than Seventy and No/100 Dollars ($70.00) per
square foot times the square footage of Building 2 (measured in accordance with
Section 3.1(d) hereof), the applicable factor shall be the sum of (A) $0.37 per
square foot per month plus (B) $0.0148 per square foot per month for each dollar
per square foot (or fraction thereof) by which Landlord's share of such Cost of
Improvements is less than Ninety-Five and No/100 Dollars ($95.00) per square
foot; and

        (iii) if Landlord's share of the Cost of Improvements for the
Phase 2A Tenant Improvements is less than Seventy and No/100 Dollars ($70.00)
per square foot times the square footage of Building 2 (measured in accordance
with Section 3.1(d) hereof), the applicable factor shall be the sum of (A) $0.74
per square foot per month plus (B) $0.014 per square foot per month for each
dollar per square foot (or fraction thereof) by which Landlord's share of such
Cost of Improvements is less than Seventy and No/100 Dollars ($70.00) per square
foot but not less than Forty-Five and No/100 Dollars ($45.00) per square foot.

     In all events, upon the earlier to occur of (x) the first anniversary of
the Phase 2 Rent Commencement Date or (y) the date construction of the Phase 2B
Tenant Improvements is certified by Landlord's architect as being substantially
complete (i.e., complete subject only to the completion of ?punch list? items
which do not, in the aggregate, materially interfere with Tenant's ability to
occupy and use the Phase 2B Tenant Improvements for the uses contemplated
hereunder), the foregoing rental adjustment shall expire and Tenant's minimum
monthly rental obligation shall revert to the full amount established under
Section 1.1(c)(ii) or (iii), as applicable, for Building 2, subject only to any
applicable adjustment under Section 3.1(d).

     3.2   Late Charge.  If Tenant fails to pay when due rental or other amounts
           -----------
due Landlord hereunder, such unpaid amounts shall bear interest for the benefit
of Landlord at a rate equal to the lesser of fifteen percent (15%) per annum or
the maximum rate permitted by law, from the date due to the date of payment.  In
addition to such interest, Tenant shall pay to Landlord a late charge in an
amount equal to six percent (6%) of any installment of minimum rental and any
other amounts due Landlord if not paid in full on or before the fifth (5th) day
after such rental or other amount is due.  Tenant acknowledges that late payment
by Tenant to Landlord of rental or other amounts due hereunder will cause
Landlord to incur costs not contemplated by this Lease, including, without
limitation, processing and accounting charges and late charges which may be
imposed on Landlord by the terms of any loan relating to the Property.  Tenant
further acknowledges that it is extremely difficult and impractical to fix the
exact amount of such costs and that the late charge set forth in this Section
3.2 represents a fair and reasonable estimate thereof.  Acceptance of any late
charge by Landlord shall not constitute a waiver of Tenant's default with
respect to overdue rental or other amounts, nor shall such acceptance prevent
Landlord from exercising any other rights and remedies available to it.
Acceptance of rent or other payments by Landlord shall not constitute a waiver
of late charges or interest accrued with respect to such rent or other payments
or any prior installments thereof, nor of any other defaults by Tenant, whether
monetary or non-monetary in nature, remaining uncured at the time of such
acceptance of rent or other payments.

4.   STOCK WARRANTS
     --------------

                                       13
<PAGE>

     4.1  Stock Warrants.  Within thirty (30) days after the execution of this
          --------------
Lease, Tenant shall deliver to Landlord or Landlord's designees (which may be
any partners, shareholders or affiliates of Landlord or any affiliates of any
such partners, shareholders or affiliates of Landlord) warrants registered in
the name of Landlord or Landlord's designees for the acquisition of an aggregate
of one hundred fifty thousand (150,000) shares of Tenant's common stock, which
warrants shall be in form and substance substantially identical to the form of
warrant mutually approved by Landlord and Tenant prior to execution of this
Lease.  The warrants shall have an exercise price consistent with the most
recent arm's-length financing consummated by Tenant at the time of execution of
this Lease (which the parties presently estimate to be $3.00 per share) and
shall be exercisable for a period beginning on the date of this Lease and ending
on the fifth (5th) anniversary of the closing of the initial public offering (if
any) of Tenant's common stock.

5.   CONSTRUCTION
     ------------

     5.1  Construction of Improvements.
          ----------------------------

          (a) Landlord shall, at Landlord's cost and expense (except as
otherwise provided herein and in Exhibit C), construct Landlord's Work as
defined in and in accordance with the terms and conditions of the Workletter
attached hereto as Exhibit C (the "Workletter"). Landlord shall use its best
reasonable efforts to complete such construction promptly, diligently and within
the applicable time periods set forth in the Estimated Construction Schedule
attached hereto as Exhibit D and incorporated herein by this reference, as such
schedule may be modified from time to time in accordance with the Workletter,
subject to the effects of any delays caused by Tenant or any other circumstances
beyond Landlord's reasonable control (excluding any financial inability), and
subject to the provisions of Section 2.3 above. As described in Exhibit C,
Building 1 and the Tenant Improvements therein shall be constructed in a single
phase, but if Tenant exercises its option under Section 1.1(c)(ii) or (iii) to
have Building 2 constructed on the Phase 2-A Property or the Phase 2-B Property,
then Tenant in its discretion may elect, by written notice to Landlord at any
time prior to Landlord's delivery to Tenant of the Structural Completion
Certificate for the Building Shell for Building 2, to have the Tenant
Improvements in Building 2 completed in two separate phases, a first phase of no
less than 25,000 square feet ("Phase 2A") and a second phase of no more than
20,000 square feet ("Phase 2B"), with the sum of the square footages for such
phases to be equal to the total square footage of Building 2 and the
construction of Phase 2B to be completed no later than twelve (12) months after
the Phase 2 Rent Commencement Date. If Tenant exercises its option for Building
2 and elects such phased completion of the Tenant Improvements in Building 2,
then (i) Landlord shall still construct the entire Building Shell for Building 2
in the same manner and within the same time frame as if all of the Building 2
Improvements were to be constructed in a single phase, (ii) Tenant shall be
entitled to occupy and use all of Building 2 or any lesser portion thereof
(including, at Tenant's election, any portions in which Tenant Improvements have
not yet been completed) from and after the completion of Phase 2A, and (iii)
Tenant shall begin paying rent for all of Building 2 on the Phase 2 Rent
Commencement Date, subject to a rental adjustment under Section 3.1(e) hereof in
accordance with its terms, regardless of how much of Building 2 is actually
occupied by Tenant as of that date.

          (b) Tenant shall, at Tenant's cost and expense (except as otherwise
provided herein and in Exhibit C), promptly and diligently construct Tenant's
Work as defined in and in accordance with the terms and conditions of the
Workletter.

     5.2  Condition of Property.  Landlord shall deliver the Building Shell for
          ---------------------
each Building and the other Improvements constructed by Landlord in each
Building to Tenant clean and free of debris, promptly upon completion of
construction thereof, and Landlord warrants to Tenant that the Building Shell
for each Building and the other Improvements constructed by Landlord in each
Building (i) shall be free from material structural defects and shall be in good
operating condition on the applicable Rent Commencement Date, and (ii) shall be
constructed in compliance in all material respects with the plans and
specifications developed pursuant to the Workletter and mutually approved (to
the extent required thereunder) by Landlord and Tenant, subject to any changes
implemented in such specifications in accordance with the procedures set forth
in the Workletter.  If this warranty is violated in any respect, then it shall
be the obligation of Landlord, after receipt of written notice from Tenant
setting forth with specificity the nature of the violation, to promptly, at
Landlord's sole cost, correct the condition(s) constituting such violation.
Tenant's failure to give such written notice to Landlord within one (1) year
after the

                                       14
<PAGE>

applicable Rent Commencement Date relating to such Building and Improvements
shall give rise to a conclusive presumption that Landlord has complied with all
Landlord's obligations hereunder, except with respect to latent defects (as to
which such 1-year limitation shall not apply). Without limiting the scope of
Landlord's obligations under the foregoing provisions of this Section 5.2,
Landlord also agrees to either (x) use its best reasonable efforts to enforce
when and as necessary, for the benefit of Tenant and the Improvements, any and
all contractor's and/or manufacturer's warranties extending more than one (1)
year after the applicable Rent Commencement Date with respect to any of
Landlord's Work or, at Tenant's request, (y) assign any or all of such
warranties to Tenant for enforcement purposes (provided, however, that Landlord
may reserve joint enforcement rights under such warranties to the extent of
Landlord's continuing obligations or warranties hereunder). TENANT ACKNOWLEDGES
THAT THE WARRANTY CONTAINED IN THIS SECTION IS IN LIEU OF ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, WITH RESPECT TO THE PHYSICAL CONDITION OF THE IMPROVEMENTS
TO BE CONSTRUCTED BY LANDLORD AND THAT LANDLORD MAKES NO OTHER WARRANTIES EXCEPT
AS EXPRESSLY SET FORTH IN THIS LEASE.

     5.3  Compliance with Law.  Landlord warrants to Tenant that the Building
          -------------------
Shell for each Building and the other Improvements constructed by Landlord in
each Building (when constructed), as they exist on the applicable Rent
Commencement Date, but without regard to the use for which Tenant will occupy
the respective Buildings, shall not violate any covenants or restrictions of
record or any applicable law, building code, regulation or ordinance in effect
on the applicable Rent Commencement Date.  Tenant warrants to Landlord that the
Tenant Improvements and any other improvements constructed by Tenant from time
to time shall not violate any applicable law, building code, regulation or
ordinance in effect on the applicable Rent Commencement Date or at the time such
improvements are placed in service.  If it is determined that any of these
warranties has been violated, then it shall be the obligation of the warranting
party, after written notice from the other party, to correct the condition(s)
constituting such violation promptly, at the warranting party's sole cost and
expense.  Tenant acknowledges that except as expressly set forth in this Lease,
neither Landlord nor any agent of Landlord has made any representation or
warranty as to the present or future suitability of the Property or Improvements
for the conduct of Tenant's business or proposed business thereon.

6.   TAXES
     -----

     6.1  Personal Property.  Tenant shall be responsible for and shall pay
          -----------------
prior to delinquency all taxes and assessments levied against or by reason of
(a) any and all alterations, additions and items installed or placed on or in
the Buildings and taxed as personal property rather than as real property,
and/or (b) all personal property, trade fixtures and other property placed by
Tenant on or about the Property.  Upon request by Landlord, Tenant shall furnish
Landlord with satisfactory evidence of Tenant's payment thereof.  If at any time
during the term of this Lease any of said alterations, additions or personal
property, whether or not belonging to Tenant, shall be taxed or assessed as part
of the Property, then such tax or assessment shall be paid by Tenant to Landlord
within fifteen (15) days after presentation by Landlord of copies of the tax
bills in which such taxes and assessments are included and shall, for the
purposes of this Lease, be deemed to be personal property taxes or assessments
under this Section 6.1.

     6.2  Real Property.  To the extent any real property taxes and assessments
          -------------
on the Property (including, but not limited to, the Improvements or any portion
thereof) are assessed directly to Tenant, Tenant shall be responsible for and
shall pay prior to delinquency all such taxes and assessments levied against the
Property.  Upon request by Landlord, Tenant shall furnish Landlord with
satisfactory evidence of Tenant's payment thereof.  To the extent the Property
and/or Improvements are taxed or assessed to Landlord following the Phase 1 Rent
Commencement Date, such real property taxes and assessments shall constitute
Operating Expenses (as that term is defined in Section 7.2 of this Lease) and
shall be paid in accordance with the provisions of Article 7 of this Lease.

7.   OPERATING EXPENSES
     ------------------

     7.1  Payment of Operating Expenses.
          -----------------------------

                                       15
<PAGE>

         (a) Tenant shall pay to Landlord, at the time and in the manner
hereinafter set forth, as additional rental, an amount equal to one hundred
percent (100%) ("Tenant's Operating Cost Share") of the Operating Expenses
defined in Section 7.2.

         (b) Tenant's Operating Cost Share as specified in paragraph (a) of this
Section is based upon Tenant being the sole occupant of the Property and upon
the Property being operated and accounted for separately from the balance of the
Britannia Pointe Grand Business Park for operation, maintenance and common area
purposes.  Notwithstanding any other provisions of this Lease, during the period
prior to the Phase 2 Rent Commencement Date, no Operating Expenses relating to
the Phase 2 Property or to Building 2 shall be included in the Operating
Expenses chargeable to Tenant under this Lease.

         (c) If Landlord at any time elects to operate the Property on an
integrated basis with the balance of the Britannia Pointe Grand Business Park or
with any other adjacent property owned by Landlord for operation, maintenance
and common area purposes, then Tenant's Operating Cost Share shall be adjusted
to be equal to the percentage determined by dividing the gross square footage of
the Buildings as they exist from time to time by the gross square footage of all
buildings located on the Property and on such adjacent property owned by
Landlord as described above. In determining such percentage, a building shall be
taken into account from and after the date on which a tenant first enters into
possession of the building or a portion thereof, and the good faith
determination of the gross square footage of any such building by Landlord's
architects shall be final and binding upon the parties. Without limiting the
generality of the foregoing provisions, if Building 2 is constructed on the
Phase 2-B Property, Landlord in its discretion may elect to treat Building 2 as
part of the Britannia Pointe Grand Business Park for operation, maintenance and
common area purposes and to treat Building 1 as not being part of the Britannia
Pointe Grand Business Park for operation, maintenance and common area purposes,
in which event Tenant's Operating Cost Share and the Operating Expenses to which
such Operating Cost Share applies shall be calculated separately for each of
such two Buildings and references to the "Property" in this Article 7 shall be
construed accordingly.

     7.2 Definition Of Operating Expenses.
         --------------------------------

         (a) Subject to the exclusions and provisions hereinafter contained,
the term "Operating Expenses" shall mean the total costs and expenses incurred
by or allocable to Landlord for management, operation and maintenance of the
Improvements, the Buildings and the Property, including, without limitation,
costs and expenses of (i) insurance (which may include, at Landlord's option,
earthquake insurance as part of or in addition to any casualty or property
insurance policy), property management, landscaping, and the operation, repair
and maintenance of buildings and Common Areas; (ii) all utilities and services;
(iii) real and personal property taxes and assessments or substitutes therefor
levied or assessed against the Property or any part thereof, including (but not
limited to) any possessory interest, use, business, license or other taxes or
fees, any taxes imposed directly on rents or services, any assessments or
charges for police or fire protection, housing, transit, open space, street or
sidewalk construction or maintenance or other similar services from time to time
by any governmental or quasi-governmental entity, and any other new taxes on
landlords in addition to taxes now in effect; (iv) supplies, equipment,
utilities and tools used in management, operation and maintenance of the
Property; (v) capital improvements to the Property, the Improvements or the
Buildings, amortized over a reasonable period, (aa) which reduce or will cause
future reduction of other items of Operating Expenses for which Tenant is
otherwise required to contribute or (bb) which are required by law, ordinance,
regulation or order of any governmental authority or (cc) of which Tenant has
use or which benefit Tenant; and (vi) any other costs (including, but not
limited to, any parking or utilities fees or surcharges) allocable to or paid by
Landlord, as owner of the Property, Buildings or Improvements, pursuant to any
applicable laws, ordinances, regulations or orders of any governmental or quasi-
governmental authority or pursuant to the terms of any declarations of
covenants, conditions and restrictions now or hereafter affecting the Property
or any other property over which Tenant has non-exclusive use rights as
contemplated in Section 1.1(b) hereof. Operating Expenses shall not include any
costs attributable to the work for which Landlord is required to pay under
Article 5 or Exhibit C, nor any costs attributable to the initial construction
of the Buildings or of Common Area improvements on the Property. The distinction
between items of ordinary operating maintenance and repair and items of a
capital nature shall be made in accordance with generally accepted accounting
principles applied on a

                                       16
<PAGE>

consistent basis or in accordance with tax accounting principles, as determined
in good faith by Landlord's accountants.

     (b) Notwithstanding anything to the contrary contained in this Lease, the
following shall not be included within Operating Expenses:

         (i)   Costs of maintenance or repair of the roof membrane for any
building, except during periods (if any) in which costs of maintenance or repair
of the roof membranes for the Buildings are likewise included as an Operating
Expense (rather than being incurred directly by Tenant or passed through
directly to Tenant on a building-by-building basis);

         (ii)   Leasing commissions, attorneys' fees, costs, disbursements, and
other expenses incurred in connection with negotiations or disputes with
tenants, or in connection with leasing, renovating or improving space for
tenants or other occupants or prospective tenants or other occupants of the
Property or of any other property owned by Landlord;

         (iii)  The cost of any service sold to any tenant (including
Tenant) or other occupant for which Landlord is entitled to be reimbursed as an
additional charge or rental over and above the basic rent and operating expenses
payable under the lease with that tenant;

         (iv)   Any depreciation on the Buildings or on any other improvements
on the Property or on any other property owned by Landlord;

         (v)    Expenses in connection with services or other benefits of a type
that are not offered or made available to Tenant but that are provided to
another tenant of the Property or of any other property owned by Landlord;

         (vi)   Costs incurred due to Landlord's violation of any terms or
conditions of this Lease or of any other lease relating to the Buildings or to
any other portion of the Property or of any other property owned by Landlord;

         (vii)  Overhead profit increments paid to any subsidiary or
affiliate of Landlord for management or other services on or to the Property or
any portion thereof or any other property owned by Landlord, or for supplies or
other materials to the extent that the cost of the services, supplies or
materials exceeds the cost that would have been paid had the services, supplies
or materials been provided by unaffiliated parties on a competitive basis;

         (viii) All interest, loan fees and other carrying costs related to
any mortgage or deed of trust or related to any capital item, and all rental and
other amounts payable under any ground or underlying lease, or under any lease
for any equipment ordinarily considered to be of a capital nature (except (A)
janitorial equipment which is not affixed to the Buildings and/or (B) equipment
the cost of which, if purchased, would be considered an amortizable Operating
Expense under the provisions of this Section 7.2, notwithstanding the capital
nature of such equipment);

         (ix)   Any compensation paid to clerks, attendants or other persons in
commercial concessions operated by Landlord;

         (x)    Advertising and promotional expenditures;

         (xi)   Costs of repairs and other work occasioned by fire, windstorm or
other casualty of an insurable nature, except to the extent of any applicable
deductible amounts under insurance actually carried by Landlord;

         (xii)  Any costs, fines or penalties incurred due to violations by
Landlord of any governmental rule or authority or of this Lease or any other
lease of any portion of the Property or any other property owned by Landlord, or
due to Landlord's negligence or willful misconduct;

         (xiii) Management fees to the extent they exceed, in any given period,
one percent (1%) of gross income (rent and Operating Expenses) received by
Landlord with respect to the Property (and any other property owned by Landlord
and operated on an integrated

                                       17
<PAGE>

basis with the Property for operation, maintenance and common area purposes)
during the applicable period;

         (xiv)   Costs for sculpture, paintings or other objects of art, and for
any insurance thereon or extraordinary security in connection therewith;

         (xv)    Wages, salaries or other compensation paid to any executive
employees above the grade of building manager;

         (xvi)   The cost of correcting any building code or other violations
which were violations prior to the applicable Rent Commencement Date;

         (xvii)  The cost of containing, removing or otherwise remediating any
contamination of the Property (including the underlying land and groundwater) by
any toxic or hazardous materials (including, without limitation, asbestos and
PCBs); and

         (xviii) Premiums for earthquake insurance coverage, but only to the
extent (if any) that such premiums exceed, in any applicable period, a
commercially reasonable rate, taking into account all relevant factors
(including, but not limited to, the nature, size and location of the Property,
the nature and value of the improvements therein that are owned by or insurable
by Landlord, and the general availability and cost of commercial earthquake
insurance in the insurance markets existing from time to time during the term of
this Lease).

  7.3  Determination Of Operating Expenses.  On or before the Phase 1 Rent
       -----------------------------------
Commencement Date and during the last month of each calendar year of the term of
this Lease ("Lease Year"), or as soon thereafter as practical, Landlord shall
provide Tenant notice of Landlord's estimate of the Operating Expenses for the
ensuing Lease Year or applicable portion thereof.  On or before the first day of
each month during the ensuing Lease Year or applicable portion thereof,
beginning on the Phase 1 Rent Commencement Date, Tenant shall pay to Landlord
Tenant's Operating Cost Share of the portion of such estimated Operating
Expenses allocable (on a prorata basis) to such month; provided, however, that
if such notice is not given in the last month of a Lease Year, Tenant shall
continue to pay on the basis of the prior year's estimate, if any, until the
month after such notice is given.  If at any time or times it appears to
Landlord that the actual Operating Expenses will vary from Landlord's estimate
by more than five percent (5%), Landlord may, by notice to Tenant, revise its
estimate for such year and subsequent payments by Tenant for such year shall be
based upon such revised estimate.

