Document:

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                        AGREEMENT OF LIMITED PARTNERSHIP

                                       OF

                        INHALE 201 INDUSTRIAL ROAD, L.P.

                        Dated as of: September ___, 2000

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         This AGREEMENT OF LIMITED PARTNERSHIP ("Agreement") of INHALE 201
INDUSTRIAL ROAD, L.P., a California limited partnership ("Partnership"), is made
and entered into dated _____________, 2000, by and among SCIMED PROP III, Inc.,
a California corporation, as general partner (the "General Partner"), 201
INDUSTRIAL PARTNERSHIP, a California general partnership, as limited partner
(the "201 Limited Partner"), and INHALE THERAPEUTIC SYSTEMS, INC., a Delaware
corporation, as limited partner (the "ITS Limited Partner"). The General
Partner, the 201 Limited Partner and the ITS Limited Partner are hereinafter
sometimes referred collectively as the "Partners" and individually as a
"Partner".

         A. The ITS Limited Partner owns certain real property situated at 201
Industrial Road, San Carlos, California 94070, legally described on Exhibit A
attached hereto (the "Property").

         B. The Partners desire to enter into this Agreement to form the
Partnership to acquire the Property from the ITS Limited Partner pursuant to a
Contribution Agreement dated September ___, 2000 (the "Contribution Agreement").

         C. The Partnership, as "Landlord," and the ITS Limited Partner, as
"Tenant," intend to enter into a Lease Agreement (the "Lease"). Pursuant to the
Lease and the plans, specifications, and other documents required by the Lease
or otherwise incorporated into the Lease (collectively with the Lease, the
"Lease Documents"), the Partnership will improve the Property with: (i) two
connected four-story buildings containing an aggregate of approximately 171,965
square feet of rentable area, of which the two lower stories will consist of
parking for the foregoing buildings as well as for adjacent property currently
leased and occupied by Contributor located at 150 Industrial Road; (ii) site
improvements; and (iii) certain other improvements, all as set forth in the
Lease Documents (collectively, the "Project").

         NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereto, intending to be legally bound, hereby
agree as follows:

Section 1.        FORMATION, PARTNERS AND NAME.

         (a) The Partners hereby form a limited partnership pursuant to the
provisions of the Revised Uniform Limited Partnership Act as in effect in the
State of California (the "Act"), for the limited purpose set forth in Section 2
hereof. The Partners shall consist of SCIMED PROP III, Inc., a California
corporation, as General Partner, 201 INDUSTRIAL PARTNERSHIP, a California
general partnership, as Limited Partner, and Inhale Therapeutic Systems, Inc. as
Limited Partner. The business and affairs of the Partnership shall be conducted
under the name INHALE 201 Industrial Road, L.P., or such other name as the
Partners shall hereafter adopt by written agreement.

         (b) Upon or prior to the execution of the Agreement, the General
Partner shall execute and file a Certificate of Limited Partnership and other
such applications, certificates and documents as are required for the formation
and continuation of a limited partnership to engage in the activities
contemplated by Section 2 hereof under the name set forth in Section 1(a), and
the General Partner

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shall further obtain such business licenses, certificates of qualification
and other evidences of authority as may be necessary or appropriate to the
achievement of the purpose set forth in Section 2.

Section 2.        PARTNERSHIP PURPOSES.

         The purpose of the Partnership is to acquire (pursuant to the
Contribution Agreement), hold, construct, mortgage, operate, sell, lease
(pursuant to the Lease and the Lease Documents) and/or convey the Property and
any other activities as may be incidental thereto.

         The Partnership shall engage in no other business without the consent
of the Partners.

Section 3.        TERM OF PARTNERSHIP.

         The term of the Partnership shall continue until dissolved pursuant to
the terms of Section 15 hereof.

Section 4.        PRINCIPAL PLACE OF BUSINESS; REGISTERED OFFICE.

         The principal place of business and the registered office of the
Partnership are at the offices of the General Partner, at 11440 W. Bernardo
Court, Suite 208, San Diego, California 92127 or at such other location as the
General Partner shall determine. The General Partner shall promptly notify each
Limited Partner of any such change of office.

Section 5.        MANAGEMENT.

         (a) THE GENERAL PARTNER. Subject to the approval rights of the ITS
Limited Partner set forth in Section 5(d) below, the Partnership shall be
managed by the General Partner. Unless otherwise set forth herein, all decisions
relating to the business and affairs of the Partnership shall be made, and all
action proposed to be taken by or on behalf of the Partnership shall be taken,
by the General Partner. All such decisions or actions made or taken by the
General Partner thereunder shall be binding upon the Partnership. Except as
otherwise provided herein, all approvals, consents, or ratifications of such
action taken by the General Partner required herein may be prospective or
retroactive.

         (b) SPECIFIC POWER AND AUTHORITY OF THE GENERAL PARTNER. Subject to the
approval rights of the ITS Limited Partner set forth in Section 5(d) below, the
power and authority of the General Partner to make all decisions with respect to
the business and affairs of the Partnership as it may deem reasonably necessary
or appropriate, and on fair market terms and conditions, to enable the
Partnership to carry out its purposes shall include, without limitation, the
full and complete power and authority as set forth below:

                  (i) to borrow money for and on behalf of the Partnership upon
         such terms and conditions as the Partners deem necessary or appropriate
         to consummate any interim or

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         permanent financing with respect to the initial acquisition and
         construction of improvements on the Property;

                  (ii) to convey, mortgage, pledge, hypothecate, for and on
         behalf of the Partnership and upon fair market terms and conditions,
         all or any part of the Property or other assets of the Partnership in
         connection with any refinancing of the Property;

                  (iii) to execute and to deliver for and on behalf of the
         Partnership any promissory notes, deeds of trust, mortgages, security
         agreements, financing statements, leases, assignments of leases, or
         other instruments required or advisable in connection with any such
         loans, conveyances, mortgages, pledges, or hypothecations;

                  (iv) to acquire the Property, pursuant to the Contribution
         Agreement, and such tangible and intangible personal property as may be
         necessary or desirable to carry on the business of the Partnership and
         to sell, lease, exchange or otherwise dispose of such property;

                  (v) to lease the Property on fair market terms, and collect
         all rentals and all other income accruing to the Partnership, and to
         pay all acquisition and construction or development costs and expenses
         of operation, whether capital or otherwise; the Partners agree that the
         Lease is on fair market terms taking into account all of the
         circumstances relating to the Lease, including this Agreement, the
         Contribution Agreement, and the Lease Documents, and the Partners
         further agree that the rent payable by the ITS Limited Partner under
         the Lease shall not be determinative of what fair market rent would be
         for any other tenant of the Property;

                  (vi) to prepare, or have prepared, and file all tax returns
         for the Partnership (but not the tax return or other reports of the
         individual Partners or of their respective heirs, representatives,
         executors or assigns, in their individual capacities) and make all tax
         elections for the Partnership, including any election under Section 709
         of the Internal Revenue Code of 1986, as amended (the "Code"), to
         amortize certain organizational expenditures incurred by the
         Partnership over a period of not less than 60 months, and an election
         under Code Section 754, provided, however, that the Partner or Partners
         requesting that the Partnership make such election under Code Section
         754 shall reimburse the Partnership for any additional costs incurred
         by the Partnership in making the election for and on behalf of the
         Partnership;

                  (vii) to institute, prosecute, defend and settle, any legal,
         arbitration or administrative actions or proceedings on behalf or
         against the Partnership;

                  (viii) to maintain and operate the assets of the Partnership
         or any part or parts thereof in a prudent manner including, but not
         limited to, carrying customary insurance coverages in commercially
         reasonable amounts;

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                  (ix) to employ, terminate the employment of, supervise and
         compensate such person, firms or corporations for and in connection
         with the business of the Partnership and the acquisition, development,
         improvement, operation, maintenance, management, leasing, financing,
         refinancing, sale, exchange or other disposition of any assets of the
         Partnership or any interest in any of such assets as the General
         Partner, in its sole discretion, may deem necessary or desirable
         (provided that any such arrangements shall be reasonable and in the
         best interests of the Partnership and shall be entered into and
         completed on arms' length terms);

                  (x) to pay any debts and other obligations of the Partnership,
         including amounts due under permanent financing of improvements and
         other loans to the Partnership and cost of operation and maintenance of
         the assets of the Partnership;

                  (xi) to pay all taxes, assessments, rents and other
         impositions applicable to the assets of the Partnership and undertake
         when appropriate any action or proceeding seeking to reduce such taxes,
         assessments, rents or other impositions;

                  (xii) to deposit or invest all monies received by the General
         Partner for or on behalf of the Partnership as it shall deem
         appropriate and to disburse all funds on deposit and liquidate such
         investment on behalf of the Partnership in such amounts and at such
         times as the same are required in connection with the ownership,
         maintenance, operation, improvement, construction and development of
         the assets of the Partnership;

                  (xiii) after the expiration of the Option Period described in
         Section 20 below, to sell or otherwise transfer all or substantially
         all of the Property upon such terms and conditions as the General
         Partner deems necessary or appropriate in its sole discretion;

                  (xiv) to act as the tax matters partner for the Partnership
         (within the meaning of Code Section 6231); and

                  (xv) to perform other obligations provided elsewhere in the
         Agreement to be performed by the General Partner.

         (c) EVIDENCE OF AUTHORITY OF GENERAL PARTNER. Except as limited by
specific provisions of this Agreement or by applicable law, the signed statement
of the General Partner, reciting that it has authority to undertake and act or
has the necessary votes or consents of the Partners to take any such act, when
delivered to any third party, shall be all the evidence such third party shall
need concerning the capacity of the General Partner, and any such third party
shall be entitled to rely upon such statement and shall not be required to
inquire further as to any of the facts contained in such statement, said facts
being deemed to be true insofar as such third party is concerned. Such statement
shall not, however, have any effect between the Partners unless the action in
question was in fact authorized pursuant to this Agreement.

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         (d) LIMITED PARTNER. The Limited Partners shall have no right or
authority to act for or to bind the Partnership and shall not participate in the
general conduct or control of the Partnership's affairs. Notwithstanding the
foregoing, however, the ITS Limited Partner shall have certain consent or
approval rights as provided in this Agreement including but not limited to those
as provided in this Subsection 5(d). Whenever this Agreement provides for
consents or approvals by the ITS Limited Partner, such consents and approvals
shall be obtained in writing and, unless a different standard is otherwise
specified, such consents and approvals shall not be unreasonably withheld or
delayed. In addition to other such consent and approval rights as provided in
this Agreement, The ITS Limited Partner shall have the following approval rights
under this Section 5(d):

                  (i) The ITS Limited Partner's approval of the following
         matters shall not be unreasonably withheld or delayed:

                           (a) any material change or amendment to, or
                  termination or cancellation of this Agreement, (other than
                  this Subsection 5(d), or any of the instruments or agreements
                  which grant the Partnership any material rights with respect
                  to the Property or any portion thereof (excluding, however,
                  any management agreement or leases for the Property), or which
                  materially restricts the use thereof, or the approval of or
                  consent to any material matter under any such instruments or
                  agreements;

                           (b) any material expenditure not provided for in the
                  budget agreed to from time to time by the Partners (the
                  "Budget"); and any changes to the Budget;

                           (c) any borrowing that is: (i) secured by the
                  property which together with all other loans secured by the
                  property has an outstanding principal balance at any time of
                  less than or equal to $53,000,000, or (ii) for Property
                  capital improvement purposes less than $500,000; or (iii) to
                  be used to repair or restore the Base Building Work or Common
                  Areas under the Lease, to the extent such borrowing is less
                  than or equal to the ten percent (10%) of the replacement cost
                  amount the Partnership, acting as Landlord, is obligated to
                  provide under the Lease, Section 15, Casualty and Taking,
                  Subsections 15.1(b) (ii) or 15.2((b) (i);

                           (d) the initiation, prosecution, defense, or
                  settlement of any legal, arbitration or administrative action
                  or proceeding on any claim (including claims made by or
                  against tenants but excluding any claims by or against ITS
                  Limited Partner, its successors or assigns) by or against the
                  Partnership; or

                           (e) the engagement of counsel to represent the
                  Partnership provided that it shall not be unreasonable to
                  withhold consent if such counsel does not have substantial
                  experience and expertise in partnership and real estate
                  matters as well as the particular subject matter of the
                  engagement.

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                           (f) any environmental matters requiring remediation
exceeding $50,000.

                  (ii) The ITS Limited Partner's approval of the following
         matters shall be at the sole and absolute discretion of the ITS Limited
         Partner:

                           (a) a sale, exchange or other transfer of the
                  Property or any portion thereof during the Option Period;

                           (b) the admission of any new Partner to the
                  Partnership;

                           (c) any borrowing that is: (i) secured by the
                  Property which together with all other loans secured by the
                  property has an outstanding principal balance at any time of
                  more than $53,000,000, or (ii) not on market terms, or (iii)
                  for Property capital improvement purposes more than $500,000;
                  or (iv) to be used to repair or restore the Base Building Work
                  or Common Areas under the Lease, to the extent such borrowing
                  is in excess of the ten percent(10%) of the replacement cost
                  amount the Partnership, acting as Landlord, is obligated to
                  provide under the Lease, Section 15, Casualty and Taking,
                  Subsections 15.1(b) (ii) or 15.2((b) (i);

                           (d) filing any petition, or consenting to the
                  appointment of a trustee or receiver or any judgment or order,
                  under federal bankruptcy laws;

                           (e) any material change or amendment to this
                  Subsection 5(d).

The consent of ITS Limited Partner shall not be required for: (i) expenditures
funded by the Reserve Account (as defined in Section 7.6 of the Lease); (ii)
environmental remediation expenditures not exceeding $50,000, or if the
remediation is due to the acts or omissions of ITS Limited Partner, its
successors, assigns, contractors, employees or invitees; (iii) the initiation of
any claims by the Partnership against the ITS Limited Partnership, its
successors or assigns, or (iv) the engagement of legal counsel in connection
with a dispute among the Partners. In addition and notwithstanding any other
provision in this Subsection 5(d), the General Partner shall have the right,
without any approval from the ITS Limited Partner, but subject to its fiduciary
duties to act in the best interests of all Partners, to cause the Partnership to
obtain a takeout loan to refinance the Partnership's construction financing for
the Property so long as the new loan has a principal balance of not more than
$51,500,000 and provided the General Partner gives the ITS Limited Partner
written notice of the principal terms of the loan at least 20 business days
prior to the Partnership's incurring any obligation with respect to the loan.
The ITS Limited Partner hereby designates Brigid Makes as its authorized
representative for purposes of exercising the ITS Limited Partner's approval
rights set forth in this Section 5(d). The ITS Limited Partner agrees to provide
the General Partner with immediate written notice should it wish to authorize
additional or alternative authorized representatives for this purpose.

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         (e) SPECIFIED CONSENT. Any consent or approval by a Limited Partner
under this Agreement, including approvals from the ITS Limited Partner under
Section 5(d), must be obtained in writing and, unless otherwise specified may be
granted or withheld by such Limited Partner in its reasonable discretion. Such
consent or approval shall not be unreasonably withheld or delayed.

Section 6.   CAPITAL.

         (a) INITIAL CAPITAL CONTRIBUTIONS. On or prior to the date hereof, each
Partner has or will contribute to the capital of the Partnership ("Initial
Capital Contribution") the sum set forth opposite each Partner's name below:

                           General Partner - $400,000 cash

                           201 Limited Partner - $500,000 cash

                           ITS Limited Partner - $12,000,000 (in the form of
                           contributing the Property to the Partnership pursuant
                           to the Contribution Agreement)

         (b) PERCENTAGE INTEREST. The percentage interest in the Partnership
("Percentage Interests") shall be as follows:

                  (i) The Percentage Interest of the ITS Limited Partner shall
be forty-nine percent (49%).

                  (ii) The Percentage Interest of the 201 Limited Partner shall
be fifty percent (50%).

                  (iii) The Percentage Included of the General Partner shall be
one percent (1%).

         (c) PREFERRED RETURN. Notwithstanding anything in Section 6(b) to the
contrary, ITS Limited Partner shall receive a preferred return in connection
with its tenancy under that certain Build-to-Suit Lease at the Property (the
"Lease") with the Partnership. In connection with its leasing of the space known
as Phase 2A (as defined in the Lease), ITS Limited Partner shall receive a
maximum preferred return ("Monthly Maximum Preferred Return") to be adjusted as
described below. The Monthly Maximum Preferred Return is calculated by (i)
multiplying the total amount of the Tenant Improvement Allowance (as defined in
the Lease) allocated to Phase 2A, by (ii) an interest rate of ten and one-half
percent (10.5%) per annum, (iii) the product of which is divided by twelve (12).
Deducted from the Maximum Preferred Return is an amount equal to the prior
month's actual interest expense incurred by the Partnership on the Phase 2A
Tenant Improvement Allowance. The resulting difference is the "Actual Preferred
Return" which shall be paid by the Partnership to ITS Limited Partner in monthly
installments commencing with the first day of the month after the Phase 2A Rent
Commencement Date. Payment of the Actual Preferred Return shall be payable only
from Operating Cash Flow after the payment of all Partnership debt service and
shall not be paid or accrue beyond a twelve (12) month period of payment. In the
event ITS

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Limited Partner exercises the Phase 2B Expansion Option as provided in
Section 1.2(i) of the Lease, ITS Limited Partner shall receive an Actual
Preferred Return based upon the Phase 2B leased space. The ITS Limited
Partner shall not be entitled to any Actual Preferred Return by reason of
exercising the Phase 2B Expansion Option under Section 1.2(ii) of the Lease.
The Actual Preferred Return for the Phase 2B space shall be calculated and
paid in the same manner as described above for the Phase 2A space for a
period up to twelve (12) months while the construction lender remains in
place. If the lender or subsequent permanent lender shall fund the Tenant
Improvement Allowance into an interest bearing escrow account, with interest
accruing to Landlord, any accrued interest shall be paid pursuant to the
escrow account agreement to ITS Limited Partner as the actual Preferred
Return for Phase 2B. Attached as Exhibit D is an illustration of the
calculation of the Actual Preferred Return for Phase 2A and Phase 2B.

         (d) ADDITIONAL CAPITAL CONTRIBUTIONS. No Partner shall have any
obligation to contribute any additional sum to the capital of the Partnership
other than its Initial Capital Contribution. If the General Partner determines
that additional funds are necessary for Partnership purposes, it shall use its
best efforts to borrow such funds on fair market terms on behalf of the
Partnership from third parties. If the Partnership is unable to borrow needed
funds from third parties, the General Partner shall have the right (but not the
obligation) to loan such funds to the Partnership, which sum, together with the
interest thereon in at a rate equal to one percent (1%) greater than the General
Partner's cost of borrowing (provided said borrowing is made on terms which are
reasonable, in the best interests of the Partnership and are on terms no less
favorable than those the Partnership would have distributed in an arm's length
transaction with a bona fide third party), shall be paid out of available
operating Cash Flow from the Partnership before any distributions to the
Partners. The Partners agree that ITS' Capital Account shall be increased by any
unreimbursed costs related to the construction of the Phase I shell of the
Project. Notwithstanding any provisions of this Agreement, the ITS Limited
Partner hereby commits to make an unsecured loan to the Partnership in an amount
of up to $3,000,000 in the form of the Promissory Note attached hereto as
Exhibit G (the "ITS Loan"). The ITS Loan will require interest payments at ten
and one-half percent (annual percentage rate 10.5%) (the "Interest Payments").
The Partnership shall commence monthly Interest Payments to the ITS Limited
Partner at such time as there is sufficient Operating Cash Flow as defined in
Section 8 to permit such Interest Payments. The Partnership shall pay the ITS
Limited Partner the principal of the ITS Loan at such time as the Construction
Financing, as defined in that certain Contribution Agreement By and Between the
ITS Partner and the Partnership, dated as of the date of this Agreement
("Construction Financing"), is refinanced. The ITS Loan shall not be considered
to be a capital contribution to the Partnership.

         (e) NO INTEREST, ETC. No Partner shall be entitled to (i) receive
interest or other compensation on or with respect to its capital contributions
or withdraw any part of its capital contributions or receive any distribution,
except as provided in Sections 8 and 16 hereof, or (ii) demand or receive any
property from the Partnership other than cash.

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         (f) ESTABLISHMENT OF CAPITAL ACCOUNTS. A Capital Account shall be
established and maintained for each Partner as provided in Section 2 of Exhibit
B, attached hereto and incorporated herein by reference.

Section 7.   ALLOCATION OF PROFITS AND LOSSES.

         (a) ALLOCATION. Profits and losses shall be allocated as provided in
Section 3 of Exhibit B, attached hereto and incorporated herein by reference.

         (b) DEFICIT IN CAPITAL ACCOUNT. No Partner shall be required to restore
any deficit balance in its Capital Account to the Partnership except as required
by Section 16 of this Agreement.

Section 8.   DISTRIBUTIONS.

         (a) DEFINITIONS. For purposes of this Section 8 and the Agreement, the
following terms shall have the respective meanings set forth below:

         OPERATING CASH FLOW: Shall mean as to any fiscal year or portion
         thereof, Operating Revenues less Partnership Expenses and a reserve (to
         the extent funded during such fiscal year or portion thereof) in the
         amount of the Budget, the amount of which is determined by the Partners
         for working capital, payment of future known or reasonably foreseeable
         expenditures, obligations, or liabilities of the Partnership, and
         repairs, replacements, and improvements to any Partnership assets after
         taking into account reserves established under the Lease or in any
         other lease of the Property.

         OPERATING REVENUES: Shall mean as to any fiscal year or portion
         thereof, the total cash receipts of the Partnership, plus any amounts
         released from previously established reserves, less Capital Transaction
         Proceeds, Capital Contributions, any property unpaid advance rentals in
         connection with the leasing of any Partnership assets (which shall be
         Operating Revenues when applied), and any unforfeited security deposits
         of tenants of any Partnership assets.

         PARTNERSHIP EXPENSES: Shall mean as to any fiscal year or portion
         thereof, all expenditures, expenses and charges related to the
         management and operation of the Partnership and the conduct of its
         business and affairs and the ownership, leasing, operation,
         improvement, construction, development, maintenance and upkeep of any
         of its assets.

         EXTRAORDINARY CASH FLOW: Shall mean as to any fiscal year or portion
         thereof, Capital Transaction Proceeds less any expenses, costs, or
         liabilities incurred by the Partnership in obtaining any such Capital
         Transaction Proceeds or in effecting any

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         such Capital Transaction, and an amount set aside or committed by the
         Partnership for repair, improvement and replacement to or of any
         Partnership assets.

         CAPITAL TRANSACTION PROCEEDS: Shall mean (except for the proceeds of
         any Construction Financing necessary or used for the construction of
         the Project and any permanent financing of the Property necessary or
         used for the payoff of any outstanding financing and any other
         Partnership debt), the cash proceeds (including any as a result of the
         sale, exchange, condemnation or similar eminent domain taking or
         disposition in lieu thereof, destruction by casualty, financing,
         refinancing, or other disposition) of any Partnership assets.

         UNREPAID CAPITAL CONTRIBUTIONS: Shall mean an amount equal to that
         portion of the General Partner's or Limited Partner's total Capital
         Contributions that has not been repaid through a distribution pursuant
         to Section 8(c)(i).

         CAPITAL ACCOUNT: Shall mean as defined in Section 2 of Exhibit B of
         this Agreement.

         (b) DISTRIBUTIONS OF OPERATING CASH FLOW: As soon as practicable but in
any event within thirty (30) days after the end of each calendar quarter and
except as provided in Section 16 of this Agreement, the General Partner shall
distribute Operating Cash Flow in the following order of priority:

                  (i) the Actual Preferred Return to ITS Limited Partner, if
         any;

                  (ii) to the Partners in proportion to their respective
         Percentage Interests.

         (c) DISTRIBUTIONS OF EXTRAORDINARY CASH FLOW. As soon as practicable
but in any event within thirty (30) days after receipt by the Partnership of
Capital Transaction Proceeds, but subject to Section 16, the General Partner
shall distribute Extraordinary Cash Flow in the following order of priority:

                  (i) to the Partners until their respective Unrepaid Capital
         Contributions shall have been paid pro rata in proportion to such
         Unrepaid Capital Contributions; and,

                  (ii) thereafter, to the Partners in proportion to their
         respective Percentage Interests.

Section 9.         ADMISSION OF ADDITIONAL LIMITED PARTNERS.

         The General Partner shall not have the right to admit any person to the
Partnership as a partner (general or limited) without the consent of ITS Limited
Partner. Such consent shall be within the ITS Limited Partner's sole and
absolute discretion.

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Section 10.       ACTIONS AND COMPENSATION OF PARTNERS.

         (a) Except as set forth in this Section 10, no Partner shall receive or
be entitled to any compensation or reimbursement for its services to or expenses
incurred in connection with the Partnership.

         (b) To compensate the General Partner for its services in connection
with the development, leasing and management of the Property and the
Partnership, the Partnership shall pay the General Partner a monthly management
fee in the amount of $1,000.00 to be increased annually by three percent (3%) on
the anniversary of the date of this Agreement.

         (c) Nothing in this Agreement shall be deemed to restrict in any way
the freedom of any Partner or any person, firm or corporation affiliated with
any Partner to conduct or engage in any business or activity whatsoever, for its
own account and without regard to the business of the Partnership, including,
without limitation, acquiring, developing, promoting, leasing, selling, or
exploiting real property and functioning as a real estate broker, agent or
consultant, regardless of the location of the real estate involved in such
business or activity; and neither the Partnership nor any Partner shall have any
rights in or to, or any right to an accounting for, any income or profit derived
by any other Partner or its affiliate(s) from such business activity. In this
regard, the Partners specifically acknowledge that the General Partner, 201
Limited Partner and certain affiliates of the General Partner presently engage
in businesses that are or maybe directly competitive with the business of the
Partnership.

Section 11.        TRANSACTIONS WITH AFFILIATES.

         (a) The General Partner is authorized to enter into agreements on
behalf of the Partnership with other persons or entities affiliated with the
General Partner, or the Limited Partners, provided that any such agreement is
made on terms which are reasonable and in the best interests of the Partnership
and the terms of such agreement are no less favorable than those which the
Partnership would have obtained in an arm's length transaction with a bona fide
third party.

         (b) Subject to the other provisions hereof, the fact that a Partner is
directly or indirectly interested in, affiliated or connected with any persons,
firm or corporation shall not prevent the Partnership from employing or
retaining any such person, firm or corporation to render or perform a service or
from purchasing merchandise or property from any such person, firm or
corporation, and neither the Partnership nor any Partner, as such, shall have
any rights in or to any income or profit derived by any such person, firm or
corporation as a result of such employment, retainer or purchase.

Section 12.        BOOKS, RECORDS AND FINANCIAL REPORTS.