  7.4  Final Accounting For Lease Year.
       -------------------------------

       (a) Within ninety (90) days after the close of each Lease Year, or as
soon after such 90-day period as practicable, Landlord shall deliver to Tenant a
statement of Tenant's Operating Cost Share of the Operating Expenses for such
Lease Year prepared by Landlord from Landlord's books and records, which
statement shall be final and binding on Landlord and Tenant (except as provided
in Section 7.4(b)). If on the basis of such statement Tenant owes an amount that
is more or less than the estimated payments for such Lease Year previously made
by Tenant, Tenant or Landlord, as the case may be, shall pay the deficiency to
the other party within thirty (30) days after delivery of the statement. Failure
or inability of Landlord to deliver the annual statement within such ninety (90)
day period shall not impair or constitute a waiver of Tenant's obligation to pay
Operating Expenses, or cause Landlord to incur any liability for damages.

       (b) At any time within three (3) months after receipt of Landlord's
annual statement of Operating Expenses as contemplated in Section 7.4(a), Tenant
shall be entitled, upon reasonable written notice to Landlord and during normal
business hours at Landlord's office or such other places as Landlord shall
designate, to inspect and examine those books and records of Landlord relating
to the determination of Operating Expenses for the immediately preceding Lease
Year covered by such annual statement or, if Tenant so elects by written notice
to Landlord, to request an independent audit of such books and records. The
independent audit of the books and records shall be conducted by a certified
public accountant acceptable to both Landlord and Tenant or, if the parties are
unable to agree, by a certified public accountant appointed by the Presiding
Judge of the San Mateo County Superior Court upon the application of either
Landlord or Tenant (with notice to the other party). In either event, such
certified public accountant shall be one who is not then employed in any
capacity by Landlord or Tenant

                                       18
<PAGE>

or by any of their respective affiliates. The audit shall be limited to the
determination of the amount of Operating Expenses for the subject Lease Year,
and shall be based on generally accepted accounting principles and tax
accounting principles, consistently applied. If it is determined, by mutual
agreement of Landlord and Tenant or by independent audit, that the amount of
Operating Expenses billed to or paid by Tenant for the applicable Lease Year was
incorrect, then the appropriate party shall pay to the other party the
deficiency or overpayment, as applicable, within thirty (30) days after the
final determination of such deficiency or overpayment. All costs and expenses of
the audit shall be paid by Tenant unless the audit shows that Landlord
overstated Operating Expenses for the subject Lease Year by more than five
percent (5%), in which case Landlord shall pay all costs and expenses of the
audit. Each party agrees to maintain the confidentiality of the findings of any
audit in accordance with the provisions of this Section 7.4.

   7.5  Proration.  If the Phase 1 Rent Commencement Date falls on a day other
        ---------
than the first day of a Lease Year or if this Lease terminates on a day other
than the last day of a Lease Year, then the amount of Operating Expenses payable
by Tenant with respect to such first or last partial Lease Year shall be
prorated on the basis which the number of days during such Lease Year in which
this Lease is in effect bears to 365.  The termination of this Lease shall not
affect the obligations of Landlord and Tenant pursuant to Section 7.4 to be
performed after such termination.

8. UTILITIES
   ---------

   8.1 Payment.  Commencing with the Phase 1 Rent Commencement Date and
       -------
thereafter throughout the term of this Lease with respect to Building 1, and
commencing with the Phase 2 Rent Commencement Date and thereafter throughout the
term of this Lease with respect to Building 2, Tenant shall pay, before
delinquency, all charges for water, gas, heat, light, electricity, power, sewer,
telephone, alarm system, janitorial and other services or utilities supplied to
or consumed in or with respect to the respective Buildings (other than any
separately metered costs for water, electricity or other services or utilities
furnished with respect to the Common Areas, which costs shall be paid by
Landlord and shall constitute Operating Expenses under Section 7.2 hereof),
including any taxes on such services and utilities.  It is the intention of the
parties that all such services shall be separately metered to the Buildings.  In
the event that any of such services supplied to the Buildings are not separately
metered, then the amount thereof shall be an item of Operating Expenses and
shall be paid as provided in Article 7.

   8.2 Interruption.  There shall be no abatement of rent or other charges
       ------------
required to be paid hereunder and Landlord shall not be liable in damages or
otherwise for interruption or failure of any service or utility furnished to or
used with respect to the Buildings or Property because of accident, making of
repairs, alterations or improvements, severe weather, difficulty or inability in
obtaining services or supplies, labor difficulties or any other cause.
Notwithstanding the foregoing provisions of this Section 8.2, however, in the
event of any interruption or failure of any service or utility to the Buildings
that (i) is caused in whole or in material part by the active negligence or
willful misconduct of Landlord or its agents or employees and (ii) continues for
more than three (3) business days and (iii) materially impairs Tenant's ability
to use the Buildings for their intended purposes hereunder, then following such
three (3) business day period, Tenant's obligations for payment of rent and
other charges under this Lease shall be abated in proportion to the degree of
impairment of Tenant's use of the Buildings, and such abatement shall continue
until Tenant's use of the Buildings is no longer materially impaired thereby.

9. ALTERATIONS; SIGNS
   ------------------

   9.1 Right To Make Alterations. Tenant shall make no alterations, additions or
       -------------------------
improvements to the Buildings or the Property, other than interior non-
structural alterations costing less than Fifty Thousand Dollars ($50,000.00) in
the aggregate during any twelve (12) month period, without the prior written
consent of Landlord, which consent shall not be unreasonably withheld or
delayed. All such alterations, additions and improvements shall be completed
with due diligence in a first-class workmanlike manner, in compliance with plans
and specifications approved in writing by Landlord and in compliance with all
applicable laws, ordinances, rules and regulations, and to the extent Landlord's
consent is not otherwise required hereunder for such alterations, additions or
improvements, Tenant shall give prompt written notice thereof to Landlord.
Tenant shall cause any contractors engaged by Tenant for work in

                                       19
<PAGE>

the Buildings or on the Property to maintain public liability and property
damage insurance, and other customary insurance, with such terms and in such
amounts as Landlord may reasonably require, naming as additional insureds
Landlord and any of its partners, shareholders, property managers and lenders
designated by Landlord for this purpose, and shall furnish Landlord with
certificates of insurance or other evidence that such coverage is in effect.
Notwithstanding any other provisions of this Section 9.1, under no circumstances
shall Tenant make any structural alterations or improvements, or any substantial
changes to the roof or substantial equipment installations on the roof, or any
substantial changes or alterations to the building systems, without Landlord's
prior written consent (which consent shall not be unreasonably withheld or
delayed). If Tenant so requests in seeking Landlord's consent to any
alterations, additions or improvements, Landlord shall specify in granting such
consent whether Landlord intends to require that Tenant remove such alterations,
additions or improvements (or any specified portions thereof) upon expiration or
termination of this Lease. Landlord shall receive no fee for supervision,
profit, overhead or general conditions in connection with any alterations,
additions or improvements constructed or installed by Tenant under this Lease,
whether as part of the initial Tenant's Work under Exhibit C or otherwise.

  9.2     Title To Alterations.  All alterations, additions and improvements
          --------------------
installed in, on or about the Buildings or the Property shall become part of the
Property and shall become the property of Landlord, unless Landlord elects to
require Tenant to remove the same upon the termination of this Lease; provided,
however, that the foregoing shall not apply to Tenant's movable furniture and
equipment and trade fixtures.  Tenant shall promptly repair any damage caused by
its removal of any such furniture, equipment or trade fixtures.  Notwithstanding
any other provisions of this Article 9, however, (a) under no circumstances
shall Tenant have any right to remove from the Buildings or the Property, at the
expiration or termination of this Lease, any lab benches, fume hoods, cold rooms
or other similar improvements and equipment installed in the Buildings and paid
for by Landlord or Tenant, even if such equipment and improvements were
installed by Tenant as part of Tenant's Work under Exhibit C and paid for by
Tenant in cash or in the form of rent; and (b) if Tenant requests Landlord's
written consent to any alterations, additions or improvements under Section 9.1
hereof and, in requesting such consent, asks that Landlord specify whether
Landlord will require removal of such alterations, additions or improvements
upon termination or expiration of this Lease, then Landlord shall not be
entitled to require such removal unless Landlord specified its intention to do
so at the time of granting of Landlord's consent to the requested alterations,
additions or improvements.

  9.3     Tenant Fixtures.  Subject to the final sentence of Section 9.2 and to
          ---------------
Section 9.5, Tenant may install, remove and reinstall trade fixtures without
Landlord's prior written consent, except that installation and removal of any
fixtures which are affixed to the Buildings or the Property or which affect the
exterior or structural portions of the Buildings or the building systems shall
require Landlord's written approval, which approval shall not be unreasonably
withheld or delayed.  Subject to the provisions of Section 9.5, the foregoing
shall apply to Tenant's signs, logos and insignia, all of which Tenant shall
have the right to place and remove and replace (a) only with Landlord's prior
written consent as to location, size and composition, which consent shall not be
unreasonably withheld or delayed, and (b) only in compliance with all
restrictions and requirements of applicable law and of any covenants, conditions
and restrictions or other written agreements now or hereafter applicable to the
Property.  Tenant shall immediately repair any damage caused by installation and
removal of fixtures under this Section 9.3.

  9.4     No Liens.  Tenant shall at all times keep the Buildings and the
          --------
Property free from all liens and claims of any contractors, subcontractors,
materialmen, suppliers or any other parties employed either directly or
indirectly by Tenant in construction work on the Buildings or the Property.
Tenant may contest any claim of lien, but only if, prior to such contest, Tenant
either (i) posts security in the amount of the claim, plus estimated costs and
interest, or (ii) records a bond of a responsible corporate surety in such
amount as may be required to release the lien from the Buildings and the
Property.  Tenant shall indemnify, defend and hold Landlord harmless against any
and all liability, loss, damage, cost and other expenses, including, without
limitation, reasonable attorneys' fees, arising out of claims of any lien for
work performed or materials or supplies furnished at the request of Tenant or
persons claiming under Tenant.

  9.5     Signs.  Without limiting the generality of the provisions of Section
          -----
9.3 hereof, Tenant shall have the right to display its corporate name and logo
on the Buildings and in front of the entrance to the Buildings, subject to
Landlord's prior approval as to location, size, design

                                       20
<PAGE>

and composition (which approval shall not be unreasonably withheld or delayed),
subject to the established sign criteria for the Britannia Pointe Grand Business
Park and subject to all restrictions and requirements of applicable law and of
any covenants, conditions and restrictions or other written agreements now or
hereafter applicable to the Property. Landlord is hereby deemed to have
approved, as to location, any signage the location of which is expressly
designated on any Approved Plan developed pursuant to the Workletter.

10.  MAINTENANCE AND REPAIRS
     -----------------------

     10.1    Landlord's Work.
             ---------------

             (a) Landlord shall repair and maintain or cause to be repaired and
maintained the Common Areas of the Property and the roof (structural portions
only), exterior walls and other structural portions of the Buildings.  The cost
of all work performed by Landlord under this Section 10.1 shall be an Operating
Expense hereunder, except to the extent such work (i) is required due to the
negligence of Landlord, (ii) involves the repair or correction of a condition or
defect that Landlord is required to correct pursuant to Section 5.2 hereof,
(iii) is a capital expense not includible as an Operating Expense under Section
7.2 hereof, or (iv) is required due to the negligence or willful misconduct of
Tenant or its agents, employees or invitees (in which event Tenant shall bear
the full cost of such work pursuant to the indemnification provided in Section
12.6 hereof, subject to the release set forth in Section 12.4 hereof).  Tenant
knowingly and voluntarily waives the right to make repairs at Landlord's
expense, except to the extent permitted by Section 10.1(b) below, or to offset
the cost thereof against rent, under any law, statute, regulation or ordinance
now or hereafter in effect.

             (b) If Landlord fails to perform any repairs or maintenance
required to be performed by Landlord on the Buildings under Section 10.1(a) and
such failure continues for thirty (30) days or more after Tenant gives Landlord
written notice of such failure (or, if such repairs or maintenance cannot
reasonably be performed within such 30-day period, then if Landlord fails to
commence performance within such 30-day period and thereafter to pursue such
performance diligently to completion), then Tenant shall have the right to
perform such repairs or maintenance and Landlord shall reimburse Tenant for the
reasonable cost thereof within fifteen (15) days after written notice from
Tenant of the completion and cost of such work, accompanied by copies of
invoices or other reasonable supporting documentation. Under no circumstances,
however, shall Tenant have any right to offset the cost of any such work against
rent or other charges falling due from time to time under this Lease.

     10.2    Tenant's Obligation For Maintenance.
             -----------------------------------

             (a) Good Order, Condition And Repair. Except as provided in Section
                 --------------------------------
10.1 hereof, Tenant at its sole cost and expense shall keep and maintain in good
and sanitary order, condition and repair the Buildings and every part thereof,
wherever located, including but not limited to the roof (non-structural portions
only), signs, interior, ceiling, electrical system, plumbing system, telephone
and communications systems of the Buildings, the HVAC equipment and related
mechanical systems serving the Buildings (for which equipment and systems Tenant
shall enter into a service contract with a person or entity designated or
approved by Landlord), all doors, door checks, windows, plate glass, door
fronts, exposed plumbing and sewage and other utility facilities, fixtures,
lighting, wall surfaces, floor surfaces and ceiling surfaces of the Buildings
and all other interior repairs, foreseen and unforeseen, with respect to the
Buildings, as required.

             (b) Landlord's Remedy. If Tenant, after notice from Landlord, fails
                 -----------------
to make or perform promptly any repairs or maintenance which are the obligation
of Tenant hereunder, Landlord shall have the right, but shall not be required,
to enter the Buildings and make the repairs or perform the maintenance necessary
to restore the Buildings to good and sanitary order, condition and repair.
Immediately on demand from Landlord, the cost of such repairs shall be due and
payable by Tenant to Landlord.

             (c) Condition Upon Surrender. At the expiration or sooner
                 ------------------------
termination of this Lease, Tenant shall surrender the Buildings and the
Improvements, including any additions, alterations and improvements thereto,
broom clean, in good and sanitary order, condition and repair, ordinary wear and
tear excepted, first, however, removing all goods and effects of Tenant and all
and fixtures and items required to be removed or specified to be removed at
Landlord's

                                       21
<PAGE>

election pursuant to this Lease (including, but not limited to, any such removal
required as a result of an election duly made by Landlord to require such
removal as contemplated in Section 9.2), and repairing any damage caused by such
removal. Tenant shall not have the right to remove fixtures or equipment if
Tenant is in default hereunder unless Landlord specifically waives this
provision in writing. Tenant expressly waives any and all interest in any
personal property and trade fixtures not removed from the Property by Tenant at
the expiration or termination of this Lease, agrees that any such personal
property and trade fixtures may, at Landlord's election, be deemed to have been
abandoned by Tenant, and authorizes Landlord (at its election and without
prejudice to any other remedies under this Lease or under applicable law) to
remove and either retain, store or dispose of such property at Tenant's cost and
expense, and Tenant waives all claims against Landlord for any damages resulting
from any such removal, storage, retention or disposal.

11.  USE OF PROPERTY
     ---------------

     11.1    Permitted Use. Subject to Sections 11.3, 11.4 and 11.6 hereof,
             -------------
Tenant shall use the Buildings solely for a laboratory research and development
facility, including (but not limited to) wet chemistry and biology labs, clean
rooms, pilot scale, clinical scale and GMP scale manufacturing, storage and use
of toxic and radioactive materials (subject to the provisions of Section 11.6
hereof), storage and use of laboratory animals, administrative offices, and
other lawful purposes reasonably related to or incidental to such specified uses
(subject in each case to receipt of all necessary approvals from the City of
South San Francisco and other governmental agencies having jurisdiction over the
Buildings), and for no other purpose.

     11.2    [Omitted.]
              --------

     11.3    No Nuisance.  Tenant shall not use the Property for or carry on or
             -----------
permit upon the Property or any part thereof any offensive, noisy or dangerous
trade, business, manufacture, occupation, odor or fumes, or any nuisance or
anything against public policy, nor interfere with the rights or business of
Landlord in the Buildings or the Property, nor commit or allow to be committed
any waste in, on or about the Property.  Tenant shall not do or permit anything
to be done in or about the Property, nor bring nor keep anything therein, which
will in any way cause the Property to be uninsurable with respect to the
insurance required by this Lease or with respect to standard fire and extended
coverage insurance with vandalism, malicious mischief and riot endorsements.

     11.4    Compliance With Laws. Tenant shall not use the Property or permit
             --------------------
the Property to be used in whole or in part for any purpose or use that is in
violation of any applicable laws, ordinances, regulations or rules of any
governmental agency or public authority. Tenant shall keep the Buildings and
Improvements equipped with all safety appliances required by law, ordinance or
insurance on the Property, or any order or regulation of any public authority,
because of Tenant's particular use of the Property. Tenant shall procure all
licenses and permits required for use of the Property. Tenant shall use the
Property in strict accordance with all applicable ordinances, rules, laws and
regulations and shall comply with all requirements of all governmental
authorities now in force or which may hereafter be in force pertaining to the
use of the Property by Tenant, including, without limitation, regulations
applicable to noise, water, soil and air pollution, and making such
nonstructural alterations and additions thereto as may be required from time to
time by such laws, ordinances, rules, regulations and requirements of
governmental authorities or insurers of the Property (collectively,
"Requirements") because of Tenant's construction of improvements in or other
particular use of the Property. Any structural alterations or additions required
from time to time by applicable Requirements because of Tenant's construction of
improvements in the Buildings or other particular use of the Property shall, at
Landlord's election, either (i) be made by Tenant, at Tenant's sole cost and
expense, in accordance with the procedures and standards set forth in Section
9.1 for alterations by Tenant, or (ii) be made by Landlord at Tenant's sole cost
and expense, in which event Tenant shall pay to Landlord as additional rent,
within ten (10) days after demand by Landlord, an amount equal to all reasonable
costs incurred by Landlord in connection with such alterations or additions. The
judgment of any court, or the admission by Tenant in any proceeding against
Tenant, that Tenant has violated any law, statute, ordinance or governmental
rule, regulation or requirement shall be conclusive of such violation as between
Landlord and Tenant.

     11.5    Liquidation Sales. Tenant shall not conduct or permit to be
             -----------------
conducted any auction, bankruptcy sale, liquidation sale, or going out of
business sale, in, upon or about the

                                       22
<PAGE>

Property, whether said auction or sale be voluntary, involuntary or pursuant to
any assignment for the benefit of creditors, or pursuant to any bankruptcy or
other insolvency proceeding.

     11.6    Environmental Matters.
             ---------------------

             (a) For purposes of this Section, "hazardous substance" shall mean
the substances included within the definitions of the term "hazardous substance"
under (i) the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, 42 U.S.C. (S)(S) 9601 et seq., and the regulations
promulgated thereunder, as amended, (ii) the California Carpenter-Presley-Tanner
Hazardous Substance Account Act, California Health & Safety Code (S)(S) 25300 et
seq., and regulations promulgated thereunder, as amended, (iii) the Hazardous
Materials Release Response Plans and Inventory Act, California Heath & Safety
Code (S)(S) 25500 et seq., and regulations promulgated thereunder, as amended,
and (iv) petroleum; "hazardous waste" shall mean (i) any waste listed as or
meeting the identified characteristics of a "hazardous waste" under the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. (S)(S) 6901 et seq., and
regulations promulgated pursuant thereto, as amended (collectively, "RCRA"),
(ii) any waste meeting the identified characteristics of "hazardous waste,"
"extremely hazardous waste" or "restricted hazardous waste" under the California
Hazardous Waste Control Law, California Health & Safety Code (S)(S) 25100 et
seq., and regulations promulgated pursuant thereto, as amended (collectively,
the "CHWCL"), and/or (iii) any waste meeting the identified characteristics of
"medical waste" under California Health & Safety Code (S)(S) 25015-25027.8, and
regulations promulgated thereunder, as amended; and "hazardous waste facility"
shall mean a hazardous waste facility as defined under the CHWCL.

             (b) Without limiting the generality of the obligations set forth in
Section 11.4 of this Lease:

                 (i)   Tenant shall not cause or permit any hazardous substance
or hazardous waste to be brought upon, kept, stored or used in or about the
Property without the prior written consent of Landlord, which consent shall not
be unreasonably withheld, except that Tenant, in connection with its permitted
use of the Property as provided in Section 11.1, may keep, store and use
materials that constitute hazardous substances which are customary for such
permitted use, provided such hazardous substances are kept, stored and used in
quantities which are customary for such permitted use and are kept, stored and
used in full compliance with clauses (ii) and (iii) immediately below.

                 (ii)  Tenant shall comply with all applicable laws, rules,
regulations, orders, permits, licenses and operating plans of any governmental
authority with respect to the receipt, use, handling, generation,
transportation, storage, treatment and/or disposal of hazardous substances or
wastes by Tenant or its agents or employees, and Tenant will provide Landlord
with copies of all permits, licenses, registrations and other similar documents
that authorize Tenant to conduct any such activities in connection with its
authorized use of the Property from time to time.

                 (iii) Tenant shall not (A) operate on or about the Property any
facility required to be permitted or licensed as a hazardous waste facility or
for which interim status as such is required, nor (B) store any hazardous wastes
on or about the Property for ninety (90) days or more, nor (C) conduct any other
activities on or about the Property that could result in the Property being
deemed to be a "hazardous waste facility" (including, but not limited to, any
storage or treatment of hazardous substances or hazardous wastes which could
have such a result).

                 (iv)  Tenant shall comply with all applicable laws, rules,
regulations, orders and permits relating to underground storage tanks installed
by Tenant or its agents or employees or at the request of Tenant (including any
installation, monitoring, maintenance, closure and/or removal of such tanks) as
such tanks are defined in California Health & Safety Code (S) 25281(x),
including, without limitation, complying with California Health & Safety Code
(S)(S) 25280-25299.7 and the regulations promulgated thereunder, as amended.
Tenant shall furnish to Landlord copies of all registrations and permits issued
to or held by Tenant from time to time for any and all underground storage tanks
located on or under the Property.

                 (v)   If applicable, Tenant shall provide Landlord in writing
the following information and/or documentation within fifteen (15) days after
the Phase 1 Rent

                                       23
<PAGE>

Commencement Date, and shall update such information at least annually, on or
before each anniversary of the Phase 1 Rent Commencement Date, to reflect any
change in or addition to the required information and/or documentation
(provided, however, that in the case of the materials described in subparagraphs
(B), (C) and (E) below, Tenant shall not be required to deliver copies of such
materials to Landlord but shall maintain copies of such materials to such extent
and for such periods as may be required by applicable law and shall permit
Landlord or its representatives to inspect and copy such materials during normal
business hours at any time and from time to time upon reasonable notice to
Tenant):

                    (A)  A list of all hazardous substances and/or wastes that
Tenant receives, uses, handles, generates, transports, stores, treats or
disposes of from time to time in connection with its operations on the Property.

                    (B)  All Material Safety Data Sheets ("MSDS's"), if any,
required to be completed with respect to operations of Tenant at the Property
from time to time in accordance with Title 26, California Code of Regulations
8-5194 or 42 U.S.C. (S) 11021, or any amendments thereto, and any Hazardous
Materials Inventory Sheets that detail the MSDS's.

                    (C)  All hazardous waste manifests (as defined in Title 26,
California Code of Regulations (S) 22-66481), if any, that Tenant is required to
complete from time to time in connection with its operations at the Property.

                    (D)  A copy of any Hazardous Materials Management Plan
required from time to time with respect to Tenant's operations at the Property,
pursuant to California Health & Safety Code (S)(S) 25500 et seq., and any
regulations promulgated thereunder, as amended.

                    (E)  Any Contingency Plans and Emergency Procedures required
of Tenant from time to time due to its operations in accordance with Title 26,
California Code of Regulations (S)(S) 22-67140 et seq., and any amendments
thereto, and any Training Programs and Records required under Title 26,
California Code of Regulations, (S) 22-67105, and any amendments thereto.

                    (F)  Copies of any biennial reports to be furnished to the
California Department of Health Services from time to time relating to hazardous
substances or wastes, pursuant to Title 26, California Code of Regulations,
22-66493, and any amendments thereto.

                    (G)  Copies of all industrial wastewater discharge permits
issued to or held by Tenant from time to time in connection with its operations
on the Property.

                    (H)  Copies of any other lists or inventories of hazardous
substances and/or wastes on or about the Property that Tenant is otherwise
required to prepare and file from time to time with any governmental or
regulatory authority.

               (vi) Tenant shall secure Landlord's prior written approval for
any proposed receipt, storage, possession, use, transfer or disposal of
"radioactive materials" or "radiation," as such materials are defined in Title
26, California Code of Regulations (S) 17-30100, and/or any other materials
possessing the characteristics of the materials so defined, which approval
Landlord may withhold in its sole and absolute discretion; provided, that such
approval shall not be required for any radioactive materials for which Tenant
has secured prior written approval of the Nuclear Regulatory Commission and
delivered to Landlord a copy of such approval. Tenant, in connection with any
such authorized receipt, storage, possession, use, transfer or disposal of
radioactive materials or radiation, shall:

                    (A)  Comply with all federal, state and local laws, rules,
regulations, orders, licenses and permits issued to or applicable to Tenant with
respect to its business operations on the Property;

                    (B)  Maintain, to such extent and for such periods as may be
required by applicable law, and permit Landlord and its representatives to
inspect during normal business hours at any time and from time to time upon
reasonable notice to Tenant, a list of all radioactive materials or radiation
received, stored, possessed, used, transferred or disposed of by Tenant or in
connection with the operation of Tenant's business on the Property from time to

                                       24
<PAGE>

time, to the extent not already disclosed through delivery of a copy of a
Nuclear Regulatory Commission approval with respect thereto as contemplated
above; and

                    (C) Maintain, to such extent and for such periods as may be
required by applicable law, and permit Landlord or its representatives to
inspect during normal business hours at any time and from time to time upon
reasonable notice to Tenant, all licenses, registration materials, inspection
reports, governmental orders and permits in connection with the receipt,
storage, possession, use, transfer or disposal of radioactive materials or
radiation by Tenant or in connection with the operation of Tenant's business on
the Property from time to time.

             (vii)  Tenant shall comply with any and all applicable laws, rules,
regulations and orders of any governmental authority with respect to the release
into the environment of any hazardous wastes or substances or radiation or
radioactive materials by Tenant or its agents or employees.  Tenant shall give
Landlord immediate verbal notice of any unauthorized release of any such
hazardous wastes or substances or radiation or radioactive materials into the
environment, and shall follow such verbal notice with written notice to Landlord
of such release within twenty-four (24) hours of the time at which Tenant became
aware of such release.

             (viii) Tenant shall indemnify, defend and hold Landlord harmless
from and against any and all claims, losses (including, but not limited to, loss
of rental income), damages, liabilities, costs, legal fees and expenses of any
sort arising out of or relating to (A) any failure by Tenant to comply with any
provisions of this paragraph 11.6(b), or (B) any receipt, use handling,
generation, transportation, storage, treatment, release and/or disposal of any
hazardous substance or waste or any radioactive material or radiation on or
about the Property as a proximate result of Tenant's use of the Property or as a
result of any intentional or negligent acts or omissions of Tenant or of any
agent, employee or invitee of Tenant.

             (ix)   Tenant shall cooperate with Landlord in furnishing Landlord
with complete information regarding Tenant's receipt, handling, use, storage,
transportation, generation, treatment and/or disposal of any hazardous
substances or wastes or radiation or radioactive materials. Upon request, Tenant
shall grant Landlord reasonable access at reasonable times to the Property to
inspect Tenant's receipt, handling, use, storage, transportation, generation,
treatment and/or disposal of hazardous substances or wastes or radiation or
radioactive materials, provided that Landlord uses reasonable efforts to avoid
any unreasonable interference with Tenant's business operations in exercising
such access and inspection rights, without thereby being deemed guilty of any
disturbance of Tenant's use or possession and without being liable to Tenant in
any manner.

             (x)    Notwithstanding Landlord's rights of inspection and review
under this paragraph 11.6(b), Landlord shall have no obligation or duty to so
inspect or review, and no third party shall be entitled to rely on Landlord to
conduct any sort of inspection or review by reason of the provisions of this
paragraph 11.6(b).

             (xi)   If Tenant receives, handles, uses, stores, transports,
generates, treats and/or disposes of any hazardous substances or wastes or
radiation or radioactive materials on or about the Property at any time during
the term of this Lease, then within thirty (30) days after the termination or
expiration of this Lease, Tenant at its sole cost and expense shall obtain and
deliver to Landlord an environmental study, performed by an expert reasonably
satisfactory to Landlord, evaluating the presence or absence of hazardous
substances and wastes, radiation and radioactive materials on and about the
Property. Such study shall be based on a reasonable and prudent level of tests
and investigations of the Property and surrounding areas (if appropriate), which
tests shall be conducted no earlier than the date of termination or expiration
of this Lease. Liability for any remedial actions required or recommended on the
basis of such study shall be allocated in accordance with Sections 11.4, 11.6,
12.6 and other applicable provisions of this Lease.

         (c) Landlord shall indemnify, defend and hold Tenant harmless from and
against any and all claims, losses, damages, liabilities, costs, legal fees and
expenses of any sort arising out of or relating to (i) the presence on the
Property of any hazardous substances or wastes or radiation or radioactive
materials as of the Phase 1 Rent Commencement Date (other than as a result of
any intentional or negligent acts or omissions of Tenant or of any agent,

                                       25
<PAGE>

employee or invitee of Tenant), (ii) any unauthorized release into the
environment (including, but not limited to, the Property) of any hazardous
substances or wastes or radiation or radioactive materials to the extent such
release results from the negligence of or willful misconduct or omission by
Landlord or its agents or employees, and/or (iii) the presence on the Property
of any hazardous substances or wastes or radiation or radioactive materials
arising after the Phase 1 Rent Commencement Date from any cause or source other
than as a result of any intentional or negligent acts or omissions of Tenant or
of any agent, employee or invitee of Tenant.

             (d)   The provisions of this Section 11.6 shall survive the
termination of this Lease.

12.  INSURANCE AND INDEMNITY
     -----------------------

     12.1    Insurance.
             ---------

             (a) Tenant shall procure and maintain in full force and effect at
all times during the term of this Lease, at Tenant's cost and expense,
commercial general liability insurance to protect against liability to the
public, or to any invitee of Tenant or Landlord, arising out of or related to
the use of or resulting from any accident occurring in, upon or about the
Property, with limits of liability of not less than (i) Two Million Dollars
($2,000,000.00) for injury to or death of one person, (ii) Five Million Dollars
($5,000,000.00) for personal injury or death, per occurrence, and (iii) One
Million Dollars ($1,000,000.00) for property damage, or combined single limit of
liability of not less than Five Million Dollars ($5,000,000.00). Such insurance
shall name Landlord, its general partners, its Managing Agent and any lender
holding a deed of trust on the Property from time to time (as designated in
writing by Landlord to Tenant from time to time) as additional insureds
thereunder. The amount of such insurance shall not be construed to limit any
liability or obligation of Tenant under this Lease. Tenant shall also procure
and maintain in full force and effect at all times during the term of this
Lease, at Tenant's cost and expense, products/completed operations coverage on
terms and in amounts (A) customary in Tenant's industry for companies engaged in
the marketing of products on a scale comparable to that in which Tenant is
engaged from time to time and (B) mutually satisfactory to Landlord and Tenant
in their respective reasonable discretion.

             (b) Landlord shall procure and maintain in full force and effect at
all times during the term of this Lease, at Landlord's cost and expense (but
reimbursable as an Operating Expense under Section 7.2 hereof), commercial
general liability insurance to protect against liability arising out of or
related to the use of or resulting from any accident occurring in, upon or about
the Property, with combined single limit of liability of not less than Five
Million Dollars ($5,000,000.00) per occurrence for bodily injury and property
damage.

             (c) Landlord shall procure and maintain in full force and effect at
all times during the term of this Lease, at Landlord's cost and expense (but
reimbursable as an Operating Expense under Section 7.2 hereof), policies of
property insurance providing protection against "all risk of direct physical
loss" (as defined by and detailed in the Insurance Service Office's Commercial
Property Program "Cause of Loss--Special Form [CP1030]" or its equivalent) for
the Building Shell (as defined in Exhibit C) of the Buildings and for the
improvements in the Common Areas of the Property, on a full replacement cost
basis (with no co-insurance or, if coverage without co-insurance is not
reasonably available, then on an "agreed amount" basis). Such insurance may
include earthquake coverage to the extent Landlord in its discretion elects to
carry such coverage, and shall have such commercially reasonable deductibles and
other terms as Landlord in its reasonable discretion determines to be
appropriate. Landlord shall have no obligation to carry property damage
insurance for any alterations, additions or improvements installed by Tenant in
the Buildings or on or about the Property.

             (d) Tenant shall procure and maintain in full force and effect at
all times during the term of this Lease, at Tenant's cost and expense, policies
of property insurance providing protection against "all risk of direct physical
loss" (as defined by and detailed in the Insurance Service Office's Commercial
Property Program "Cause of Loss-Special Form [CP1030]" or its equivalent) for
the Tenant Improvements constructed by Tenant pursuant to Exhibit C and on all
other alterations, additions and improvements installed by Tenant from time to
time in or about the Buildings, on a full replacement cost basis (with no co-
insurance or, if coverage without co-insurance is not reasonably available, then
on an "agreed amount" basis). Such insurance may have such commercially
reasonable deductibles and other terms as Tenant in

                                       26
<PAGE>

its discretion determines to be appropriate, and shall name both Tenant and
Landlord as insureds as their interests may appear.

             (e) During the course of construction of the improvements being
constructed by Landlord and Tenant under Section 5.1 and Exhibit C, Landlord and
Tenant respectively shall each procure and maintain in full force and effect, at
its respective sole cost and expense, policies of builder's risk insurance on
the improvements respectively being constructed by it, in such amounts and with
such commercially reasonable deductibles and other terms as Landlord in its
reasonable discretion determines to be appropriate with respect to the insurance
to be maintained by Landlord, and in such amounts and with such commercially
reasonable deductibles and other terms as Landlord and Tenant may mutually and
reasonably determine to be appropriate with respect to the insurance to be
maintained by Tenant.

     12.2    Quality Of Policies And Certificates.  All policies of insurance
             ------------------------------------
required hereunder shall be issued by responsible insurers and, in the case of
policies carried or required to be carried by Tenant, shall be written as
primary policies not contributing with and not in excess of any coverage that
Landlord may carry.  Tenant shall deliver to Landlord copies of policies or
certificates of insurance showing that said policies are in effect.  The
coverage provided by such policies shall include the clause or endorsement
referred to in Section 12.4.  If Tenant fails to acquire, maintain or renew any
insurance required to be maintained by it under this Article 12 or to pay the
premium therefor, then Landlord, at its option and in addition to its other
remedies, but without obligation so to do, may procure such insurance, and any
sums expended by it to procure any such insurance on behalf of or in place of
Tenant shall be repaid upon demand, with interest as provided in Section 3.2
hereof.  Tenant shall obtain written undertakings from each insurer under
policies required to be maintained by it to notify all insureds thereunder at
least thirty (30) days prior to cancellation of coverage.

     12.3    Workers' Compensation. Tenant shall maintain in full force and
             ---------------------
effect during the term of this Lease workers' compensation insurance in at least
the minimum amounts required by law, covering all of Tenant's employees working
on the Property.

     12.4    Waiver Of Subrogation.  To the extent permitted by law and without
             ---------------------
affecting the coverage provided by insurance required to be maintained
hereunder, Landlord and Tenant each waive any right to recover against the other
with respect to (i) damage to property, (ii) damage to the Property or any part
thereof, or (iii) claims arising by reason of any of the foregoing, but only to
the extent that any of the foregoing damages and claims under clauses (i)-(iii)
hereof are covered, and only to the extent of such coverage, by casualty
insurance actually carried or required to be carried hereunder by either
Landlord or Tenant.  This provision is intended to waive fully, and for the
benefit of each party, any rights and claims which might give rise to a right of
subrogation in any insurance carrier.  Each party shall procure a clause or
endorsement on any casualty insurance policy denying to the insurer rights of
subrogation against the other party to the extent rights have been waived by the
insured prior to the occurrence of injury or loss.  Coverage provided by
insurance maintained by Tenant shall not be limited, reduced or diminished by
virtue of the subrogation waiver herein contained.

     12.5    Increase In Premiums. Tenant shall do all acts and pay all expenses
             --------------------
necessary to insure that the Property is not used for purposes prohibited by any
applicable fire insurance, and that Tenant's use of the Property complies with
all requirements necessary to obtain any such insurance. If Tenant uses or
permits the Property to be used in a manner which increases the existing rate of
any insurance carried by Landlord on the Property and such use continues for
longer than a reasonable period specified in any written notice from Landlord to
Tenant identifying the rate increase and the factors causing the same, then
Tenant shall pay the amount of the increase in premium caused thereby, and
Landlord's costs of obtaining other replacement insurance policies, including
any increase in premium, within ten (10) days after demand therefor by Landlord.

     12.6    Indemnification.
             ---------------

             (a) Tenant shall indemnify, defend and hold Landlord and its
partners, shareholders, officers, directors, agents and employees harmless from
any and all liability for injury to or death of any person, or loss of or damage
to the property of any person, and all actions, claims, demands, costs
(including, without limitation, reasonable attorneys' fees), damages or expenses
of any kind arising therefrom which may be brought or made against

                                       27
<PAGE>

Landlord or which Landlord may pay or incur by reason of the use, occupancy and
enjoyment of the Property by Tenant or any invitees, sublessees, licensees,
assignees, employees, agents or contractors of Tenant or holding under Tenant
(including, but not limited to, any such matters arising out of or in connection
with any early entry upon the Property by Tenant pursuant to Section 2.2 hereof)
from any cause whatsoever other than negligence or willful misconduct or
omission by Landlord, its agents or employees. Landlord and its partners,
shareholders, officers, directors, agents and employees shall not be liable for,
and Tenant hereby waives all claims against such persons for, damages to goods,
wares and merchandise in or upon the Property, or for injuries to Tenant, its
agents or third persons in or upon the Property, from any cause whatsoever other
than negligence or willful misconduct or omission by Landlord, its agents or
employees. Tenant shall give prompt notice to Landlord of any casualty or
accident in, on or about the Property.

             (b) Landlord shall indemnify, defend and hold Tenant and its
partners, shareholders, officers, directors, agents and employees harmless from
any and all liability for injury to or death of any person, or loss of or damage
to the property of any person, and all actions, claims, demands, costs
(including, without limitation, reasonable attorneys' fees), damages or expenses
of any kind arising therefrom which may be brought or made against Tenant or
which Tenant may pay or incur, to the extent such liabilities or other matters
arise in, on or about the Property by reason of any negligence or willful
misconduct or omission by Landlord, its agents or employees.

     12.7    Blanket Policy. Any policy required to be maintained hereunder may
             --------------
be maintained under a so-called "blanket policy" insuring other parties and
other locations so long as the amount of insurance required to be provided
hereunder is not thereby diminished.