         (a) The Partnership shall maintain or cause to be maintained at its
principal place of business full and accurate books of the Partnership showing
all receipts, expenditures, assets, liabilities, profits and losses, and shall
maintain all other records necessary for recording the

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Partnership's business and affairs. The books of the Partnership shall be
kept on the method of accounting used for federal income tax purposes. Such
books and records shall be open to the inspection of each Partner or the duly
authorized representatives of such Partner upon reasonable notice at
reasonable times during normal business hours.

         (b) The General Partner shall make all elections required or permitted
to be made by the Partnership under the Internal Revenue Code pertaining to the
method of depreciation and deductibility of costs and expenses for the purposes
of determining the Partnership's distributable income and losses as well as for
federal income tax reporting purposes.

         (c) The fiscal year of the Partnership shall be the calendar year.

         (d) Within sixty (60) days following the last day of each of the first
three fiscal quarters, the General Partner, at the expense of the Partnership,
shall cause to be prepared and furnished to the Partners financial statements of
the Partnership, including a balance sheet and related statements of income and
cash flows, prepared on the method of accounting used for federal income tax
purposes.

         (e) The General Partner, at the expense of the Partnership, within
sixty (60) days following the last day of each fiscal year, shall furnish to the
Partners financial statements, including a balance sheet and related statements
of income, and cash flows, certified by an officer of General Partner stating
that said financial statements are prepared in accordance with generally
accepted accounting principles and that said financial statements fairly present
the Partnership's assets, liabilities and financial condition and the results of
its operations as of the date thereof and for the period covered thereby.
Limited Partners shall have the right to conduct, at their own expense, an
annual audit of General Partner's records.

         (f) There shall be delivered to each Partner as soon as practicable and
in any event within ninety (90) days after the close of each fiscal year, a copy
of the Federal Partnership Return of Income (Form 1065) or other tax return
filed by the Partnership.

         The Partnership shall also furnish to each Partner such other reports
of the Partnership operations and conditions as may reasonably be requested by a
Partner.

Section 13.       RESTRICTIONS ON TRANSFER OF GENERAL PARTNER'S INTEREST.

         (a) IN GENERAL. The General Partner may not sell, assign or encumber
all or any portion of its interest in the Partnership or withdraw as General
Partner or voluntarily dissolve or liquidate the Partnership, without the prior
written consent of the Limited Partners, which may be granted or withheld in
their sole and absolute discretion during the Option Period and which thereafter
shall not be unreasonably withheld. In no event shall General Partner, without
the prior consent of the Limited Partners, to be given in their sole discretion,
be allowed to dilute the Limited Partners' Percentage Interest in the
Partnership (as to equity or cash flow) by way of a transfer of General
Partner's interest in the Partnership. Notwithstanding the foregoing, the
General Partner shall have

                                    -12-
<PAGE>

the right to encumber its interest and the interests of the Limited Partners
in the Partnership in connection with the initial construction financing at
the Property.

         (b) ALLOCATIONS WITH RESPECT TO TRANSFERRED INTERESTS. Upon transfer of
all or any portion of the General Partner's interest in accordance with this
Section 13 during a Partnership taxable year and the admission of a new general
partner or general partners, the items of Partnership income, gain, loss or
deduction allocable to the General Partner's interest during the year shall be
shared among the persons who were general partners during the year in any manner
consistent with the requirements of Code Section 706(d) that the general partner
or general partners having the obligation to file the Partnership's federal
income tax return for such year under Section 12 shall determine, provided,
however, that portion of the gain or loss from the sale or the taxable
disposition of a Partnership capital asset that is allocable to the general
partner's interest in the Partnership shall be allocated to the person or
persons who held that interest on the day such gain or loss was recognized by
the Partnership. General Partner shall provide an opinion of counsel, in the
form and substance satisfactory to counsel for both Partnership and Limited
Partner, that neither the offering nor assignment of the General Partner's
interest in the Partnership violates any provision of any federal or state
securities or comparable law, and that such transfer will not cause the
termination of the Partnership for federal income tax purposes nor limit or
reduce Limited Partner's cash flow, extraordinary or otherwise, Unrepaid Capital
Contributions, if any, or cash proceeds, if any. The General Partner shall be
responsible for all expenses relating to the transfer of any portion of the
General Partner's interest in the Partnership.

         (c) The transferee of General Partner's interest shall execute a
statement in a form and substance reasonably satisfactory to the Partnership
that it is acquiring such interest for its own account for investment, and not
with a view to distribution thereof.

         (d) General Partner shall execute such other documents or instruments
as the Partnership may reasonably require in order to effectuate such assignment
of such interest in the Partnership.

         (e) If the Limited Partners consent to such assignment or transfer,
they shall cooperate with the General Partner and execute such reasonable
documents and take such other action as may be necessary or appropriate to
effectuate the proposed transfer or assignment.

         (f) Any purported assignment or transfer not in compliance with this
Section 13 shall be void unless consented to in writing by the Limited Partners.

         (g) In the event that the General Partner shall propose to assign or
transfer its interest in the Partnership to any other person or entity, such
General Partner shall notify the Limited Partners, referring to this Section 13,
setting forth the price and other material terms and conditions of the proposed
assignment or transfer and offering to sell such interest to the Limited
Partners for the same, and upon the same terms and conditions as in the proposed
assignment or transfer, and requesting the Limited Partners' consent to such
assignment or transfer in accordance with this Section 13. The Limited Partners,
upon such notification, shall within thirty (30) days of receipt of

                                    -13-
<PAGE>

such notice, (i) agree to purchase the General Partner's interest in the
Partnership for the same purchase price and upon other terms and conditions
no less favorable than those contained in the notice of proposed assignment
or transfer, (ii) grant its approval to such proposed assignment or transfer,
or (iii) decline to purchase the General Partner's interest and decline to
consent to such proposed assignment or transfer. If the Limited Partners fail
to respond within such thirty (30) day period, the Limited Partners will be
deemed to have made an election pursuant to clause (ii) above.

Section 14.        DEATH, LEGAL INCOMPETENCY OR BANKRUPTCY OF A LIMITED PARTNER.

         (a) IN GENERAL. The death, legal incompetency or bankruptcy of a
Limited Partner shall not dissolve or terminate the Partnership. In the event
the deceased, incompetent or bankrupt Limited Partner's interest in the
Partnership passes to a successor or successors in interest, such interest shall
succeed to the deceased, incompetent or bankrupt Limited Partner's entire
interest in the Partnership and shall, subject to the following sentence, become
limited partners of the Partnership with the same Percentage Interest in the
Partnership, the same rights in and to all distributions made by the
Partnership, in liquidation or otherwise, and with the same share of the
Partnership's taxable income and losses as the deceased, incompetent or bankrupt
Limited Partner had with respect to its interest in the Partnership. In the
event a successor or successors in interest of the Limited Partner are admitted
to the Partnership as limited partners hereunder, such successor or successors
shall execute and deliver to the Partnership all documents that may be necessary
or appropriate, in the opinion of counsel for the Partnership, to reflect their
admission to the Partnership as limited partners and their agreement to be bound
by the terms and conditions of this Agreement, and shall pay all reasonable
expenses connected with such substitution.

         (b) ALLOCATIONS WITH RESPECT TO TRANSFERRED INTERESTS. Upon the
effective transfer by a Limited Partner of all or any portion of its interest in
the Partnership during a Partnership taxable year, the items of Partnership
income, gain, loss or deduction allocable to such interest shall be shared among
the various holders of such interest during the year as follows: (i) by
assigning (in any manner that the General Partner may select that is permissible
under Code Section 706(d) an appropriate portion of each such item to each day
in the period to which it is attributable and (ii) by allocating the portion
assigned to any such day among the holders in proportion to the interest held by
each at the close of such day. For purposes of the preceding sentence, gain or
loss from the sale or other taxable disposition of a Partnership capital asset
shall be assigned to the day on which such gain or loss was recognized by the
Partnership.

Section 15.        DISSOLUTION EVENTS.

         The Partnership shall be dissolved in the manner provided in Section 16
hereof upon the happening of any of the following events:

         (a) The agreement of the General and Limited Partners to dissolve the
Partnership;

         (b) The disposition by the Partnership of all of its assets and
property;

                                    -14-

<PAGE>

         (c) The entry of a final judgment, order or decree of a court of
competent jurisdiction adjudicating the Partnership to be bankrupt, and the
expiration without appeal of the period, if any, allowed by applicable law in
which to appeal therefrom;

         (d) The making of any general assignment for the benefit of creditors
by the General Partner;

         (e) The filing of a voluntary petition in bankruptcy or a voluntary
petition for an arrangement or reorganization under the Federal Bankruptcy Act
by the General Partner;

         (f) The appointment of a receiver or trustee for all or substantially
all of the General Partner's property or assets if not removed within sixty (60)
days;

         (g) The liquidation or dissolution of the General Partner; or

         (h) After December 31, 2050, upon one year's advance written notice by
the General Partner or the ITS Partner.

Section 16.        WINDING UP, LIQUIDATION AND DISSOLUTION.

         Upon the dissolution of the Partnership under Section 15 of this
Agreement, liquidation and winding up shall be carried out in accordance with
the following provisions:

         (a) Upon dissolution of the Partnership the business of the Partnership
shall continue, if necessary, for the sole purpose of winding up its affairs;
provided that the process of winding up may include completion of such work as
the General Partner shall consider appropriate. The rights and obligations of
the General Partner with respect to management of the Partnership as set forth
in Section 5 shall continue during the period of such winding up, except that if
the General Partner shall have become incapacitated from exercising the
management powers set forth in Section 5 due to the occurrence of a dissolution
event involving the General Partner as described in Section 15 hereof, said
management powers shall pass to the person or persons selected by the 201
Limited Partner.

         (b) The assets of the Partnership shall, consistent with Section 16(a),
be liquidated as promptly as possible so as to permit distributions in cash, but
such liquidation shall be made in an orderly manner so as to avoid undue losses
attendant upon liquidation.

         (c) The Partners hereby agree that, notwithstanding the provisions of
the Act and any other laws, the proceeds of liquidation and all other assets of
the Partnership shall be applied and distributed in the following order of
priority:

                  (i) in payment of the expenses of liquidation;

                  (ii) in payment of debts of the Partnership to creditors other
         than the Partners;

                                    -15-
<PAGE>

                  (iii) in payment of debts of the Partnership to Partners who
         are also creditors;

                  (iv) to establish reserves deemed reasonable for the ultimate
         discharge of contingent, unliquidated or unforeseen liabilities or
         obligations of the Partnership;

                  (v) to those Partners having positive Capital Account balances
         in proportion to such positive balances until such balances equal zero;
         and

                  (vi) to the Partners in proportion to their respective
         Percentage Interest in the Partnership.

         The intent and purpose of this Section 16(c) is to modify the
priorities of distribution set forth in the Act to reflect the understanding and
agreement of the Partners.

         Such distributions shall be made by the end of the Partnership year in
which the liquidation occurs (or, if later, within ninety (90) days after the
date of such liquidation).

         (d) In the event that complete liquidation of the assets of the
Partnership within the period of time prescribed for distributions in Section
16(c) proves impractical, assets of the partnership other than cash may be
distributed to the Partners in kind but, without limitation, only after all cash
and cash-equivalents received by the Partnership in a liquidating sale pursuant
to this Section have first been distributed. Any asset distributed in kind
pursuant to this subparagraph (d) shall be distributed to the Partners, valued
at fair market value, in accordance with their Capital Accounts as determined
after (i) application of Section 7 of this Agreement; (ii) reduction for
distributions of cash and cash equivalents pursuant to Section 16(b); and (iii)
the adjustments to reflect the amount of income, gain, or loss which the
Partnership would have recognized if such assets had been sold.

         (e) If the General Partner deems it necessary to provide for payments
of known or contingent or unforeseen liabilities of the Partnership after the
expiration of the time period prescribed for distributions in Section 16(c),
then the General Partner may arrange for such payments out of the assets of the
Partnership in any manner that does not violate the requirements of Treas. Reg.
Section 1.704-l(b)(2)(ii)(b)(2).

         (f) In connection with the termination of the Partnership, the
Partnership's accountants shall prepare and furnish to each Partner a statement
setting forth the assets and liabilities for the Partnership as of the date of
complete liquidation.

         (g) Upon dissolution of the Partnership, the General Partner shall
contribute to the Partnership an amount of money equal to the deficit balance,
if any, in its Capital Account. Any contributions required under this
subparagraph (g) shall be made no later than a date that will permit such
contributions to be distributed among the Partners in accordance with the
provisions of this Section 16 within the time period provided for such
distribution in Section 16(c).

                                    -16-
<PAGE>

Section 17.        RESTRICTIONS ON TRANSFER OF LIMITED PARTNER'S INTEREST.

         (a) CONDITIONS TO TRANSFER. Except in connection with a Permitted
Transfer, the Limited Partners may not assign all or any portion of its interest
in the Partnership without the prior written consent of the General Partner, not
to be unreasonably withheld. In no event shall the consent of the General
Partner be given unless such assignee has:

                  (i) accepted and adopted, in form satisfactory to the General
         Partner, all terms and provisions of this Agreement as the same may
         have been amended;

                  (ii) executed a power of attorney substantially identical to
         that contained in Section 19;

                  (iii) provided an opinion of counsel, in form and substance
         satisfactory to counsel for the Partnership, that neither the offering
         nor assignment of the Limited Partner's interest in the Partnership
         violates any provision of any federal or state securities or comparable
         law, and that such transfer will not cause the termination of the
         Partnership for federal income tax purposes;

                  (iv) executed a statement in form and substance satisfactory
         to the General Partner that it is acquiring such interest for its own
         account for investment, and not with a view to distribution thereof;

                  (v) executed such other documents or instruments as the
         General Partner may reasonably require in order to effectuate such
         assignment of such interest in the Partnership; and

                  (vi) paid to the Partnership such reasonable expenses as may
         be incurred in connection with such assignment.

         Upon such consent to transfer by the General Partner, but not
otherwise, such assignee shall, with respect to the interest in the Partnership
so assigned, be admitted to the Partnership and become a substituted limited
partner therein. If the General Partner consents to such assignment or transfer,
it shall cooperate with the Limited Partner and execute such deeds and other
documents and take such other action as may be necessary or appropriate to
effectuate the proposed transfer or assignment. Any purported assignment not in
compliance with this Section 17 shall be void unless consented to in writing by
the General Partner.

         (b) NOTICE AND GENERAL PARTNER'S RIGHT OF FIRST REFUSAL. In the event
that a Limited Partner shall propose to assign or transfer its interest in the
Partnership to any other person or entity, but not in the event of a Limited
Partner's assignment or transfer to an Affiliate as defined below, such Limited
Partner shall notify the General Partner, referring to this Section 17(b),
setting forth the price and other material terms and conditions of the proposed
assignment or transfer and offering to sell such interest to the General Partner
for the same purchase price, and upon the same

                                    -17-
<PAGE>

terms and conditions as in the proposed assignment or transfer, or
alternatively, requesting the General Partner's consent to such assignment or
transfer in accordance with paragraph (a) of this Section 17. The General
Partner, upon such notification, shall within (30) days of receipt of such
notice, either (i) purchase the Limited Partner's interest in the Partnership
for the same purchase price and upon other terms and conditions no less
favorable than those contained in the notice of proposed assignment or
transfer, or (ii) grant its approval to such proposed assignment or transfer
or (iii) withhold its approval to such proposed assignment or transfer,
subject to the terms of Section 17(a) above. If the General Partner fails to
respond within such thirty (30) day period, the General Partner will be
deemed to have consented to such proposed assignment or transfer.

         (c) PERMITTED TRANSFERS. Notwithstanding the foregoing and subject to
Section 17(d) below, (i) any bona fide financing or capitalization, including a
public offering of the common stock of a Limited Partner shall not be deemed to
be an assignment hereunder, and (ii) the Limited Partners shall have the right
to assign their respective interests in the Partnership, or any portion thereof,
without General Partner's consent to any affiliate of the Limited Partner, or to
any entity which results from a merger, reorganization or consolidation of a
Limited Partner, or to any entity which acquires substantially all of the stock
or assets of a Limited Partner as a going concern (hereinafter each a "Permitted
Transfer"). For purposes of the preceding sentence, an "Affiliate" of a Limited
Partner shall mean any entity in which the Limited Partner owns at least a
twenty-five percent (25%) equity interest, any entity which owns at least a
twenty-five (25%) equity interest in the Limited Partner and/or any entity which
is related to the Limited Partner by a chain of ownership interests involving at
least twenty-five percent (25%) equity interest at each level in the chain. The
General Partner shall have no right to exercise its rights of first refusal in
connection with, and shall have no right to any sums or other economic
consideration resulting from, any Permitted Transfer. The transferee under such
Permitted Transfer shall be and remain subject to all of the terms and
provisions of this Agreement.

         (d) LENDER'S APPROVAL. Any transfer of the Limited Partners' interest
in the Partnership, including any Permitted Transfer, shall be subject to any
restrictions on transfer imposed by any loan agreement with any lender to the
Partnership.

Section 18.       LIABILITIES.

         (a) No Partner shall be liable to any other Partner or to the
Partnership for any damages except where such damages are caused by bad faith,
willful misconduct or gross negligence of a Partner. The Partnership shall
indemnify and hold harmless each Partner from any damage incurred by said
Partner by reason of any act or omission performed or omitted by said Partner
for or on behalf of the Partnership except for damages caused by bad faith,
willful misconduct or gross negligence.

         (b) No stockholder, partner, affiliate or controlling person of a
Partner shall have any liability whatsoever to any person for any liability of
the Partnership or any Partner.

                                    -18-
<PAGE>

         (c) Except as otherwise provided in this Agreement, the Limited
Partners shall not be liable for the debts, liabilities, contracts or other
obligations of the Partnership. The Limited Partners shall be liable to the
extent of its capital interests in the Partnership, but shall not be required to
lend any funds to the Partnership.

Section 19.        EXECUTION OF ADDITIONAL DOCUMENTS.

         Upon request of the General Partner, the Limited Partners shall
promptly execute all certificates and other documents necessary or desirable for
the General Partner to accomplish all such filing, recording, publication and
other acts as it determines may be appropriate to comply with (i) the
requirements for the formation, operating, amendment or dissolution, as the case
may be, of a limited partnership under the laws of the State of California, and
(ii) similar requirements of applicable law in all other jurisdictions where the
Partnership proposes to conduct business.

Section 20.       OPTION TO PURCHASE BY ITS LIMITED PARTNER.

         (a) At anytime thirty-six (36) months after the date of this Agreement
and before the last fifteen (15) months of the Lease term as from time to time
extended ("Option Period"), ITS Limited Partner shall have the right to purchase
all or part of the Limited Partnership interest(s) of the other Partner(s) in
the Partnership ("Option"). ITS Limited Partner shall exercise the Option by
giving written notice to each of the Partners specifying the percentage Limited
Partnership interest to be purchased, the purchase price and the date of
purchase which date shall be not sooner than sixty (60) days, and not later than
ninety (90) days after the date the notice is given to the Partners. The Option
may be exercised by ITS Limited Partner one or more times during the Option
Period provided, however, that under each exercise at least ten percent (10%) of
each Partner's limited partnership interest in the Partnership is purchased and
that the same percentage of each Partner's total limited partnership interest is
purchased from each Partner. Should ITS Limited Partner purchase, at any time,
all the limited partnership interest(s) held by the 201 Limited Partner, it
shall, concurrent with such purchase, purchase the entire Partnership interest
held by the General Partner, Inc. on the same terms as those set forth in this
Section 20 for the acquisition of limited partnership interests, and the General
Partner shall sell its Partnership interest to the ITS Limited Partner on such
terms. Notwithstanding any other provisions of this Agreement, the ITS Limited
Partner shall under no circumstances exercise its Option under this Section 20
prior to that date upon which the Construction Financing has been fully repaid.

         (b) The purchase price for the Partnership interest shall be calculated
by adding the base rent from the Lease and all other leases and sources of
revenue generated by the Property scheduled for the consecutive twelve (12)
month period commencing ninety (90) days from the date the Option notice is
given (for premises at the Property not leased, rental revenue shall be based
upon projected fair market rental rates for the subject twelve month period for
office and laboratory research and development space in the area that the
Property is located), the sum of which is divided by the Capitalization Rate,
less (i) Partnership debt, unsecured or secured by the Partnership assets, less
(ii) the Unrepaid Capital Contribution of the Partners, multiplied by (iii) the
percentage interest to be purchased by ITS Limited Partner, allocated (iv) among
the selling

                                    -19-

<PAGE>

Partners in accordance with their Percentage Interests. The foregoing
capitalization rates shall be subject to adjustment as provided in Section
20(h) below. In addition, for each percentage of Partnership interest
acquired, ITS Limited Partner shall pay to the selling Partners an equal
percentage of the selling Partners' Unpaid Capital Contribution. For purposes
of example only, attached as Exhibit E hereto is a hypothetical example of
the calculation of the purchase price for the Partnership interest. If the
Partners are unable to agree on the fair market rental value of any unleased
space, then within twenty (20) days after receipt of the exercise notice,
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 the County in which the Property
is located to appraise and set the Fair Market Rental for the unleased
premises for the subject twelve (12) month period. 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 Superior Court of the County in which the Property is located
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, the third appraiser shall set the Fair Market Rental for said
twelve month period by selecting the appraised value determined by the first
two appraisers which is closest to his own determination, and shall so notify
the parties, which determination shall be binding on the parties and shall be
enforceable in any further proceedings relating to this exercise of the
purchase rights. For purposes of this Section 20(b), the "FAIR MARKET RENTAL"
of the unleased premises shall be determined with reference to the then
projected market rental rates for properties in the City of San Carlos with
interior improvements and common area improvements comparable to those then
existing in the unleased premises. For purposes of this Agreement,
"Capitalization Rate" shall be ten and one-half percent (10.5%) if the Option
is exercised prior to the end of the fifth year after the date of this
Agreement and ten and three-quarters percent (10.75%) if the Option is
exercised following the end of the fifth year after the date of this
Agreement; PROVIDED HOWEVER, if the 201 Limited Partner elects the "Warrant
Payment Alternative" (as described in subsection (h) hereof), the
Capitalization Rate shall be ten and three-quarters percent (10.75%) if the
Option is exercised prior to the end of the fifth year after the date of this
Agreement and eleven percent (11.00%) if the Option is exercised following
the end of the fifth year after the date of this Agreement.

         (c) The closing of the purchase and sale contemplated by this Section
20 shall occur at the principal place of business of the Partnership (or at such
other place selected by the Partners) at the time and on the date set forth in
the exercise notice. At the closing, the Partners shall execute and deliver all
such assignments of partnership interests and other documents and take such
further

                                    -20-
<PAGE>

action as shall be necessary or appropriate to consummate the purchase and
sale. The purchase price shall be paid by certified or bank check or by wire
transfer of immediately available funds.

         (d) If any Partner which is the selling party fails to perform its
obligations contained in Section 20, ITS Limited Partner may, in addition to its
other remedies set forth in this Agreement (but subject to the limitation on
liability contained in Section 18) enforce its rights under Section 20 by action
for specific performance.

         (e) All expenses in connection with the purchase and sale contemplated
by this Section 20 shall be paid by ITS Limited Partner, except that each
Partner shall pay its own legal fees.

         (f) In the event ITS Limited Partner purchases the entire interest of
the Partners, in lieu of purchasing the interest of the selling party in the
Partnership, ITS Limited Partner may elect to cause the Partnership to convey
and transfer the assets of the Partnership to ITS Limited Partner or its
designee provided that ITS Limited Partner (i) pays all transfer taxes,
recording fees, title insurance, escrow fees and other costs in connection with
such conveyance and transfer, and (ii) such conveyances and transfers shall not
cause adverse tax or other adverse financial consequences to the selling
Partners.

         (g) The exercise of the purchase rights granted under this Section 20
shall be subject to the approval of any lender of the Partnership. The General
Partner agrees to use commercially reasonable efforts to obtain the pre-approval
of ITS Limited Partner as a permitted assignee from any permanent financing
lender at the Property.

         (h) In connection with the Option, the ITS Limited Partner shall issue
to the General Partner and the 201 Limited Partner, in proportion to their
respective interests in the Partnership, warrants ("Warrants") in the
unregistered common stock of the ITS Limited Partner ("Shares") entitling the
General Partner and the 201 Limited Partner to purchase a combined total of ten
thousand (10,000) Shares at a price equal to the closing price of the Shares on
the day preceding the date the Partnership acquires title to Property. On or
prior to the date three (3) days prior to the closing date of the purchase and
sale of any limited partnership interest pursuant to the Option, the 201 Limited
Partner shall provide written notice to the ITS Limited Partner of its election
of the "Warrant Payment Alternative." In the event such election is made, the
Capitalization Rate with respect to the Partnership interests acquired upon such
exercise of the Option shall be adjusted as set forth in subsection (b) hereof
and a percentage of the Warrants equal to the percentage of the Partnership
interests acquired pursuant to the exercise of the Option shall become
exercisable upon the closing and sale of the limited partnership interests
pursuant to such exercise of the Option. To the extent any proportion of the
Warrants become exercisable as a result of the 201 Limited Partner's election of
the Warrant Payment Alternative, such proportion of the Warrant shall expire
upon the earlier of (i) the date six (6) years from the date of the closing and
sale of the purchase of the limited partnership interests pursuant to such
exercise of the Option or (ii) a change of control of the ITS Limited Partner
(as defined in the Warrant). In the event that the 201 Limited Partner does not
provide notice of its election of the Warrant Payment Alternative as set forth
above, the 201 Limited Partner shall be deemed not to have elected the Warrant
Payment

                                    -21-
<PAGE>

Alternative. Nothing contained in the Section shall be construed as requiring
the selling Partners to exercise any or all of their rights under the
Warrants. The Warrants shall be in the form attached hereto as Exhibit F.
Notwithstanding anything to the contrary set forth herein, the terms and
conditions of the Warrant shall be governed by the terms thereof.

Section 21.       EXECUTION OF DOCUMENTS.

         Subject to the terms hereof, each Partner shall execute and deliver any
and all other instruments and documents and do such other acts as may be
necessary and appropriate to advance the business and achieve the goals of the
Partnership.

Section 22.       SUCCESSORS AND ASSIGNS.

         Except as otherwise set forth in this Agreement, the terms, covenants
and agreements herein contained shall inure to the benefit of and be binding
upon the successors and assigns of the parties hereto.

Section 23.       NOTICE.

         Any notice or communication required or referred to herein shall be in
writing and transmitted by personal delivery or by registered or certified mail,
postage prepaid, or by Federal Express or other nationally recognized overnight
courier service, addressed to such Partner at the address set forth below or to
such other address as such Partner may hereafter designate to the other Partners
in accordance herewith.

         If to General Partner:            SciMed Prop III, Inc.
                                           c/o Bernardo Property Advisors, Inc.
                                           11440 W. Bernardo Court, Suite 208
                                           San Diego, CA  92127

         If to the 201 Limited Partner:    201 Industrial Partnership
                                           c/o Bernardo Property Advisors, Inc.
                                           11440 W. Bernardo Court, Suite 208
                                           San Diego, California  92127

         With a Copy to:                   Seltzer Caplan McMahon Vitek
                                           2100 Symphony Towers
                                           750 B Street, Suit
                                           San Diego, CA  92101
                                           Attention: David Dorne, Esq.