13.  SUBLEASE AND ASSIGNMENT
     -----------------------

     13.1    Assignment And Sublease Of Building.  Except in the case of a
             -----------------------------------
Permitted Transfer, Tenant shall not have the right or power to assign its
interest in this Lease, or make any sublease of the Buildings or any portion
thereof, nor shall any interest of Tenant under this Lease be assignable
involuntarily or by operation of law, without on each occasion obtaining the
prior written consent of Landlord, which consent shall not be unreasonably
withheld or delayed.  Any purported sublease or assignment of Tenant's interest
in this Lease requiring but not having received Landlord's consent thereto (to
the extent such consent is required hereunder) shall be void.  Without limiting
the generality of the foregoing, Landlord may withhold consent to any proposed
subletting or assignment for which consent is requested solely on the ground, if
applicable, that the use by the proposed subtenant or assignee is reasonably
likely to be incompatible with Landlord's use of any adjacent property owned or
operated by Landlord, unless the proposed use is within the permitted uses
specified in Section 11.1, in which event it shall not be reasonable for
Landlord to object to the proposed use.  Except in the case of a Permitted
Transfer, any dissolution, consolidation, merger or other reorganization of
Tenant, or any sale or transfer of substantially all of the stock or assets of
Tenant in a single transaction or series of related transactions, shall be
deemed to be an assignment hereunder and shall be void without the prior written
consent of Landlord as required above.  Notwithstanding the foregoing, (i) an
initial public offering of the common stock of Tenant shall not be deemed to be
an assignment hereunder; (ii) any transfer of Tenant's stock during any period
in which Tenant has a class of stock listed on any recognized securities
exchange or traded in the NASDAQ over-the-counter market shall not be deemed to
be an assignment hereunder; (iii) any transfer of Tenant's stock in connection
with a bona fide financing, capitalization or recapitalization of Tenant shall
not be deemed to be an assignment hereunder, provided that such financing,
capitalization or recapitalization does not result in a material reduction in
Tenant's net worth or materially change the nature of Tenant's ongoing business
as a going concern; and (iv) Tenant shall have the right to assign this Lease or
sublet the Buildings, or any portion thereof, without Landlord's consent (but
with prior or concurrent written notice by Tenant to Landlord, except to the
extent Tenant is advised by its counsel that such prior or concurrent notice
would be in violation of applicable law, in which event Tenant shall give such
written notice as soon as reasonably possible after the giving of such notice is
no longer in violation of applicable law), to any Affiliate of Tenant, or to any
entity which results from a merger or consolidation with Tenant, or to any
entity which acquires substantially all of the stock or assets of Tenant as a
going concern (hereinafter each a "Permitted Transfer").  For purposes of the
preceding sentence, an "Affiliate" of Tenant shall mean any entity in which
Tenant owns at least a twenty percent (20%) equity interest, any entity which
owns at least a twenty percent (20%) equity interest in Tenant, and/or any
entity which is

                                       28
<PAGE>

related to Tenant by a chain of ownership interests involving at least a twenty
percent (20%) equity interest at each level in the chain. Landlord shall have no
right to terminate this Lease in connection with, and shall have no right to any
sums or other economic consideration resulting from, any Permitted Transfer.
Except as expressly set forth in this Section 13.1, however, the provisions of
Section 13.2 shall remain applicable to any Permitted Transfer and the
transferee under such Permitted Transfer shall be and remain subject to all of
the terms and provisions of this Lease.

  13.2    Rights Of Landlord.
          ------------------

          (a) Consent by Landlord to one or more assignments of this Lease, or
to one or more sublettings of the Buildings or any portion thereof, or
collection of rent by Landlord from any assignee or sublessee, shall not operate
to exhaust Landlord's rights under this Article 13, nor constitute consent to
any subsequent assignment or subletting. No assignment of Tenant's interest in
this Lease and no sublease shall relieve Tenant of its obligations hereunder,
notwithstanding any waiver or extension of time granted by Landlord to any
assignee or sublessee, or the failure of Landlord to assert its rights against
any assignee or sublessee, and regardless of whether Landlord's consent thereto
is given or required to be given hereunder. In the event of a default by any
assignee, sublessee or other successor of Tenant in the performance of any of
the terms or obligations of Tenant under this Lease, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies against any
such assignee, sublessee or other successor. In addition, Tenant immediately and
irrevocably assigns to Landlord, as security for Tenant's obligations under this
Lease, all rent from any subletting of all or a part of the Buildings as
permitted under this Lease, and Landlord, as Tenant's assignee and as attorney-
in-fact for Tenant, or any receiver for Tenant appointed on Landlord's
application, may collect such rent and apply it toward Tenant's obligations
under this Lease; except that, until the occurrence of an act of default by
Tenant, Tenant shall have the right to collect such rent and to retain all
sublease profits (subject to the provisions of Section 13.2(c), below).

          (b) Upon any assignment of Tenant's interest in this Lease for which
Landlord's consent is required under Section 13.1 hereof, Tenant shall pay to
Landlord, within ten (10) days after receipt thereof by Tenant from time to
time, one-half (1/2) of all cash sums and other economic considerations received
by Tenant in connection with or as a result of such assignment, after first
deducting therefrom (i) the unamortized cost of any leasehold improvements
previously made in the Buildings and paid for by Tenant, (ii) any costs incurred
by Tenant for leasehold improvements (including, but not limited to, third-party
architectural and space planning costs) in the Buildings in connection with such
assignment, (iii) any real estate commissions and/or attorneys' fees incurred by
Tenant in connection with such assignment, and (iv) any economic consideration
received by Tenant as bona fide, reasonable compensation for services rendered
by Tenant to the assignee and/or personal property sold or leased by Tenant to
the assignee.

          (c) Upon any sublease of all or any portion of the Buidlings for which
Landlord's consent is required under Section 13.1 hereof, Tenant shall pay to
Landlord, within ten (10) days after receipt thereof by Tenant from time to
time, one-half (1/2) of all cash sums and other economic considerations received
by Tenant in connection with or as a result of such sublease, after first
deducting therefrom (i) the rental due hereunder for the corresponding period,
prorated (on the basis of the average per-square-foot cost paid by Tenant for
the entire Buildings for the applicable period under this Lease) to reflect the
size of the subleased portion of the Buildings, (ii) any costs incurred by
Tenant for leasehold improvements in the subleased portion of the Buildings
(including, but not limited to, third-party architectural and space planning
costs) for the specific benefit of the sublessee in connection with such
sublease, amortized over the term of the sublease, (iii) any real estate
commissions and/or attorneys' fees incurred by Tenant in connection with such
sublease, amortized over the term of such sublease, (iv) the unamortized cost of
any leasehold improvements previously made and paid for by Tenant with respect
to the subleased portion of the Buildings, and (v) any economic consideration
received by Tenant as bona fide, reasonable compensation for services rendered
by Tenant to the sublessee and/or personal property sold or leased by Tenant to
the sublessee.

14.  RIGHT OF ENTRY AND QUIET ENJOYMENT
     ----------------------------------

     14.1    Right Of Entry.  Landlord and its authorized representatives shall
             --------------
have the right to enter the Buildings at any time during the term of this Lease
during normal business hours and

                                       29
<PAGE>

upon not less than twenty-four (24) hours prior notice, except in the case of
emergency (in which event no notice shall be required and entry may be made at
any time), for the purpose of inspecting and determining the condition of the
Buildings or for any other proper purpose including, without limitation, to make
repairs, replacements or improvements which Landlord may deem necessary, to show
the Buildings to prospective purchasers, to show the Buildings to prospective
tenants (but only during the final year of the term of this Lease), and to post
notices of nonresponsibility. Landlord shall not be liable for inconvenience,
annoyance, disturbance, loss of business, quiet enjoyment or other damage or
loss to Tenant by reason of making any repairs or performing any work upon the
Buildings or the Property or by reason of erecting or maintaining any protective
barricades in connection with any such work, and the obligations of Tenant under
this Lease shall not thereby be affected in any manner whatsoever, provided,
however, Landlord shall use reasonable efforts to minimize the inconvenience to
Tenant's normal business operations caused thereby.

     14.2    Quiet Enjoyment. Landlord covenants that Tenant, upon paying the
             ---------------
rent and performing its obligations hereunder and subject to all the terms and
conditions of this Lease, shall peacefully and quietly have, hold and enjoy the
Buildings and the Property throughout the term of this Lease, or until this
Lease is terminated as provided by this Lease.

15.  CASUALTY AND TAKING
     -------------------

     15.1    Damage or Destruction.
             ---------------------

             (a) If the Buildings, or the Common Areas of the Property necessary
for Tenant's use and occupancy of the Buildings, are damaged or destroyed in
whole or in part under circumstances in which (i) repair and restoration is
permitted under applicable governmental laws, regulations and building codes
then in effect and (ii) repair and restoration reasonably can be completed
within a period of one (1) year (or, in the case of an occurrence during the
last year of the term of this Lease, within a period of sixty (60) days)
following the date of the occurrence, then Landlord, as to the Common Areas of
the Property and the Building Shells, and Tenant, as to the Tenant Improvements
constructed by Tenant, shall commence and complete, with all due diligence and
as promptly as is reasonably practicable under the conditions then existing, all
such repair and restoration as may be required to return the affected portions
of the Property to a condition comparable to that existing immediately prior to
the occurrence. In the event of damage or destruction the repair of which is not
permitted under applicable governmental laws, regulations and building codes
then in effect, if such damage or destruction (despite being corrected to the
extent then permitted under applicable governmental laws, regulations and
building codes) would still materially impair Tenant's ability to conduct its
business in the Buildings, then either party may terminate this Lease as of the
date of the occurrence by giving written notice to the other within thirty (30)
days after the date of the occurrence; if neither party timely elects such
termination, or if such damage or destruction does not materially impair
Tenant's ability to conduct its business in the Buildings, then this Lease shall
continue in full force and effect, except that there shall be an equitable
adjustment in monthly minimum rental and of Tenant's Operating Cost Share of
Operating Expenses, based upon the extent to which Tenant's ability to conduct
its business in the Buildings is impaired, and Landlord and Tenant respectively
shall restore the Common Areas and Building Shells and the Tenant Improvements
to a complete architectural whole and to a functional condition. In the event of
damage or destruction which cannot reasonably be repaired within one (1) year
(or, in the case of an occurrence during the last year of the term of this
Lease, within a period of sixty (60) days) following the date of the occurrence,
then either Landlord or Tenant, at its election, may terminate this Lease as of
the date of the occurrence by giving written notice to the other within thirty
(30) days after the date of the occurrence; if neither party timely elects such
termination, then this Lease shall continue in full force and effect and
Landlord and Tenant shall each repair and restore applicable portions of the
Property in accordance with the first sentence of this Section 15.1.

             (b) The respective obligations of Landlord and Tenant pursuant to
Section 15.1(a) are subject to the following limitations:

                 (i) If the occurrence results from a peril which is required to
be insured pursuant to Section 12.1(c) and (d) above, the obligations of either
party shall not exceed the amount of insurance proceeds received from insurers
(or, in the case of any failure to maintain required insurance, proceeds that
reasonably would have been available if the required

                                       30
<PAGE>

insurance had been maintained) by reason of such occurrence, plus the amount of
the party's permitted deductible (provided that each party shall be obligated to
use its best efforts to recover any available proceeds from the insurance which
it is required to maintain pursuant to the provisions of Section 12.1(c) or (d),
as applicable), and, if such proceeds (including, in the case of a failure to
maintain required insurance, any proceeds that reasonably would have been
available) are insufficient, either party may terminate the Lease unless the
other party promptly elects and agrees, in writing, to contribute the amount of
the shortfall; and

                 (ii) If the occurrence results from a peril which is not
required to be insured pursuant to Section 12.1(c) and (d) above and is not
actally insured, Landlord shall be required to repair and restore the Building
Shells and Common Areas to the extent necessary for Tenant's continued use and
occupancy of the Buildings, and Tenant shall be required to repair and restore
the Tenant Improvements to the extent necessary for Tenant's continued use and
occupancy of the Buildings, provided that each party's obligation to repair and
restore shall not exceed an amount equal to five percent (5%) of the replacement
cost of the Building Shells and Common Area improvements, as to Landlord, or
five percent (5%) of the replacement cost of the Tenant Improvements, as to
Tenant; if the replacement cost as to either party exceeds such amount, then the
party whose limit has been exceeded may terminate this Lease unless the other
party promptly elects and agrees, in writing, to contribute the amount of the
shortfall.

             (c) If this Lease is terminated pursuant to the foregoing
provisions of this Section 15.1 following an occurrence which is a peril
actually insured or required to be insured against pursuant to Section 12.1(c)
and (d), Landlord and Tenant agree (and any Lender shall be asked to agree) that
such insurance proceeds shall be allocated between Landlord and Tenant in a
manner which fairly and reasonably reflects their respective ownership rights
under this Lease, as of the termination or expiration of the term of this Lease,
with respect to the improvements, fixtures, equipment and other items to which
such insurance proceeds are attributable.

             (d) From and after the date of an occurrence resulting in damage to
or destruction of the Buildings or of the Common Areas necessary for Tenant's
use and occupancy of the Buildings, and continuing until repair and restoration
thereof are completed, there shall be an equitable abatement of minimum rental
and of Tenant's Operating Cost Share of Operating Expenses based upon the degree
to which Tenant's ability to conduct its business in the Buildings is impaired.

     15.2    Condemnation.
             ------------

             (a) If during the term of this Lease the Property or Improvements,
or any substantial part of either, is taken by eminent domain or by reason of
any public improvement or condemnation proceeding, or in any manner by exercise
of the right of eminent domain (including any transfer in avoidance of an
exercise of the power of eminent domain), or receives irreparable damage by
reason of anything lawfully done under color of public or other authority, then
(i) this Lease shall terminate as to the entire affected Building(s) at
Landlord's election by written notice given to Tenant within sixty (60) days
after the taking has occurred, and (ii) this Lease shall terminate as to the
entire affected Building(s) at Tenant's election, by written notice given to
Landlord within thirty (30) days after the nature and extent of the taking have
been finally determined, if the portion of the Building(s) taken is of such
extent and nature as substantially to handicap, impede or permanently impair
Tenant's use of the balance of the Building(s). If Tenant elects to terminate
this Lease, Tenant shall also notify Landlord of the date of termination, which
date shall not be earlier than thirty (30) days nor later than ninety (90) days
after Tenant has notified Landlord of Tenant's election to terminate, except
that this Lease shall terminate on the date of taking if such date falls on any
date before the date of termination designated by Tenant. If neither party
elects to terminate this Lease as hereinabove provided, this Lease shall
continue in full force and effect (except that there shall be an equitable
abatement of minimum rental and of Tenant's Operating Cost Share of Operating
Expenses based upon the degree to which Tenant's ability to conduct its business
in the Building(s) is impaired), Landlord shall restore the Building Shells and
Common Area improvements to a complete architectural whole and a functional
condition and as nearly as reasonably possible to the condition existing before
the taking, and Tenant shall restore the Tenant Improvements and Tenant's other
alterations, additions and improvements to a complete architectural whole and a
functional condition and as nearly as reasonably possible to the condition
existing before the taking. In connection with any such restoration, each party
shall use its respective best efforts (including, without limitation, any
necessary negotiation or intercession with its respective

                                       31
<PAGE>

lender, if any) to ensure that any severance damages or other condemnation
awards intended to provide compensation for rebuilding or restoration costs are
promptly collected and made available to Landlord and Tenant in portions
reasonably corresponding to the cost and scope of their respective restoration
obligations, subject only to such payment controls as either party or its lender
may reasonably require in order to ensure the proper application of such
proceeds toward the restoration of the Improvements. Each party waives the
provisions of Code of Civil Procedure Section 1265.130, allowing either party to
petition the Superior Court to terminate this Lease in the event of a partial
condemnation of the Buildings or Property.

             (b) The respective obligations of Landlord and Tenant pursuant to
Section 15.2(a) are subject to the following limitations:

                 (i) Each party's obligation to repair and restore shall not
exceed, net of any condemnation awards or other proceeds available for and
allocable to such restoration as contemplated in Section 15.2(a), an amount
equal to five percent (5%) of the replacement cost of the Building Shells and
Common Area improvements, as to Landlord, or five percent (5%) of the
replacement cost of the Tenant Improvements, as to Tenant; if the replacement
cost as to either party exceeds such amount, then the party whose limit has been
exceeded may terminate this Lease unless the other party promptly elects and
agrees, in writing, to contribute the amount of the shortfall; and

                 (ii) If this Lease is terminated pursuant to the foregoing
provisions of this Section 15.2, or if this Lease remains in effect but any
condemnation awards or other proceeds become available as compensation for the
loss or destruction of any of the Improvements, then Landlord and Tenant agree
(and any Lender shall be asked to agree) that such proceeds shall be allocated
between Landlord and Tenant, respectively, in the respective proportions in
which Landlord and Tenant would have shared, under Section 15.1(c), the proceeds
of any insurance proceeds following loss or destruction of the applicable
Improvements by an insured casualty.

     15.3    Reservation Of Compensation. Landlord reserves, and Tenant waives
             ---------------------------
and assigns to Landlord, all rights to any award or compensation for damage to
the Improvements, the Property and the leasehold estate created hereby, accruing
by reason of any taking in any public improvement, condemnation or eminent
domain proceeding or in any other manner by exercise of the right of eminent
domain or of anything lawfully done by public authority, except that (a) Tenant
shall be entitled to any and all compensation or damages paid for or on account
of Tenant's moving expenses, trade fixtures and equipment and any leasehold
improvements installed by Tenant in the Buildings at its own sole expense, but
only to the extent Tenant would have been entitled to remove such items at the
expiration of the term of this Lease and then only to the extent of the then
remaining unamortized value of such improvements computed on a straight-line
basis over the term of this Lease, and (b) any condemnation awards or proceeds
described in Section 15.2(b)(ii) shall be allocated and disbursed in accordance
with the provisions of Section 15.2(b)(ii), notwithstanding any contrary
provisions of this Section 15.3.

     15.4    Restoration Of Improvements.  In connection with any repair or
             ---------------------------
restoration of Improvements by either party following a casualty or taking as
hereinabove set forth, the party responsible for such repair or restoration
shall, to the extent possible, return such Improvements to a condition
substantially equal to that which existed immediately prior to the casualty or
taking.  To the extent such party wishes to make material modifications to such
Improvements, such modifications shall be subject to the prior written approval
of the other party (not to be unreasonably withheld or delayed), except that no
such approval shall be required for modifications that are required by
applicable governmental authorities as a condition of the repair or restoration,
unless such required modifications would impair or impede Tenant's conduct of
its business in the Buildings (in which case any such modifications in
Landlord's work shall require Tenant's consent, not unreasonably withheld or
delayed) or would materially and adversely affect the exterior appearance, the
structural integrity or the mechanical or other operating systems of the
Buildings (in which case any such modifications in Tenant's work shall require
Landlord's consent, not unreasonably withheld or delayed).

16.  DEFAULT
     -------

     16.1    Events Of Default.  The occurrence of any of the following shall
             -----------------
constitute an event of default on the part of Tenant:

                                       32
<PAGE>

             (a)  [Omitted.}
                   -------

             (b)  Nonpayment.  Failure to pay, when due, any amount payable to
                  ----------
Landlord hereunder, such failure continuing for a period for five (5) business
days after written notice of such failure; provided, however, that any such
notice shall be in lieu of, and not in addition to, any notice required under
California Code of Civil Procedure Section 1161 et. seq., as amended from time
to time;

             (c)  Other Obligations. Failure to perform any obligation,
                  -----------------
agreement or covenant under this Lease other than those matters specified in
subsection (b) hereof, such failure continuing for thirty (30) days after
written notice of such failure; provided, however, that if such failure is
curable in nature but cannot reasonably be cured within such 30-day period, then
Tenant shall not be default if, and so long as, Tenant promptly (and in all
events within such 30-day period) commences such cure and thereafter diligently
pursues such cure to completion; and provided further, however, that any such
notice shall be in lieu of, and not in addition to, any notice required under
California Code of Civil Procedure Section 1161 et seq., as amended from time to
time;

             (d)  General Assignment.  A general assignment by Tenant for the
                  ------------------
benefit of creditors;

             (e)  Bankruptcy.  The filing of any voluntary petition in
                  ----------
bankruptcy by Tenant, or the filing of an involuntary petition by Tenant's
creditors, which involuntary petition remains undischarged for a period of
thirty (30) days. In the event that under applicable law the trustee in
bankruptcy or Tenant has the right to affirm this Lease and continue to perform
the obligations of Tenant hereunder, such trustee or Tenant shall, in such time
period as may be permitted by the bankruptcy court having jurisdiction, cure all
defaults of Tenant hereunder outstanding as of the date of the affirmance of
this Lease and provide to Landlord such adequate assurances as may be necessary
to ensure Landlord of the continued performance of Tenant's obligations under
this Lease. Specifically, but without limiting the generality of the foregoing,
such adequate assurances must include assurances that the Buildings continue to
be operated only for the use permitted hereunder. The provisions hereof are to
assure that the basic understandings between Landlord and Tenant with respect to
Tenant's use of the Property and the benefits to Landlord therefrom are
preserved, consistent with the purpose and intent of applicable bankruptcy laws;

             (f)  Receivership.  The employment of a receiver appointed by court
                  ------------
order to take possession of substantially all of Tenant's assets or the
Buildings, if such receivership remains undissolved for a period of thirty (30)
days;

             (g)  Attachment.  The attachment, execution or other judicial
                  ----------
seizure of all or substantially all of Tenant's assets or the Buildings, if such
attachment or other seizure remains undismissed or undischarged for a period of
thirty (30) days after the levy thereof; or

             (h)  Insolvency.  The admission by Tenant in writing of its
                  ----------
inability to pay its debt as they become due, the filing by Tenant of a petition
seeking any reorganization or arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, the filing by Tenant of an answer admitting or failing timely
to contest a material allegation of a petition filed against Tenant in any such
proceeding or, if within thirty (30) days after the commencement of any
proceeding against Tenant seeking any reorganization or arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, such proceeding shall not have
been dismissed.