                                    -22-
<PAGE>

         If to the ITS Limited Partner:    Inhale Therapeutic Systems, Inc.
                                           150 Industrial Road
                                           San Carlos, California  94070
                                           Attention: Brigid Makes

         With a Copy to:                   Inhale Therapeutic Systems, Inc.
                                           150 Industrial Road
                                           San Carlos, California 94070
                                           Attention:  Sharron Reiss-Miller

         With a Copy to:                   150 Industrial Road
                                           San Carlos, California  94070
                                           Attention: Robert A. Donnally, Esq.

         With a Copy to:                   Cooley Godward, LLP
                                           One Maritime Plaza, 20th Floor
                                           San Francisco, CA 94111-3580
                                           Attention: Anna B. Pope. Esq.

         Any notice shall be deemed to have been given on the day next following
the day of such deliver, mailing or deposit with a courier service.

Section 24.       REPRESENTATION AND WARRANTY.

         Each party hereby represents and warrants that this Agreement has been
duly authorized by all requisite action on the part of such party and is a
legal, valid and binding obligation of such party.

Section 25.       GOVERNING LAW.

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

Section 26.       ENTIRE AGREEMENT.

         This Agreement (including the exhibits and schedules hereto) contains
the entire understanding between the parties and supersedes any prior written or
oral agreements or understandings between them with respect to the within
subject matter. This Agreement may be amended or modified only by an instrument
in writing signed by the party against whom the provisions of the amendment or
modification are asserted.

                                    -23-
<PAGE>

Section 27.       CAPTIONS.

         Section titles contained in this Agreement are inserted only for
reference and in no way define, limit, extend or describe the scope or intent of
any provision of this Agreement.

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

GENERAL PARTNER                            201 LIMITED PARTNER

SciMed Prop III, Inc.,                     201 Industrial Partnership,
a California corporation                   a California general partnership

By:                                        By:
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By:                                        By:
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Date:                                      Date:
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                                           ITS LIMITED PARTNER

                                           INHALE THERAPEUTIC SYSTEMS, INC.
                                           a Delaware corporation

                                           By:
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                                           Title:
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                                           Date:
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                                           By:
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                                           Date:
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                                    -24-

<PAGE>

                             EXHIBIT A

                      Property Legal Description

All that certain real property in the State of California, County of San
Mateo, City of San Carlos more particularly described as follows:

ALL LANDS LYING WITHIN THE EXTERIOR BOUNDARIES OF THAT MAP ENTITLED
"REVERSION TO ACREAGE OF THE LANDS OF ARNDT ELECTRONICS LYING WITHIN THE
COUNTY OF SAN MATEO, BEING PARCELS 1,2,3 AND 4 AS SHOWN ON THAT CERTAIN
PARCEL MAP FILED IN VOLUME 51 OF PARCEL MAPS AT PAGE 71 RECORDS OF SAN
MATEO," FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN MATEO COUNTY, STATE
OF CALIFORNIA, ON OCTOBER 6, 1986 IN VOLUME 58 OF PARCEL MAPS AT PAGE 13.

ASSESSOR'S PARCEL NOS. 046-020-370    JOINT PLAN NOS.  046-002-020-22A
                       046-020-380                     046-002-020-22-01A
                                                       046-002-020-22-02A
                                                       046-002-020-22-03A
                                                       046-002-020-23A
                                                       046-002-020-23-01A

<PAGE>

                                    EXHIBIT B
                        Allocation of Profits, Losses and
                        Other Items Among the Partners of
                        Inhale 201 Industrial Road, L.P.

         1.       DEFINITIONS. As used in the Agreement and in this Exhibit
B, the following terms shall have the following meanings:

                  1.1 "ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to
any Partner, the deficit balance, if any, in such Partner's Capital Account as
of the end of the relevant Calendar Year, after giving effect to the following
adjustments:

                           (i) Credit to such Capital Account any amounts which
such Partner is deemed to be obligated to restore pursuant to the penultimate
sentences in Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and

                           (ii) Debit to such Capital Account the items
described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and
1.704-1(b)(2)(ii)(d)(6) of the Regulations.

The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations
and shall be interpreted consistently therewith.

                  1.2 "CALENDAR YEAR" means (i) the period commencing on the
formation of the Partnership and ending on December 31, 2000, (ii) any
subsequent twelve (12) month period commencing on January 1 and ending on
December 31, (iii) any portion of the period described in clauses (i) or (ii)
for which the Partnership is required to allocate Profits, Losses, and other
items of Partnership income, gain, loss or deduction pursuant to SECTION 3
hereof, or (iv) the period commencing on the immediately preceding January 1 and
ending on the date on which all property is distributed to the Partners pursuant
to SECTION 16 of the Agreement.

                  1.3 "DEPRECIATION" means, for each Calendar Year, an amount
equal to the depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such Calendar Year, except that if the
Gross Asset Value of an asset differs from its adjusted basis for federal income
tax purposes at the beginning of such Calendar Year, Depreciation shall be an
amount which bears the same ratio to such beginning Gross Asset Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such Calendar Year bears to such beginning adjusted tax basis; PROVIDED,
HOWEVER, that if the adjusted basis for federal income tax purposes of an asset
at the beginning of such Calendar Year is zero, Depreciation shall be determined
with reference to such beginning Gross Asset Value using any reasonable method
selected by the Partners.

                  1.4 "GROSS ASSET VALUE" means with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as follows:

<PAGE>

                           (i) The initial Gross Asset Value of any asset
contributed by a Partner to the Partnership shall be the gross fair market value
of such asset, as determined by the Partners;

                           (ii) The Gross Asset Values of all Partnership assets
shall be adjusted to equal their respective gross fair market values (taking
Code Section 7701(g) into account), as determined by the Partners as of the
following times: (A) the acquisition of an interest in the Partnership by any
new or existing Partner in exchange for more than a DE MINIMIS Capital
Contribution; (B) the distribution by the Partnership to a Partner of more than
a DE MINIMIS amount of Partnership property as consideration for all or a
portion of the Partner's interest in the Partnership; and (C) the liquidation of
the Partnership within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g);
PROVIDED that an adjustment described in clauses (A) and (B) of this paragraph
shall be made only if the Partners reasonably determine that such adjustment is
necessary to reflect the relative economic interests of the Partners in the
Partnership;

                           (iii) The Gross Asset Value of any item of
Partnership assets distributed to any Partner shall be adjusted to equal the
gross fair market value (taking Code Section 7701(g) into account) of such asset
on the date of distribution, as determined by the Partners; and

                           (iv) The Gross Asset Values of Partnership assets
shall be increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Code Section 734(b) or Code Section 743(b), but
only to the extent that such adjustments are taken into account in determining
Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and
subparagraph (vi) of the definition of "Profits" and "Losses" or SECTION 3.3(c)
hereof; PROVIDED, HOWEVER, that Gross Asset Values shall not be adjusted
pursuant to this subparagraph (iv) to the extent that an adjustment pursuant to
subparagraph (ii) is required in connection with a transaction that would
otherwise result in an adjustment pursuant to this subparagraph (iv).

If the Gross Asset Value of an asset has been determined or adjusted pursuant to
subparagraph (ii) or (iv), such Gross Asset Value shall thereafter be adjusted
by the Depreciation taken into account with respect to such asset, for purposes
of computing Profits and Losses.

                  1.5 "NONRECOURSE DEDUCTIONS" has the meaning set forth in
Section 1.704-2(b)(1) of the Regulations.

                  1.6 "NONRECOURSE LIABILITY" has the meaning set forth in
Section 1.704-2(b)(3) of the Regulations.

                  1.7 "PARTNERSHIP MINIMUM GAIN" has the same meaning as the
term "partnership minimum gain" set forth in Sections 1.704-2(b)(2) and
1.704-2(d) of the Regulations.

<PAGE>

                  1.8 "PARTNER NONRECOURSE DEBT" has the same meaning as the
term "partner nonrecourse debt" in Section 1.704-2(b)(4) of the Regulations.

                  1.9 "PARTNER NONRECOURSE DEBT MINIMUM GAIN" means an amount,
with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum
Gain that would result if such Partner Nonrecourse Debt were treated as a
Nonrecourse Liability, determined in accordance with Section 1.704-2(i)(3) of
the Regulations.

                  1.10 "PARTNER NONRECOURSE DEDUCTIONS" has the same meaning as
the term "partner nonrecourse deductions" in Sections 1.704-2(i)(1) and
1.704-2(i)(2) of the Regulations.

                  1.11 "PROFITS" and "LOSSES" mean, for each Calendar Year, an
amount equal to the Partnership's taxable income or loss for such Calendar Year,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss, or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments (without duplication):

                           (i) Any income of the Partnership that is exempt from
federal income tax and not otherwise taken into account in computing Profits or
Losses pursuant to this definition of "Profits" and "Losses" shall be added to
such taxable income or loss;

                           (ii) Any expenditures of the Partnership described in
Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken
into account in computing Profits or Losses pursuant to this definition of
"Profits" and "Losses" shall be subtracted from such taxable income or loss;

                           (iii) In the event the Gross Asset Value of any
Partnership asset is adjusted pursuant to subparagraphs (ii) or (iii) of the
definition of Gross Asset Value, the amount of such adjustment shall be treated
as an item of gain (if the adjustment increases the Gross Asset Value of the
asset) or an item of loss (if the adjustment decreases the Gross Asset Value of
the asset) from the disposition of such asset and shall be taken into account
for purposes of computing Profits or Losses;

                           (iv) Gain or loss resulting from any disposition of
property with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Gross Asset Value of the property
disposed of, notwithstanding that the adjusted tax basis of such property
differs from its Gross Asset Value;

                           (v) In lieu of the depreciation, amortization, and
other cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for such Calendar
Year, computed in accordance with the definition of Depreciation;

<PAGE>

                           (vi) To the extent an adjustment to the adjusted tax
basis of any Partnership asset pursuant to Code Section 734(b) is required,
pursuant to Regulations Section 1.704-(b)(2)(iv)(m)(4), to be taken into account
in determining Capital Accounts as a result of a distribution other than in
liquidation of a Partner's interest in the Partnership, the amount of such
adjustment shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such basis) from the
disposition of such asset and shall be taken into account for purposes of
computing Profits or Losses; and

                           (vii) Notwithstanding any other provision of this
definition, any items which are specially allocated pursuant to SECTION 3.3 or
SECTION 3.4 hereof shall not be taken into account in computing Profits or
Losses.

The amounts of the items of Partnership income, gain, loss or deduction
available to be specially allocated pursuant to SECTIONS 3.3 AND 3.4 hereof
shall be determined by applying rules analogous to those set forth in
subparagraphs (i) through (vi) above.

         2.       CAPITAL ACCOUNTS.

                  2.1 INITIAL CAPITAL ACCOUNTS. The initial capital accounts for
each Partner ("CAPITAL ACCOUNT") shall be as follows:

<TABLE>
<CAPTION>
                  PARTNER                                     INITIAL CAPITAL ACCOUNT BALANCE
                  -------                                     -------------------------------
                  <S>                                         <C>
                  General Partner                                      $   400,000

                  201 Limited Partner                                  $   500,000

                  ITS Limited Partner                                  $12,000,000
</TABLE>

                  2.2 MAINTENANCE OF CAPITAL ACCOUNTS. The Capital Accounts
shall be maintained for each Partner in accordance with the following
provisions:

                           (i) To each Partner's Capital Account there shall be
credited (A) such Partner's Capital Contributions, (B) such Partner's
distributive share of Profits and any items in the nature of income or gain that
are specially allocated pursuant to SECTION 3.3 or SECTION 3.4 hereof, and (C)
the amount of any Partnership liabilities that are assumed by such Partner or
that are secured by any property distributed to such Partner. The principal
amount of a promissory note that is not readily traded on an established
securities market and that is contributed to the Partnership by the maker of the
note (or a Partner related to the maker of the note, within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(c)) shall not be included in the Capital
Account of any Partner until the Partnership makes a taxable disposition of the
note or until (and to the extent) principal payments are made on the note, all
in accordance with Regulations Section 1.704-1(b)(2)(iv)(d)(2);

<PAGE>

                           (ii) To each Partner's Capital Account there shall be
debited (A) the amount of money and the Gross Asset Value of any property
distributed to such Partner pursuant to any provision of this Agreement, (B)
such Partner's distributive share of Losses and any items in the nature of
expenses or losses that are specially allocated pursuant to SECTION 3.3 or
SECTION 3.4 hereof, and (C) the amount of any liabilities of such Partner that
are assumed by the Partnership or that are secured by any property contributed
by such Partner to the Partnership;

                           (iii) In the event an interest in the Partnership is
transferred in accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent it relates to the
transferred interest; and

                           (iv) In determining the amount of any liability for
purposes of subparagraphs (i) and (ii) above there shall be taken into account
Code Section 752(c) and any other applicable provisions of the Code and
Regulations.

The foregoing provisions and the other provisions of this Agreement relating to
the maintenance of Capital Accounts are intended to comply with Regulations
Section 1.704-1(b), and shall be interpreted and applied in a manner consistent
with such Regulations. In the event the Partners shall determine that it is
prudent to modify the manner in which the Capital Accounts, or any debits or
credits thereto (including, without limitation, debits or credits relating to
liabilities which are secured by contributed or distributed property or which
are assumed by the Partnership or any Partners), are computed in order to comply
with such Regulations, the Partners may make such modification, PROVIDED that it
is not likely to have a material effect on the amounts distributed to any person
pursuant to SECTION 16 of the Agreement upon the dissolution of the Partnership.
The Partners also shall (i) make any adjustments that are necessary or
appropriate to maintain equality between the Capital Accounts of the Partners
and the amount of capital reflected on the Partnership's balance sheet, as
computed for book purposes, in accordance with Regulations Section
1.704-1(b)(2)(iv)(g), and (ii) make any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with
Regulations Section 1.704-1(b).

         3.      ALLOCATION OF PROFITS AND LOSSES/ SPECIAL ALLOCATIONS.

                 3.1 PROFITS. After giving effect to the special allocations set
forth in SECTIONS 3.3 AND 3.4, Profits for any Calendar Year shall be allocated
to the Partners as follows:

                           (a) First, one hundred percent (100%) to the General
Partner in an amount equal to the excess, if any, of (i) the cumulative Losses
allocated to the General Partner pursuant to SECTION 3.2(d) hereof for all prior
Calendar Years, over (ii) the cumulative Profits allocated to the General
Partner pursuant to this SECTION 3.1(a) for all prior Calendar Years;

                           (b) Second, to all Partners in an amount equal to the
excess, if any, of (i) the cumulative Losses allocated to all Partners under
Section 3.2(c) for all prior Calendar Years, over (ii) the cumulative Profits
allocated to all Partners under this Section 3.1(b) for all prior Calendar
Years.

<PAGE>

                           (c) Third, to the ITS Limited Partner in an amount
equal to the excess, if any, of (i) the cumulative Actual Preferred Return paid
to the ITS Limited Partner under Section 6(c) of the Agreement for all prior
Calendar Years, over (ii) the cumulative Profits allocated the ITS Limited
Partner pursuant to this Section 3.1(c) for all prior Calendar Years; and

                           (d) The balance, if any, in proportion to the
Percentage Interests of the Partners.

                  3.2 LOSSES. After giving effect to the special allocations set
forth in SECTIONS 3.3 AND 3.4 and subject to SECTION 3.5, Losses for any
Calendar Year shall be allocated to the Partners as follows:

                           (a) First, in proportion to the Percentage Interests
of the Partners in an amount equal to the excess, if any, of (i) the cumulative
Profits allocated to the Partners pursuant to SECTION 3.1(d) hereof for all
prior Calendar Years, over (ii) the cumulative Losses allocated to the Partners
pursuant to this SECTION 3.2(a) for all prior Calendar Years; and

                           (b) Second, to the ITS Limited Partner in an amount
equal to the excess, if any, of (i) the cumulative Profits allocated to the ITS
Limited Partner under Section 3.1(c) hereof for all prior Calendar Years, over
(ii) the cumulative Losses allocated to the ITS Limited Partner pursuant to this
Section 3.2(b) for all prior Calendar Years; and

                           (c) Third, in proportion to the Capital Account
Balances of the Partners, provided that Losses shall not be allocated pursuant
to this Section 3.2(c) to the extent such allocation would cause any Limited
Partner to have an Adjusted Capital Account Deficit at the end of such Calendar
Year; and

                           (d) The balance, if any, one hundred percent (100%)
to the General Partner.

                  3.3 SPECIAL ALLOCATIONS. The following special allocations
shall be made in the following order:

                           (a) MINIMUM GAIN CHARGEBACK. Except as otherwise
provided in Section 1.704-2(f) of the Regulations, notwithstanding any other
provision of this SECTION 3, if there is a net decrease in Partnership Minimum
Gain during any Calendar Year, each Partner shall be specially allocated items
of Partnership income and gain for such Calendar Year (and, if necessary,
subsequent Calendar Years) in an amount equal to such Partner's share of the net
decrease in Partnership Minimum Gain, determined in accordance with Regulations
Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made
in proportion to the respective amounts required to be allocated to each Partner
pursuant thereto. The items to be so allocated shall be determined in accordance
with sections 1.704-2(f) (6) and 1.704-2(j) (2) of the Regulations. This SECTION
3.3(a) is intended to comply with the minimum gain chargeback

<PAGE>

requirement in Section 1.704-2(f) of the Regulations and shall be interpreted
consistently therewith.

                           (b) PARTNER MINIMUM GAIN CHARGEBACK. Except as
otherwise provided in Section 1.704-2(i) (4) of the Regulations, notwithstanding
any other provision of this SECTION 3, if there is a net decrease in Partner
Nonrecourse Debt Minimum Gain attributable to a Partner Nonrecourse Debt during
any Calendar Year, each Partner who has a share of the Partner Nonrecourse Debt
Minimum Gain attributable to such Partner Nonrecourse Debt, determined in
accordance with Section 1.704-2(i) (5) of the Regulations, shall be specially
allocated items of Partnership income and gain for such Calendar Year (and, if
necessary, subsequent Calendar Years) in an amount equal to such Partner's share
of the net decrease in Partner Nonrecourse Debt, determined in accordance with
Regulations Section 1.704-2(i) (4). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Sections 1.704-2(i) (4) and 1.704-2(j) (2) of
the Regulations. This SECTION 3.3(b) is intended to comply with the minimum gain
chargeback requirement in Section 1.704-2(i)(4) of the Regulations and shall be
interpreted consistently therewith.

                           (c) QUALIFIED INCOME OFFSET. In the event any Partner
unexpectedly receives any adjustments, allocations, or distributions described
in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or
1.704-1(b)(2)(ii)(d)(6) of the Regulations, items of Partnership income and gain
shall be specially allocated to such Partner in an amount and manner sufficient
to eliminate, to the extent required by the Regulations, the Adjusted Capital
Account Deficit of the Partner as quickly as possible, provided that an
allocation pursuant to this SECTION 3.3(c) shall be made only if and to the
extent that the Partner would have an Adjusted Capital Account Deficit after all
other allocations provided for in this SECTION 3 have been tentatively made as
if this SECTION 3.3(c) were not in the Agreement.

                           (d) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions
for any Calendar Year shall be specially allocated to the Partners in proportion
to their respective Percentage Interests.

                           (e) PARTNER NONRECOURSE DEDUCTIONS. Any Partner
Nonrecourse Deductions for any Calendar Year shall be specially allocated to the
Partner who bears the economic risk of loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable
in accordance with Regulations Section 1.704-2(i)(1).

                           (f) SECTION 754 ADJUSTMENTS. To the extent an
adjustment to the adjusted tax basis of any Partnership asset, pursuant to Code
Section 734(b) or Code Section 743(b) is required, pursuant to Regulations
Section 1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4), to be taken into
account in determining Capital Accounts as the result of a distribution to a
Partner in complete liquidation of such Partner's interest in the Partnership,
the amount of such adjustment to Capital Accounts shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis) and such gain or loss shall be specially
allocated to the Partners in accordance with their interests in

<PAGE>

the Partnership in the event Regulations Section 1.704-1(b)(2)(iv)(m)(2)
applies, or to the Partner to whom such distribution was made in the event
Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.

                  3.4 CURATIVE ALLOCATIONS. The allocations set forth in
SECTIONS 3.3(a), 3.3(b), 3.3(c), 3.3(d), 3.3(e), 3.3(f) AND 4.5 (the "REGULATORY
ALLOCATIONS") are intended to comply with certain requirements of the Treasury
Regulations. It is the intent of the Partners that, to the extent possible, all
Regulatory Allocations shall be offset either with other Regulatory Allocations
or with special allocations of other items of Partnership income, gain, loss or
deduction pursuant to this SECTION 3.4. Therefore, notwithstanding any other
provision of this SECTION 3 (other than the Regulatory Allocations), the
Partners shall make such offsetting special allocations of Partnership income,
gain, loss or deduction in whatever manner it determines appropriate so that,
after such offsetting allocations are made, each Partner's Capital Account
balance is, to the extent possible, equal to the Capital Account balance such
Partner would have had if the Regulatory Allocations were not part of the
Agreement and all Partnership items were allocated pursuant to SECTIONS 3.1 AND
3.2.

                  3.5 LOSS LIMITATION. Losses allocated pursuant to SECTION 3.2
hereof shall not exceed the maximum amount of Losses that can be allocated
without causing any Partner to have an Adjusted Capital Account Deficit at the
end of any Calendar Year. In the event some but not all of the Partners would
have Adjusted Capital Account Deficits as a consequence of an allocation of
Losses pursuant to SECTION 3.2 hereof, the limitation set forth in this SECTION
3.5 shall be applied on a Partner-by-Partner basis and Losses not allocable to
any Partner as a result of such limitation shall be allocated to the other
Partners in accordance with the positive balances in such Partner's Capital
Accounts so as to allocate the maximum permissible Losses to each Partner under
Section 1.704-1(b)(2)(ii)(d) of the Regulations.

                  3.6 OTHER ALLOCATION RULES.

                           (a) For purposes of determining the Profits, Losses,
or any other items allocable to any period, Profits, Losses, and any such other
items shall be determined on a daily, monthly, or other basis, as approved by
the Partners using any permissible method under Code Section 706 and the
Regulations thereunder.

                           (b) Solely for purposes of determining a Partner's
proportionate share of the "excess nonrecourse liabilities" of the Partnership
within the meaning of Regulations Section 1.752-3(a)(3), the Partners' interests
in Partnership profits are in proportion to their Percentage Interests.

                           (c) In the event any Partner's Percentage Interest
changes during a Calendar Year for any reason, including the transfer of any
interest in the Partnership or an adjustment of the Partner's Percentage
Interests, hereunder, the allocations of Profits, Losses, and other items of
income and deduction under this SECTION 3 shall be adjusted as necessary to
reflect the varying interests of the Partners during the Calendar Year in
accordance with Code Section 706(d) using an interim closing of the books method
as of the date of such changes.

<PAGE>

                  3.7 TAX ALLOCATIONS: CODE SECTION 704(c). In accordance with
Code Section 704(c) and the Regulations thereunder, income, gain, loss, and
deduction with respect to any property contributed to the capital of the
Partnership shall, solely for tax purposes, be allocated among the Partners so
as to take account of any variation between the adjusted basis of such property
to the Partnership for federal income tax purposes and its initial Gross Asset
Value (computed in accordance with the definition of Gross Asset Value) using
the traditional method of allocation under Regulations Section 1.704-3(b). The
Partners, without having to amend this Agreement, can approve the use of any
other allocation method provided for under Regulations Section 1.704-3.

In the event the Gross Asset Value of any Partnership asset is adjusted pursuant
to subparagraph (ii) of the definition of Gross Asset Value, subsequent
allocations of income, gain, loss, and deduction with respect to such asset
shall take account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Gross Asset Value in the same manner as
under Code Section 704(c) and the Regulations thereunder.

         Any elections or other decisions relating to such allocations shall be
made by the Partners in any manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to this SECTION 3.6 are solely
for purposes of federal, state, and local taxes and shall not affect, or in any
way be taken into account in computing, any Partner's Capital Account or share
of Profits, Losses, other items, or distributions pursuant to any provision of
this Agreement.

<PAGE>

                                    EXHIBIT C

                             [INTENTIONALLY DELETED]

<PAGE>

                                    EXHIBIT D
                           Illustration of Calculation
                           Of Actual Preferred Return

<PAGE>

                               EXHIBIT "D"

         Illustration of calculation of Actual Preferred Return
<TABLE>
<S>                                                                             <C>
Assumptions:
   Interest Rate for Actual Preferred Return and Construction Interest Carry    10.50%
   Max number of Months of Preferred Return per Phase                           12.00
   Tenant Improvement Allowance draw limited to 12 month period
   Rent credit will be paid:

   -    after payment of all debt service;
   -    only from available cash flow otherwise accrued;
   -    paid on a monthly basis over a 12 month schedule;
   -    only paid after the Actual Preferred Return has been determined and
        commences month following Actual Preferred Return determination.
</TABLE>

<TABLE>

<S>                                         <C>          <C>
Example for phase 2A
   Tenant Improvement Allowance             $5,496,500
   Monthly Preferred Return                 $   48,094  (T.I. Allowance X Interest Rate/12 mnths)
   Maximum Preferred Return                 $  577,133
                                            ----------
</TABLE>

<TABLE>
Tenant Improvement Allowance Draw Schedule (hypothetical)
<S>                              <C>        <C>          <C>          <C>          <C>          <C>          <C>
     Month                              1            2            3            4            5            6            7
     T.I. Draw                   $175,000   $  665,188   $  665,188   $  665,188   $  665,188   $  665,188   $  665,188

     Total T.I. Draw             $175,000   $  840,188   $1,505,375   $2,170,563   $2,835,750   $3,500,938   $4,166,125
     Interest Carry                           1,531.25     7,351.64    13,172.03    18,992.42    24,812.81    30,633.20

     Month                              8            9        Total
     T.I. Draw                 $  665,188   $  665,188   $5,496,500

     Total T.I. Draw           $4,831,313   $5,496,500
     Interest Carry             36,453.59    42,273.98   $  175,221

</TABLE>

<TABLE>

<S>                                         <C>
   Maximum Preferred Return                 $  577,133
   Less Interest Carry                      $  175,221
   Actual Preferred Return                  $  401,912  (Max Preferred Return less interest carry)
   Monthly Preferred Return                  33,492.63  (Total Preferred Return/ 12 months)
                                            ----------

Example for phase 2B
   Tenant Improvement Allowance             $5,605,000
   Monthly Preferred Return                 $   49,044   (T.I. Allowance X Interest Rate / 12 mnths)
   Maximum Preferred Return                 $  588,525
                                            ----------
</TABLE>

<TABLE>
Tenant Improvement Allowance Draw Schedule (hypothetical)
<S>                              <C>        <C>          <C>          <C>          <C>          <C>          <C>
     Month                              1            2            3            4            5            6            7
     T.I. Draw                   $      -   $        -   $        -   $        -   $1,000,000   $1,151,250   $1,151,250

     Total Draw                  $      -   $        -   $        -   $        -   $1,000,000   $2,151,250   $3,302,500
     Interest Carry                     -            -            -            -            -     8,750.00    18,823.44

     Month                                8            9        Total
     T.I. Draw                   $1,151,250   $1,151,250   $5,605,000

     Total Draw                  $4,453,750   $5,605,000
     Interest Carry               28,896.88    38,970.31   $   95,441

</TABLE>

<TABLE>

<S>                                         <C>
Maximum Preferred Return                    $   588,525
Less Interest Carry                         $    95,441
Actual Preferred Return                     $   493,084  (Max Preferred Return less interest carry)
Monthly Preferred Return                      41,090.36  (Total Preferred Return/ 12 months)
                                            -----------
</TABLE>

<PAGE>

                                    EXHIBIT E
                  Illustration of Calculation of Purchase Price

A.   Assumptions

<TABLE>
<S>                                                  <C>
-    Total scheduled Property revenue (including
     fair market value of unleased space) for
     consecutive 12 month period commencing 90
     days from option notice date                    $7,500,000
-    Capitalization rate                             10.5%
-    Partnership debt                                $54,000,000
-    Total Unpaid Capital Contribution               $12,900,000
-    Partnership percentage purchased                10%
-    Selling Partners' Unpaid Capital Contribution   $900,000

Capitalization calculation                           $7,500,000 /10.5% = $71,428,571

Property Value                                                $71,428,571
         less Partnership debt                                -54,000,000
         less unpaid capital                                  -12,900,000
                                                              -----------
Total Equity                                                  $ 4,528,571
Percentage Purchased                                                  10%
                                                              -----------
Paid to Selling Partners                                      $   452,857
Partial return of Sellers' Unpaid Capital
     Contribution*                                                 90,000
                                                              -----------
Total Paid to Selling Partners                                $   542,857

</TABLE>

*For each percentage interest acquired in the Partnership, ITS Limited Partner
shall pay to the Selling Partners an equal percentage of its Unpaid Capital
Contribution.

<PAGE>

                                                                  EXHIBIT F

                                                                 NO. CW-____

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT') OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS
NOT REQUIRED.

                     WARRANT TO PURCHASE UP TO 9,804 SHARES
                               OF COMMON STOCK OF
                        INHALE THERAPEUTIC SYSTEMS, INC.

     This certifies that 201 Industrial Partnership, a California general
partnership, or its assigns (the "Holder"), for value received, is entitled to
purchase from INHALE THERAPEUTIC SYSTEMS, INC. a Delaware corporation located at
150 Industrial Road, San Carlos CA 94070 (the "Company"), a number of shares of
fully paid and nonassessable shares of the Company's Common Stock ("Common
Stock") as determined in accordance with Section 1 hereof, not to exceed 9,804
shares (the "Maximum Shares"), for cash at a price equal to $_______ (the "Stock
Purchase Price") at such times as determined in accordance with Section 2 hereof
and, with respect to any Vested Shares (as defined herein) prior to the earlier
of (i) the closing (after the Exercise Date (as defined herein) with respect to
such Vested Shares) of (A) a sale of substantially all of the assets of the
Company; (B) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation in which shareholders
immediately before the merger or consolidation have, immediately after the
merger or consolidation, greater stock voting power); (C) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise (other than a reverse merger in which stockholders immediately
before the merger have, immediately after the merger, greater stock voting
power); or (D) any transaction or series of related transactions in which in
excess of 50% of the Company's voting power is transferred (a "Change of
Control") or (ii) six (6) years from such Exercise Date, such earlier day being
referred to herein as the "Expiration Date," upon surrender to the Company at
its principal office (or at such other location as the Company may advise the
Holder in writing) of this Warrant properly endorsed with the Form of
Subscription attached hereto duly filled in and signed and upon payment in cash
or by check of the aggregate Stock Purchase Price for the number of shares for
which this Warrant is being exercised determined in accordance with the
provisions hereof.

<PAGE>

     Capitalized terms used herein and not defined shall have the meaning set
forth in the Agreement of Limited Partnership of Inhale 201 Industrial Road,
L.P. (the "Partnership Agreement"). This Warrant is subject to the following
terms and conditions:

     1. VESTED SHARES. At any given time, this Warrant shall be exercisable for
only such number of shares of Common Stock that are "Vested Shares." At any time
during the term of this Warrant, the number of Vested Shares shall be determined
by the following equation:

                  V        =        (P*M) - E

Where             V =      the number of Vested Shares;

                  P =      the total percentage of the Holder's (or Holder's
                           successor in interests) Limited Partnership interests
                           which have been purchased pursuant to the exercise of
                           the Option under the Warrant Payment Alternative set
                           forth in Section 20 of the Partnership Agreement;

                  M =      the Maximum Shares (as adjusted pursuant to Section 6
                           hereof); and

                  E        = the number of shares previously issued upon
                           exercise of this Warrant (or any predecessor
                           Warrant), including any additional shares canceled as
                           a result of any exercise pursuant to Section 3
                           hereof, (as adjusted for stock dividends,
                           combinations, splits and recapitalizations and the
                           like with respect to such shares).

For purposes of example only, attached as Exhibit A hereto are hypothetical
examples of the calculation of Vested Shares.

     2. EXERCISE DATE. This Warrant is exercisable at the option of the holder
of record hereof, at any time or from time to time after the Exercise Date with
respect to the Vested Shares being acquired and prior to the Expiration Date
with respect to such Vested Shares for all or any part of the Vested Shares (but
not for a fraction of a share) which may be purchased hereunder. The Exercise
Date with respect to any shares issuable pursuant to this Warrant shall be the
date which such shares shall initially become Vested Shares. To the extent this
Warrant is exercised in part, the Holder shall be deemed to have acquired those
Vested Shares with the earliest Exercise Date first (provided such exercise is
prior to the Expiration Date with respect to such Vested Shares).

     3. NET ISSUE EXERCISE. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Company's Common Stock is
greater than the Stock Purchase Price (at the date of calculation as set forth
below), in lieu of exercising this Warrant for cash, the Holder may elect to
receive shares equal to the value (as determined below) of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant at the principal
office of the Company together with the properly endorsed Form of Subscription
and notice of

                                       2.

<PAGE>

such election in which event the Company shall issue to the Holder
a number of shares of Common Stock computed using the following formula:

                           X = Y (A-B)
                               -------
                                  A

     Where X = the number of shares of Common Stock to be issued to the Holder

                               Y = the number of shares of Common Stock
                               purchasable under the Warrant or, if only a
                               portion of the Warrant is being exercised, the
                               portion of the Warrant being canceled (at the
                               date of such calculation)

                               A = the fair market value of one share of the
                               Company's Common Stock (at the date of such
                               calculation)

                               B = Stock Purchase Price (as adjusted to the date
                               of such calculation)

For purposes of the above calculation, fair market value of one share of Common
Stock shall be the average closing price of the Company's Common Stock for the
ten trading days preceding the date of exercise.

     4. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES. The Company
agrees that the shares of Common Stock purchased under this Warrant shall be and
are deemed to be issued to the Holder hereof as the record owner of such shares
as of the close of business on the date on which this Warrant shall have been
surrendered, properly endorsed, the completed, executed Form of Subscription
delivered and payment made for such shares. Certificates for the shares of
Common Stock so purchased, together with any other securities or property to
which the Holder hereof is entitled upon such exercise, shall be delivered to
the Holder hereof by the Company at the Company's expense within a reasonable
time after the rights represented by this Warrant have been so exercised. In
case of a purchase of less than all the shares which may be purchased under this
Warrant, the Company shall cancel this Warrant and execute and deliver a new
Warrant or Warrants of like tenor for the balance of the shares purchasable
under the Warrant surrendered upon such purchase to the Holder hereof within a
reasonable time. Each stock certificate so delivered shall be in such
denominations of Common Stock as may be requested by the Holder hereof and shall
be registered in the name of such Holder.

     5. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants
and agrees that all shares of Common Stock which may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that, during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved, for
the purpose of issue or

                                       3.

<PAGE>

transfer upon exercise of the subscription rights evidenced by this Warrant, a
sufficient number of shares of authorized but unissued Common Stock, or other
securities and property, when and as required to provide for the exercise of the
rights represented by this Warrant. The Company will take all such action as may
be necessary to assure that such shares of Common Stock may be issued as
provided herein without violation of any applicable law or regulation, or of any
requirements of any domestic securities exchange upon which the Common Stock may
be listed; provided, however, that the Company shall not be required to effect a
registration under Federal or State securities laws with respect to such
exercise. The Company will not take any action which would result in any
adjustment of the Stock Purchase Price (as set forth in Section 6 hereof) if the
total number of shares of Common Stock issuable after such action upon exercise
of all outstanding warrants, together with all shares of Common Stock then
outstanding and all shares of Common Stock then issuable upon exercise of all
options and upon the conversion of all convertible securities then outstanding,
would exceed the total number of shares of Common Stock then authorized by the
Company's Restated Certificate of Incorporation.

     6. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 6. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Stock Purchase Price resulting from such adjustment.

        6.1 SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Stock Purchase Price in effect immediately prior
to such subdivision shall be proportionately reduced, and conversely, in case
the outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.

        6.2 DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY, RECLASSIFICATION.
If at any time or from time to time the holders of Common Stock (or any shares
of stock or other securities at the time receivable upon the exercise of this
Warrant) shall have received or become entitled to receive, without payment
therefor,

            (A) Common Stock or any shares of stock or other securities which
are at any time directly or indirectly convertible into or exchangeable for
Common Stock, or any rights or options to subscribe for, purchase or otherwise
acquire any of the foregoing by way of dividend or other distribution,

            (B) any cash paid or payable otherwise than as a cash dividend, or

                                       4.

<PAGE>

            (C) Common Stock or additional stock or other securities or property
(including cash) by way of spinoff, split-up, reclassification, combination of
shares or similar corporate rearrangement, (other than shares of Common Stock
issued as a stock split or adjustments in respect of which shall be covered by
the terms of Section 6.1 above), then and in each such case, the Holder hereof
shall, upon the exercise of this Warrant, be entitled to receive, in addition to
the number of shares of Common Stock receivable thereupon, and without payment
of any additional consideration therefor, the amount of stock and other
securities and property (including cash in the cases referred to in clause (b)
above and this clause (c)) which such Holder would hold on the date of such
exercise had he been the holder of record of such Common Stock as of the date on
which holders of Common Stock received or became entitled to receive such shares
or all other additional stock and other securities and property.

        6.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If
any recapitalization, reclassification or reorganization of the capital stock of
the Company, or any consolidation or merger of the Company with another
corporation, or sale of all or substantially all of the Company's assets or
other transaction (other than a Change in Control which occurs after the
Exercise Date) shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities, or other assets or property (an
"Organic Change"), then, as a condition of such Organic Change, lawful and
adequate provisions shall be made by the Company whereby the Holder hereof shall
thereafter have the right to purchase and receive (in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby) such shares of stock,
securities or other assets or property as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby. In the event of
any Organic Change, appropriate provision shall be made by the Company with
respect to the rights and interests of the Holder of this Warrant to the end
that the provisions hereof (including, without limitation, provisions for
adjustments of the Stock Purchase Price and of the number of shares purchasable
and receivable upon the exercise of this Warrant) shall thereafter be
applicable, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof.

        6.4 CERTAIN EVENTS. If any change in the outstanding Common Stock of the
Company or any other event occurs as to which the other provisions of this
Section 6 are not strictly applicable or if strictly applicable would not fairly
protect the purchase rights of the Holder of the Warrant in accordance with such
provisions, then the Board of Directors of the Company shall make an adjustment
in the number and class of shares available under the Warrant, the Stock
Purchase Price or the application of such provisions, so as to protect such
purchase rights as aforesaid. The adjustment shall be such as will give the
Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price
the total number, class and kind of shares as the Holder would have owned had
the Warrant been exercised prior to the event and had the Holder continued to
hold such shares until after the event requiring adjustment.

                                       5.

<PAGE>

        6.5 NOTICES OF CHANGE. The Company shall give written notice to the
Holder at least 10 business days prior to the date on which a Change of Control
or Organic Change shall take place.

     7. REPRESENTATIONS AND WARRANTIES OF THE HOLDER

        7.1 PURCHASE FOR OWN ACCOUNT. Holder represents that it is acquiring the
Warrant and the Common Stock issuable upon exercise of the Warrant
(collectively, the "SECURITIES") solely for its own account and beneficial
interest for investment and not for sale or with a view to distribution of the
Securities or any part thereof, has no present intention of selling (in
connection with a distribution or otherwise), granting any participation in, or
otherwise distributing the same, and does not presently have reason to
anticipate a change in such intention.

        7.2 INFORMATION AND SOPHISTICATION. Holder acknowledges that it has
received all the information it has requested from the Company and it considers
necessary or appropriate for deciding whether to acquire the Securities. Holder
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Securities and to obtain any additional information necessary to verify the
accuracy of the information given the Holder. Holder further represents that it
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risk of this investment.

        7.3 ABILITY TO BEAR ECONOMIC RISK. Holder acknowledges that investment
in the Securities involves a high degree of risk, and represents that it is
able, without materially impairing its financial condition, to hold the
Securities for an indefinite period of time and to suffer a complete loss of its
investment.

        7.4 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the
representations set forth above, Holder further agrees not to make any
disposition of all or any portion of the Securities unless and until:

            (A) There is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such Registration Statement; or

            (B) Holder shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and if reasonably
requested by the Company, Holder shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration under the Act or any applicable state
securities laws.

            (C) Notwithstanding the provisions of paragraphs (a) and (b) above,
no such registration statement or opinion of counsel shall be necessary for a
transfer by gift, will or

                                       6.

<PAGE>

intestate succession to any spouse or lineal descendants or ancestors, if all
transferees agree in writing to be subject to the terms hereof to the same
extent as if they were Holder hereunder.

            (D) Each certificate representing Securities shall (unless otherwise
permitted by the provisions of the Agreement) be stamped or otherwise imprinted
with a legend substantially similar to the following (in addition to any legend
required under applicable state securities laws):

     THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
     SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES
     LAWS. SUCH SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
     ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT
     OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO
     THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.

            (E) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any Holder if the Holder shall have obtained an
opinion of counsel (which counsel may be counsel to the Company) reasonably
acceptable to the Company to the effect that the Securities proposed to be
disposed of may lawfully be so disposed of without registration, qualification
or legend. The Company shall pay the reasonable fees and expenses of such
counsel in rendering such opinion, not to exceed $5,000.

        7.5 ACCREDITED INVESTOR STATUS. Holder is an "ACCREDITED INVESTOR" as
such term is defined in Rule 501 of Regulation D promulgated under the Act.

        7.6 FURTHER ASSURANCES. Holder agrees and covenants that at any time and
from time to time it will promptly execute and deliver to the Company such
further instruments and documents and take such further action as the Company
may reasonably require in order to carry out the full intent and purpose of this
Agreement.

     8. ISSUE TAX. The issuance of certificates for shares of Common Stock upon
the exercise of the Warrant shall be made without charge to the Holder of the
Warrant for any issue tax (other than any applicable income taxes) in respect
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the then Holder of the
Warrant being exercised.

     9. CLOSING OF BOOKS. The Company will at no time close its transfer books
against the transfer of any warrant or of any shares of Common Stock issued or
issuable upon the exercise of any warrant in any manner which interferes with
the timely exercise of this Warrant.

                                       7.

<PAGE>

     10. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a shareholder of
the Company or any other matters or any rights whatsoever as a shareholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provisions hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such Holder for the Stock Purchase Price or as a shareholder of the Company,
whether such liability is asserted by the Company or by its creditors.

     11. MARKET STAND-OFF AGREEMENT. Holder shall not sell, dispose of,
transfer, make any short sale of, grant any option for the purchase of, or enter
into any hedging or similar transaction with the same economic effect as a sale,
any Common Stock or other securities of the Company held by Holder, (the
"Restricted Securities"), for a period of time specified by the managing
underwriter (not to exceed one hundred eighty (180) days) following the
effective date of a registration statement of the Company filed under the Act.
Holder agrees to execute and deliver such other agreements as may be reasonably
requested by the Company and/or the managing underwriter which are consistent
with the foregoing or which are necessary to give further effect thereto. In
order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to Holder's Restricted Securities until the end of
such period.

     12. WARRANTS TRANSFERABLE. Subject to compliance with applicable federal
and state securities laws, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the holder hereof (except
for transfer taxes), upon surrender of this Warrant properly endorsed. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that this Warrant, when endorsed in blank, shall be deemed negotiable,
and that the holder hereof, when this Warrant shall have been so endorsed, may
be treated by the Company, at the Company's option, and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented by this Warrant, or to
the transfer hereof on the books of the Company any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered owner hereof as the owner for all purposes.

     13. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the holder of this Warrant and of the holder of
shares of Common Stock issued upon exercise of this Warrant, shall survive the
exercise of this Warrant.

     14. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.

                                       8.

<PAGE>

     15. NOTICES. Any notice, request or other document required or permitted to
be given or delivered to the holder hereof or the Company shall be delivered or
shall be sent by certified mail, postage prepaid, to each such holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other.

     16. BINDING EFFECT ON SUCCESSORS. To the extent then exercisable, this
Warrant shall be binding upon any corporation succeeding the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets. All of the obligations of the Company relating to the Common Stock
issuable upon the exercise of this Warrant shall survive the exercise and
termination of this Warrant. All of the covenants and agreements of the Company
shall inure to the benefit of the successors and assigns of the holder hereof.

     17. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of the
several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of California.

     18. LOST WARRANTS. The Company represents and warrants to the Holder hereof
that upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction, or mutilation of this Warrant and, in the case of any
such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.

     19. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share, pay
the holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Stock Purchase Price.

     20. EXCHANGE ACT REPORTING. The Company covenants that it shall file any
reports required to be filed by it under the Securities Exchange Act of 1934 and
that it shall take such further action as any Holder may reasonably request, all
to the extent required from time to time to enable Holder to sell Common Stock
without registration under the Act within the limitations of the exemption
provided by Rule 144 promulgated under the Act. Upon the request of any Holder,
the Company shall deliver to such Holder, so long as Holder owns any of the
Securities, a written statement as to whether it has complied with such
requirements.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]

                                       9.

<PAGE>

     IN WITNESS WHEREOF, the Company and Holder have caused this Warrant to be
duly executed by their officers, thereunto duly authorized this ______ day of
September, 2000.

                                              INHALE THERAPEUTIC SYSTEMS, INC.
                                              a Delaware corporation

                                              By:_______________________________

                                              Title:____________________________

ATTEST:

_______________________________
Secretary

AGREED AND ACCEPTED

201 INDUSTRIAL PARTNERSHIP

By: ___________________________

Title:_________________________

<PAGE>
                                SUBSCRIPTION FORM

                                                 Date:  _________________, 20___

Inhale Therapeutic Systems, Inc.
150 Industrial Way
San Carlos, CA  94070

Attn:  President

Ladies and Gentlemen:

/_/      The undersigned hereby elects to exercise the warrant issued to it by
         Inhale Therapeutic Systems, Inc. (the "Company") and dated September
         _____, 2000 Warrant No. CW-___ (the "Warrant") and to purchase
         thereunder __________________________________ shares of the Common
         Stock of the Company (the "Shares") at a purchase price of
         ___________________________________________ Dollars ($__________) per
         Share or an aggregate purchase price of
         __________________________________ Dollars ($__________) (the "Purchase
         Price").

         Pursuant to the terms of the Warrant the undersigned has delivered the
         Stock Purchase Price herewith in full in cash or by certified check or
         wire transfer.

/_/      The undersigned hereby elects to convert _______________________
         percent (____%) of the value of the Warrant pursuant to the provisions
         of Section 3 of the Warrant.

                                                    Very truly yours,
                                                    ____________________________

                                                    By:_________________________

                                                    Title:______________________

<PAGE>

                                    EXHIBIT A

                       VESTED SHARES CALCULATION SCENARIOS

ASSUMPTION:       10,000 SHARE WARRANT

SCENARIO 1

Step 1:  Inhale purchases 10% of LP interests and LP elects the Warrant Payment
         Alternative

Step 2:  Inhale subsequently purchases another 30% of the LP interests and LP
         elects the Warrant Payment Alternative

RESULT:

After Step 1, the number of Vested Shares equals 1,000 shares

       V = (P*M) - E
       1000 = (.10*10,000)-0

       (note E=0 as no shares have been issued upon exercise of Warrant)

After Step 2, the number of Vested Shares equals 4,000 shares

       V = (P*M) - E
       4000 = (.40*10,000)-0

       (note E remains 0 as no shares have been issued upon exercise of Warrant)

SCENARIO 2

Step 1:  Inhale purchases 10% of LP interests and LP elects the Warrant Payment
         Alternative

Step 2:  LP exercises Warrant for 50% of the then Vested Shares

Step 3:  Inhale subsequently purchases another 30% of the LP interests and LP
         elects the Warrant Payment Alternative

                                       2.

<PAGE>

RESULT:

After Step 1, the number of Vested Shares equals 1,000 shares

       V = (P*M) - E
       1000 = (.10*10,000)-0

       (note E=0 as no shares have been issued upon exercise of Warrant)

After Step 2, the number of Vested Shares equals 500 shares

       V = (P*M) - E
       500 = (.10*10,000)-500

       (note E=500 as 500 shares have been issued upon exercise of Warrant)

After Step 3, the number of Vested Shares equals 3,500 shares

       V = (P*M) - E
       3,500 = (.40*10,000)-500

       (note E=500 as 500 shares have been issued upon exercise of Warrant)

SCENARIO 3

ADDITIONAL ASSUMPTIONS:
$50.00 EXERCISE PRICE

$100.00 AVERAGE CLOSING PRICE FOR 10 DAYS PRECEDING EXERCISE

Step 1:  Inhale purchases 10% of LP interests and LP elects the Warrant Payment
         Alternative

Step 2:  LP exercises Warrant for 50% of the then Vested Shares via Net Issue
         Election

Step 3:  Inhale subsequently purchases another 30% of the LP interests and LP
         elects the Warrant Payment Alternative

                                       3.

<PAGE>

RESULT:

After Step 1, the number of Vested Shares equals 1,000 shares

       V = (P*M) - E
       1000 = (.10*10,000)-0

       (note E=0 as no shares have been issued upon exercise of Warrant)

Upon Exercise of Warrant (Step 2), LP is issued 250 shares

       X = Y (A-B)
           -------
              A

       250 = 500 * (100-50)
             --------------
                  100

       (note that as result of Net Issue Election, 250 shares are cancelled)

After Step 2, the number of Vested Shares equals 500 shares

       V = (P*M) - E 500 = (.10*10,000)-500

       (note E=500 as 500 shares have been issued (including cancelled shares)
       upon exercise of Warrant)

After Step 3, the number of Vested Shares equals 3,500 shares

       V = (P*M) - E
       3,500 = (.40*10,000)-500

       (note E=500 as 500 shares have been issued (including cancelled shares)
       upon exercise of Warrant)

                                       4.

                                                                     NO. CW-____

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT') OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS
NOT REQUIRED.

                      WARRANT TO PURCHASE UP TO 196 SHARES
                               OF COMMON STOCK OF
                        INHALE THERAPEUTIC SYSTEMS, INC.

     This certifies that SCIMED PROP III, Inc., a California corporation, or its
assigns (the "Holder"), for value received, is entitled to purchase from INHALE
THERAPEUTIC SYSTEMS, INC. a Delaware corporation located at 150 Industrial Road,
San Carlos CA 94070 (the "Company"), a number of shares of fully paid and
nonassessable shares of the Company's Common Stock ("Common Stock") as
determined in accordance with Section 1 hereof, not to exceed 196 shares (the
"Maximum Shares"), for cash at a price equal to $_______ (the "Stock Purchase
Price") at such times as determined in accordance with Section 2 hereof and,
with respect to any Vested Shares (as defined herein) prior to the earlier of
(i) the closing (after the Exercise Date (as defined herein) with respect to
such Vested Shares) of (A) a sale of substantially all of the assets of the
Company; (B) a merger or consolidation in which the Company is not the surviving
corporation (other than a merger or consolidation in which shareholders
immediately before the merger or consolidation have, immediately after the
merger or consolidation, greater stock voting power); (C) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise (other than a reverse merger in which stockholders immediately
before the merger have, immediately after the merger, greater stock voting
power); or (D) any transaction or series of related transactions in which in
excess of 50% of the Company's voting power is transferred (a "Change of
Control") or (ii) six (6) years from such Exercise Date, such earlier day being
referred to herein as the "Expiration Date," upon surrender to the Company at
its principal office (or at such other location as the Company may advise the
Holder in writing) of this Warrant properly endorsed with the Form of
Subscription attached hereto duly filled in and signed and upon payment in cash
or by check of the aggregate Stock Purchase Price for the number of shares for
which this Warrant is being exercised determined in accordance with the
provisions hereof.

<PAGE>

     Capitalized terms used herein and not defined shall have the meaning set
forth in the Agreement of Limited Partnership of Inhale 201 Industrial Road,
L.P. (the "Partnership Agreement"). This Warrant is subject to the following
terms and conditions:

     1. VESTED SHARES. At any given time, this Warrant shall be exercisable for
only such number of shares of Common Stock that are "Vested Shares." At any time
during the term of this Warrant, the number of Vested Shares shall be determined
by the following equation:

                  V        =        (P*M) - E

Where             V =      the number of Vested Shares;

                  P =      the total percentage of the Holder's (or Holder's
                           successor in interests) General Partnership interests
                           which have been purchased pursuant to the exercise of
                           the Option under the Warrant Payment Alternative set
                           forth in Section 20 of the Partnership Agreement;

                  M =      the Maximum Shares (as adjusted pursuant to Section 6
                           hereof); and

                  E =      the number of shares previously issued upon exercise
                           of this Warrant (or any predecessor
                           Warrant), including any additional shares canceled as
                           a result of any exercise pursuant to Section 3
                           hereof, (as adjusted for stock dividends,
                           combinations, splits and recapitalizations and the
                           like with respect to such shares).

For purposes of example only, attached as Exhibit A hereto are hypothetical
examples of the calculation of Vested Shares.

     2. EXERCISE DATE. This Warrant is exercisable at the option of the holder
of record hereof, at any time or from time to time after the Exercise Date with
respect to the Vested Shares being acquired and prior to the Expiration Date
with respect to such Vested Shares for all or any part of the Vested Shares (but
not for a fraction of a share) which may be purchased hereunder. The Exercise
Date with respect to any shares issuable pursuant to this Warrant shall be the
date which such shares shall initially become Vested Shares. To the extent this
Warrant is exercised in part, the Holder shall be deemed to have acquired those
Vested Shares with the earliest Exercise Date first (provided such exercise is
prior to the Expiration Date with respect to such Vested Shares).