     16.2    Remedies Upon Tenant's Default.
             ------------------------------

             (a) Upon the occurrence of any event of default described in
Section 16.1 hereof, Landlord, in addition to and without prejudice to any other
rights or remedies it may have, shall have the immediate right to re-enter the
Buildings or any part thereof and repossess the same, expelling and removing
therefrom all persons and property (which property may be stored in a public
warehouse or elsewhere at the cost and risk of and for the account of Tenant),
using such force as may be necessary to do so (as to which Tenant hereby waives
any claim for loss or damage that may thereby occur). In addition to or in lieu
of such re-entry, and without

                                       33
<PAGE>

prejudice to any other rights or remedies it may have, Landlord shall have the
right either (i) to terminate this Lease and recover from Tenant all damages
incurred by Landlord as a result of Tenant's default, as hereinafter provided,
or (ii) to continue this Lease in effect and recover rent and other charges and
amounts as they become due.

     (b) Even if Tenant has breached this Lease and abandoned the Buildings,
this Lease shall continue in effect for so long as Landlord does not terminate
Tenant's right to possession under subsection (a) hereof and Landlord may
enforce all of its rights and remedies under this Lease, including the right to
recover rent as it becomes due, and Landlord, without terminating this Lease,
may exercise all of the rights and remedies of a lessor under California Civil
Code Section 1951.4 (lessor may continue lease in effect after lessee's breach
and abandonment and recover rent as it becomes due, if lessee has right to
sublet or assign, subject only to reasonable limitations), or any successor Code
section.  Acts of maintenance, preservation or efforts to relet the Buildings or
the appointment of a receiver upon application of Landlord to protect Landlord's
interests under this Lease shall not constitute a termination of Tenant's right
to possession.

     (c) If Landlord terminates this Lease pursuant to this Section 16.2,
Landlord shall have all of the rights and remedies of a landlord provided by
Section 1951.2 of the Civil Code of the State of California, or any successor
Code section, which remedies include Landlord's right to recover from Tenant (i)
the worth at the time of award of the unpaid rent and additional rent which had
been earned at the time of termination, (ii) the worth at the time of award of
the amount by which the unpaid rent and additional rent which would have been
earned after termination until the time of award exceeds the amount of such
rental loss that Tenant proves could have been reasonably avoided, (iii) the
worth at the time of award of the amount by which the unpaid rent and additional
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that Tenant proves could be reasonably avoided, and (iv) any
other amount necessary to compensate Landlord for all the detriment proximately
caused by Tenant's failure to perform its obligations under this Lease or which
in the ordinary course of things would be likely to result therefrom, including,
but not limited to, the cost of recovering possession of the Buildings, expenses
of reletting,  including necessary repair, renovation and alteration of the
Buildings, reasonable attorneys' fees, and other reasonable costs.  The "worth
at the time of award" of the amounts referred to in clauses (i) and (ii) above
shall be computed by allowing interest at ten percent (10%) per annum from the
date such amounts accrued to Landlord.  The "worth at the time of award" of the
amounts referred to in clause (iii) above shall be computed by discounting such
amount at one percentage point above the discount rate of the Federal Reserve
Bank of San Francisco at the time of award.

    16.3    Remedies Cumulative.  All rights, privileges and elections or
            -------------------
remedies of Landlord contained in this Article 16 are cumulative and not
alternative to the extent permitted by law and except as otherwise provided
herein.

17.  SUBORDINATION, ATTORNMENT AND SALE
     ----------------------------------

     17.1 Subordination To Mortgage.  This Lease, and any sublease entered into
          -------------------------
by Tenant under the provisions of this Lease, shall be subject and subordinate
to any ground lease, mortgage, deed of trust, sale/leaseback transaction or any
other hypothecation for security now or hereafter placed upon the Buildings, the
Property, or any of them, and the rights of any assignee of Landlord or of any
ground lessor, mortgagee, trustee, beneficiary or leaseback lessor under any of
the foregoing, and to any and all advances made on the security thereof and to
all renewals, modifications, consolidations, replacements and extensions
thereof; provided, however, that such subordination in the case of any future
ground lease, mortgage, deed of trust, sale/leaseback transaction or any other
hypothecation for security placed upon the Buildings, the Property, or any of
them shall be conditioned on Tenant's receipt from the ground lessor, mortgagee,
trustee, beneficiary or leaseback lessor of a Non-Disturbance Agreement in a
form reasonably acceptable to Tenant (i) confirming that so long as Tenant is
not in material default hereunder beyond any applicable cure period (for which
purpose the occurrence of any event of default under Section 16.1 hereof shall
be deemed to be "material"), Tenant's rights hereunder shall not be disturbed by
such person or entity and (ii) agreeing that the benefit of such Non-Disturbance
Agreement shall be transferable to any transferee under a Permitted Transfer and
to any other assignee or subtenant that is acceptable to the ground lessor,
mortgagee, trustee, beneficiary or leaseback lessor at the time of transfer.
Moreover, Tenant's obligations under this Lease shall be conditioned on Tenant's
receipt within thirty (30) days after mutual execution of

                                       34
<PAGE>

this Lease, from (x) Slough Estates USA Inc., the beneficiary under an existing
deed of trust on the Phase I Property, and (y) any other ground lessor,
mortgagee, trustee, beneficiary or leaseback lessor currently owning or holding
a security interest in the Phase I Property, of a Non-Disturbance Agreement in a
form reasonably acceptable to Tenant confirming (i) that so long as Tenant is
not in material default hereunder beyond any applicable cure period (for which
purpose the occurrence of any event of default under Section 16.1 hereof shall
be deemed to be "material"), Tenant's rights hereunder shall not be disturbed by
such person or entity and (ii) agreeing that the benefit of such Non-Disturbance
Agreement shall be transferable to any transferee under a Permitted Transfer and
to any other assignee or subtenant that is acceptable to the ground lessor,
mortgagee, trustee, beneficiary or leaseback lessor at the time of transfer. If
any mortgagee, trustee, beneficiary, ground lessor, sale/leaseback lessor or
assignee elects to have this Lease be an encumbrance upon the Property prior to
the lien of its mortgage, deed of trust, ground lease or leaseback lease or
other security arrangement and gives notice thereof to Tenant, this Lease shall
be deemed prior thereto, whether this Lease is dated prior or subsequent to the
date thereof or the date of recording thereof. Tenant, and any sublessee, shall
execute such documents as may reasonably be requested by any mortgagee, trustee,
beneficiary, ground lessor, sale/leaseback lessor or assignee to evidence the
subordination herein set forth, subject to the conditions set forth above, or to
make this Lease prior to the lien of any mortgage, deed of trust, ground lease,
leaseback lease or other security arrangement, as the case may be. Upon any
default by Landlord in the performance of its obligations under any mortgage,
deed of trust, ground lease, leaseback lease or assignment, Tenant (and any
sublessee) shall, notwithstanding any subordination hereunder, attorn to the
mortgagee, trustee, beneficiary, ground lessor, leaseback lessor or assignee
thereunder upon demand and become the tenant of the successor in interest to
Landlord, at the option of such successor in interest, and shall execute and
deliver any instrument or instruments confirming the attornment herein provided
for.

  17.2    Sale Of Landlord's Interest.  Upon sale, transfer or assignment of
          ---------------------------
Landlord's entire interest in the Buildings and the Property, Landlord shall be
relieved of its obligations hereunder with respect to liabilities accruing from
and after the date of such sale, transfer or assignment.

  17.3    Estoppel Certificates.  Tenant or Landlord (the "responding party"),
          ---------------------
as applicable, shall at any time and from time to time, within ten (10) days
after written request by the other party (the "requesting party"), execute,
acknowledge and deliver to the requesting party a certificate in writing
stating: (i) that this Lease is unmodified and in full force and effect, or if
there have been any modifications, that this Lease is in full force and effect
as modified and stating the date and the nature of each modification; (ii) the
date to which rental and all other sums payable hereunder have been paid; (iii)
that the requesting party is not in default in the performance of any of its
obligations under this Lease, that the certifying party has given no notice of
default to the requesting party and that no event has occurred which, but for
the expiration of the applicable time period, would constitute an event of
default hereunder, or if the responding party alleges that any such default,
notice or event has occurred, specifying the same in reasonable detail; and (iv)
such other matters as may reasonably be requested by the requesting party or by
any institutional lender, mortgagee, trustee, beneficiary, ground lessor,
sale/leaseback lessor or prospective purchaser of the Property, or prospective
sublessee or assignee of this Lease.  Any such certificate provided under this
Section 17.3 may be relied upon by any lender, mortgagee, trustee, beneficiary,
assignee or successor in interest to the requesting party, by any prospective
purchaser, by any purchaser on foreclosure or sale, by any grantee under a deed
in lieu of foreclosure of any mortgage or deed of trust on the Property, by any
subtenant or assignee, or by any other third party.  Failure to execute and
return within the required time any estoppel certificate requested hereunder, if
such failure continues for five (5) days after a second written request by the
requesting party for such estoppel certificate, shall be deemed to be an
admission of the truth of the matters set forth in the form of certificate
submitted to the responding party for execution.

  17.4    Subordination to CC&R's.  This Lease, and any permitted sublease
          -----------------------
entered into by Tenant under the provisions of this Lease, and the interests in
real property conveyed hereby and thereby shall be subject and subordinate to
any declarations of covenants, conditions and restrictions affecting the
Property from time to time, provided that the terms of such declarations are
reasonable, do not materially impair Tenant's ability to conduct the uses
permitted hereunder on the Property, and do not discriminate against Tenant
relative to other similarly situated tenants occupying portions of the property
covered by such declaration(s).  Moreover, to the extent Tenant at any time
occupies pursuant to this Lease any property which is part of the

                                       35
<PAGE>

Pointe Grand Business Park as defined in the recorded documents described in
this sentence, this Lease, and any permitted sublease entered into by Tenant
under the provisions of this Lease, and the interests in real property conveyed
hereby and thereby shall also be subject and subordinate (a) to the Declaration
of Covenants, Conditions and Restrictions for Pointe Grand Business Park dated
November 4, 1991 and recorded on February 25, 1992 as Instrument No. 92025214,
Official Records of San Mateo County, as amended from time to time (the Master
Declaration), the provisions of which Master Declaration are an integral part
of this Lease to the extent this sentence is applicable, (b) to the Declaration
of Covenants, Conditions and Restrictions dated November 23, 1987 and recorded
on November 24, 1987 as Instrument No. 87177987, Official Records of San Mateo
County, which declaration imposes certain covenants, conditions and restrictions
on the Pointe Grand Business Park, and (c) to the Environmental Restriction and
Covenant (Pointe Grand) dated as of April 16, 1997 and recorded on April 16,
1997 as Instrument No. 97-043682, Official Records of San Mateo County, which
declaration imposes certain covenants, conditions and restrictions on the Pointe
Grand Business Park. Tenant agrees to execute, upon request by Landlord, any
documents reasonably required from time to time to evidence such subordination.

  17.5    Mortgagee Protection.  If, following a default by Landlord under any
          --------------------
mortgage, deed of trust, ground lease, leaseback lease or other security
arrangement covering the Buildings, the Property, or any of them, the Buildings
and/or the Property, as applicable, is acquired by the mortgagee, beneficiary,
master lessor or other secured party, or by any other successor owner, pursuant
to a foreclosure, trustee's sale, sheriff's sale, lease termination or other
similar procedure (or deed in lieu thereof), then any such person or entity so
acquiring the Buildings and/or the Property shall not be:

          (a) liable for any act or omission of a prior landlord or owner of the
Property (including, but not limited to, Landlord);

          (b) subject to any offsets or defenses that Tenant may have against
any prior landlord or owner of the Property (including, but not limited to,
Landlord);

          (c) bound by any rent or additional rent that Tenant may have paid in
advance to any prior landlord or owner of the Property (including, but not
limited to, Landlord) for a period in excess of one month, or by any security
deposit, cleaning deposit or other prepaid charge that Tenant may have paid in
advance to any prior landlord or owner (including, but not limited to,
Landlord), except to the extent such deposit or prepaid amount has been
expressly turned over to or credited to the successor owner thus acquiring the
Property;

          (d) liable for any warranties or representations of any nature
whatsoever, whether pursuant to this Lease or otherwise, by any prior landlord
or owner of the Property (including, but not limited to, Landlord) with respect
to the use, construction, zoning, compliance with laws, title, habitability,
fitness for purpose or possession, or physical condition (including, without
limitation, environmental matters) of the Property or the Buildings; or

          (e) liable to Tenant in any amount beyond the interest of such
mortgagee, beneficiary, master lessor or other secured party or successor owner
in the Property as it exists from time to time, it being the intent of this
provision that Tenant shall look solely to the interest of any such mortgagee,
beneficiary, master lessor or other secured party or successor owner in the
Property for the payment and discharge of the landlord's obligations under this
Lease and that such mortgagee, beneficiary, master lessor or other secured party
or successor owner shall have no separate personal liability for any such
obligations.

18.  SECURITY
     --------

  1.18.1  Deposit.  Within ten (10) days after mutual execution of this Lease,
          -------
Tenant shall deposit with Landlord the sum of One Hundred Sixty-Eight Thousand
Seven Hundred and No/100 Dollars ($168,700.00); in addition, if Tenant exercises
its option for Building 2 under Section 1.1(c)(ii) or (iii), then on or before
the Phase 2 Rent Commencement Date, Tenant shall deposit with Landlord an
additional sum equal to (but not as a payment of or substitute for) the amount
of the first full month's minimum monthly rental due with respect to Building 2,
as determined under the applicable provisions of Section 1.1(c).  Such sums
(collectively, the "Security Deposit") shall be held by Landlord as security for
the faithful performance of all of the terms, covenants, and conditions of this
Lease to be kept and performed by Tenant during the

                                       36
<PAGE>

term hereof. If Tenant defaults with respect to any provision of this Lease,
including, without limitation, the provisions relating to the payment of rental
and other sums due hereunder, Landlord shall have the right, but shall not be
required, to use, apply or retain all or any part of the Security Deposit for
the payment of rental or any other amount which Landlord may spend or become
obligated to spend by reason of Tenant's default or to compensate Landlord for
any other loss or damage which Landlord may suffer by reason of Tenant's
default. If any portion of the Security Deposit is so used or applied, Tenant
shall, within ten (10) days after written demand therefor, deposit cash with
Landlord in an amount sufficient to restore the Security Deposit to its original
amount and Tenant's failure to do so shall be a material breach of this Lease.
Landlord shall not be required to keep any deposit under this Section separate
from Landlord's general funds, and Tenant shall not be entitled to interest
thereon. If Tenant fully and faithfully performs every provision of this Lease
to be performed by it, the Security Deposit, or any balance thereof, shall be
returned to Tenant or, at Landlord's option, to the last assignee of Tenant's
interest hereunder, at the expiration of the term of this Lease and after Tenant
has vacated the Property. In the event of termination of Landlord's interest in
this Lease, Landlord shall transfer all deposits then held by Landlord under
this Section to Landlord's successor in interest, whereupon Tenant agrees to
release Landlord from all liability for the return of such deposit or the
accounting thereof.

19.  MISCELLANEOUS
     -------------

  19.1    Notices.  All notices, consents, waivers and other communications
          -------
which this Lease requires or permits either party to give to the other shall be
in writing and shall be deemed given when delivered personally (including
delivery by private courier or express delivery service) or four (4) days after
deposit in the United States mail, registered or certified mail, postage
prepaid, addressed to the parties at their respective addresses as follows:

     To Tenant:     (until Rent Commencement Date)

     Exelixis Pharmaceuticals, Inc.
     260 Littlefield Avenue
     South San Francisco, CA  94080
     Attn: George A. Scangos
     (after Rent Commencement Date)

     Exelixis Pharmaceuticals, Inc.
     ________ Harbor Way [the Building 1 address]
     South San Francisco, CA  94080
     Attn: George A. Scangos

     with copy to:    Cooley Godward LLP
                      One Maritime Plaza, 20th Floor
                      San Francisco, CA  94111-3580
                      Attn:  Anna B. Pope, Esq.

     To Landlord:     Britannia Pointe Grand Limited Partnership
                      1939 Harrison Street, Suite 715
                      Park Plaza Building
                      Oakland, CA  94612
                      Attn: T. J. Bristow

     with copy to:    Folger Levin & Kahn LLP
                      Embarcadero Center West
                      275 Battery Street, 23rd Floor
                      San Francisco, CA 94111
                      Attn: Donald E. Kelley, Jr.

     and copy to:     Slough Estates USA Inc.
                      33 West Monroe Street, Suite 2000
                      Chicago, IL  60603
                      Attn:  William Rogalla

                                       37
<PAGE>

     or to such other address as may be contained in a notice at least fifteen
(15) days prior to the address change from either party to the other given
pursuant to this Section.  Rental payments and other sums required by this Lease
to be paid by Tenant shall be delivered to Landlord at Landlord's address
provided in this Section, or to such other address as Landlord may from time to
time specify in writing to Tenant, and shall be deemed to be paid only upon
actual receipt.

  19.2    Successors And Assigns.  The obligations of this Lease shall run with
          ----------------------
the land, and this Lease shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the
original Landlord named herein and each successive Landlord under this Lease
shall be liable only for obligations accruing during the period of its ownership
of the Property, and any liability for obligations accruing after termination of
such ownership shall terminate as of the date of such termination of ownership
and shall pass to the successor lessor.

  19.3    No Waiver.  The failure of Landlord to seek redress for violation, or
          ---------
to insist upon the strict performance, of any covenant or condition of this
Lease shall not be deemed a waiver of such violation, or prevent a subsequent
act which would originally have constituted a violation from having all the
force and effect of an original violation.

  19.4    Severability.  If any provision of this Lease or the application
          ------------
thereof is held to be invalid or unenforceable, the remainder of this Lease or
the application of such provision to persons or circumstances other than those
as to which it is invalid or unenforceable shall not be affected thereby, and
each of the provisions of this Lease shall be valid and enforceable, unless
enforcement of this Lease as so invalidated would be unreasonable or grossly
inequitable under all the circumstances or would materially frustrate the
purposes of this Lease.

  19.5    Litigation Between Parties.  In the event of any litigation or other
          --------------------------
dispute resolution proceedings between the parties hereto arising out of or in
connection with this Lease, the prevailing party shall be reimbursed for all
reasonable costs, including, but not limited to, reasonable accountants' fees
and attorneys' fees, incurred in connection with such proceedings (including,
but not limited to, any appellate proceedings relating thereto) or in connection
with the enforcement of any judgment or award rendered in such proceedings.
"Prevailing party" within the meaning of this Section shall include, without
limitation, a party who dismisses an action for recovery hereunder in exchange
for payment of the sums allegedly due, performance of covenants allegedly
breached or consideration substantially equal to the relief sought in the
action.

  19.6    Surrender.  A voluntary or other surrender of this Lease by Tenant, or
          ---------
a mutual termination thereof between Landlord and Tenant, shall not result in a
merger but shall, at the option of Landlord, operate either as an assignment to
Landlord of any and all existing subleases and subtenancies, or a termination of
all or any existing subleases and subtenancies.  This provision shall be
contained in any and all assignments or subleases made pursuant to this Lease.

  19.7    Interpretation.  The provisions of this Lease shall be construed as a
          --------------
whole, according to their common meaning, and not strictly for or against
Landlord or Tenant.  The captions preceding the text of each Section and
subsection hereof are included only for convenience of reference and shall be
disregarded in the construction or interpretation of this Lease.

  19.8    Entire Agreement.  This written Lease, together with the exhibits
          ----------------
hereto, contains all the representations and the entire understanding between
the parties hereto with respect to the subject matter hereof.  Any prior
correspondence, memoranda or agreements are replaced in total by this Lease and
the exhibits hereto.  This Lease may be modified only by an agreement in writing
signed by each of the parties.

  19.9    Governing Law.  This Lease and all exhibits hereto shall be construed
          -------------
and interpreted in accordance with and be governed by all the provisions of the
laws of the State of California.

  19.10   No Partnership.  The relationship between Landlord and Tenant is
          --------------
solely that of a lessor and lessee.  Nothing contained in this Lease shall be
construed as creating any type or manner of partnership, joint venture or joint
enterprise with or between Landlord and Tenant.