     3. NET ISSUE EXERCISE. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Company's Common Stock is
greater than the Stock Purchase Price (at the date of calculation as set forth
below), in lieu of exercising this Warrant for cash, the Holder may elect to
receive shares equal to the value (as determined below) of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant at the principal
office of the Company together with the properly endorsed Form of Subscription
and notice of

                                       2.

<PAGE>

such election in which event the Company shall issue to the Holder a number of
shares of Common Stock computed using the following formula:

                           X = Y (A-B)
                               -------
                                  A

         Where X = the number of shares of Common Stock to be issued to the
Holder

                               Y = the number of shares of Common Stock
                               purchasable under the Warrant or, if only a
                               portion of the Warrant is being exercised, the
                               portion of the Warrant being canceled (at the
                               date of such calculation)

                               A = the fair market value of one share of the
                               Company's Common Stock (at the date of such
                               calculation)

                               B = Stock Purchase Price (as adjusted to the date
                               of such calculation)

For purposes of the above calculation, fair market value of one share of Common
Stock shall be the average closing price of the Company's Common Stock for the
ten trading days preceding the date of exercise.

     4. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES. The Company
agrees that the shares of Common Stock purchased under this Warrant shall be and
are deemed to be issued to the Holder hereof as the record owner of such shares
as of the close of business on the date on which this Warrant shall have been
surrendered, properly endorsed, the completed, executed Form of Subscription
delivered and payment made for such shares. Certificates for the shares of
Common Stock so purchased, together with any other securities or property to
which the Holder hereof is entitled upon such exercise, shall be delivered to
the Holder hereof by the Company at the Company's expense within a reasonable
time after the rights represented by this Warrant have been so exercised. In
case of a purchase of less than all the shares which may be purchased under this
Warrant, the Company shall cancel this Warrant and execute and deliver a new
Warrant or Warrants of like tenor for the balance of the shares purchasable
under the Warrant surrendered upon such purchase to the Holder hereof within a
reasonable time. Each stock certificate so delivered shall be in such
denominations of Common Stock as may be requested by the Holder hereof and shall
be registered in the name of such Holder.

     5. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants
and agrees that all shares of Common Stock which may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that, during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved, for
the purpose of issue or transfer upon

                                       3.

<PAGE>

exercise of the subscription rights evidenced by this Warrant, a sufficient
number of shares of authorized but unissued Common Stock, or other securities
and property, when and as required to provide for the exercise of the rights
represented by this Warrant. The Company will take all such action as may be
necessary to assure that such shares of Common Stock may be issued as provided
herein without violation of any applicable law or regulation, or of any
requirements of any domestic securities exchange upon which the Common Stock may
be listed; provided, however, that the Company shall not be required to effect a
registration under Federal or State securities laws with respect to such
exercise. The Company will not take any action which would result in any
adjustment of the Stock Purchase Price (as set forth in Section 6 hereof) if the
total number of shares of Common Stock issuable after such action upon exercise
of all outstanding warrants, together with all shares of Common Stock then
outstanding and all shares of Common Stock then issuable upon exercise of all
options and upon the conversion of all convertible securities then outstanding,
would exceed the total number of shares of Common Stock then authorized by the
Company's Restated Certificate of Incorporation.

     6. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 6. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Stock Purchase Price resulting from such adjustment.

        6.1 SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Stock Purchase Price in effect immediately prior
to such subdivision shall be proportionately reduced, and conversely, in case
the outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.

        6.2 DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY, RECLASSIFICATION.
If at any time or from time to time the holders of Common Stock (or any shares
of stock or other securities at the time receivable upon the exercise of this
Warrant) shall have received or become entitled to receive, without payment
therefor,

            (A) Common Stock or any shares of stock or other securities which
are at any time directly or indirectly convertible into or exchangeable for
Common Stock, or any rights or options to subscribe for, purchase or otherwise
acquire any of the foregoing by way of dividend or other distribution,

            (B) any cash paid or payable otherwise than as a cash dividend, or

                                       4.

<PAGE>

            (C) Common Stock or additional stock or other securities or property
(including cash) by way of spinoff, split-up, reclassification, combination of
shares or similar corporate rearrangement, (other than shares of Common Stock
issued as a stock split or adjustments in respect of which shall be covered by
the terms of Section 6.1 above), then and in each such case, the Holder hereof
shall, upon the exercise of this Warrant, be entitled to receive, in addition to
the number of shares of Common Stock receivable thereupon, and without payment
of any additional consideration therefor, the amount of stock and other
securities and property (including cash in the cases referred to in clause (b)
above and this clause (c)) which such Holder would hold on the date of such
exercise had he been the holder of record of such Common Stock as of the date on
which holders of Common Stock received or became entitled to receive such shares
or all other additional stock and other securities and property.

        6.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If
any recapitalization, reclassification or reorganization of the capital stock of
the Company, or any consolidation or merger of the Company with another
corporation, or sale of all or substantially all of the Company's assets or
other transaction (other than a Change in Control which occurs after the
Exercise Date) shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities, or other assets or property (an
"Organic Change"), then, as a condition of such Organic Change, lawful and
adequate provisions shall be made by the Company whereby the Holder hereof shall
thereafter have the right to purchase and receive (in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby) such shares of stock,
securities or other assets or property as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby. In the event of
any Organic Change, appropriate provision shall be made by the Company with
respect to the rights and interests of the Holder of this Warrant to the end
that the provisions hereof (including, without limitation, provisions for
adjustments of the Stock Purchase Price and of the number of shares purchasable
and receivable upon the exercise of this Warrant) shall thereafter be
applicable, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof.

        6.4 CERTAIN EVENTS. If any change in the outstanding Common Stock of the
Company or any other event occurs as to which the other provisions of this
Section 6 are not strictly applicable or if strictly applicable would not fairly
protect the purchase rights of the Holder of the Warrant in accordance with such
provisions, then the Board of Directors of the Company shall make an adjustment
in the number and class of shares available under the Warrant, the Stock
Purchase Price or the application of such provisions, so as to protect such
purchase rights as aforesaid. The adjustment shall be such as will give the
Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price
the total number, class and kind of shares as the Holder would have owned had
the Warrant been exercised prior to the event and had the Holder continued to
hold such shares until after the event requiring adjustment.

                                       5.

<PAGE>

        6.5 NOTICES OF CHANGE. The Company shall give written notice to the
Holder at least 10 business days prior to the date on which a Change of Control
or Organic Change shall take place.

     7. REPRESENTATIONS AND WARRANTIES OF THE HOLDER

        7.1 PURCHASE FOR OWN ACCOUNT. Holder represents that it is acquiring the
Warrant and the Common Stock issuable upon exercise of the Warrant
(collectively, the "SECURITIES") solely for its own account and beneficial
interest for investment and not for sale or with a view to distribution of the
Securities or any part thereof, has no present intention of selling (in
connection with a distribution or otherwise), granting any participation in, or
otherwise distributing the same, and does not presently have reason to
anticipate a change in such intention.

        7.2 INFORMATION AND SOPHISTICATION. Holder acknowledges that it has
received all the information it has requested from the Company and it considers
necessary or appropriate for deciding whether to acquire the Securities. Holder
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Securities and to obtain any additional information necessary to verify the
accuracy of the information given the Holder. Holder further represents that it
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risk of this investment.

        7.3 ABILITY TO BEAR ECONOMIC RISK. Holder acknowledges that investment
in the Securities involves a high degree of risk, and represents that it is
able, without materially impairing its financial condition, to hold the
Securities for an indefinite period of time and to suffer a complete loss of its
investment.

        7.4 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the
representations set forth above, Holder further agrees not to make any
disposition of all or any portion of the Securities unless and until:

            (A) There is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such Registration Statement; or

            (B) Holder shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and if reasonably
requested by the Company, Holder shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration under the Act or any applicable state
securities laws.

            (C) Notwithstanding the provisions of paragraphs (a) and (b) above,
no such registration statement or opinion of counsel shall be necessary for a
transfer by gift, will or

                                       6.

<PAGE>

intestate succession to any spouse or lineal descendants or ancestors, if all
transferees agree in writing to be subject to the terms hereof to the same
extent as if they were Holder hereunder.

            (D) Each certificate representing Securities shall (unless otherwise
permitted by the provisions of the Agreement) be stamped or otherwise imprinted
with a legend substantially similar to the following (in addition to any legend
required under applicable state securities laws):

     THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
     SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES
     LAWS. SUCH SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
     ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT
     OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO
     THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.

            (E) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any Holder if the Holder shall have obtained an
opinion of counsel (which counsel may be counsel to the Company) reasonably
acceptable to the Company to the effect that the Securities proposed to be
disposed of may lawfully be so disposed of without registration, qualification
or legend. The Company shall pay the reasonable fees and expenses of such
counsel in rendering such opinion, not to exceed $5,000.

        7.5 ACCREDITED INVESTOR STATUS. Holder is an "ACCREDITED INVESTOR" as
such term is defined in Rule 501 of Regulation D promulgated under the Act.

        7.6 FURTHER ASSURANCES. Holder agrees and covenants that at any time and
from time to time it will promptly execute and deliver to the Company such
further instruments and documents and take such further action as the Company
may reasonably require in order to carry out the full intent and purpose of this
Agreement.

     8. ISSUE TAX. The issuance of certificates for shares of Common Stock upon
the exercise of the Warrant shall be made without charge to the Holder of the
Warrant for any issue tax (other than any applicable income taxes) in respect
thereof; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the then Holder of the
Warrant being exercised.

     9. CLOSING OF BOOKS. The Company will at no time close its transfer books
against the transfer of any warrant or of any shares of Common Stock issued or
issuable upon the exercise of any warrant in any manner which interferes with
the timely exercise of this Warrant.

                                       7.

<PAGE>

     10. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a shareholder of
the Company or any other matters or any rights whatsoever as a shareholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provisions hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such Holder for the Stock Purchase Price or as a shareholder of the Company,
whether such liability is asserted by the Company or by its creditors.

     11. MARKET STAND-OFF AGREEMENT. Holder shall not sell, dispose of,
transfer, make any short sale of, grant any option for the purchase of, or enter
into any hedging or similar transaction with the same economic effect as a sale,
any Common Stock or other securities of the Company held by Holder, (the
"Restricted Securities"), for a period of time specified by the managing
underwriter (not to exceed one hundred eighty (180) days) following the
effective date of a registration statement of the Company filed under the Act.
Holder agrees to execute and deliver such other agreements as may be reasonably
requested by the Company and/or the managing underwriter which are consistent
with the foregoing or which are necessary to give further effect thereto. In
order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to Holder's Restricted Securities until the end of
such period.

     12. WARRANTS TRANSFERABLE. Subject to compliance with applicable federal
and state securities laws, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the holder hereof (except
for transfer taxes), upon surrender of this Warrant properly endorsed. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that this Warrant, when endorsed in blank, shall be deemed negotiable,
and that the holder hereof, when this Warrant shall have been so endorsed, may
be treated by the Company, at the Company's option, and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented by this Warrant, or to
the transfer hereof on the books of the Company any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered owner hereof as the owner for all purposes.

     13. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the holder of this Warrant and of the holder of
shares of Common Stock issued upon exercise of this Warrant, shall survive the
exercise of this Warrant.

     14. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.

                                       8.

<PAGE>

     15. NOTICES. Any notice, request or other document required or permitted to
be given or delivered to the holder hereof or the Company shall be delivered or
shall be sent by certified mail, postage prepaid, to each such holder at its
address as shown on the books of the Company or to the Company at the address
indicated therefor in the first paragraph of this Warrant or such other address
as either may from time to time provide to the other.

     16. BINDING EFFECT ON SUCCESSORS. To the extent then exercisable, this
Warrant shall be binding upon any corporation succeeding the Company by merger,
consolidation or acquisition of all or substantially all of the Company's
assets. All of the obligations of the Company relating to the Common Stock
issuable upon the exercise of this Warrant shall survive the exercise and
termination of this Warrant. All of the covenants and agreements of the Company
shall inure to the benefit of the successors and assigns of the holder hereof.

     17. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of the
several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of California.

     18. LOST WARRANTS. The Company represents and warrants to the Holder hereof
that upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction, or mutilation of this Warrant and, in the case of any
such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.

     19. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise
of this Warrant. The Company shall, in lieu of issuing any fractional share, pay
the holder entitled to such fraction a sum in cash equal to such fraction
multiplied by the then effective Stock Purchase Price.

     20. EXCHANGE ACT REPORTING. The Company covenants that it shall file any
reports required to be filed by it under the Securities Exchange Act of 1934 and
that it shall take such further action as any Holder may reasonably request, all
to the extent required from time to time to enable Holder to sell Common Stock
without registration under the Act within the limitations of the exemption
provided by Rule 144 promulgated under the Act. Upon the request of any Holder,
the Company shall deliver to such Holder, so long as Holder owns any of the
Securities, a written statement as to whether it has complied with such
requirements.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]

                                       9.

<PAGE>

     IN WITNESS WHEREOF, the Company and Holder have caused this Warrant to be
duly executed by their officers, thereunto duly authorized this ______ day of
September, 2000.

                                              INHALE THERAPEUTIC SYSTEMS, INC.
                                              a Delaware corporation

                                              By:_______________________________

                                              Title:____________________________

ATTEST:

_______________________________
Secretary

AGREED AND ACCEPTED

SCIMED PROP III, INC.

By:____________________________

Title:_________________________

<PAGE>

                                SUBSCRIPTION FORM

                                                 Date:  _________________, 20___

Inhale Therapeutic Systems, Inc.
150 Industrial Way
San Carlos, CA  94070

Attn:  President

Ladies and Gentlemen:

/_/      The undersigned hereby elects to exercise the warrant issued to it by
         Inhale Therapeutic Systems, Inc. (the "Company") and dated September
         _____, 2000 Warrant No. CW-___ (the "Warrant") and to purchase
         thereunder __________________________________ shares of the Common
         Stock of the Company (the "Shares") at a purchase price of
         ___________________________________________ Dollars ($__________) per
         Share or an aggregate purchase price of
         __________________________________ Dollars ($__________) (the "Purchase
         Price").

         Pursuant to the terms of the Warrant the undersigned has delivered the
         Stock Purchase Price herewith in full in cash or by certified check or
         wire transfer.

/_/      The undersigned hereby elects to convert _______________________
         percent (____%) of the value of the Warrant pursuant to the provisions
         of Section 3 of the Warrant.

                                                    Very truly yours,
                                                    ____________________________

                                                    By:_________________________

                                                    Title:______________________

<PAGE>

                                    EXHIBIT A

                       VESTED SHARES CALCULATION SCENARIOS

ASSUMPTION:  1,000 SHARE WARRANT

SCENARIO 1

Step 1:  Inhale purchases 10% of GP interests and GP elects the Warrant
         Payment Alternative

Step 2:  Inhale subsequently purchases another 30% of the GP interests
         and GP elects the Warrant Payment Alternative

RESULT:

After Step 1, the number of Vested Shares equals 100 shares

       V = (P*M) - E
       100 = (.10*1,000)-0

       (note E=0 as no shares have been issued upon exercise of Warrant)

After Step 2, the number of Vested Shares equals 400 shares

       V = (P*M) - E
       400 = (.40*1,000)-0

       (note E remains 0 as no shares have been issued upon exercise of Warrant)

SCENARIO 2

Step 1:  Inhale purchases 10% of GP interests and GP elects the Warrant Payment
         Alternative

Step 2:  GP exercises Warrant for 50% of the then Vested Shares

Step 3:  Inhale subsequently purchases another 30% of the GP interests and GP
         elects the Warrant Payment Alternative

                                       2.

<PAGE>

RESULT:

After Step 1, the number of Vested Shares equals 100 shares

       V = (P*M) - E
       100 = (.10*1,000)-0

       (note E=0 as no shares have been issued upon exercise of Warrant)

After Step 2, the number of Vested Shares equals 50 shares

       V = (P*M) - E
       50 = (.10*1,000)-50

       (note E=50 as 50 shares have been issued upon exercise of Warrant)

After Step 3, the number of Vested Shares equals 350 shares

       V = (P*M) - E
       350 = (.40*1,000)-50

       (note E=50 as 50 shares have been issued upon exercise of Warrant)

SCENARIO 3

ADDITIONAL ASSUMPTIONS:
$50.00 EXERCISE PRICE

$100.00 AVERAGE CLOSING PRICE FOR 10 DAYS PRECEDING EXERCISE

Step 1:  Inhale purchases 10% of GP interests and GP elects the Warrant Payment
         Alternative

Step 2:  GP exercises Warrant for 50% of the then Vested Shares via Net Issue
         Election

Step 3:  Inhale subsequently purchases another 30% of the GP interests and GP
         elects the Warrant Payment Alternative

                                       3.

<PAGE>

RESULT:

After Step 1, the number of Vested Shares equals 100 shares

       V = (P*M) - E
       100 = (.10*1,000)-0

       (note E=0 as no shares have been issued upon exercise of Warrant)

Upon Exercise of Warrant (Step 2), GP is issued 25 shares

       X = Y (A-B)
           -------
              A

       25 = 50 * (100-50)
            -------------
                100

       (note that as result of Net Issue Election, 25 shares are cancelled)

After Step 2, the number of Vested Shares equals 50 shares

       V = (P*M) - E
       50 = (.10*1,000)-50

       (note E=50 as 50 shares have been issued (including cancelled shares)
       upon exercise of Warrant)

After Step 3, the number of Vested Shares equals 350 shares

       V = (P*M) - E
       350 = (.40*1,000)-50

       (note E=50 as 50 shares have been issued (including cancelled shares)
       upon exercise of Warrant)

                                       4.

<PAGE>
                                                                  Exhibit G

                                 PROMISSORY NOTE

$3,000,000.00                                                 September __, 2000
                                                          San Carlos, California

     FOR VALUE RECEIVED, INHALE 201 INDUSTRIAL ROAD, L.P., a California limited
partnership ("BORROWER"), hereby promises to pay to the order of INHALE
THERAPEUTIC SYSTEMS, INC., a Delaware corporation ("LENDER"), in lawful money of
the United States of America and in immediately available funds, the principal
sum of Three Million Dollars ($3,000,000.00), plus such additional amounts added
to principal pursuant to Section 2, below (the "LOAN"), together with accrued
and unpaid interest thereon, each due and payable on the dates and in the manner
set forth below.

     1. PRINCIPAL REPAYMENT. The outstanding principal amount of the Loan (and
all accrued but unpaid interest thereon) shall be due and payable in full on the
"MATURITY DATE," which date shall be the earlier to occur of (i) the date which
is fifty-four (54) months after the date of this Note or (ii) the date that the
"Construction Financing" (as defined in that certain Contribution Agreement
dated as of September __, 2000, by and between Lender and Borrower) is
refinanced.

     2. INTEREST.

        2.1 Borrower further promises to pay interest on the outstanding
principal amount of the Loan from the date hereof until payment in full, which
interest shall be payable at the rate of ten and one-half percent (10.5%) per
annum or the maximum rate permissible by law (which under the laws of the State
of California shall be deemed to be the laws relating to permissible rates of
interest on commercial loans), whichever is less. Interest shall be due and
payable monthly in arrears not later than the first day of each calendar month
for the preceding month and shall be calculated on the basis of a 360-day year
for the actual number of days elapsed; provided, however, the during the
Deferment Period (as defined below), interest on the Loan shall accrue but shall
not be payable. For purposes of this Note, the term "DEFERMENT PERIOD" shall
mean any period of time commencing on the date of this Note and ending on the
Maturity Date, during which Borrower generates insufficient "OPERATING CASH
FLOW" (as defined in Section 8 of that certain Agreement of Limited Partnership
of Inhale 201 Industrial Road, L.P., dated as of September __, 2000, by and
among SMP III, Scimed Prop III, and Lender and determined on a commercially
reasonable basis) from operations to make interest payments.

        2.2 During the Deferment Period, all accrued interest shall, on the date
it would otherwise be due (but for the Deferment Period), be added to the
principal amount of the Loan and shall thereafter accrue interested as stated
herein.

        2.3 After the Deferment Period, any principal repayment or interest
payment on the Loan hereunder not paid when due, whether at stated maturity, by
acceleration, or otherwise, shall bear interest at twelve percent (12%) per
annum or the maximum rate

                                       1.

<PAGE>

permissible by law (which under the laws of the State of California shall be
deemed to be the laws relating to permissible rates of interest on commercial
loans), whichever is less.

     3. PLACE OF PAYMENT. All amounts payable hereunder shall be payable at the
office of Lender, 150 Industrial Road, San Carlos, California 94070, unless
another place of payment shall be specified in writing by Lender.

     4. APPLICATION OF PAYMENTS. Payment on this Note shall be applied first to
accrued interest, and thereafter to the outstanding principal balance hereof.

     5. DEFAULT. Each of the following events shall be an "EVENT OF DEFAULT"
hereunder:

        (A) Borrower fails to pay timely any of the principal amount due under
this Note on the date the same becomes due and payable or any accrued interest
(subject to the deferment rights provided under Section 2 above) or other
amounts due under this Note within five (5) business days of the date the same
becomes due and payable;

        (B) Borrower files any petition or action for relief under any
bankruptcy, reorganization, insolvency or moratorium law or any other law for
the relief of, or relating to, debtors, now or hereafter in effect, or makes any
assignment for the benefit of creditors or takes any corporate action in
furtherance of any of the foregoing; or

        (C) An involuntary petition is filed against Borrower (unless such
petition is dismissed or discharged within sixty (60) days) under any bankruptcy
statute now or hereafter in effect, or a custodian, receiver, trustee, assignee
for the benefit of creditors (or other similar official) is appointed to take
possession, custody or control of any property of Borrower.

Upon the occurrence of an Event of Default hereunder, all unpaid principal,
accrued interest and other amounts owing hereunder shall, at the option of
Lender, and, in the case of an Event of Default pursuant to (B) or (C) above,
automatically, be immediately due, payable and collectible by Lender pursuant to
applicable law.

     6. WAIVER. Borrower waives presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note, and shall pay all costs of
collection when incurred, including, without limitation, reasonable attorneys'
fees, costs and other expenses.

     The right to plead any and all statutes of limitations as a defense to any
demands hereunder is hereby waived to the full extent permitted by law.

     7. GOVERNING LAW. This Note shall be governed by, and construed and
enforced in accordance with, the laws of the State of California, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.

                                       2.

<PAGE>

     8. SUCCESSORS AND ASSIGNS. The provisions of this Note shall inure to the
benefit of and be binding on any successor to Borrower and shall extend to any
holder hereof.

                          BORROWER:

                          INHALE  201  INDUSTRIAL  ROAD,   L.P.,  a  California
                          limited partnership:

                          By  SciMed PropIII, Inc.,  a  California  corporation,
                          its General Partner

                          By:_______________________________
                             Alan D. Gold
                             President

                          By:_______________________________
                             Gary A. Kreitzer
                             Executive Vice President

                                       3.

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                               PAGE
                                                                                                               ----
<S>          <C>                                                                                               <C>
Section 1.   Formation, Partners and Name.......................................................................  1

Section 2.   Partnership Purposes...............................................................................  2

Section 3.   Term of Partnership................................................................................  2

Section 4.   Principal Place of Business; Registered Office.....................................................  2

Section 5.   Management.........................................................................................  2

Section 6.   Capital............................................................................................  7

Section 7.   Allocation of Profits and Losses...................................................................  9

Section 8.   Distributions....................................................................................... 9

Section 9.   Admission of Additional Limited Partners........................................................... 10

Section 10.  Actions and Compensation of Partners............................................................... 11

Section 11.  Transactions with Affiliates....................................................................... 11

Section 12.  Books, Records and Financial Reports............................................................... 11

Section 13.  Restrictions on Transfer of General Partner's Interest............................................. 12

Section 14.  Death, Legal Incompetency or Bankruptcy of a Limited Partner....................................... 14

Section 15.  Dissolution Events................................................................................. 14

Section 16.  Winding up, Liquidation and Dissolution............................................................ 15

Section 17.  Restrictions on Transfer of Limited Partner's Interest............................................. 17

Section 18.  Liabilities........................................................................................ 18
</TABLE>

                                                 -i-

<PAGE>
<TABLE>
<CAPTION>
                                   TABLE OF CONTENTS - CONTINUED

                                                                                                               PAGE
                                                                                                               ----
<S>          <C>                                                                                               <C>
Section 19.  Execution of Additional Documents.................................................................. 19

Section 20.  Option to Purchase By ITS Limited Partner.......................................................... 19

Section 21.  Execution of Documents............................................................................. 22

Section 22.  Successors and Assigns............................................................................. 22

Section 23.  Notice............................................................................................. 22

Section 24.  Representation and Warranty........................................................................ 23

Section 25.  Governing Law...................................................................................... 23

Section 26.  Entire Agreement................................................................................... 23

Section 27.  Captions........................................................................................... 24

Exhibit A         Property Legal Description

Exhibit B         Allocation of Profits, Loss and Other Items Among the Partners of
                  Inhale 201 Industrial Road, LP

Exhibit C         [Intentionally Deleted]

Exhibit D         Illustration of Calculation of Actual Preferred Return

Exhibit E         Illustration of Calculation of Purchase Price

Exhibit F         Warrant

Exhibit G         Promissory Note
</TABLE>

                                     -ii-<PAGE>

                               BUILD-TO-SUIT LEASE

                                 BY AND BETWEEN

                        INHALE 201 INDUSTRIAL ROAD, L.P.

                      A CALIFORNIA LIMITED PARTNERSHIP, AS

                                    LANDLORD

                                       AND

                        INHALE THERAPEUTIC SYSTEMS INC.,

                           A DELAWARE CORPORATION, AS

                                     TENANT

                               201 INDUSTRIAL ROAD
                              SAN CARLOS, CA 94070

<PAGE>

                               BUILD-TO-SUIT LEASE

         THIS BUILD-TO-SUIT LEASE ("LEASE") is made and entered into as of
September __, 2000 by and between INHALE 201 INDUSTRIAL ROAD, L.P., a California
limited partnership ("LANDLORD"), and INHALE THERAPEUTIC SYSTEMS INC., a
Delaware corporation ("TENANT").

                                    RECITALS

         A. CONTRIBUTION AGREEMENT. Tenant and Landlord entered into that
certain Contribution Agreement dated as of September __, 2000 (the "Contribution
Agreement") pursuant to which, among other things: (i) Tenant agreed to
contribute, and Landlord agreed to accept, inter alia, that certain real
property situated at 201 Industrial Road, San Carlos, California, as partially
improved by Tenant (the "REAL PROPERTY"); and (ii) the parties agreed to enter
into this Lease as of the date of closing under the Contribution Agreement. The
Real Property is more particularly described in EXHIBIT A attached hereto and
incorporated herein by this reference.

         B. BUILD-TO-SUIT. Pursuant to this Lease and the plans, specifications,
and other documents required hereby, Landlord will construct and/or complete
certain improvements on the Real Property, including (i) two connected
four-story buildings containing an aggregate of approximately 390,000 square
feet, consisting of approximately 171,965 square feet of rentable area and two
lower stories primarily of parking for the foregoing buildings as well as for
adjacent property currently leased and occupied by Contributor located at 150
Industrial Road; (ii) site improvements; and (iii) certain other improvements.

          C. DEFINITIONS. Unless the context otherwise specifies or requires for
the purpose of this Lease, all words and phrases having their initial letters
capitalized herein shall have the meanings set forth below:

                  AFFILIATE OF TENANT: shall have the meaning assigned in
                  Section 13.1(b).

                  APPROVED PLANS: shall have the meaning assigned in Section
                  1(a) in the Work Letter.

                  BASE BUILDING WORK: Base Building Work for Building 1, as
                  defined in Section 1(h) of the Work Letter, and Base
                  Building Work for Building 2, as defined in Section 1(i)
                  of the Work Letter.

                  BUILDING CORES: shall have the meaning assigned in Section
                  1(j) of the Work Letter.

                  BUILDING COST: shall have the meaning assigned in Section
                  18.2.

                  BUILDING SHELLS: shall have the meaning assigned in Section
                  1(k) of the Work Letter.

                                           1.
<PAGE>

                  BUILDING 1: shall have the meaning assigned in Section
                  1.1(a)(ii).

                  BUILDING 2: shall have the meaning assigned in Section
                  1.1(a)(ii).

                  BUILDING 2 SUBSTANTIAL COMPLETION: shall mean the date of
                  Tenant's receipt of the Certificate of Substantial Completion
                  of the Base Building Work for Building 2.

                  BUILDINGS: shall have the meaning assigned in Section 1.1(a).

                  CERTIFICATE OF SUBSTANTIAL COMPLETION: shall have the meaning
                  assigned in Section 1(l) of the Work Letter.

                  COMMON AREAS: shall mean the Interior and Exterior Common
                  Areas, collectively, as indicated in Section 1.1(a)(x).

                  COSMETIC ALTERATIONS: shall have the meaning assigned in
                  Section 9.1.

                  DATE OF SUBSTANTIAL COMPLETION: shall have the meaning
                  assigned in Section 1(o) of the Work Letter.

                  EFFECTIVE DATE: shall have the meaning assigned in Section
                  2.1.

                  EXTERIOR COMMON AREAS: shall have the meaning assigned in
                  Section 1.1(a)(viii).

                  FAIR MARKET RENTAL: shall have the meaning assigned in Section
                  3.1(d).

                  HAZARDOUS MATERIALS: shall have the meaning assigned in
                  Section 11.4(a).

                  HVAC: shall have the meaning assigned in Section 7.2(a).

                  IMPROVEMENTS: shall have the meaning assigned in Section
                  1.1(a)(vii).

                  INTERIOR COMMON AREAS: shall have the meaning assigned in
                  Section 1.1(a)(ix).

                  LANDLORD: shall have the meaning assigned in the Introduction.

                  LEASE YEAR: shall have the meaning assigned in Section 7.3.

                  LEASE: shall have the meaning assigned in the Introduction.

                  MINIMUM RENTAL: shall have the meaning assigned in Section
                  3.1(c).

                  OPERATING EXPENSES: shall have the meaning assigned in Section
                  7.2(a).

                  PARKING LEASE: shall have the meaning assigned in Section
                  1.1(a).

                  PERMITTED TRANSFER: shall have the meaning assigned in Section
                  13.1(b).

                                           2.
<PAGE>

                  PHASE 1A: shall have the meaning assigned in Section
                  1.1(a)(iii).

                  PHASE 1B: shall have the meaning assigned in Section
                  1.1(a)(iv).

                  PHASE 2A: shall have the meaning assigned in Section
                  1.1(a)(v).

                  PHASE 2B: shall have the meaning assigned in Section
                  1.1(a)(vi).

                  PHASE 1 RENT COMMENCEMENT DATE: shall have the meaning
                  assigned in Section 3.1(a).

                  PHASE 2A RENT COMMENCEMENT DATE: shall have the meaning
                  assigned in Section 3.1(b).

                  PHASE 2B RENT COMMENCEMENT DATE: shall have the meaning
                  assigned in Section 3.1(b).

                  PHASE 2B EXPANSION OPTION: shall have the meaning assigned in
                  Section 1.2.

                  PREMISES: shall have the meaning assigned in Section 1.1(a).

                  PREVAILING PARTY: shall have the meaning assigned in Section
                  19.5.

                  PROJECT: shall have the meaning assigned in Section
                  1.1(a)(vii).

                  REAL PROPERTY: shall have the meaning assigned in Recital A.

                  RENT COMMENCEMENT DATE: shall mean any of the Phase 1 Rent
                  Commencement Date, Phase 2A Rent Commencement Date or Phase 2B
                  Rent Commencement Date, all as defined in Section 3.1.

                  REQUESTING PARTY: shall have the meaning assigned in Section
                  17.3.

                  REQUIREMENTS: shall have the meaning assigned in Section 11.3.

                  RESPONDING PARTY: shall have the meaning assigned in Section
                  17.3.

                  SECURITY DEPOSIT: shall have the meaning assigned in Section
                  18.1.

                  SHELL FINAL: shall have the meaning in Section 1(u) of the
                  Work Letter.

                  SITE PLAN: shall have the meaning assigned in Section
                  1.1(a)(ii).

                  SUBSTANTIAL COMPLETION OF BASE BUILDING WORK: shall have the
                  meaning assigned in Section 1(w) of the Work Letter.

                  TENANT: shall have the meaning assigned in the Introduction.

                  TENANT IMPROVEMENTS: shall have the meaning assigned in
                  Section 1(y) of the

                                           3.
<PAGE>

                  Work Letter.

                  TENANT IMPROVEMENT ALLOWANCE: shall have the meaning assigned
                  in Section 4(b) of the Work Letter.

                  TENANT'S OPERATING COST SHARE: shall refer, collectively, to
                  Tenant's Building 1 Operating Cost Share, Tenant's Exterior
                  Common Area Cost Share and Tenant's Building 2 Operating Cost
                  Share, as described in Section 7.1(a)(iv).

                  TENANT'S BUILDING 1 OPERATING COST SHARE: shall have the
                  meaning assigned in Section 7.1(a)(i).

                  TENANT'S EXTERIOR COMMON AREA OPERATING COST SHARE: shall have
                  the meaning assigned in Section 7.1(a)(i).

                  TENANT'S BUILDING 2 OPERATING COST SHARE: shall have the
                  meaning assigned in Section 7.1(a)(ii).

                  TENANT'S WORK: shall have the meaning assigned in Section
                  1(aa) of the Work Letter.

                  TERM: shall have the meaning assigned in Section 2.1.

                  TERMINATION DATE: shall have the meaning assigned in Section
                  2.1.

                  USEABLE SQUARE FEET: shall have the meaning in Section 1(cc)
                  of the Work Letter.

                  WORK LETTER: shall have the meaning assigned in Section
                  5.1(a).

         THE PARTIES AGREE AS FOLLOWS:

1.       PROPERTY.

         1.1 LEASE OF PREMISES.

                  (a) BUILDINGS, PROPERTY, IMPROVEMENTS. Subject to the Parking
Lease dated as of September ____, 2000 (the "PARKING LEASE") by and between
Landlord and Tenant, Landlord leases to Tenant and Tenant leases from Landlord,
on the terms, covenants and conditions hereinafter set forth, Phase 1A, Phase
1B, and Phase 2A (all as defined below and referred to collectively herein as
the "PREMISES"). The Premises, together with Phase 2B, are to be constructed by
Landlord in accordance with Article 5 hereof and EXHIBIT C attached hereto; and
will be located in two connected four-story buildings containing an aggregate of
approximately 390,000 square feet, consisting of approximately 171,965 square
feet of rentable area for office and laboratory research and development and two
lower stories primarily of parking (collectively, the "BUILDINGS" and each a
"BUILDING"). The Buildings are being constructed or will be constructed on the
Real Property in connection with the Project.

                                           4.
<PAGE>

                           (i) The Real Property is located at 201 Industrial
Road in the City of San Carlos, County of San Mateo, State of California.

                           (ii) The location of the Real Property is, and the
location of the Buildings on the Real Property is intended to be, substantially
as shown on the site plans attached hereto as EXHIBIT B (the "SITE PLAN"); the
first BUILDING to be constructed ("BUILDING 1") is being constructed on the Real
Property in the location depicted on the Site Plan, and the second BUILDING to
be constructed ("BUILDING 2") shall be constructed on the Real Property in the
location depicted on the Site Plan.

                           (iii) The term "PHASE 1A" shall refer to that portion
of Building 1 consisting of approximately 39,077 rentable square feet (37,703
usable square feet) located on the fourth floor and the approximately 964
rentable square feet (930 usable square feet) located on the second floor and
shown on the Site Plan.

                           (iv) The term "PHASE 1B" shall refer to that portion
of Building 1 consisting of approximately 39,876 rentable square feet (38,474
usable square feet) located on the third floor and shown on the Site Plan.

                           (v) The term "PHASE 2A" shall refer to that portion
of Building 2 consisting of approximately 45,574 rentable square feet (43,972
useable square feet) located on the third floor and shown on the Site Plan.

                           (vi) The term "PHASE 2B" shall refer to that portion
of Building 2 consisting of approximately 46,474 rentable square feet (44,840
useable square feet) located on the fourth floor and shown on the Site Plan.

                           (vii) The Buildings and the other improvements to be
constructed on the Real Property in connection with the Project, including the
Common Areas (defined below), are sometimes referred to collectively herein as
the "IMPROVEMENTS." The "PROJECT," when completed, will consist of the Real
Property and the Improvements.

                           (viii) The parking areas (whether inside or outside
the Buildings), courtyard, driveways, sidewalks, landscaped areas and other
portions of the Project, including any areas leased under the Parking Lease,
that lie outside the exterior walls of the Buildings to be constructed on the
Real Property, 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 "EXTERIOR COMMON AREAS."

                           (ix) The term "INTERIOR COMMON AREAS" shall refer to
the interior lobby, elevators, stairwells, utility risers, and any mechanical
rooms located outside any tenant's premises in the Buildings.

                           (x) The term "COMMON AREAS" shall refer collectively
to the Exterior Common Areas and the Interior Common Areas

                  (b) USE OF COMMON AREAS. As an appurtenance to Tenant's
leasing of the Premises pursuant to Section 1.1(a), Landlord hereby grants to
Tenant, for the benefit of Tenant

                                      5.

<PAGE>

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, courtyard, sidewalks,
landscaped areas, lobbies, elevators, stairwells, utility risers, any
mechanical rooms located outside any tenant's premises, 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 the rights granted
under the Parking Lease and 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.

         1.2 PHASE 2B EXPANSION OPTION. So long as Inhale Therapeutic Systems,
Inc. (or a transferee of a Permitted Transfer) is the Tenant hereunder as of its
exercise of the option granted herein, Tenant shall have the option to lease
Phase 2B from Landlord (the "PHASE 2B EXPANSION OPTION") upon the terms and
conditions set forth in this Lease, subject to the following conditions:

                  (a) The Phase 2B Expansion Option shall be exercised by
written notice of its irrevocable election to exercise the Phase 2B Expansion
Option ("EXERCISE NOTICE") given to Landlord by Tenant at any time prior to, but
no later than, three (3) business days following the date of Building 2
Substantial Completion. Upon Tenant's giving of the Exercise Notice, Phase 2B
shall be deemed added to the Premises.

                  (b) In the event that Tenant shall not have given the Exercise
Notice by Substantial Completion of the Base Building Work, Landlord may lease
Phase 2B to a third party for a term not to exceed three years and not later
than six (6) months prior to the end of the term of such third party lease,
Landlord shall notify Tenant of the availability of Phase 2B. Tenant may
exercise the Phase 2B Expansion Option, at any time prior to, but no later than,
thirty days following its receipt of Landlord's notice of availability, by
giving the Exercise Notice; provided that the Minimum Rental for Phase 2B in
such event shall be the lower of (i) $3.60 per rentable square foot per month,
which amount shall be subject to a two percent (2%) annual increase on each
anniversary of the date of Building 2 Substantial Completion, commencing in
2001, or (ii) the then Fair Market Rental (as determined pursuant to the
mechanism described in Section 3.1(d). In such event, Landlord shall have no
obligation to provide any tenant improvement allowance.

                  (c) Notwithstanding anything to the contrary contained herein,
if Tenant is in default beyond any applicable notice and cure periods, under any
obligation to pay amounts when due and/or any of the other material terms,
covenants or conditions of this Lease at the time Tenant exercises the Phase 2B
Expansion Option, Landlord shall have, in addition to all of Landlord's other
rights and remedies provided in this Lease, the right to terminate such Phase 2B
Expansion Option upon written notice to Tenant, and Landlord shall be free to
lease Phase 2B to any other third party or parties for any term and condition.

                                      6.
<PAGE>

2.       TERM.

         2.1 TERM. The term of this Lease (as it may be extended from time to
time, the "TERM") shall commence upon mutual execution of this Lease by Landlord
and Tenant (the "EFFECTIVE DATE") and shall terminate on the date that is one
day prior to the sixteenth anniversary of the Phase 1 Rent Commencement Date (as
it may be extended pursuant to Section 2.6, below, the "TERMINATION DATE").

         2.2 EARLY POSSESSION. Provided Tenant's activities do not unduly
interfere with or delay the Base Building Work, Tenant shall have the
non-exclusive right to enter the Property from and after the date hereof for the
purposes of performing Tenant's Work. Such entry shall be subject to and upon
all of the terms and conditions of this Lease and of the Work Letter 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 3.1; such early
possession shall not advance or otherwise affect the applicable Rent
Commencement Date. Upon Substantial Completion of the Base Building Work for
each Phase, Tenant shall be entitled to the exclusive possession of the
Premises.

         2.3 DELAY IN POSSESSION. Except to the extent caused by a material
default by Landlord of its obligations set forth in this Lease, Landlord shall
not be liable for any damages caused by any delay in the completion of the
Improvements, nor shall any such delay affect the validity of this Lease or the
obligations of Tenant hereunder.

         2.4 ACKNOWLEDGEMENT OF RENT COMMENCEMENT. Promptly following each of
the Phase 1 Rent Commencement Date, the Phase 2A Rent Commencement Date and the
Phase 2B Rent Commencement Date, Landlord and Tenant shall execute a written
acknowledgement of the applicable 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. 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 Premises 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 and two percent (102%) 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 one hundred twenty (120) days
prior written notice. If Tenant holds possession of the Premises 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 holding over by Tenant. Tenant shall indemnify and

                                      7.
<PAGE>

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 Premises 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 OPTIONS 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),
below, 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 ten (10) 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 eighteen (18) 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 written notice to Landlord at least eighteen (18) months
prior to the expiration of the first extended term hereof. If Tenant is in
material 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 Section 2.6, Tenant shall have no right to extend the Term of this
Lease beyond its prescribed term.

3.       RENTAL.

Tenant shall cause payment of Minimum Rental and other rent or charges to be
received by Landlord on the first calendar day of each month of the Term of this
Lease in lawful money of the United States, without offset or deduction, except
as specifically provided herein. All amounts payable by Tenant hereunder shall
be deemed "Rent."

         3.1 MINIMUM RENTAL.

                  (a) COMMENCEMENT OF RENTAL OBLIGATIONS FOR PHASE 1. Tenant's
Minimum Rental and Operating Expense obligations with respect to Phase 1A and
Phase 1B shall commence on September ___, 2000 ("PHASE 1 RENT COMMENCEMENT
DATE") and shall end on the Termination Date, unless sooner terminated or
extended as hereinafter provided.

                  (b) COMMENCEMENT OF RENTAL OBLIGATIONS FOR PHASES 2A AND 2B.
Tenant's Minimum Rental and Operating Expense obligations with respect to Phase
2A shall commence on the earlier of occupancy or the day after the date of
Building 2 Substantial Completion (the "PHASE 2A RENT COMMENCEMENT DATE") and
shall end on the Termination Date, unless sooner terminated or extended as
hereinafter provided. In the event Tenant exercises its option to lease Phase
2B, Tenant's Minimum Rental and Operating Expense obligations with respect to

                                      8.
<PAGE>

Phase 2B shall commence on the earlier of occupancy or the day after the date of
Building 2 Substantial Completion (the "PHASE 2B RENT COMMENCEMENT DATE") and
shall end on the Termination Date, unless sooner terminated or extended as
hereinafter provided.

                  (c) RENTAL AMOUNTS FOR PHASE 1A, PHASE 1B, PHASE 2A, AND
PHASE 2B: ANNUAL INCREASES. Tenant shall pay to Landlord as minimum rental
for the following Phases, in advance, without deduction, offset, notice or
demand, on or before the respective 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 ("MINIMUM RENTAL"):

                           (i) PHASE 1A AND 1B. Beginning on the Phase 1 Rent
Commencement Date, Tenant shall pay Minimum Rental for Phase 1 in an amount
equal to $287,701.20 ($3.60 per sq. ft. multiplied by 79,917), provided that
Tenant shall be entitled to a rent credit in the amount of $46,444 per month (to
be prorated for partial months) until such time as Tenant shall have completed
Tenant's Work in Phase 1B (but in any event not later than April 1, 2001), as
defined in and in accordance with the terms and conditions of the Work Letter.

                           (ii) PHASE 2A. Beginning on the Phase 2A Rent
Commencement Date, Tenant shall pay Minimum Rental for Phase 2A in an amount
equal to $164,066.40 ($3.60 per sq. ft. multiplied by 45,574).

                           (iii) PHASE 2B. In the event that Tenant shall have
exercised its Phase 2B Expansion Option, then beginning on the Phase 2B Rent
Commencement Date, Tenant shall pay Minimum Rental for Phase 2B in an amount
equal to $167,306.40 ($3.60 per sq. ft. multiplied by 46,474).

                           (iv) ANNUAL INCREASES. On the anniversary of each of
the Phase 1 Rent Commencement Date, the Phase 2A Rent Commencement Date and the
Phase 2B Rent Commencement Date (assuming Tenant exercises its Phase 2B
Expansion Option), the then current Minimum Rental for the relevant Phase shall
be increased by two percent (2%).

                           (v) PARTIAL MONTHS. 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.

                  (d) 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 one hundred percent (100%) of the fair market
rental value (as defined below), determined as of the commencement of such
extended term in accordance with this paragraph. 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

                                      9.
<PAGE>

thirty (30) days in which to agree on the Fair Market Rental 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 in Section 3.1(c)(iv)). If the parties
are unable to agree on such rental within such thirty (30) day period, then
within thirty (30) 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 the County in which the Property is located to
appraise and set the Fair Market Rental for the Premises at the commencement
of the first extended term in accordance with the provisions of this Section
3.1(d). 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 Superior Court of the County in which the
Property is located 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, the third appraiser shall set the Fair Market Rental for the
first extended term by selecting the appraised value determined by the first
two appraisers which is closest to his own determination, and shall so notify
the parties, 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(d), the "FAIR MARKET RENTAL" of the Premises shall be
determined with reference to the then prevailing market rental rates for
properties in the City of San Carlos with improvements and common area
improvements comparable to those then existing in the Premises and paid for
by Landlord, either directly or through the payment of the Tenant Improvement
Allowance (as defined in Section 4(b) of the Work Letter attached hereto as
Exhibit C) to Tenant.

                  (e) 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 rental increase 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.

         3.2 LATE CHARGE. If Tenant shall fail to pay, when the same is due and
payable (after giving effect to any applicable notice and cure period), any rent
or other amounts due Landlord hereunder, such unpaid amounts shall bear interest
for the benefit of the Landlord at a rate equal to the lesser of ten percent
(10%) per annum or the maximum rate permitted by law, from the date due to the
date of payment. Tenant further acknowledges that late payment of rent will
cause Landlord to incur certain costs not contemplated by this Lease, the exact
amount of such costs being extremely difficult and impractical to determine with
certainty. For this reason, in addition to interest, if Tenant shall fail to pay
(which for purposes of this paragraph, "pay" shall

                                      10.
<PAGE>

mean actual receipt of the payment by Landlord) any installment of rent by
the fifth (5th) day of the calendar month for which such installment is due,
a late charge equal to five percent (5%) of the overdue installment of rent
automatically shall be due without further notice, and shall be in addition
to all other sums due. The parties agree that this additional late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of late payment by Tenant

4.       PARKING.

         Landlord and Tenant agree that the Common Areas of the Property shall
include not less than 690 parking spaces. Commencing on the Effective Date and
continuing until the Phase 1 Rent Commencement Date, at no additional charge,
Tenant may use up to 300 spaces for parking. At no additional charge, following
the Phase 1 Rent Commencement Date Tenant shall be entitled to 230 spaces;
following the Phase 2A Rent Commencement Date Tenant shall be entitled to an
additional 131 spaces; and, provided Tenant exercises the Phase 2B Expansion
Option, following the Phase 2B Rent Commencement Date Tenant shall be entitled
to an additional 139 spaces constituting the remaining spaces on the Common
Areas, all of which shall be subject to the Parking Lease. Tenant acknowledges
that during the construction of the Base Building Work for Building 2, the
available number of parking spaces may be diminished by a much as 100 spaces,
and Tenant shall have no right to a reduction in Minimum Rental as a result.

5.       CONSTRUCTION.

         5.1 CONSTRUCTION OF IMPROVEMENTS.

                  (a) BASE BUILDING WORK; PERFORMANCE AND PAYMENT. Landlord
shall, at Landlord's cost and expense (except as otherwise provided herein and
in EXHIBIT C, construct BASE BUILDING WORK as defined in and in accordance with
the terms and conditions of the WORK LETTER attached hereto as EXHIBIT C (the
"WORK LETTER"). Landlord shall use its best 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 WORK LETTER, 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. Tenant may cause the Tenant Improvements therein to be
constructed concurrently with Landlord's construction of the Base Building
Improvements provided such construction does not unduly interfere with
Landlord's construction of the Base Building Improvements.

                  (b) TENANT'S WORK. 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 WORK LETTER. Landlord shall provide the Tenant Improvement
Allowance as described in the Work Letter. All Tenant's Work shall comply with
all applicable laws and shall be completed in conformance with the APPROVED
PLANS as defined in the Work Letter.

                  (c) COMPLIANCE WITH LAW. Landlord warrants to Tenant that the
Base Building Work and any other improvements constructed by Landlord from time
to time shall not

                                      11.

<PAGE>

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 have been
violated, then it shall be the obligation of the Landlord, after written
notice from Tenant, to correct the condition(s) constituting such violation
promptly, at Landlord's sole cost and expense.

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 Premises 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 Premises. Upon request by Landlord, Tenant shall furnish Landlord
with satisfactory evidence of Tenant's payment thereof. If it 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
thirty (30) 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.

                  (a) REAL PROPERTY TAXES. Commencing with the Phase 1 Rent
Commencement Date and continuing for each calendar year, or tax year at
Landlord's option (such "tax year" being a period of twelve (12) consecutive
calendar months for which the applicable taxing authority levies or assesses
real property taxes), for the balance of the Lease Term, Tenant shall pay to
Landlord the amount of all real property taxes levied and assessed for any such
year upon the Premises. Notwithstanding the foregoing, prior to the date of
Building 2 Substantial Completion, Tenant be responsible for all real property
taxes levied and assessed during such period upon the Project. Such sum for any
partial year of the Lease Term shall be prorated on the basis of the number of
days of such partial year. Payment shall be made in the following manner: Tenant
shall pay to Landlord as Operating Expenses, the amount of all real property
taxes levied and assessed upon the Premises including improvements and the
underlying realty for any calendar year to be paid either: (i) monthly in
accordance with Article 7 below; or (ii) at Landlord's option, for any tax year,
within thirty (30) days after Landlord gives notice to Tenant of the amount of
such real property taxes payable by Tenant (or not less than thirty (30) days
prior to delinquency, whichever is later). Landlord also shall provide Tenant
with a copy of the applicable tax bill or tax statement from the taxing
authority. In addition to any other amounts due from Tenant to Landlord, if
Tenant fails to pay the real property taxes to Landlord as herein required,
Tenant shall pay to Landlord the amount of any interest, penalties or late
charges caused by Tenant's late payment.

                  (b) PROTESTS. If the Premises are separately assessed, Tenant
shall have the right, by appropriate proceedings, to protest or contest in good
faith any assessment or reassessment of real property taxes, any special
assessment, or the validity of any real property taxes or of any change in
assessment or tax rate; provided, however, that prior to any such challenge
Tenant must either (a) pay the taxes alleged to be due in their entirety and
seek a

                                      12.
<PAGE>

refund from the appropriate authority, or (b) post bond in an amount
sufficient to insure full payment of the real property taxes. In any event,
upon a final determination with respect to such contest or protest, Tenant
shall promptly pay all sums found to be due with respect thereto. In any such
protest or contest, Tenant may act in its own name, and at the request of
Tenant, Landlord shall cooperate with Tenant in any way Tenant may reasonably
require in connection with such contest or protest, including signing such
documents as Tenant reasonably shall request, provided that such cooperation
shall be at no expense to Landlord and shall not require Landlord to attend
any appeal or other hearing. Any such contest or protest shall be at Tenant's
sole expense, and if any penalties, interest or late charges become payable
with respect to the real property taxes as a result of such contest or
protest, Tenant shall pay the same.

                  (c) REFUNDS. If Tenant obtains a refund as the result of
Tenant's protest or contest and subject to Tenant's obligation to pay Landlord's
costs (if any) associated therewith, Tenant shall be entitled to such refund to
the extent it relates to the Premises during the Lease Term.

                  (d) OTHER TAXES. If at any time during the Lease Term under
the laws of the United States Government, state, county or city, or any
political subdivision thereof in which the Premises are situated, a tax or
excise on rent or any other tax however described is levied or assessed by any
such political body against Landlord on account of rentals payable to Landlord
hereunder, such tax or excise shall be considered "REAL PROPERTY TAXES" for the
purposes of this Section 6.2, excluding, however, from such tax or excise any
amount assessed against Landlord as state or federal income tax.

                  (e) TAX AND INSURANCE ESCROWS. To the extent required by any
lender of Landlord, Tenant shall timely pay all tax and insurance impound
payments due on the Premises.

7.       OPERATING EXPENSES.

         7.1 PAYMENT OF OPERATING EXPENSES.

                  (a) TENANT'S OPERATING COST SHARE.

                           (i) Commencing on the Phase 1 Rent Commencement Date
through the date of Building 2 Substantial Completion, Tenant shall pay to
Landlord, at the time and in the manner hereinafter set forth, as additional
rental: (i) an amount equal to one hundred percent (100%) of the Operating
Expenses defined in Section 7.2 applicable to the Buildings (excluding any
construction or construction-related costs or capital improvement costs for
Building 2) ("TENANT'S BUILDING 1 OPERATING COST SHARE"), and (ii) an amount
equal to 100% of the Operating Expenses attributable to the all Exterior Common
Areas ("TENANT'S EXTERIOR COMMON AREA OPERATING COST SHARE").