                                       38
<PAGE>

  19.11   Financial Information.  From time to time Tenant shall promptly
          ---------------------
provide directly to prospective lenders and purchasers of the Property
designated by Landlord such financial information pertaining to the financial
status of Tenant as Landlord may reasonably request; provided, Tenant shall be
permitted to provide such financial information in a manner which Tenant deems
reasonably necessary to protect the confidentiality of such information.  In
addition, from time to time, Tenant shall provide Landlord with such financial
information pertaining to the financial status of Tenant as Landlord may
reasonably request.  Landlord agrees that all financial information supplied to
Landlord by Tenant shall be treated as confidential material, and shall not be
disseminated to any party or entity (including any entity affiliated with
Landlord) without Tenant's prior written consent, except that Landlord shall be
entitled to provide such information, subject to reasonable precautions to
protect the confidential nature thereof, (i) to Landlord's partners and
professional advisors, solely to use in connection with Landlord's execution and
enforcement of this Lease, and (ii) to prospective lenders and/or purchasers of
the Property, solely for use in connection with their bona fide consideration of
a proposed financing or purchase of the Property, provided that such prospective
lenders and/or purchasers are not then engaged in businesses directly
competitive with the business then being conducted by Tenant.  For purposes of
this Section, without limiting the generality of the obligations provided
herein, it shall be deemed reasonable for Landlord to request copies of Tenant's
most recent audited annual financial statements, or, if audited statements have
not been prepared, unaudited financial statements for Tenant's most recent
fiscal year, accompanied by a certificate of Tenant's chief financial officer
that such financial statements fairly present Tenant's financial condition as of
the date(s) indicated.  Notwithstanding any other provisions of this Section
19.11, during any period in which Tenant has outstanding a class of publicly
traded securities and is filing with the Securities and Exchange Commission, on
a regular basis, Forms 10Q and 10K and any other periodic filings required under
the Securities Exchange Act of 1934, as amended, it shall constitute sufficient
compliance under this Section 19.11 for Tenant to furnish Landlord with copies
of such periodic filings substantially concurrently with the filing thereof with
the Securities and Exchange Commission.

     Landlord and Tenant recognize the need of Tenant to maintain the
confidentiality of information regarding its financial status and the need of
Landlord to be informed of, and to provide to prospective lenders and purchasers
of the Property financial information pertaining to, Tenant's financial status.
Landlord and Tenant agree to cooperate with each other in achieving these needs
within the context of the obligations set forth in this Section.

     19.12   Costs.  If Tenant requests the consent of Landlord under any
             -----
provision of this Lease for any act that Tenant proposes to do hereunder,
including, without limitation, assignment or subletting of the Buildings or any
portion thereof, Tenant shall, as a condition to doing any such act and the
receipt of such consent, reimburse Landlord promptly for any and all reasonable
costs and expenses incurred by Landlord in connection therewith, including,
without limitation, reasonable attorneys' fees, up to a maximum of $2,500.00 per
request.

     19.13   Time.  Time is of the essence of this Lease, and of every term and
             ----
condition hereof.

     19.14   Rules And Regulations.  Tenant shall observe, comply with and obey,
             ---------------------
and shall cause its employees, agents and, to the best of Tenant's ability,
invitees to observe, comply with and obey such rules and regulations as Landlord
may reasonably promulgate from time to time for the safety, care, cleanliness,
order and use of the Improvements, the Buildings and the Property.

     19.15   Brokers.  Landlord agrees to pay a brokerage commission to Tenant's
             -------
broker, Cornish & Carey Commercial, in connection with the consummation of this
Lease in accordance with a separate agreement. Each party represents and
warrants that no other broker participated in the consummation of this Lease and
agrees to indemnify, defend and hold the other party harmless against any
liability, cost or expense, including, without limitation, reasonable attorneys'
fees, arising out of any claims for brokerage commissions or other similar
compensation in connection with any conversations, prior negotiations or other
dealings by the indemnifying party with any other broker.

  19.16   Memorandum Of Lease.  At any time during the term of this Lease,
          -------------------
either party, at its sole expense, shall be entitled to record a memorandum of
this Lease and, if either party so

                                       39
<PAGE>

elects, both parties agree to cooperate in the preparation, execution,
acknowledgement and recordation of such document in reasonable form.

  19.17   Corporate Authority.  Each of the persons signing this Lease on behalf
          -------------------
of Tenant warrants that he or she is fully authorized to do so and, by jointly
so signing, to bind Tenant.

  19.18   Execution and Delivery.  This Lease may be executed in one or more
          ----------------------
counterparts and by separate parties on separate counterparts, but each such
counterpart shall constitute an original and all such counterparts together
shall constitute one and the same instrument.

  19.19   Survival.  Without limiting survival provisions which would otherwise
          --------
be implied or construed under applicable law, the provisions of Sections 2.6,
7.4, 9.2, 9.3, 9.4, 11.6, 12.6 and 19.5 hereof shall survive the termination of
this Lease with respect to matters occurring prior to the expiration of this
Lease.

  19.20   Parking.  Landlord and Tenant agree that the Common Areas, taken as a
          -------
whole, shall include parking in amounts sufficient to satisfy the minimum
parking requirements of the City of South San Francisco applicable to the
Property and the Britannia Pointe Grand Business Park from time to time.
Landlord represents to Tenant that under the most current drawings at this date
for the complete build-out of the Property and the Britannia Pointe Grand
Business Park, the overall rate of parking is approximately 3.07 spaces for each
1,000 square feet of space in the various buildings presently existing or
contemplated for construction on the Property and in the remainder of the
Britannia Pointe Grand Business Park.

     IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
day and year first set forth above.

<TABLE>
<CAPTION>
<S>                                                <C>
                  "Landlord"                                        "Tenant"
BRITANNIA POINTE GRAND                             EXELIXIS PHARMACEUTICALS, INC., a
LIMITED PARTNERSHIP, a Delaware limited            Delaware corporation
partnership

By:  BRITANNIA POINTE GRAND, LLC, a             By: /s/ George Scangos
     California limited liability company,          -----------------------------------
     General Partner                                George A. Scangos
                                                    President and CEO

     By: /s/ T. J. Bristow                          By: /s/ William D. Waddill
        ----------------------------------             --------------------------------
        T. J. Bristow                               Its: Secretary
        Its Manager, President and Chief
        Financial Officer
</TABLE>

                                       40
<PAGE>

                                   EXHIBITS

     EXHIBIT A      Real Property Description

     EXHIBIT B      Site Plan

     EXHIBIT C      Workletter

     EXHIBIT D      Estimated Construction Schedule

     EXHIBIT E      Acknowledgement of Rent Commencement Date
<PAGE>

                                   EXHIBIT A
                                   ---------
                           REAL PROPERTY DESCRIPTION
                           -------------------------
All that certain real property in the City of South San Francisco, County of San
Mateo, State of California, more particularly described as follows:

Phase 1 Property
----------------
PARCEL ONE:

Beginning at a point which bears South 89 degrees 52' 30" West, along the
southerly line of East Grand Avenue, 476.27 feet and South 0 degrees 06' 30"
West 532.00 feet, from the northeasterly corner of that certain 15.743 acre
tract of land described in the deed from Metal and Thermit Corporation, a
corporation, to Grace F. Guerin, dated June 17, 1947 and recorded July 24, 1947
in Book 1352 of Official Records of San Mateo County at Page 373, said point of
beginning being the southeasterly corner of lands described in the deed from Ed
Rayburn Guerin and Grace F. Guerin, his wife, to Ed Rosemont, dated April 16,
1948, and recorded April 21, 1948 in Book 1454 of Official Records of San Mateo
County at Page 293 (27142-H); thence from said point of beginning, South 0
degrees 06' 30" West 50 feet, to a point; thence South 89 degrees 52' 30" West
200 feet to a point; thence North 0 degrees 04' 32" West 20 feet to a point;
thence South 89 degrees 52' 30" West 232.8 feet, more or less, to a point on the
westerly line of said 15.743 acre tract and the easterly line of the right of
way of the Belt Line Railway; thence along said line, North 0 degrees 04' 32"
West, a distance of 30 feet to the southwesterly corner of lands described in
the deed to Rosemont beforementioned; thence North 89 degrees 52' 30" East,
along the southerly line of said lands, 433 feet to the point of beginning.

Excepting therefrom so much thereof as lies within the lands described in the
deed from Ed Rosemont and wife to Grace F. Guerin, dated March 23, 1956 and
recorded May 2, 1956 in Book 3016 of Official Records of San Mateo County at
Page 207 (50306-N).

PARCEL TWO:

Beginning at a point which bears South 89 degrees 52' 30" West, along the
southerly line of East Grand Avenue, 476.27 feet and South 0 degrees 06' 30"
West 327.34 feet from the northeasterly corner of that certain 15.743 acre tract
of land described in the deed from Metal and Thermit Corporation, a corporation,
to Grace F. Guerin, dated June 17, 1947, and recorded July 24, 1947 in Book 1352
of Official Records of San Mateo County at Page 373 (77876-G); thence from said
point of beginning South 0 degrees 06' 30" West 204.66 feet; thence South 89
degrees 52' 30" West 433 feet to a point in the westerly line of said 15.743
acre tract and the easterly line of the right of way of the Belt Line Railway;
thence along said line, North 0 degrees 04' 32" West 88.17 feet; thence
continuing along said line, on the arc of a curve to the right, with a radius of
349.26 feet, tangent to the preceding course, a distance of 118.89 feet; thence
North 89 degrees 52' 30" East 413.62 feet to the point of beginning.

Excepting therefrom so much thereof as lies within the lands described in the
deed from Ed Rosemont and wife to Grace F. Guerin, dated March 23, 1956 and
recorded May 2, 1956 in Book 3016 of Official Records of San Mateo County at
Page 207 (50306-N).

PARCEL THREE:

Beginning at a point which bears North 89 degrees 52' 30" East 40 feet from the
southwesterly corner of that certain 0.390 acre parcel of land described in the
deed from Ed Reyburn Guerin and Grace F. Guerin, his wife, to Ed Rosemont and
Margaret Rosemont, his wife, dated November 8, 1948 and recorded November 16,
1948 in Book 1593 of Official Records of San Mateo County at Page 284 (61936-H);
thence North 89 degrees 52' 30" East, along the southerly line of said 0.390
acre parcel, 192.8 feet and South 0 degrees 04' 32" East 20 feet to a point;
thence leaving said southerly line, South 89 degrees 52' 30" West 187.179 feet
to a point; thence North 15 degrees 46' 04" West 20.782 feet, more or less, to
the point of beginning.

Assessor's Parcel No. 015-032-020 (Parcels One through Three)

                             EXHIBIT A Page 1 of 2
                             --------------
<PAGE>

PARCEL FOUR:

Beginning at a point which bears South 89 degrees 52' 30" West, along the
southerly line of East Grand Avenue, 476.27 feet and South 0 degrees 06' 30"
West 582.00 feet from the northeasterly corner of that certain 15.743 acre tract
of land described in the deed from Metal and Thermit Corporation, a corporation,
to Grace F. Guerin, dated June 17, 1947, and recorded July 24, 1947 in Book 1352
of Official Records of San Mateo County at Page 373 (77876-G), said point of
beginning being the southeasterly corner of lands described in the deed from E.
Rayburn Guerin and Grace F. Guerin, his wife, to Ed Rosemont and wife, dated
November 8, 1948 and recorded November 16, 1948, in Book 1593 of Official
Records of San Mateo County, at Page 284 (61936-H); thence from said point of
beginning South 0 degrees 06' 30" West, 50 feet to a point; thence South 89
degrees 52' 30" West, 150 feet to a point; thence North 0 degrees 06' 30" East,
50 feet to a point; thence North 89 degrees 52' 30" East, 150 feet to the point
of beginning.

Assessor's Parcel No. 015-032-030

Phase 2-A Property
------------------

Beginning at a point which bears South 89 degrees 52' 30" West, along the
southerly line of East Grand Avenue, 476.27 feet and South 0 degrees 06' 30"
West 632.00 feet from the northeasterly corner of that certain 15.743 acre tract
of land described in the deed from Metal and Thermit Corporation, a corporation,
to Grace F. Guerin, dated June 17, 1947, and recorded July 24, 1947 in Book 1352
of Official Records of San Mateo County at Page 373 (77876-G), said point of
beginning being the southeasterly corner of a parcel of land described in the
deed from E. Rayburn Guerin and Grace F. Guerin, his wife, to Walter Industries,
Inc., dated December 15, 1949 and recorded December 23, 1949 in Book 1766 of
Official Records of San Mateo County at Page 487; thence from said point of
beginning, South 0 degrees 06' 30" West 177.25 feet, more or less, to the
northerly line of lands described in deed from Grace F. Guerin to John F.
Lutkenhouse, dated November 28, 1955, and recorded December 8, 1955, in Book
2928 of Official Records of San Mateo County at Page 555 (9934-E); thence along
said northerly line South 89 degrees 52' 30" West 363.20 feet, more or less, to
the easterly boundary of the South San Francisco Belt Railways right of way;
thence northwesterly, along said right of way boundary, on the arc of a curve to
the right, having a radius of 349.26 feet and a central angle of 36 degrees 30'
54", an arc length of 222.59 feet; thence North 0 degrees 04' 52" West 108.30
feet and northerly on a curve to the right, tangent to a line which bears North
0 degrees 04' 32" West from the last mentioned point, said curve having a radius
of 349.26 feet, a central angle of 3 degrees 34' 52", an arc distance of 21.83
feet to the most northerly corner of lands described in deed from Ed. Rosemont
and wife to Grace F. Guerin, dated March 23, 1958, and recorded May 2, 1958 in
Book 3016 of Official Records of San Mateo County at Page 207 (50306-H); thence
South 15 degrees 46' 04" East, along the northeasterly line of the last named
lands and its southeasterly prolongation, a distance of 186.147 feet to the
southwesterly corner of lands described in deed from Grace F. Guerin to Ed.
Rosemont and Margaret F. Guerin, dated March 1, 1958, and recorded May 2, 1958,
in Book 3016 of Official Records of San Mateo County at Page 209 (50308-H);
thence along the southerly line of the last mentioned lands, North 89 degrees
52' 30" East 237.178 feet to the westerly line of the lands of Walter
Industries, Inc., above mentioned in Book 1766 of Official Records at Page 487;
thence along the westerly and southerly boundary of said last named lands, South
0 degrees 06' 30" West 50 feet and North 89 degrees 52' 30" East 150 feet to the
point of beginning.

Assessor's Parcel No. 015-032-040

Phase 2-B Property
------------------

See parcels designated as Phase 2-B Property (approximate) on Exhibit B-1
attached to the Lease to which this Exhibit A is attached and incorporated
herein by this reference (detailed legal description not available at this
time).

MetaXen Property
----------------

Lot 4 as shown on Parcel Map No. 91-284, "Being a resubdivision of the parcels
described in the deeds to Metal and Thermit Corporation, recorded in Book 293,
at Page 394 of Deeds; in Book 49, at Page 490, Official Records; in Book 77, at
Page 415, Official Records; and, except that parcel described in Book 1352, at
Page 373, Official Records," filed on February 25, 1992, in Book 65 of Parcel
Maps, in the Office of the Recorder of the County of San Mateo, California.

                             EXHIBIT A Page 2 of 2
<PAGE>

                                   EXHIBIT C
                                   ---------

                                  WORKLETTER
                                  ----------

     This Workletter ("Workletter") constitutes part of the Build-to-Suit Lease
                       ----------
dated as of May ___, 1999 (the "Lease") between BRITANNIA POINTE GRAND LIMITED
                                -----
PARTNERSHIP, a Delaware limited partnership ("Landlord"), and EXELIXIS
                                              --------
PHARMACEUTICALS, INC., a Delaware corporation ("Tenant").  The terms of this
                                                ------
Workletter are incorporated in the Lease for all purposes.

1.   Defined Terms.  As used in this Workletter, the following capitalized terms
     -------------
have the following meanings:

     (a)  Approved Plans:  Plans and specifications prepared by the applicable
          --------------
     Architect for the respective Improvements and approved by both Landlord and
     Tenant in accordance with Paragraph 2 of this Workletter (subject to
     further modification in accordance with such Paragraph 2).

     (b)  Architect:  Chamorro Design Group, or any other architect selected by
          ---------
     Landlord in its sole discretion, with respect to the Building Shells, the
     Site Improvements and any other Improvements which Landlord is to design
     pursuant to this Workletter; any architect selected by Tenant with the
     written approval of Landlord (which approval shall not be unreasonably
     withheld or delayed), with respect to the Tenant Improvements and any other
     Improvements which Tenant is to design pursuant to this Workletter.

     (c)  Building Shells:  The shells of Building 1 and, if Tenant exercises
          ---------------
its option under Section 1.1(c)(ii) or (iii) of the Lease, Building 2, as such
shells are more fully defined in Schedule C-1 attached to this Workletter.
                                 ------------

     (d)  Change Order:  See definition in Paragraph 2(e)(ii) hereof.
          ------------

     (e)  Cost of Improvement:  See definition in Paragraph 2(c) hereof.
          -------------------

     (f)  Final Completion Certificate:  See definition in Paragraph 3(b)
          ----------------------------
hereof.

     (g)  Final Working Drawings:  See definition in Paragraph 2(a) hereof.
          ----------------------

     (h)  General Contractor:  Concrete Shell Structures, Inc., or any other
          -----------------
general contractor selected by Landlord in its sole discretion, with respect to
Landlord's Work. The General Contractor with respect to Tenant's Work shall be
selected by Tenant, subject to Landlord's approval (not to be unreasonably
withheld or delayed), as contemplated in Paragraph 5(a) hereof.

     (i)  Improvements:  The Building Shells, Site Improvements, Tenant
          ------------
Improvements and other improvements shown on the Approved Plans from time to
time and to be constructed on the Property pursuant to the Lease and this
Workletter.

     (j)  Landlord Delay:  Any of the following types of delay in the completion
          --------------
of construction of the Tenant Improvements:

          (i)   Any delay resulting from Landlord's failure to furnish, in a
timely manner, information requested by Tenant or by the Architect or General
Contractor for Tenant's Work in connection with the design or construction of
Tenant's Work, or from Landlord's failure to approve in a timely manner any
matters requiring approval by Landlord; or

          (ii)  Any delay of any other kind or nature caused by Landlord (or
Landlord's contractors, agents or employees) or resulting from the performance
of Landlord's Work.
<PAGE>

     (k)  Landlord's Work:  The Building Shells and Site Improvements, and any
          ---------------
other Improvements which Landlord is to construct or install pursuant to this
Workletter or by mutual agreement of Landlord and Tenant from time to time.

     (l)  Punch List Work:  Minor corrections of construction or decoration
          ---------------
details, and minor mechanical adjustments, that are required in order to cause
any applicable portion of the Improvements as constructed to conform to the
Approved Plans in all material respects and that do not materially interfere
with Tenant's use or occupancy of the Buildings and the Property.

     (m)  Site Improvements:  The parking areas, driveways, landscaping and
          -----------------
other improvements to the Common Areas of the Property that are depicted on
Exhibit B to the Lease (as the same may be modified pursuant to the process
---------
of development and approval of the Approved Plans) and more specifically
described in Schedule C-1 attached to this Workletter.
             ------------

     (n)  Structural Completion Certificate:  See definition in Paragraph 3(a)
          ---------------------------------
hereof.

     (o)  Tenant Delay:  Any of the following types of delay in the completion
          ------------
of construction of the Building Shells:

          (i)    Any delay resulting from Tenant's failure to furnish, in a
timely manner, information requested by Landlord or by the Architect or General
Contractor for Landlord's Work in connection with the design or construction of
the Building Shells, or from Tenant's failure to approve in a timely manner any
matters requiring approval by Tenant;

          (ii)   Any delay attributable to any request by Tenant to construct
the Building Shells in an "above standard" manner, or to any use of "above
standard" Building Shell components that is necessitated by Tenant's particular
use requirements or by the contemplated Tenant's Work;

          (iii)  Any delay resulting from Change Orders, including any delay
resulting from the need to revise any drawings or obtain further governmental
approvals as a result of any Change Order; or

          (iv)   Any delay of any other kind or nature caused by Tenant (or
Tenant's contractors, agents or employees) or resulting from the performance of
Tenant's Work.

     (p)  Tenant Improvements:  The improvements to or within the Buildings,
          -------------------
other than improvements constituting part of the Building Shells, shown on the
Approved Plans from time to time and to be constructed by Tenant (except as
otherwise provided herein) pursuant to the Lease and this Workletter, including
(but not limited to) the improvements described on Schedule C-2 attached to
                                                   ------------
this Workletter (except to the extent any such Schedule C-2 improvements
                                               ------------
constitute part of the Building Shells).

     (q)  Tenant's Work:  All of the Improvements other than those constituting
          -------------
Landlord's Work, and such other materials and improvements as Tenant deems
necessary or appropriate for Tenant's use and occupancy of the Buildings.

     (r)  Unavoidable Delays:  Delays due to acts of God, acts of public
          ------------------
agencies, labor disputes, strikes, fires, freight embargoes, rainy or stormy
weather, inability to obtain supplies, materials, fuels or permits, delays of
contractors or subcontractors, or other causes or contingencies beyond the
reasonable control of Landlord or Tenant, as applicable.

     (s)  Work Deadlines:  The target dates for performance by the applicable
          --------------
party of the steps listed in the Estimated Construction Schedule attached as
Exhibit D to the Lease.
---------

     (t)  Capitalized terms not otherwise defined in this Workletter shall have
the definitions set forth in the Lease.
<PAGE>

2.  Plans, Cost of Improvements and Construction.  Landlord and Tenant shall
    --------------------------------------------
comply with the procedures set forth in this Paragraph 2 in preparing,
delivering and approving matters relating to the Improvements.

     (a)  Approved Plans and Working Drawings for Landlord's Work.  Landlord
          -------------------------------------------------------
shall promptly and diligently (and in all events prior to any applicable Work
Deadlines, subject to Tenant Delays and Unavoidable Delays) cause to be prepared
and delivered to Tenant, for approval, plans and specifications for the
Improvements constituting Landlord's Work. Following mutual approval of such
plans and specifications, Landlord shall then cause to be prepared and delivered
to Tenant, on or before the applicable Work Deadline (assuming timely delivery
by Tenant of all information, decisions and drawings required to be furnished or
made by Tenant in order to permit complete preparation of plans and drawings),
final working drawings and specifications for the Improvements constituting
Landlord's Work, including structural, fire protection, life safety, mechanical
and electrical working drawings and final architectural drawings (collectively,
"Landlord's Final Working Drawings").  Landlord's Final Working Drawings shall
 ---------------------------------
substantially conform to the Approved Plans. Landlord's obligation to deliver
Landlord's Final Working Drawings to Tenant within the time period set forth
above shall be extended for any delay encountered by Landlord as a result of a
request by Tenant for changes in accordance with the procedure set forth below,
any other Tenant Delays, or any Unavoidable Delays. No later than the applicable
Work Deadline (assuming timely delivery of plans and drawings by Landlord),
Tenant shall either approve Landlord's Final Working Drawings or set forth in
writing with particularity any changes necessary to bring Landlord's Final
Working Drawings into substantial conformity with the Approved Plans or into a
form which will be acceptable to Tenant. In no event, however, shall Tenant have
the right to object to any aspect of the proposed plans and specifications or
proposed Landlord's Final Working Drawings for Landlord's Work (including, but
not limited to, any change from the Approved Plans) that is necessitated by
applicable law, or to any aspect of such proposed plans and specifications or
proposed Landlord's Final Working Drawings that relates to the Building Shells
or Site Improvements, although Landlord agrees to consult with Tenant and to
give reasonable consideration to Tenant's views regarding functional
characteristics of the Building Shells and Site Improvements. Failure of Tenant
to deliver to Landlord written notice of disapproval and specification of
required changes on or before the applicable Work Deadline shall constitute and
be deemed to be approval of Landlord's Final Working Drawings. Upon approval,
actual or deemed, of Landlord's Final Working Drawings by Landlord and Tenant,
Landlord's Final Working Drawings shall be deemed to be incorporated in and
considered part of the Approved Plans, superseding (to the extent of any
inconsistencies) any inconsistent features of the previously existing Approved
Plans.

     (b)  Approved Plans and Working Drawings for Tenant's Work.  Tenant shall
          -----------------------------------------------------
promptly and diligently (and in all events prior to any applicable Work
Deadlines, subject to Landlord Delays and Unavoidable Delays) cause to be
prepared and delivered to Landlord, for approval, plans and specifications for
the Improvements constituting Tenant's Work. Following mutual approval of such
plans and specifications, Tenant shall then cause to be prepared and delivered
to Landlord final working drawings and specifications for the Improvements
constituting Tenant's Work, including any applicable life safety, mechanical and
electrical working drawings and final architectural drawings (collectively,
"Tenant's Final Working Drawings"). Tenant's Final Working Drawings shall
 -------------------------------
substantially conform to the Approved Plans. Landlord shall either approve
Tenant's Final Working Drawings or set forth in writing with particularity any
changes necessary to bring Tenant's Final Working Drawings into substantial
conformity with the Approved Plans or into a form which will be acceptable to
Landlord. Upon approval of Tenant's Final Working Drawings by Landlord and
Tenant, Tenant's Final Working Drawings shall be deemed to be incorporated in
and considered part of the Approved Plans, superseding (to the extent of any
inconsistencies) any inconsistent features of the previously existing Approved
Plans.

     (c)  Cost of Improvements.  "Cost of Improvement" shall mean, with respect
          --------------------    -------------------
to any item or component for which a cost must be determined in order to
allocate such cost, or an increase in such cost, to Landlord and/or Tenant
pursuant to this Workletter or pursuant to the Lease, the sum of the following
(unless otherwise agreed in writing by Landlord and Tenant with respect to any
specific item or component or any category of items or components): (i) all sums
paid to contractors or subcontractors for labor and materials furnished in
connection with

                                      C-3
<PAGE>

construction of such item or component; (ii) all costs, expenses, payments, fees
and charges (other than fines and penalties) paid or incurred to or at the
direction of any city, county or other governmental or quasi-governmental
authority or agency which are required to be paid in order to obtain all
necessary governmental permits, licenses, inspections and approvals relating to
construction of such item or component; (iii) engineering and architectural fees
for services rendered in connection with the design and construction of such
item or component (including, but not limited to, the applicable Architect for
such item or component and an electrical engineer, mechanical engineer and civil
engineer); (iv) sales and use taxes; (v) testing and inspection costs; (vi) the
cost of power, water and other utility facilities and the cost of collection and
removal of debris required in connection with construction of such item or
component; and (vii) all other "hard" costs incurred in the construction of such
item or component in accordance with the Approved Plans and this Workletter.
Cost of Improvement shall not include any project management fee relating to the
construction of such item or component.

     (d)  Construction of Landlord's Work.  Promptly following approval of
          -------------------------------
Landlord's Final Working Drawings, Landlord shall apply for and use reasonable
efforts to obtain the necessary permits and approvals to allow construction of
all Improvements constituting Landlord's Work. Upon receipt of such permits and
approvals, Landlord shall, at Landlord's sole expense (except as otherwise
provided in the Lease or in this Workletter), diligently construct and complete
the Improvements constituting Landlord's Work substantially in accordance with
the Approved Plans, subject to Unavoidable Delays and Tenant Delays (if any).
Such construction shall be performed in a neat and workmanlike manner and shall
conform to all applicable governmental codes, laws and regulations in force at
the time such work is completed. Landlord shall have the right, in its sole
discretion, to decide whether and to what extent to use union labor on or in
connection with Landlord's Work and shall use the General Contractor specified
in Paragraph 1(h) to construct all Improvements constituting Landlord's Work.

     (e)  Changes.
          -------

          (i)    If Landlord determines at any time that changes in Landlord's
Final Working Drawings or in any other aspect of the Approved Plans relating to
any item of Landlord's Work are required as a result of applicable law or
governmental requirements, or at the insistence of any other third party whose
approval may be required with respect to the Improvements, or as a result of
unanticipated conditions encountered in the course of construction, then
Landlord shall promptly (A) advise Tenant of such circumstances and (B) cause
revised Approved Plans and/or Landlord's Final Working Drawings, as applicable,
reflecting such changes to be prepared by Architect and, to the extent such
changes relate to items other than the Building Shells or Site Improvements,
submitted to Tenant for approval in accordance with the procedure contemplated
in Paragraph 2(a) hereof. Upon final approval of revised drawings by Landlord
and Tenant (if applicable), Landlord's Final Working Drawings and/or Approved
Plans shall be deemed to be modified accordingly.

          (ii)   If Tenant at any time desires any changes, alterations or
additions to the Approved Plans or Landlord's Final Working Drawings with
respect to any of Landlord's Work, Tenant shall submit a detailed written
request to Landlord specifying such changes, alterations or additions (a "Change
                                                                          ------
Order"). Upon receipt of any such request, Landlord shall promptly notify
-----
Tenant of (A) whether the matters proposed in the Change Order are approved by
Landlord (which approval shall not be unreasonably withheld), (B) Landlord's
estimate of the number of days of delay, if any, which shall be caused by such
Change Order if implemented (including, without limitation, delays due to the
need to obtain any revised plans or drawings and any governmental approvals),
and (C) Landlord's estimate of the increase, if any, which shall occur in the
Cost of Improvement for the items or components affected by such Change Order if
such Change Order is implemented (including, but not limited to, any costs of
compliance with laws or governmental regulations that become applicable because
of the requested Change Order). If Tenant notifies Landlord in writing, within
five (5) business days after receipt of such notice from Landlord, of Tenant's
approval of the Change Order (including the estimated delays and cost increases,
if any, described in Landlord's notice), then Landlord shall cause such Change
Order to be implemented and Tenant shall be responsible for all costs or cost
increases resulting from or attributable to the Change Order, subject to the
provisions of Paragraph 4 hereof. If Tenant fails to notify Landlord in writing
of Tenant's approval of such Change Order within said
<PAGE>

five (5) business day period, then such Change Order shall be deemed to be
withdrawn and shall be of no further effect.

     (f)  Indemnification.  Landlord shall indemnify, defend (with counsel
          ---------------
satisfactory to Tenant) and hold Tenant harmless from all suits, claims,
actions, losses, costs and expenses (including, but not limited to, claims for
workers' compensation, attorneys' fees and costs) based on personal injury or
property damage or contract claims (including, but not limited to, claims for
breach of warranty) arising from the performance of Landlord's Work; provided,
however, that nothing in this Paragraph 2(f) shall be construed to expand the
scope of any express warranties made by Landlord in the Lease or in this
Workletter, and with respect to any claims for breach of warranty or other
contract claims, Tenant's rights under this Paragraph 2(f) shall be subject to
any express limitations set forth elsewhere in the Lease or in this Workletter
with respect to Landlord's warranties and other contractual obligations.
Landlord shall repair or replace (or, at Tenant's election, reimburse Tenant for
the cost of repairing or replacing) any portion of the Improvements and/or any
of Tenant's personal property or equipment that is damaged, lost or destroyed in
the course of or in connection with the performance of Landlord's Work.

3.   Completion.
     ----------

     (a)  When Landlord receives written certification from Architect that
construction of the foundation, structural slab on grade, underslab plumbing
work, structural steel framework, decking and concrete on second and third (if
applicable) floors, roof structure and installation of main fire sprinkler lines
in the applicable Building have been completed in accordance with the Approved
Plans, Landlord shall prepare and deliver to Tenant a certificate signed by both
Landlord and Architect (the "Structural Completion Certificate") certifying
                             ---------------------------------
that the construction of such portions of the Building has been substantially
completed in accordance with the Approved Plans in all material respects and
specifying the date of that completion. The delivery of such Structural
Completion Certificate shall commence the running of the 6-month time period
until the applicable Rent Commencement Date under Section 2.1 of the Lease.

     (b)  When Landlord receives written certification from Architect that
construction of the remaining Improvements constituting Landlord's Work has been
completed in accordance with the Approved Plans (except for Punch List Work),
Landlord shall prepare and deliver to Tenant a certificate signed by both
Landlord and Architect (the "Final Completion Certificate") certifying
                             ----------------------------
that the construction of the remaining Improvements constituting Landlord's Work
has been substantially completed in accordance with the Approved Plans in all
material respects, subject only to completion of Punch List Work, and specifying
the date of that completion. Upon receipt by Tenant of the Final Completion
Certificate, the Improvements constituting Landlord's Work will be deemed
delivered to Tenant for all purposes of the Lease (subject to Landlord's
continuing obligations with respect to the Punch List Work).

     (c)  Notwithstanding any other provisions of this Workletter or of the
Lease, if Landlord is delayed in substantially completing any of Landlord's Work
necessary for issuance of the Structural Completion Certificate as a result of
any Tenant Delay, then the 6-month period between the delivery of the Structural
Completion Certificate and the applicable Rent Commencement Date pursuant to
Section 2.1 of the Lease shall be reduced, day for day, by the number of days by
which such Tenant Delay delayed completion of the portions of Landlord's Work
necessary for issuance of the Structural Completion Certificate, and Tenant
shall reimburse Landlord in cash, within fifteen (15) days after written demand
by Landlord (accompanied by reasonable documentation of the items claimed), for
any increased construction-related costs and expenses incurred by Landlord as a
result of the Tenant Delay.

     (d)  At any time within thirty (30) days after delivery of the Structural
Completion Certificate or the Final Completion Certificate, as applicable,
Tenant shall be entitled to submit one or more lists to Landlord specifying
Punch List Work to be performed on the applicable Improvements constituting
Landlord's Work, and upon receipt of such list(s), Landlord shall diligently
complete such Punch List Work at Landlord's sole expense. In the event of any
dispute as to completion of any item or component of Landlord's Work, the
certificate of the applicable Architect shall be conclusive. Promptly after
Landlord provides Tenant with the Final

                                      C-5
<PAGE>

Completion Certificate, Landlord shall cause the recordation of a Notice of
Completion (as defined in Section 3093 of the California Civil Code) with
respect to Landlord's Work.

4.   Payment of Costs.
     ----------------

     (a)  Landlord's Work.  Except as otherwise expressly provided in this
          ---------------
Workletter (including, but not limited to, the cost allocations set forth in
Schedule C-2 attached hereto) or by mutual written agreement of Landlord
------------
and Tenant, the cost of construction of Landlord's Work shall be borne by
Landlord at its sole cost and expense, including any costs or cost increases
incurred as a result of Unavoidable Delays, governmental requirements or
unanticipated conditions; provided, however, that notwithstanding any other
                          --------
provisions of this Paragraph 4(a), to the extent the Cost of Improvement
relating to the construction of any item or component of Landlord's Work is
increased as a result of any permitted Change Order or any Tenant Delay, or as a
result of any "above standard" Building Shell components requested by Tenant or
otherwise necessitated by Tenant's particular use requirements or by the
contemplated Tenant's Work, or as a result of any other plan changes or
compliance costs attributable to Tenant's particular use requirements or to the
contemplated Tenant's Work, the amount of the increase in the Cost of
Improvement with respect to such item or component shall be reimbursed by Tenant
to Landlord in cash or, by mutual agreement of Landlord and Tenant, may be
deducted from Landlord's maximum obligation under Paragraph 4(b) with respect to
the cost of Tenant's Work.

     (b)  Tenant's Work.  Except as otherwise expressly provided in this
          -------------
Workletter (including, but not limited to, the cost allocations set forth in
Schedule C-2 attached hereto) or by mutual written agreement of Landlord and
------------
Tenant, the cost of construction of the Tenant Improvements shall be borne
eighty-two percent (82%) by Landlord and eighteen percent (18%) by Tenant, up to
a maximum Landlord's obligation of $115.00 per square foot of space in the
Buildings (measured in accordance with Section 3.1(d) of the Lease), equating to
a total Cost of Improvements for the Tenant Improvements of approximately
$140.24 per square foot. Tenant shall be responsible, at its sole cost and
expense, for payment of eighteen percent (18%) of the first $140.24 per square
foot of the Cost of Improvements of the Tenant Improvements, for the entire Cost
of Improvements of the Tenant Improvements in excess of $140.24 per square foot
(if any such excess occurs) and for the entire cost of any Tenant's Work that is
not part of the Tenant Improvements, including (but not limited to), in each
case, any costs or cost increases incurred as a result of Unavoidable Delays,
governmental requirements or unanticipated conditions. The rental schedule set
forth in Section 3.1(a) of the Lease is not subject to adjustment based on the
                                        ---
Cost of Improvements of the Tenant Improvements, regardless of whether the final
Cost of Improvements for the Tenant Improvements uses the entire tenant
improvement allowance of $115.00 per square foot that Landlord has agreed to
make available as set forth above or is less than that amount, except to the
                                                               ------
extent of the limited, temporary adjustment provided under Section 3.1(e) of the
Lease in the event Tenant elects to have the Tenant Improvements in Building 2
constructed in two phases. The payment or disbursement of Landlord's and
Tenant's respective shares of the cost of the Tenant Improvements (up to the
maximum amount specified above, in the case of Landlord's share) shall be made
on a prorata basis (in the proportions set forth above) as such costs are
actually incurred, subject to such lien releases and other reasonable
requirements as Landlord and Tenant, respectively, may reasonably impose. To the
extent the Cost of Improvement with respect to the Tenant Improvements exceeds
$140.24 per square foot (reduced by 122% of any amounts deducted from Landlord's
maximum payment obligation as a result of the final sentence of Paragraph 4(a)
hereof), whether as a result of Change Orders, Tenant Delays and/or Unavoidable
Delays or otherwise, the amount of such excess shall in all events be Tenant's
sole responsibility and expense.

5.   Tenant's Work.  On or before the applicable Work Deadline (subject to
     -------------
Landlord Delays and Unavoidable Delays, if any), Tenant shall construct and
install in the respective Buildings the Tenant's Work, substantially in
accordance with the Approved Plans or, with respect to Tenant's Work not shown
on the Approved Plans, substantially in accordance with plans and specifications
prepared by Tenant and approved in writing by Landlord (which approval shall not
be unreasonably withheld or delayed).  Tenant's Work shall be performed in
accordance with, and shall in all respects be subject to, the terms and
conditions of the Lease (to the extent not inconsistent with this Workletter),
and shall also be subject to the following conditions:

                                      C-6
<PAGE>

     (a)  Contractor Requirements.  The contractor engaged by Tenant for
          -----------------------
Tenant's Work, and any subcontractors, shall be duly licensed in California and
shall be subject to Landlord's prior written approval, which approval shall not
be unreasonably withheld or delayed. Tenant shall engage only union contractors
for the construction of Tenant's Work and for the installation of Tenant's
fixtures and equipment in the Buildings, and shall require all such contractors
engaged by Tenant, and all of their subcontractors, to use only union labor on
or in connection with such work, except to the extent Landlord determines, in
its reasonable discretion, that the use of non-union labor would not create a
material risk of labor disputes, picketing or work interruptions at the Site, in
which event Landlord shall, to that extent, waive such union labor requirement.

     (b)  Costs and Expenses of Tenant's Work.  Subject to Landlord's payment or
          -----------------------------------
reimbursement obligations under Paragraph 4(b) hereof with respect to Landlord's
share of the Cost of Improvements for the Tenant Improvements, Tenant shall
promptly pay all costs and expenses arising out of the performance of Tenant's
Work (including the costs of permits) and shall furnish Landlord with evidence
of payment on request. Tenant shall provide Landlord with ten (10) days' prior
written notice before commencing any Tenant's Work. On completion of Tenant's
Work, Tenant shall deliver to Landlord a release and waiver of lien executed by
each contractor, subcontractor and materialman involved in the performance of
Tenant's Work.

     (c)  Indemnification.  Tenant shall indemnify, defend (with counsel
          ---------------
satisfactory to Landlord) and hold Landlord harmless from all suits, claims,
actions, losses, costs and expenses (including, but not limited to, claims for
workers' compensation, attorneys' fees and costs) based on personal injury or
property damage or contract claims (including, but not limited to, claims for
breach of warranty) arising from the performance of Tenant's Work. Tenant shall
repair or replace (or, at Landlord's election, reimburse Landlord for the cost
of repairing or replacing) any portion of the Improvements and/or any of
Landlord's real or personal property or equipment that is damaged, lost or
destroyed in the course of or in connection with the performance of Tenant's
Work.

     (d)  Insurance.  Tenant's contractors shall obtain and provide to Landlord
          ---------
certificates evidencing workers' compensation, public liability and property
damage insurance in amounts and forms and with companies satisfactory to
Landlord.

     (e)  Rules and Regulations.  Tenant and Tenant's contractors shall comply
          ---------------------
with any other rules, regulations and requirements that Landlord or General
Contractor may reasonably impose with respect to the performance of Tenant's
Work. Tenant's agreement with Tenant's contractors shall require each contractor
to provide daily cleanup of the construction area to the extent that such
cleanup is necessitated by the performance of Tenant's Work.