                           (ii) Commencing on the date of Building 2 Substantial
Completion, Tenant shall pay to Landlord, at the time and in the manner
hereinafter set forth, as additional rental: (i) an amount equal to one hundred
percent (100%) of the Operating Expenses defined in Section 7.2 applicable to
Building 1, (ii) an amount equal to forty-nine and three hundredths percent
(49.03%) of the Operating Expenses applicable to Building 2 ("TENANT'S BUILDING
2 OPERATING COST SHARE"), and (iii) Tenant's Exterior Common Area Operating Cost
Share shall

                                      13.
<PAGE>

be reduced to an amount equal to seventy-three and three tenths percent
(73.30%) of the Operating Expenses attributable to the Common Areas.

                           (iii) In the event Tenant exercises the Phase 2B
Expansion Option, commencing on the Phase 2B Rent Commencement Date, Tenant's
Building 2 Operating Cost Share shall be increased to 100% of the Operating
Costs attributable to Building 2, and Tenant's Exterior Common Area Operating
Cost Share shall be increased to 100% of the Operating Expenses attributable to
the all Exterior Common Areas.

                           (iv) The term "TENANT'S OPERATING COST SHARE" shall
refer collectively to Tenant's Building 1 Operating Cost Share, Tenant's
Exterior Common Area Operating Cost Share and Tenant's Building 2 Operating Cost
Share, as they may be in effect from time to time.

                  (b) ADJUSTMENT OF SHARE FOLLOWING CHANGE SIZE OF PREMISES. If
at any time the size of the Premises changes, then Tenant's Operating Cost Share
for the Building in which the change has occurred shall be adjusted to be equal
to the percentage determined by dividing the gross square footage of the
Premises in such Building as they exist from time to time by the gross square
footage of the relevant Building, and the Tenant's Exterior Common Area
Operating Cost Share shall be equitably adjusted accordingly.

         7.2 DEFINITION OF OPERATING EXPENSES.

                  (a) INCLUSIONS. Subject to the exclusions and provisions
hereinafter contained, the term "OPERATING EXPENSES" shall mean the total costs
and expenses incurred by Landlord or Tenant for operation and maintenance of the
Buildings and the Property, including, without limitation, costs and expenses of
(i) insurance premiums for insurance carried by Landlord pursuant to Section
12.1 (which may include, at Landlord's option, flood, earthquake or
environmental remediation insurance), insurance deductibles, provided that any
increase in premiums for flood, earthquake or environmental remediation coverage
which is in excess of twenty five percent of the previous years' premium shall
not be included in Operating Expenses; (ii) the operation, repair and
maintenance of the Building Shells and Common Areas in a first class condition
including but not limited to sidewalks, parking areas, curbs, roads, driveways,
lighting standards, landscaping, sewers, water, gas and electrical distribution
systems and facilities, drainage facilities, and all signs, both illuminated and
non-illuminated that are now or hereafter in the Buildings and on the Property;
(iii) all Common Area utilities and services not separately metered to Tenant;
(iv) 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; (v) supplies, equipment, utilities
and tools used in the operation and maintenance of the Property; (vi) capital
improvements to the Property, the Improvements or the Buildings including,
without limitation, all structural, roof, HVAC (defined as heating, ventilation,
and air conditioning equipment and fixtures related thereto) serving the Common
Areas, plumbing and electrical systems costing Seventy-five Thousand dollars
($75,000) or less,

                                      14.
<PAGE>

provided that the cost of all other capital improvements shall be amortized
over the useful life of any such capital improvement (calculated in
accordance with GAAP) and included in Operating Expenses; (vii) property
management fees; (viii) market rate lease costs for equipment, and (ix) 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 declaration 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.

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

                           (i) 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;

                           (ii) 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;

                           (iii) Any depreciation on the Buildings or on any
other improvements on the Property;

                           (iv) 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;

                           (v) 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;

                           (vi) Overhead profit increments paid to any
subsidiary or affiliate of Landlord for services other than management on or to
the Property, 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;

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

                                      15.
<PAGE>

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

                           (ix) Advertising and promotional expenditures;

                           (x) 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 gross negligence or willful misconduct;

                           (xi) Management fees in excess of five (5%) percent
of all other Operating Expenses, provided that no management fees shall be
included within the definition of Operating Expenses in circumstances where
Tenant's Security Deposit is required to be larger than an amount equal to three
months Minimum Rent, subject to the Landlord's lender's right to reinstate such
management fee pursuant to Section 7.7, below;

                           (xii) Costs for sculpture, paintings or other objects
of art, and for any insurance thereon or extraordinary security in connection
therewith other than that provided in connection with the initial construction
of the Buildings or the Common Area improvements on the Property;

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

                           (xiv) 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 (as defined in Section 11.4(a),
below) for which Landlord is responsible under Section 11.4, below; and

                           (xv) Premiums for earthquake, environmental
remediation or flood insurance coverage other than as permitted under Section
7.2(a), above.

                           (xvi) 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.

         7.3 DETERMINATION OF OPERATING EXPENSES. 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 I Rent Commencement Date,
Tenant shall pay to Landlord Tenant's Operating Cost Share of the portion of
such estimated Operating Expenses allocable (on a pro rata 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

                                      16.
<PAGE>

more than four percent (4%), 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) ANNUAL STATEMENT. 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) AUDIT RIGHTS. At any time within one hundred twenty (120)
days 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 County Superior Court
in which the Property is located 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. 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 such audit.

         7.5 PRORATION. If the Rent Commencement Date for Phase I, Phase 2A or
2B 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

                                      17.

<PAGE>

Lease shall not affect the obligations of Landlord and Tenant pursuant to
Section 7.4 to be performed after such termination.

         7.6 RESERVE ACCOUNT. Tenant shall each month, commencing on the Phase 1
Rent Commencement Date and on the first day of each calendar month thereafter of
the Lease term, deposit into a segregated, interest bearing bank account in a
federally insured bank or savings institute an amount equal to one percent (1%)
of the monthly rent due for that month, to provide for future replacements to
improvements and fixtures within the Premises (the "RESERVE ACCOUNT"); provided
that if at any time the amount held in the Reserve Account is equal to the
product of thirty six months times the amount of the monthly contribution,
Tenant's obligation to make additional deposits shall be temporarily suspended.
Tenant's obligation to make such deposits shall resume at such time as the
amount in the Reserve Account drops below such amount. The Reserve Account shall
remain the property of Tenant, but disbursements from the Reserve Account shall
be made only by joint check executed by Landlord and Tenant upon the mutual
consent of Landlord and Tenant, which consent shall not be unreasonably
withheld, delayed or conditioned. Landlord shall, within ten (10) days after
receipt of a written request, either sign any such check or convey in writing to
Tenant any objections to signing the check, and shall thereafter diligently work
with Tenant to resolve any differences with regard to the disbursement.
Notwithstanding the foregoing, if Tenant, pursuant to the Lease, is required to
make certain repairs, improvements, or replacements to the Premises or Common
Area but fails to do so within the time allowed hereunder (subject to any
applicable cure period), then Landlord, as provided under the Lease, may make
such repairs, improvements, or replacements, and may disburse funds from the
Reserve Account, without Tenant's consent or signature on the disbursement
check(s), to pay for the cost of the repairs, improvements, or replacements. Any
amount in the Reserve Account remaining at the expiration of the Lease shall
remain the property of Tenant.

         7.7 PROPERTY MANAGEMENT FEE. Tenant shall pay to Landlord, as an
Operating Expense, a monthly fee ("Management Fee") to cover costs of property
management services in an amount not to exceed two and one-half percent (2 1/2%)
of the Operating Expenses for the Premises, whether or not the Operating
Expenses are paid or incurred by Landlord or Tenant, and whether or not Landlord
incurs fees payable to any third party to provide such services and without
regard to the actual costs incurred by Landlord for such services. Upon the
closing of a loan providing permanent financing for the Project and the
reduction in the Security Deposit to $1,375,000 pursuant to Section 18.1 hereof,
the Management Fee shall be increased to five percent (5%). In the event that
the lender in such financing has consented to a reduction in the Security
Deposit to a sum other than $1,375,000, then the Management Fee shall be
proportionately increased (i.e., by way of example only, if such lender requires
that the Security Deposit not be reduced below $2,750,000 and the Security
Deposit is actually reduced to such amount, then the Management Fee will be
increased to three and three-fourths percent (3 3/4%)). Notwithstanding the
foregoing, in the event that any lender succeeds to Landlord's interest in the
Property in the event of Landlord's default in its obligations to such lender,
the Management Fee shall be five percent (5%).

                                      18.
<PAGE>

8.       UTILITIES.

         8.1 PAYMENT. Commencing with the Phase 1 Rent Commencement Date and
thereafter throughout the Term of this Lease, Tenant shall pay, before
delinquency, all charges for water, trash collection, 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
Premises, including any taxes on such services and utilities, and Tenant's
Operating Cost Share of 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 Common Areas. It is
the intention of the parties that to the extent feasible, all services provided
to the Premises (as opposed to the Common Areas) shall be separately metered to
the Premises.

         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 Premises 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, except
the gross negligence of willful misconduct of Landlord, its employees and/or
agents.

9.       ALTERATIONS.

         9.1 RIGHT TO MAKE ALTERATIONS. Tenant shall make no alterations,
additions or improvements to the Premises, other than interior non-structural
alterations ("COSMETIC ALTERATIONS") costing less than One Hundred Thousand
Dollars ($100,000) in the aggregate during any twelve (12) month period, without
the prior written consent of Landlord, which consent shall not be unreasonably
withheld, delayed or conditioned, and if Tenant so requests, Landlord shall
specify whether Landlord intends to require that Tenant remove such Cosmetic
Alterations (or any specified portions thereof) upon expiration or termination
of this Lease. Landlord's failure to respond within fifteen (15) days of
Tenant's request or notice to Landlord shall be deemed Landlord's consent to
allow the Cosmetic Alterations to remain with the Premises at the end of the
Lease Term. Tenant shall provide to Landlord copies of any plans submitted to
any governmental agency in connection with the construction of any Cosmetic
Alterations, within thirty (30) days of such submittal. All 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. With respect to all
proposed alterations (other than Cosmetic Alterations or otherwise), Tenant
shall provide Landlord with a cost estimate to perform the alterations, a set of
plans and specifications for the proposed work, and a set of final "as built"
plans of the work actually performed. Tenant shall cause any contractors engaged
by Tenant for work in 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

                                      19.
<PAGE>

Tenant make any structural alterations or improvements, or any changes to the
roof or equipment installations on the roof, or any substantial changes or
alterations to the building systems, except Cosmetic Alterations, without
Landlord's prior written consent (which consent shall not be unreasonably
withheld, delayed or conditioned). Landlord's failure to respond within
fifteen (15) days following Tenant's request shall be deemed approval.
Landlord shall receive no fee for supervision, profit, overhead or general
conditions, but shall be entitled to be reimbursed by Tenant for any
reasonable costs incurred by Landlord in connection with its retention of
third parties to assist in its review of Tenant's request for consent in
connection with any alterations, additions or improvements constructed or
installed by Tenant under this Lease after completion of the initial Tenant's
Work for each Phase.

         9.2 TITLE TO ALTERATIONS. All alterations, additions and improvements
installed in, on or about the Premises at Tenant's expense shall belong to
Tenant during the Lease Term and upon expiration or earlier termination shall
become part of the Property and shall become the property of Landlord, unless
Landlord elects (at the time it grants consent to installation) 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 alterations, additions and improvements, furniture,
equipment or trade fixtures. Landlord shall not be entitled to require 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.
Notwithstanding any other provisions of this Article 9, however, under no
circumstances shall Tenant have any obligation to remove from the Buildings or
the Property, at the expiration or termination of this Lease, any of the
Tenant's Work or Base Building Work.

         9.3 TENANT FIXTURES AND PERSONAL PROPERTY. Subject to 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, delayed or conditioned.

         9.4 NO LIENS. Tenant shall at all times keep the Premises 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 no later than the thirtieth
day following recordation of such lien. 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. Tenant shall at no time
voluntarily place any fixture filing or otherwise grant a security interest in
any alterations, additions or improvements installed in, on or about the
Premises.

                                      20.
<PAGE>

         9.5 SIGNS. Tenant shall have the sole right to display its corporate
name and logo on the exterior of the Buildings. Tenant shall have the right to
its proportionate share of monument signage, in proportion to the ratio between
the rentable square footage in Tenant's Premises and the total rentable square
footage on the Property, subject to all restrictions and requirements of
applicable law and of any covenants, conditions and restrictions.

10.      MAINTENANCE AND REPAIRS.

         10.1 TENANT'S OBLIGATION FOR MAINTENANCE.

                  (a) GOOD ORDER, CONDITION AND REPAIR.

                           (i) Once Building 1 has been delivered to Tenant, in
addition to Tenant's obligation to pay Tenant's Operating Cost Share as required
by Section 7.1, during any period in which Tenant leases the entire Building 1,
Tenant, at its sole cost and expense, shall keep and maintain in good and
sanitary order, in a first class condition and repair, such Building and every
part thereof, wherever located, including, but not limited to the structural
components of the Building, the roof, signs, exterior, interior, walls, ceiling,
electrical system, plumbing system, telephone and communications systems of such
Building, all the HVAC equipment and related mechanical systems serving such
Building (for which equipment and systems Tenant shall enter into a service
contract with a person or entity reasonably acceptable to Landlord), all doors,
door checks, windows, plate glass, door fronts, plumbing and sewage and other
utility facilities, fixtures, lighting, wall surfaces, floor surfaces and
ceiling surfaces of such Building and all other interior repairs, foreseen and
unforeseen, subject to Tenant's right to require Landlord to take over such
maintenance and repair obligations pursuant to Section 10.1(b), below.

                           (ii) If Tenant exercises its Phase 2B Expansion
Option, upon Landlord's delivery of Building 2 to Tenant, in addition to
Tenant's obligation to pay Tenant's Operating Cost Share as required by Section
7.1, during any period in which Tenant leases the entire Building 2, Tenant, at
its sole cost and expense, shall keep and maintain in good and sanitary order,
in a first class condition and repair, Building 2 and every part thereof,
wherever located, including, but not limited to the structural components of
Building 2, the roof, signs, exterior, interior, walls, ceiling, electrical
system, plumbing system, telephone and communications systems of such Building,
all the HVAC equipment and related mechanical systems serving such Building (for
which equipment and systems Tenant shall enter into a service contract with a
person or entity reasonably acceptable to Landlord), all doors, door checks,
windows, plate glass, door fronts, plumbing and sewage and other utility
facilities, fixtures, lighting, wall surfaces, floor surfaces and ceiling
surfaces of such Building and all other interior repairs, foreseen and
unforeseen, subject to Tenant's right to require Landlord to take over such
maintenance and repair obligations pursuant to Section 10.1(b), below.

                           (iii) During any period in which Tenant leases all of
both Buildings 1 and 2, Tenant shall keep and maintain in good and sanitary
order, in a first class condition and repair all Common Areas and every part
thereof, subject to Tenant's right to require Landlord to take over such
maintenance and repair obligations pursuant to Section 10.1(b), below.

                                      21.
<PAGE>

                           (iv) In the event Tenant shall fail to exercise its
Phase 2B Expansion Option by the date described in Section 1.2(a), and during
any period during the Lease Term in which Tenant leases less than an entire
Building, Tenant's repair and maintenance obligation shall be limited to (i) the
repair and maintenance of the interior of the Premises (being defined as the
floor surfaces, ceiling, interior wall surfaces, electrical, plumbing, HVAC
equipment exclusively serving the Premises and telephone and communications
systems within such interior), and (ii) the payment of Tenant's Operating Cost
Share, as required by Section 7.1.

                  (b) TENANT'S OPTION TO REQUIRE LANDLORD TO MAINTAIN AND REPAIR
BOTH BUILDINGS AND COMMON AREAS. During any period in which Tenant leases all of
both Building 1 and Building 2, Tenant may, at its option, to be exercised by
written notice to Landlord, require Landlord to take over the maintenance and
repair of both Building 1 and Building 2 and all Common Areas, in which event
Tenant's repair and maintenance obligation shall be limited to (i) the repair
and maintenance of the interior of the Premises (being defined as the floor
surfaces, ceiling, interior wall surfaces, electrical, plumbing, HVAC equipment
exclusively serving the Premises, telephone and communications systems within
such interior), and (ii) the payment of Tenant's Operating Cost Share, as
required by Section 7.1. Additionally, Operating Expenses shall under those
circumstances include the actual costs to Landlord of any third party property
management firm engaged by Landlord to manage the Buildings, up to a maximum
amount equal to five percent (5%) of Operating Expenses.

                  (c) 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, in a first class
condition and repair. In such case, immediately on demand from Landlord, the
cost of such repairs shall be due and payable by Tenant to Landlord.

                  (d) CONDITION UPON SURRENDER. At the expiration or sooner
termination of this Lease, Tenant shall surrender the Premises, including any
additions, alterations and improvements thereto, broom clean, in good and
sanitary order, in a first class condition and repair, free from Hazardous
Materials caused to be present by Tenant, its agents or invitees (it being
understood and agreed that Tenant shall have no responsibility for Hazardous
Materials that have migrated onto the Property through the air, water or soils),
ordinary wear and tear excepted, and delivered free of radioactive licenses or
other restrictions on use, first, however, removing all goods and effects of
Tenant and all fixtures and items required to be removed or specified to be
removed at Landlord's election pursuant to this Lease, and repairing any damage
caused by such removal. Tenant expressly waives any and all interest in any
personal property and trade fixtures not removed from the Premises 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.

         10.2 LANDLORD'S OBLIGATION FOR MAINTENANCE.

                                      22.
<PAGE>

                  (a) GOOD ORDER, CONDITION AND REPAIR. In the event that either
(i) Tenant shall have elected not to exercise the Phase 2B Expansion Option by
the date described in Section 1.2(a), or (ii) Tenant shall have exercised its
option to require Landlord to take over maintenance and repair of both the
Buildings and the Common Area pursuant to Section 10.1(b), above, Landlord, at
its cost and expense, but subject to Tenant's obligation to pay the Tenant's
Operating Cost Share as required by Section 7.1, shall keep and maintain in good
and sanitary order, in a first class condition and repair, all Common Areas and
each such Building and every part thereof, wherever located, including, but not
limited to the structural components of the Buildings, the roof, signs,
exterior, interior, walls, ceiling, electrical system, plumbing system,
telephone and communications systems of each such Building, all the HVAC
equipment and related mechanical systems serving each such Building, all doors,
door checks, windows, plate glass, door fronts, plumbing and sewage and other
utility facilities, fixtures, lighting, wall surfaces, floor surfaces and
ceiling surfaces of each such Building and all other interior repairs, foreseen
and unforeseen, (except the interior of the Premises and the systems designated
for Tenant's exclusive use required to be repaired and maintained by Tenant as
required by Section 10.1(a)(iv) above).

                  (b) NO ABATEMENT. There shall be no abatement of rent and no
liability of Landlord by reason of any injury to or interference with Tenant's
business arising from the making of any repairs, alterations or improvements in
or to any portion of the Premises or Common Areas, or in or to improvements,
fixtures, equipment and personal property therein.

                  (c) LANDLORDS' RIGHT OF ENTRY FOR REPAIRS. Landlord and
Landlord's agents shall have the right to enter upon the Premises, or any part
thereof, for the purpose of performing any repairs or maintenance Landlord is
permitted to make pursuant to this Lease, and of ascertaining the condition of
the Premises or whether Tenant is observing and performing Tenant's obligations
hereunder, all without unreasonable interference from Tenant or Tenant's agents.
Except for emergency maintenance or repairs, the right of entry contained in
this Section shall be exercisable at reasonable times, at reasonable hours and
on reasonable notice (which shall not be less than twenty-four (24) hours.

11.      USE OF PROPERTY.

         11.1 PERMITTED USE. Subject to Sections 11.3, and 11.4 hereof, Tenant
shall use the Premises solely for an office and laboratory research and
development facility, including (but not limited to) storage and use of small
laboratory animals, 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 and County in which the Property is located
and other governmental agencies having jurisdiction over the Buildings and uses
therein), and for no other purpose.

         11.2 NO NUISANCE. Tenant shall not use the Premises for or carry on or
permit upon the Premises 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 commit or allow to be committed any waste
in, on or about the Premises. Tenant shall not do or permit anything to be done
in or about the Premises, nor bring nor keep anything therein, which will in any
way cause the Premises to be uninsurable with respect to the insurance required
by this

                                      23.
<PAGE>

Lease or with respect to standard fire and extended coverage insurance with
vandalism, malicious mischief and riot endorsements.

         11.3 COMPLIANCE WITH LAWS. Tenant shall not use the Premises or
permit the Premises 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
Premises equipped with all safety appliances required by law, ordinance or
insurance on the Premises, or any order or regulation of any public
authority, because of Tenant's particular use of the Premises. Tenant shall
procure at its costs all licenses and permits required for Tenant's use of
the Premises. Tenant shall use the Premises in strict accordance with all
applicable ordinances, rules, laws and regulations and shall comply, at its
expense, with all requirements of all governmental authorities now in force
or which may hereafter be in force pertaining to the use of the Premises by
Tenant, including, without limitation, regulations applicable to noise,
water, soil and air pollution, and making such structural and 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 Premises (collectively, "REQUIREMENTS")
because of Tenant's construction of improvements in or other particular use
of the Premises. 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.

         11.4 ENVIRONMENTAL MATTERS.

                  (a) DEFINITION OF HAZARDOUS MATERIALS. For purposes of this
Lease, "HAZARDOUS MATERIALS" 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. ss.ss. 9601 et seq., and the regulations promulgated thereunder, as
amended, (ii) the California Carpenter-Presley-Tanner Hazardous Substance
Account Act, California Health & Safety Code ss.ss. 25300 et seq., and
regulations promulgated thereunder, as amended, (iii) the Hazardous Materials
Release Response Plans and Inventory Act, California Heath & Safety Code ss.ss.
2-5500 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. ss.ss. 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 ss.ss. 25 100 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 ss.ss. 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) TENANT'S OBLIGATIONS RE: HAZARDOUS SUBSTANCES.

                                      24.
<PAGE>

                           (i) Tenant shall not cause or permit any Hazardous
Material or hazardous waste to be brought upon, kept, stored or used in or about
the Premises without the prior written consent of Landlord, which consent shall
not be unreasonably withheld, delayed or conditioned, except that Tenant, in
connection with its permitted use of the Premises as provided in Section 11.1,
may keep, store and use materials that constitute Hazardous Materials which are
customary for such permitted use, PROVIDED such Hazardous Materials 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 Materials or
wastes by Tenant or its agents or employees.

                           (iii) Tenant shall not (A) operate on or about the
Premises 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 Premises for ninety (90) days or more, nor (C)
conduct any other activities on or about the Premises that could result in the
Premises being deemed to be a "hazardous waste facility" (including, but not
limited to, any storage or treatment of Hazardous Materials 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 ss.
25281(x), including, without limitation, complying with California Health &
Safety Code ss.ss. 25280-25299.7 and the regulations promulgated thereunder, as
amended. Upon request by Landlord, 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.
Notwithstanding the foregoing, Tenant shall not install any underground storage
tanks at the Property without Landlord's prior written consent, which Landlord
may withhold in its reasonable discretion.

                           (v) Tenant shall not keep any trash, garbage, waste
or other refuse on the Premises except in sanitary containers and shall
regularly and frequently remove the same from the Premises. Tenant shall keep
all incinerators, containers or other equipment used for the storage or disposal
of such matter in a clean and sanitary condition. Tenant shall properly dispose
of all sanitary sewage and shall not use the sewage disposal system of the
Buildings for the disposal of anything except as permitted by any governmental
entity.

                           (vi) At reasonable times and upon reasonable prior
notice, prior to the expiration or earlier termination of the Lease Term,
Landlord shall have the right to conduct (a) an annual hazardous waste
investigation of the Premises and (b) if Landlord has reasonable cause to
believe that any contamination exists on, in, under, or around the Buildings or
the Premises, such other tests of the Premises and the Buildings as Landlord may
deem necessary or desirable to demonstrate whether contamination has occurred as
a result of Tenant's use of the

                                      25.
<PAGE>

Premises. Tenant shall be solely responsible for and shall defend, indemnify
and hold the Landlord, its agents and contractors harmless from and against
any and all claims, demands or actions, arising out of or in connection with
any removal, clean up, restoration and materials required hereunder to return
the Premises and any other property of whatever nature to their condition
existing prior to the time of any such contamination caused by Tenant, its
employees or agents. Landlord shall pay for the cost of the annual
investigation and other tests of the Premises, unless it has been determined
that Tenant, its employees or agents have caused contamination of the
Premises with Hazardous Materials, in which case Tenant shall bear such
costs. Tenant shall pay the reasonable costs required to perform or conduct
any closure study, exit audit or similar investigation required by then
applicable laws.

                           (vii) Tenant shall surrender the Premises at the
expiration or earlier termination of this Lease free of any Hazardous Materials
caused to be present by Tenant, its employees or agents and free and clear of
all judgments, liens or encumbrances relating thereto and, at its own cost and
expense, shall repair all damage and clean up or perform any remedial action
necessary relating to any Hazardous Materials caused to be present by Tenant,
its employees or agents. Tenant, at its sole cost and expense, shall, following
Landlord's request, remove any alterations or improvements that may be
contaminated or contain Hazardous Materials caused to be present by Tenant, its
employees or agents.

                  (c) TENANT'S INDEMNITY. 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 and diminution in value), 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
Section 11.4, or (B) any receipt, use handling, generation, transportation,
storage, treatment, release and/or disposal of any Hazardous Material or waste
or any radioactive material or radiation on or about the Premises as a proximate
result of Tenant's use of the Premises or as a result of any intentional or
negligent acts or omissions of Tenant or of any agent, employee, vendor or
invitee of Tenant.

                  (d) SURVIVAL. The provisions of this Section 11.4 shall
survive the termination of this Lease.