     (f)  Early Entry.  Landlord shall permit entry of contractors into the
          -----------
Buildings for the purposes of performing Tenant's Work, subject to satisfaction
of the conditions set forth in the Lease. This license to enter is expressly
conditioned on the contractor(s) retained by Tenant working in harmony with, and
not interfering with, the workers, mechanics and contractors of Landlord. If at
any time the entry or work by Tenant's contractor(s) causes any material
interference with the workers, mechanics or contractors of Landlord, permission
to enter may be withdrawn by Landlord immediately on written notice to Tenant.

     (g)  Risk of Loss.  All materials, work, installations and decorations of
          ------------
any nature brought onto or installed in the Buildings, by or at the direction of
Tenant or in connection with the performance of Tenant's Work, before the
commencement of Tenant's rental payment obligations with respect to the
applicable Building shall be at Tenant's risk, and neither Landlord nor any
party acting on Landlord's behalf shall be responsible for any damage, loss or
destruction thereof, except to the extent caused by Landlord's negligence or
willful misconduct.

     (h)  Condition of Tenant's Work.  All work performed by Tenant shall be
          --------------------------
performed in a good and workmanlike manner, shall be free from defects in
design, materials and workmanship, and shall be completed in compliance with the
plans approved by Landlord for such Tenant's Work in all material respects and
in compliance with all applicable governmental laws, ordinances, codes and
regulations in force at the time such work is completed.

                                      C-7
<PAGE>

6.   Phasing of Improvements.  The Building Shells, Site Improvements on the
     -----------------------
respective Properties and Tenant Improvements in the respective Buildings shall
be constructed in either two or three separate phases.

     (a)  The first such phase shall consist of the Building Shell and other
Landlord's Work (if any) for Building 1, the Site Improvements on the Phase 1
Property and the Tenant Improvements in Building 1 (collectively, the "Building
                                                                       --------
1 Improvements"), all of which shall in all events be constructed in a single
---------------
initial phase under the Lease and this Exhibit C.  For purposes of applying
                                       ---------
the provisions of the Lease and this Exhibit C to such construction, all
                                     ---------
provisions relating to time periods, development of plans, actual construction
and payment of the Cost of Improvements for the Building 1 Improvements shall be
interpreted and applied solely to Building 1, the Phase 1 Property and the
Building 1 Improvements, and the respective obligations of Landlord and Tenant
for payment of such Cost of Improvements shall be based solely on the square
footage of Building 1 as it is designed and built.

     (b)  The second and third such phases shall become applicable only if
Tenant exercises its option for Building 2 under Section 1.1(c)(ii) or (iii) of
the Lease and, in the case of the third phase, only if Tenant also elects to
have the Tenant Improvements in Building 2 constructed in two phases. To the
extent applicable, the second and third phases shall consist of the Building
Shell and other Landlord's Work (if any) for Building 2, the Site Improvements
on the Phase 2 Property and the Tenant Improvements in Building 2 (collectively,
the "Building 2 Improvements"), all of which shall be constructed in either
     -----------------------
one or two separate phases under the Lease and this Exhibit C. The Building
                                                    ---------
Shell and other Landlord's Work (if any) for Building 2 and the Site
Improvements on the Phase 2 Property shall in all events be constructed as a
single, second phase of improvements under the Lease and this Exhibit C. As
                                                              ---------
provided in Section 5.1(a) of the Lease,
                        ---------
however, Tenant in its discretion may elect, by written notice to Landlord at
any time prior to Landlord's delivery to Tenant of the Structural Completion
Certificate for the Building Shell for Building 2, to have the Tenant
Improvements in Building 2 completed in two separate phases, a first phase of no
less than 25,000 square feet ("Phase 2A") and a second phase of no more than
                               --------
20,000 square feet ("Phase 2B"), with the sum of the square footages for such
                     --------
phases to be equal to the total square footage of Building 2 and the
construction of the Phase 2B Tenant Improvements to be completed no later than
twelve (12) months after the Phase 2 Rent Commencement Date. If Tenant elects
such phased completion of the Tenant Improvements in Building 2, then (i)
Landlord shall still construct the entire Building Shell for Building 2 and the
Site Improvements on the Phase 2 Property in the same manner and within the same
time frame as if all of the Building 2 Improvements were to be constructed in a
single phase, (ii) Tenant shall be entitled to occupy and use all of Building 2
or any lesser portion thereof (including, at Tenant's election, any portions in
which Tenant Improvements have not yet been completed) from and after the
completion of the Phase 2A Tenant Improvements, (iii) Tenant shall begin paying
rent for all of Building 2 on the Phase 2 Rent Commencement Date, subject to a
rental adjustment under Section 3.1(e) of the Lease in accordance with its
terms, regardless of how much of Building 2 is actually occupied by Tenant as of
that date, and (iv) Tenant shall in all events complete the Phase 2B Tenant
Improvements no later than twelve (12) months after the Phase 2 Rent
Commencement Date. For purposes of applying the provisions of the Lease and this
Exhibit C to the construction of the Building 2 Improvements, all provisions
---------
relating to time periods, development of plans, actual construction and payment
of the Cost of Improvements for the Building 2 Improvements shall be interpreted
and applied solely to Building 2, the Phase 2 Property and the Building 2
Improvements, and the respective obligations of Landlord and Tenant for payment
of such Cost of Improvements shall be based solely on the square footage of
Building 2 as it is designed and built; moreover, if the Building 2 Tenant
Improvements are constructed in two separate phases, then the Cost of
Improvements for the Phase 2A Tenant Improvements shall be allocated between
Landlord and Tenant based on the aggregate Cost of Improvements for such Phase
2A Tenant Improvements measured against a maximum Landlord's contribution
obligation calculated on the entire square footage of Building 2; a temporary,
interim rental adjustment shall be made under Section 3.1(e) of the Lease (to
the extent applicable); and upon completion of the Phase 2B Tenant Improvements,
the entire Cost of Improvements for the Phase 2A Tenant Improvements and the
Phase 2B Tenant Improvements shall be aggregated, and again measured against a
maximum Landlord's contribution obligation calculated on the entire square
footage of Building 2, for purposes of determining how the final aggregate Cost
of Improvements for the Building 2 Tenant Improvements is to be allocated
between Landlord and Tenant.

                                      C-8
<PAGE>

7.   No Agency.  Nothing contained in this Workletter shall make or constitute
     ---------
Tenant as the agent of Landlord.

8.   Survival.  Without limiting survival provisions which would otherwise be
     --------
implied or construed under applicable law, the provisions of Paragraphs 2(f) and
5(c) of this Workletter shall survive the termination of the Lease with respect
to matters occurring prior to expiration of the Lease.

9.   Miscellaneous.  All references in this Workletter to a number of days shall
     -------------
be construed to refer to calendar days, unless otherwise specified herein.  In
all instances where Tenant's approval is required, if no written notice of
disapproval is given within the applicable time period, at the end of that
period Tenant shall be deemed to have given approval and the next succeeding
time period shall commence.  If any item requiring approval is disapproved by
Tenant in a timely manner, the procedure for preparation of that item and
approval shall be repeated.

     IN WITNESS WHEREOF, the parties have executed this Workletter concurrently
with and as of the date of the Lease.

<TABLE>
<CAPTION>
<S>                                                <C>
                  "Landlord"                                        "Tenant"

BRITANNIA POINTE GRAND LIMITED                     EXELIXIS PHARMACEUTICALS, INC., a
PARTNERSHIP, a  Delaware limited                   Delaware corporation
partnership

By:  BRITANNIA POINTE GRAND,                       By:  /s/ George Scangos
     LLC, a California limited liability                George A. Scangos
     company, General Partner                           Its President and CEO

By:  /s/ T. J. Bristow                             By:   /s/ William D. Waddill
     T. J. Bristow                                 Its:  Secretary
     Its Manager, President and
     Chief Financial Officer
</TABLE>

                                      C-9
<PAGE>

                          Schedule C-1 to Workletter
                          --------------------------

                         DEFINITION OF BUILDING SHELL
                         ----------------------------

The "Building Shell" as defined in the Workletter to which this Schedule C-1 is
attached shall consist of the following:

A standard shell for a building to be constructed for a biotech company,
considering the uses set forth in this Lease, including but not limited to the
following elements and improvements:

Building envelope (reinforced grade beam foundation on prestressed concrete
     piles; ground floor to be 10" thick reinforced concrete slab supported by
     concrete piles; second and third (if applicable) floors to have metal
     decking with concrete topping slab; roof structure to be metal deck with
     concrete for mass dampening in areas to receive mechanical equipment and
     rigid insulation over the balance (at least R-19 to meet Title 24
     calculations); roof membrane to be built-up system, four-ply minimum
     including mineral fiber cap sheet, with flashing and sealants; building
     structural framing to consist of steel beams, girders, columns with a non-
     bearing exterior curtain wall; seismic system utilizing steel braced
     frames; floor system designed with live load capacity of 100 psf; roof live
     load to be 20 psf with 50 psf in center bays to receive mechanical loads;
     floor to floor heights of 17 feet)

Elevator pit

Interior stairs

Roof drains and drain lines

One (1) hour fire protection on columns and beams

Exterior transformer pads

Utilities:
     site lighting and exterior lighting
     electric transformer
     underground electrical to building pull-section
     gas to exterior meter on building
     telephone conduit to building
     site storm drain system
     main sanitary sewer line under ground floor slab (gut line)
     domestic fire and water lines stubbed into building
     automatic fire sprinkler system (for shell, but excluding drops to
     suspended ceilings)
     utility connection and development fees for systems which are part of shell
          (but excluding fees based on facilities or elements that are part of
          Tenant Improvements)

Landscaping and irrigation

Exterior concrete walkways, parking areas, curbing and exterior ADA-mandated
ramps
<PAGE>

                          Schedule C-2 to Workletter
                          --------------------------

                       DEFINITION OF TENANT IMPROVEMENTS
                       ---------------------------------

The "Tenant Improvements" as defined in the Workletter to which this Schedule C-
2 is attached shall include, but not necessarily be limited to, the following:

Toilet cores

Elevator(s)

Specialty items, such as skylights

Variable air volume HVAC system

Building exhaust system

Service yard enclosures

Equipment pad (except as specifically shown as part of Building Shell)

Roof top mechanical screen

Utilities:

     All electrical beyond pull section, including electrical main disconnect
          and distribution panels
     Gas piping beyond main gas meter
     Telephone conduit beyond utility company termination point (inside the
          building), and PVC conduit for telephone/data connections (wiring or
          fiber optics) to future buildings
     Sanitary sewer lines to main "gut" line under ground floor
     Laboratory gas piping
     Communications wiring
     Utility connection fees based on items that are part of Tenant Improvements

Air Compressor with Dryer/Tank

Purified Water System with Storage Tank

Emergency Generator

Vacuum Pump

Casework

Fume Hoods, Laminor Flow Hoods

Mechanical, Electrical, Plumbing Infrastructure not included in Building Shell
     and not otherwise described above

Automatic Gas Manifolds

Process Cooling Water Chiller

Animal Rooms, Epoxy Flooring, Animal Racks

Office Areas, Interior Partitioning, Floor Coverings, Lighting, Interior
Finishes

Cold Rooms

Tissue Culture Rooms

Automatic fire sprinkler system drops to suspended ceilings

Roof top greenhouse(s) of approximately 3,000 square feet aggregate area
<PAGE>

                                   EXHIBIT D
                                   ---------

                        ESTIMATED CONSTRUCTION SCHEDULE
                        -------------------------------

  April 1, 1999  Planning Commission Meeting PUD (2 story)
  April 2, 1999  Submit revised 3-story plan for design review
  April 20, 1999 Design Review Hearing
  May 20, 1999   Planning Commission Hearing
  May 24, 1999   Submit for Building Permit (requires underslab plumbing plan)
  June 3, 1999   Drive indicator piles
  June 21, 1999  Drive production piles/start shell construction *
  Sept. 30, 1999 Submit for tenant improvement permit
  Oct. 21, 1999  Start tenant improvements **
  April 21, 1999 Tenant occupancy

     *    More detailed schedule for shell construction to be developed and
mutually approved by the parties within thirty (30) days after lease execution.

     **   More detailed schedule for tenant improvement construction to be
developed and mutually approved by the parties as design of tenant improvements
progresses.
<PAGE>

                                   EXHIBIT E
                                   ---------
                   ACKNOWLEDGEMENT OF RENT COMMENCEMENT DATE
                   -----------------------------------------

     This Acknowledgement is executed as of _________________, _____, by
BRITANNIA POINTE GRAND LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord"), and EXELIXIS PHARMACEUTICALS, INC., a Delaware corporation
("Tenant"), pursuant to Section 2.4 of the Build-to-Suit Lease dated May ___,
1999 between Landlord and Tenant (the "Lease") covering premises located at ____
Harbor Way, South San Francisco, CA 94080 (the "Property").

     Landlord and Tenant hereby acknowledge and agree as follows:

     1.   The Phase 1 Rent Commencement Date under the Lease is
          __________________, _____.

     2.   The termination date under the Lease shall be _________________,
          ____, subject to any applicable provisions of the Lease
          for extension or early termination thereof.

     3.   The square footage of Building 1, as finally designed and built,
          measured in accordance with Section 3.1(d) of the Lease, is _________
          square feet.

     4.   Tenant accepts Building 1 and acknowledges the satisfactory completion
          of all Improvements therein required to be made by Landlord, subject
          only to (a) any applicable "punch list" or similar procedures
          specifically provided under the Lease or under the Workletter
          governing such work, and (b) Landlord's warranties and representations
          set forth in Section 5.2 of the Lease.

     EXECUTED as of the date first set forth above.

<TABLE>
<CAPTION>
<S>                                               <C>
                  "Landlord"                                        "Tenant"

BRITANNIA POINTE GRAND LIMITED                     EXELIXIS PHARMACEUTICALS, INC., a Delaware
PARTNERSHIP, a Delaware limited                    corporation
partnership

By:  BRITANNIA POINTE GRAND, LLC, a                By:__________________________________________
     California limited liability company,            George A. Scangos
     General Partner                                  President and CEO

     By:___________________________________        By:__________________________________________
        T. J. Bristow                              Its:_________________________________________
        Its Manager, President and Chief
        Financial Officer
</TABLE>
<PAGE>

                              BUILD-TO-SUIT LEASE
                              -------------------

Landlord:      Britannia Pointe Grand Limited Partnership

Tenant:        Exelixis Pharmaceuticals, Inc.

Date:          May ____, 1999
<PAGE>

<TABLE>
<CAPTION>

                               TABLE OF CONTENTS
                                                                                PAGE
                                                                                ----
<S>  <C>                                                                   <C>
1.   PROPERTY
     1.1   Lease of Buildings and Property......................................   1
     1.2   Landlord's Reserved Rights...........................................   6
     1.3   MetaXen Building Option..............................................   7
2.   TERM.......................................................................   8
     2.1   Term.................................................................   8
     2.2   Early Possession.....................................................   9
     2.3   Delay In Possession..................................................   9
     2.4   Acknowledgement Of Rent Commencement.................................  10
     2.5   Holding Over.........................................................  10
     2.6   Option To Extend Term................................................  10
3.   RENTAL.....................................................................  11
     3.1   Minimum Rental.......................................................  11
           (a)   Rental Amounts.................................................  11
           (b)   Rental Amounts During First Extended Term......................  11
           (c)   Rental Amounts During Second Extended Term.....................  12
           (d)   Rental Adjustment Due to Change in Square Footage..............  12
           (e)   Rental Adjustments Due to Tenant Improvement Costs.............  12
     3.2   Late Charge..........................................................  13
4.   STOCK WARRANTS.............................................................  13
     4.1   Stock Warrants.......................................................  14
5.   CONSTRUCTION...............................................................  14
     5.1   Construction of Improvements.........................................  14
     5.2   Condition of Property................................................  14
     5.3   Compliance with Law..................................................  15
6.   TAXES......................................................................  15
     6.1   Personal Property....................................................  15
     6.2   Real Property........................................................  15
7.   OPERATING EXPENSES.........................................................  15
     7.1   Payment of Operating Expenses........................................  15
     7.2   Definition Of Operating Expenses.....................................  16
     7.3   Determination Of Operating Expenses..................................  18
     7.4   Final Accounting For Lease Year......................................  18
     7.5   Proration............................................................  19
8.   UTILITIES..................................................................  19
     8.1   Payment..............................................................  19
     8.2   Interruption.........................................................  19
9.   ALTERATIONS; SIGNS.........................................................  19
     9.1   Right To Make Alterations............................................  19
     9.2   Title To Alterations.................................................  20
     9.3   Tenant Fixtures......................................................  20
     9.4   No Liens.............................................................  20
     9.5   Signs................................................................  20
10.   MAINTENANCE AND REPAIRS...................................................  21
     10.1   Landlord's Work.....................................................  21
     10.2   Tenant's Obligation For Maintenance.................................  21
            (a)   Good Order, Condition And Repair..............................  21
            (b)   Landlord's Remedy.............................................  21
            (c)   Condition Upon Surrender......................................  21
11.  USE OF PROPERTY............................................................  22
     11.1   Permitted Use.......................................................  22
     11.2   [Omitted.]..........................................................  22
     11.3   No Nuisance.........................................................  22
     11.4   Compliance With Laws................................................  22
     11.5   Liquidation Sales...................................................  22
     11.6   Environmental Matters...............................................  23
12.  INSURANCE AND INDEMNITY....................................................  26
     12.1   Insurance...........................................................  26
     12.2   Quality Of Policies And Certificates................................  27
     12.3   Workers' Compensation...............................................  27
     12.4   Waiver Of Subrogation...............................................  27
</TABLE>

                                      i.
<PAGE>

                               TABLE OF CONTENTS
                                  (CONTINUED)

<TABLE>
<CAPTION>
                                                                               PAGE
                                                                               -----
<S>         <C>                                                                 <C>
     12.5   Increase In Premiums................................................  27
     12.6   Indemnification.....................................................  27
     12.7   Blanket Policy......................................................  28
13.  SUBLEASE AND ASSIGNMENT....................................................  28
     13.1   Assignment And Sublease Of Building.................................  28
     13.2   Rights Of Landlord..................................................  29
14.  RIGHT OF ENTRY AND QUIET ENJOYMENT.........................................  29
     14.1   Right Of Entry......................................................  29
     14.2   Quiet Enjoyment.....................................................  30
15.  CASUALTY AND TAKING........................................................  30
     15.1   Damage or Destruction...............................................  30
     15.2   Condemnation........................................................  31
     15.3   Reservation Of Compensation.........................................  32
     15.4   Restoration Of Improvements.........................................  32
16.  DEFAULT....................................................................  32
     16.1   Events Of Default...................................................  32
            (a)   [Omitted.]....................................................  33
            (b)   Nonpayment....................................................  33
            (c)   Other Obligations.............................................  33
            (d)   General Assignment............................................  33
            (e)   Bankruptcy....................................................  33
            (f)   Receivership..................................................  33
            (g)   Attachment....................................................  33
            (h)   Insolvency....................................................  33
     16.2   Remedies Upon Tenant's Default......................................  33
     16.3   Remedies Cumulative.................................................  34
17.  SUBORDINATION, ATTORNMENT AND SALE.........................................  34
     17.1   Subordination To Mortgage...........................................  34
     17.2   Sale Of Landlord's Interest.........................................  35
     17.3   Estoppel Certificates...............................................  35
     17.4   Subordination to CC&R's.............................................  35
     17.5   Mortgagee Protection................................................  36
18.  SECURITY...................................................................  36
     18.1   Deposit.............................................................  36
19.  MISCELLANEOUS..............................................................  37
     19.1   Notices.............................................................  37
     19.2   Successors And Assigns..............................................  38
     19.3   No Waiver...........................................................  38
     19.4   Severability........................................................  38
     19.5   Litigation Between Parties..........................................  38
     19.6   Surrender...........................................................  38
     19.7   Interpretation......................................................  38
     19.8   Entire Agreement....................................................  38
     19.9   Governing Law.......................................................  38
     19.10  No Partnership......................................................  38
     19.11  Financial Information...............................................  39
     19.12  Costs...............................................................  39
     19.13  Time................................................................  39
     19.14  Rules And Regulations...............................................  39
     19.15  Brokers.............................................................  39
     19.16  Memorandum Of Lease.................................................  39
     19.17  Corporate Authority.................................................  40
     19.18  Execution and Delivery..............................................  40
     19.19  Survival............................................................  40
     19.20  Parking.............................................................  40
</TABLE>
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                                      ii.

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