12.      INSURANCE AND INDEMNITY.

         12.1 LANDLORD'S INSURANCE. During the Lease Term, Landlord shall keep
and maintain, or cause to be kept and maintained, as part of Operating Expenses,
a policy or policies of insurance on the Buildings insuring the same against
loss or damage by the following risks: fire and extended coverage, vandalism,
malicious mischief, sprinkler leakage (if sprinklers are required in the
Buildings under applicable building code provisions, or are installed by Tenant
in the absence of such requirement) in amounts not less than ninety percent
(90%) of Full Replacement Value of the Buildings, (including both the Base
Building Work and the Tenant Improvements), or the amount of such insurance
Landlord's lender requires Landlord to maintain. The term "Full Replacement
Value" shall mean actual replacement cost, including changes required by new
building codes or ordinances (exclusive of the cost of excavation, foundations
and footings). Such insurance shall show, as a loss payee in respect of the
Premises, Landlord, Tenant and any ground lessor or mortgagee of Landlord
required to be named pursuant

                                      26.
<PAGE>

to its mortgage documents, as their interests may appear. Landlord, subject
to availability thereof and, as part of Operating Expenses, shall further
insure as Landlord deems appropriate coverage against flood, earthquake,
environmental remediation, loss or failure of building equipment, rental loss
for a period of eighteen (18) months for periods of repair or rebuild,
workmen's compensation insurance and fidelity bonds for employees employed to
perform services. Notwithstanding the foregoing, Landlord may, but shall not
be deemed required to, provide insurance as to any improvements installed by
Tenant or which are in addition to the Tenant Improvements, provided that
such coverage does not duplicate coverages maintained by Tenant. Landlord, as
part of the Operating Expenses, shall further carry General Liability with
General Aggregate Amount & Per Occurrence Limit insurance with a single loss
limit of not less than Five Million Dollars ($5,000,000) for death or bodily
injury, or property damage with respect to the Property.

         12.2 TENANT'S INSURANCE.

                  (a) COMMERCIAL GENERAL LIABILITY INSURANCE. During the Lease
Term, Tenant shall keep and maintain, or cause to be kept and maintained, at
Tenant's sole cost and expense, a policy or policies of Commercial General
Liability insurance, showing, as an additional insured in respect of the
Premises, Landlord, Tenant, any management company retained by Landlord to
manage the Premises, any ground lessor and any lender of Landlord required to be
named pursuant to its loan documents. Such policy shall insure against any and
all claims, demands or actions for injuries to persons, loss of life and damage
to property occurring upon, in or about the Premises (including coverage for
liability caused by independent contractors of Tenant or subtenants of Tenant
working in or about the Premises), with minimum coverage in an amount not less
than a Five Million Dollars ($5,000,000) combined single limit with respect to
all bodily injury, death or property damage in any one accident or occurrence.
In the event of a claim, action or demand relating to the Premises, the amount
of any deductible or self-insured retention and/or any award in excess of the
policy limits shall be the sole responsibility of Tenant.

                  (b) TENANT'S RISK. Tenant assumes the risk of damage to any
fixtures, goods, inventory, merchandise and equipment, and Landlord shall not be
liable for injury to Tenant's business or any loss of income therefrom relative
to such damage except as more particularly heretofore set forth within this
Lease. Tenant at Tenant's cost may carry such insurance as Tenant desires for
Tenant's protection with respect to personal property of Tenant, business
interruption or other coverages.

                  (c) OTHER INSURANCE. In addition to all other insurance
required to be carried by Tenant hereunder, Tenant, throughout the Lease Term,
shall provide and keep in force at Tenant's sole cost and expense the following:

                           (i) Workman's Compensation insurance to the full
extent required under the laws of the State of California;

                           (ii) Insurance on Tenant's equipment, personal
property and other contents in, on or about the Premises insuring against loss
or damage by all risks covered by

                                      27.
<PAGE>

"special form" coverage, in amounts equal to ninety percent (90%) of their
full replacement value;

                           (iii) During the period of construction of the
Tenant's Work as described under Section 5.1 and Exhibit C and any other
construction by Tenant, Builder's All Risk Insurance with Completed Operations
Coverage, in such amounts and with such deductibles and other terms as Landlord
and/or the construction lender may reasonably require; and

                           (iv) Other nonduplicative insurance required by
Landlord, in types and amounts consistent with commercially reasonable practice.

         12.3 INSURERS; PRIMARY INSURANCE. All policies of insurance provided
for herein shall be on an occurrence basis and shall be issued by insurance
companies with a general policy holder's rating of not less than A- and a
financial rating of not less than Class XV as rated in the most current
available "Best's" Insurance Reports. Such insurance companies shall be
qualified to do business in the State of California. All such policies
carried by Tenant shall name Landlord, any ground lessor and any lender (or
its successors and assigns) as additional insureds, and shall be for the
mutual and joint benefit and protection of Landlord, Tenant, any ground
lessor and Landlord's first mortgagee or beneficiary. All public liability
and property damage policies carried by Tenant shall contain a provision that
Landlord, although named as an insured, nevertheless shall be entitled to
recovery under said policies for any loss occasioned to it, its servants,
agents and employees by reason of the negligence of Tenant. As often as any
such policy shall expire or terminate, renewal or additional policies shall
be procured and maintained by Tenant in like manner and to like extent. All
policies of insurance must contain a provision that the company writing said
policy will give to Landlord thirty (30) days notice in writing in advance of
any cancellation or lapse. All public liability, property damage and other
casualty policies carried by Tenant shall be written as primary policies, not
contributing with and not in excess of coverage which Landlord may carry.
Tenant shall, upon request from Landlord from time to time, immediately
deliver to Landlord copies of all insurance policies (including the
declarations pages) in effect with respect to the Premises. All liability
policies shall contain endorsements for cross-liability, fire, legal
liability, broad form contractual liability, employer's automobile
non-ownership, products completed operation coverage and dram shop liability,
as applicable.

         12.4 BLANKET POLICY. Notwithstanding anything to the contrary
contained within this Section 12, Tenant's obligations to carry the insurance
provided for herein may be brought within the coverage of a so-called blanket
policy or policies of insurance carried and maintained by Tenant; provided,
however, that Landlord, any ground lessor and any lender shall be named as an
additional insured thereunder as their interests appear, the coverage
afforded Landlord will not be reduced or diminished by reason of the use of
such blanket policy of insurance, and the requirements set forth herein are
otherwise satisfied.

         12.5 DEDUCTIBLES. The deductible amounts, if any, with respect to all
insurance, which Tenant is required to maintain hereunder, shall not exceed
Twenty Thousand Dollars ($20,000) per claim or occurrence. The amount of the
deductibles, if any, within this limitation shall be a business decision by
Tenant; under no circumstances shall Landlord be required to reimburse Tenant
for the amount of any deductible incurred by Tenant in connection with any
insured

                                      28.
<PAGE>

event, except to the extent the event resulting in the claim was caused by
Landlord's or Landlord's agents' gross negligence or willful misconduct.

         12.6 CERTIFICATES. Upon the execution and delivery of this Lease and
thereafter not less than thirty (30) days prior to the expiration dates of the
expiring policies theretofore maintained, Tenant shall deliver to Landlord
certificates of insurance with respect to the policies of insurance required by
this Lease or duplicate originals of all such policies. Landlord, upon
reasonable notice, may inspect and copy any policies of insurance, and any
records relating thereto kept and maintained by Tenant.

         12.7 ADJUSTMENT IN THE EVENT OF LOSS. Except as otherwise provided
herein, all insurance proceeds payable with respect to any damage or destruction
to the Premises (but not with respect to Tenant's personal property, it being
understood that insurance proceeds allocable to Tenant's personal property shall
be payable directly to Tenant) shall be payable to Landlord and Tenant, jointly,
to be held in an interest bearing account. If Tenant and Landlord undertake to
repair said damage in accordance with Article 15 below, the proceeds shall be
made available to Tenant as to the Tenant Improvements and to Landlord as to the
Base Building Work and Common Area used to fund the reconstruction. In all other
events, the proceeds shall be the sole property of Landlord except otherwise
expressly provided herein. Landlord shall be entitled to compromise, adjust or
settle any and all claims with respect to insurance carried by it covering the
Premises. Each party agrees to execute and deliver to the other party such
releases, endorsements and other instruments as the other party reasonably may
require in order to compromise, adjust or settle any insurance claim which such
other party shall be entitled to compromise, adjust or settle pursuant to this
paragraph and to enable the other party or its designee to collect such
insurance proceeds as are payable in respect of such claim.

         12.8 PRORATION UPON TERMINATION. If any of the insurance required to be
carried by Tenant hereunder is still in effect at the termination of this Lease,
Landlord may elect to terminate such insurance, or Landlord shall reimburse
Tenant for the pro rata portion of the premium paid by Tenant for such insurance
based upon the number of days remaining unexpired in such insurance.

         12.9 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 Premises 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 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.

                                      29.
<PAGE>

         12.10 INDEMNIFICATION.

                  (a) TENANT'S INDEMNIFICATION OBLIGATIONS. Tenant shall
indemnify, defend, and hold Landlord and its lenders, agents, employees,
directors, officers, managers, members, partners, affiliates, independent
contractors, and property managers (collectively, "LANDLORD'S AGENTS" or
"AGENTS") harmless from and against any and all claims, demands, liability,
loss or damage, whether for injury to or death of persons or damage to real
or personal property, arising out of or in connection with the Premises,
Tenant's use of the Premises, any activity, work, or other thing done,
permitted, or suffered by Tenant in or about the Buildings, or arising from
any reason or cause whatsoever in connection with the use or occupancy of the
Premises by any party during the Term of this Lease, except to the extent
that the event giving rise to the claim, demand, liability, loss or damage
was caused by the gross negligence or willful misconduct of Landlord or
Landlord's Agents. Tenant shall further indemnify, defend, and hold Landlord
and Landlord's Agents harmless against and from any and all claims arising
from any breach or default in the performance of any obligation on Tenant's
part to be performed under the terms of this Lease, or arising from any act
or negligence of Tenant or any officer, agent, employee, guest, or invitee of
Tenant, and from and against all costs, attorney's fees, expenses, and
liabilities incurred as a result of any such claim or any action or
proceeding brought thereon. In any case, action, or proceeding brought
against Landlord or Landlord's Agents by reason of any such claim, Tenant,
upon notice from Landlord, shall defend the same at Tenant's expense by
counsel reasonably satisfactory to Landlord. Tenant, as a material part of
the consideration to Landlord, hereby assumes all risk of damage to property
or injury to persons in, upon, or about the Premises from any cause arising
prior to the later of the termination of this Lease or the date Tenant has
performed all obligations under Section 10.1(d) and is no longer in
possession of the Premises (except for such damage or injury caused by
Landlord's or Landlord's Agents' willful misconduct or gross negligence), and
Tenant hereby waives all claims in respect thereof against Landlord and
Landlord's Agents. Tenant's obligation to indemnify under this paragraph
shall include attorney's fees, investigation costs, and other reasonable
costs, expenses, and liabilities incurred by Landlord and Landlord's Agents.
If the ability of Tenant to use the Premises or the Buildings is interrupted
for any reason, Landlord and Landlord's Agents shall not be liable to Tenant
for any loss or damages occasioned by such loss of use, except to the extent
such loss or damages is caused by Landlord's or its Agents' willful
misconduct or gross negligence.

                  (b) LANDLORD'S INDEMNIFICATION OBLIGATIONS. Landlord shall
indemnify, defend and hold Tenant and its members, 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
Premises by reason of the gross negligence or willful misconduct or omission by
Landlord or Landlord's Agents. Landlord shall further indemnify, defend, and
hold Tenant and its members, partners, shareholders, officers, directors, agents
and employees harmless against and from any and all claims arising from any
breach or default in the performance of any obligation on Landlord's part to be
performed under the terms of this Lease, and from and against all costs,
attorney's fees, expenses, and liabilities incurred as a result of any such
claim or any action or proceeding brought thereon. In any case, action, or
proceeding brought against Tenant or its members, partners, shareholders,
officers, directors,

                                      30.
<PAGE>

agents and employees by reason of any such claim, Landlord, upon notice from
Tenant, shall defend the same at Landlord's expense by counsel reasonably
satisfactory to Tenant.

         12.11 LIMITATION ON LANDLORD LIABILITY. Neither Landlord nor Landlord's
Agents shall be liable for loss or damage to any property by theft or otherwise,
or for any injury to or damage to persons or property resulting from fire,
explosion, falling plaster, steam, gas, electricity, water, or rain which may
leak from any part of the Buildings or from the pipes, appliances, or plumbing
works therein or from the roof, street, or subsurface or from any other place
resulting from dampness or any other cause whatsoever, except to the extent
caused by the gross negligence or willful misconduct of Landlord or Landlord's
Agents. Neither Landlord nor Landlord's Agents, shall be liable for interference
with or loss of business by Tenant. Tenant shall give prompt written notice to
Landlord in case of fire or accidents in the Premises or in the Buildings or of
defects therein or in the fixtures or equipment belonging to Landlord. If
Landlord is in default of this Lease, and as a consequence, Tenant recovers a
money judgment against Landlord, the judgment shall be satisfied only out of the
proceeds of sale received on execution of the judgment and levy against the
right, title, and interest of Landlord in the Premises, and out of rent or other
income from the Premises receivable by Landlord or out of the consideration
received by Landlord from the sale or other disposition of all or any part of
Landlord's right, title, and interest in the Premises. Landlord's Agents shall
not be personally liable for any deficiency except to the extent liability is
based upon willful misconduct. If Landlord is a partnership, joint venture, or
limited liability company, the partners or members of such partnership or
limited liability company, as the case may be, shall not be personally liable
and no partner or member of Landlord (or of any affiliated entity) shall be sued
or named as a party in any suit or action, or service of process be made against
any partner or member of Landlord (or of any affiliated entity), except as may
be necessary to secure jurisdiction of the partnership, joint venture, or
limited liability company or to the extent liability is caused by willful
misconduct. If Landlord is a corporation, the shareholders, directors, officers,
employees, and/or agents of such corporation shall not be personally liable and
no shareholder, director, officer, employee, or agent of Landlord shall be sued
or named as a party in any suit or action, or service of process be made against
any shareholder, director, officer, employee or agent of Landlord, except as may
be necessary to secure jurisdiction of the corporation. No partner, member,
shareholder, director, employee, or agent of Landlord (or of any affiliated
entity) shall be required to answer or otherwise plead to any service of process
and no judgment will be taken or writ of execution levied against any partner,
shareholder, director, employee, or agent of Landlord.

13.      SUBLEASE AND ASSIGNMENT.

         13.1 ASSIGNMENT AND SUBLEASE OF BUILDING.

                  (a) CONSENT REQUIRED. Except in connection with a Permitted
Transfer, Tenant shall neither voluntarily nor by operation of law assign, sell,
encumber, pledge or otherwise transfer all or any part of Tenant's leasehold
estate hereunder, or permit any other person (excepting Tenant's agents and
employees) to occupy the Premises or any portion thereof, without Landlord's
prior written consent, which consent shall be not be unreasonably withheld,
delayed or conditioned. Consent by Landlord to one or more assignments of this
Lease or to one or more sublettings of the Premises shall not constitute a
waiver of Landlord's right to require

                                      31.
<PAGE>

consent to any subsequent assignment, subletting or other transfer. If Tenant
is a corporation, unincorporated association or partnership, the transfer,
assignment or hypothecation of any stock or interest in such corporation,
association or partnership in the aggregate in excess of twenty-five percent
(25%) of all outstanding stock or interests, or liquidation thereof, shall be
deemed an assignment within the meaning and provisions of this section and
the sale of all or substantially all of the assets of Tenant shall be deemed
an assignment within the meanings and provisions of this section. The
foregoing sentence shall not apply to: (i) any corporation or partnership
which is a reporting company under the Securities Exchange Act of 1934 (the
"1934 Act") or (ii) a sale to an entity with a net worth, as designated in
its most recent financial statement (no older than 3 months), equal to or
greater than Tenant's net worth on the Effective Date. Tenant shall reimburse
Landlord for all of Landlord's reasonable costs and attorneys' fees incurred
in conjunction with the processing and documentation of any required consent
to assignment, subletting, transfer, change of ownership or hypothecation of
this Lease or Tenant's interest in and to the Premises, not to exceed one
thousand dollars ($1000) per request plus reasonable out-of-pocket expenses
payable to third parties. 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.

                  (b) PERMITTED TRANSFERS. Notwithstanding the foregoing, (i)
any bona fide financing or capitalization, including a public offering of the
common stock of Tenant, shall not be deemed to be an assignment hereunder; and
(ii) Tenant shall have the right to assign this Lease or sublet the Buildings,
or any portion thereof, without Landlord's consent, to any Affiliate of Tenant,
or to any entity which results from a merger, reorganization 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 five percent (25%) equity
interest, any entity which owns at least a twenty five percent (25%) equity
interest in Tenant and/or any entity which is related to Tenant by a chain of
ownership interests involving at least twenty five percent (25%) 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. The transferee under such
Permitted Transfer shall be and remain subject to all of the terms and
provisions of this Lease.

                  (c) CONSENT REQUIRED. Landlord's consent may be based upon a
determination that the same type, class, nature and quality of business,
services, management and financial soundness of ownership shall exist after the
proposed assignment or subletting and, provided further, that each and every
covenant, condition and obligation imposed upon Tenant by this Lease and each
and every right, remedy and benefit afforded Landlord by this Lease and the
underlying purpose of this Lease is not thereby impaired or diminished. The
determination by Landlord as to whether consent will be granted in any specific
instance may be based on, without limitation, the following factors, which shall
be in Landlord's reasonable discretion: (a) whether the transferee's use of the
Premises will be compatible with the provisions of this Lease; (b) the financial
capacity of the transferee; (c) the business reputation of the transferee; (d)
the quality and type of the business operations of the transferee; and (e) the
business experience of the proposed transferee. This list of factors is not
intended to be exclusive, and Landlord may rely on such other basis for judgment
as may apply from time to time.

                                      32.
<PAGE>

                  (d) PROCEDURE TO OBTAIN CONSENT. If Tenant desires at any time
to assign this Lease or to sublet the Premises or any portions thereof, it first
shall notify Landlord of its desire to do so and shall submit in writing to
Landlord (i) the name and legal composition of the proposed subtenant or
assignee; (ii) the nature of the proposed subtenant's or assignee's business to
be carried on in the Premises; (iii) the terms and provisions of the proposed
sublease or assignment and all transfer documents relating to the proposed
transfer; and (iv) such reasonable business and financial information as
Landlord may request concerning the proposed subtenant or assignee. Any request
for Landlord's approval of a sublease or assignment shall be accompanied with a
check in such reasonable amount as Landlord shall advise for the cost of review
and preparation, including reasonable attorneys' fees, of any documents relating
to such proposed transfer, not to exceed one thousand dollars ($1000) for each
transfer plus reasonable out-of-pocket expenses payable to third parties. The
provisions and conditions of any proposed sublease or assignment must not be
inconsistent with any provision of this Lease, and must address all matters
contained in this Lease. In addition, the transferee must expressly assume all
of the obligations of Tenant under this Lease. Notwithstanding the assumption of
the obligations of this Lease by the transferee, no subletting or assignment,
even with the consent of Landlord, shall relieve Tenant of its continuing
obligation to pay the rent and perform all the other obligations to be performed
by Tenant hereunder. The obligations and liability of Tenant hereunder shall
continue notwithstanding the fact that Landlord may accept rent and other
performance from the transferee. The acceptance of rent by Landlord from any
other person shall not be deemed to be a waiver by Landlord of any provision of
this Lease or to be a consent to any assignment or subletting.

         13.2 RIGHTS OF LANDLORD: EFFECT OF LANDLORD'S CONSENT. 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.

         13.3 ADVERTISING. In no event shall Tenant display on or about the
Premises any signs for the purpose of advertising the Premises for assignment,
subletting or other transfer of rights.

         13.4 WRITING REQUIRED. Each Permitted Transfer, permitted assignment or
sublease shall be consummated by an instrument in writing executed by the
transferor and transferee in form satisfactory to Landlord. Each assignee and
subtenant shall agree in writing for the benefit of the Landlord herein to
assume all obligations of Tenant hereunder which are applicable to the space
subject to the assignment or sublease and any associated common areas, including
the payment of all amounts due or to become due under this Lease directly to the
Landlord. At least one executed copy of such written instrument shall be
delivered to the Landlord.

                                      33.
<PAGE>

         13.5 TRANSFER PREMIUMS. If Tenant assigns or sublets its rights under
this Lease, Tenant shall pay to Landlord as additional rent, after Tenant has
recovered any relevant leasing commissions, costs of tenant improvements and
other expenses of the assignment or sublease, the unamortized (over the Term of
the Lease) costs of any tenant improvements consented to by Landlord paid for by
Tenant prior to such Transfer, one-half (1/2) of all such excess consideration
due and payable to Tenant from said assignment or sublease to the extent said
consideration exceeds the rent or a pro rata portion of the rent, in the event
only a portion of the Premises is sublet or assigned.

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 when accompanied by a representative of Tenant and
upon not less than twenty-four (24) hours prior notice, except in the case of
emergency (in which event no notice and no accompaniment 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 be entitled to make hereunder, to show the Buildings to prospective
purchasers, lenders and investors, to show the Buildings to prospective tenants
(but only during the final eighteen (18) months 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 Premises 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 its best 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
Premises 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) TERMINATION RIGHTS. If the Buildings, or the Common Areas
necessary for Tenant's use and occupancy of the Premises, 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 Base
Building Work and Common Areas and the Tenant Improvements, 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

                                      34.
<PAGE>

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, or if such
damage or destruction (despite being repaired to the extent then permitted
under applicable governmental laws, regulations and building codes) would
materially impair Tenant's ability to conduct its business in the Premises,
then either party may terminate this Lease as of the date of the occurrence
by giving written notice to the other within sixty (60) days after the date
of the occurrence; if neither party timely elects such termination, or if
such damage or destruction after being repaired would not materially impair
Tenant's ability to conduct its business in the Premises, 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, based upon the extent to which Tenant's ability to conduct its
business in the Premises is impaired, and Landlord shall restore the Common
Areas and Base Building Work and 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 twenty-four (24) months 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 shall repair and restore applicable portions of
the Property in accordance with the first sentence of this Section
15.1.Landlord and Tenant agree that the terms of this Lease shall govern the
effect of any damage to or destruction of the Project with respect to
termination of this Lease and hereby waive the provisions of any present or
future statute to the extent inconsistent herewith.

                  (b) LIMITATIONS ON PARTIES' OBLIGATIONS. The obligations of
Landlord 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) above, the obligations
of Landlord 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 insurance
had been maintained) by reason of such occurrence, plus the amount of the
permitted deductible (PROVIDED that Landlord 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 Article 12, 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 Article 12 above and is not actually
insured, Landlord shall be required to repair and restore the Base Building Work
and Common Areas and Tenant Improvements to the extent necessary for Tenant's
continued use and occupancy of the Buildings, PROVIDED that Landlord's
obligation to repair and restore shall not exceed an amount equal to ten percent
(10%) of the replacement cost of the Base Building Work and Common Area
improvements and ten percent (10%) of the replacement cost of the Tenant
Improvements; if the cost to repair and

                                      35.

<PAGE>

restore exceeds such amount, then Landlord may terminate this Lease unless
the Tenant promptly elects and agrees, in writing, to contribute the amount
of the shortfall.

                  (c) ENTITLEMENT TO INSURANCE PROCEEDS. 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 Article 12, Landlord and Tenant agree (and any Lender shall
be asked to agree) that such insurance proceeds, after repayment of the loan,
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) ABATEMENT OF RENT. From and after the date of an
occurrence resulting in damage to or destruction of the Buildings or of the
Common Areas necessary for Tenants use and occupancy of the Buildings, and
continuing until the earlier of the date repair and restoration thereof are
completed or the date on which rental loss insurance payments cease, 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) TERMINATION RIGHTS. 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), then (i) this Lease
shall terminate as to the entire affected Premises 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 Premises
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 Premises taken is of such extent and nature as substantially
to handicap, impede or permanently impair Tenant's use of the balance of the
Premises, and (iii) this Lease shall remain in full force and effect as to the
remaining portion of the Premises. If Tenant elects to terminate this Lease, as
to the affected Premises, 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 Premises is impaired), Landlord shall restore the Base Building Work and
Common Area and Tenant 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, Landlord
shall use its best efforts (including, without limitation, any necessary
negotiation or intercession with its lender, if any) to ensure that any
severance damages or other condemnation awards intended to provide compensation
for rebuilding or restoration costs are

                                      36.
<PAGE>

promptly collected and made available to Tenant and Landlord 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) LIMITATIONS ON PARTIES' OBLIGATIONS. The obligations of
Landlord pursuant to Section 15.2(a) are subject to the following limitations:

                           (i) Landlord'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 ten percent (10%) of the replacement cost of the Base Building Work and
Common Area improvements and an amount equal to ten percent (10%) of the
replacement cost of the Tenant Improvements; if the replacement cost exceeds
such amount, then Landlord may terminate this Lease unless Tenant 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 Property 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 and the Property, but not 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 expressly
awarded to Tenant on account of Tenant's loss of the leasehold estate and
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 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

                                      37.
<PAGE>

modifications shall be subject to the prior written approval of the other
party (not to be unreasonably withheld, delayed or conditioned), 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 substantially impair or
impede Tenant's conduct of its business in the Buildings (in which case any
such modifications in Base Building Work shall require Tenant's consent, not
unreasonably withheld, delayed or conditioned) or would materially affect the
exterior appearance, the structural integrity or the mechanical or other
operating systems of the Buildings (in which case any such modifications
shall require Tenant's consent, not to be unreasonably withheld, delayed or
conditioned).

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:

                  (a) NONPAYMENT. Failure to pay, when due, any amount payable
to Landlord hereunder, such failure continuing for a period of five (5) business
days after written notice of such failure;

                  (b) OTHER OBLIGATIONS. Failure to perform any obligation,
agreement or covenant under this Lease other than those matters specified in
subsection (a) 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 in 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. Notwithstanding the foregoing, if any such failure on the part of Tenant
affects or threatens to affect the health or safety of others, or would result
in the destruction of property, Tenant shall immediately begin to cure and shall
use its diligent and best efforts in pursuing said cure to completion (it being
understood and agreed that Landlord shall not be entitled to exercise any remedy
to terminate this Lease unless and until such failure shall have continued for
thirty (30) days after written notice of such failure);

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

                  (d) 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 sixty
(60) 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

                                      38.
<PAGE>

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 Premises and the benefits to Landlord therefrom are
preserved, consistent with the purpose and intent of applicable bankruptcy
laws;

                  (e) RECEIVERSHIP. The employment of a receiver appointed by
court order to take possession of substantially all of Tenants assets or its
interest in the Buildings, if such receivership remains undissolved for a period
of sixty (60) days;

                  (f) ATTACHMENT. The attachment, execution or other judicial
seizure of all or substantially all of Tenant's assets or its interest in the
Buildings, if such attachment or other seizure remains undismissed or
undischarged for a period of sixty (60) days after the levy thereof; or

                  (g) INSOLVENCY. The admission by Tenant in writing of its
inability to pay its debts 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 sixty (60) 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) RE-ENTRY; TERMINATION. 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). In addition to or in lieu of such re-entry, and without
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) CONTINUATION OF LEASE. 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 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

                                      39.
<PAGE>

Landlord to protect Landlord's interests under this Lease shall not
constitute a termination of Tenant's right to possession.

                  (c) REMEDIES. 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 and Tenant's Operating Cost Share of Operating
Expense 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
and Tenant's Operating Cost Share of Operating Expense 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 and Tenant's Operating Cost Share of Operating Expense 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 reasonably 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 twelve percent (12%) 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.

         16.4 LANDLORD'S DEFAULT. Landlord shall not be deemed to be in default
of this Lease unless Landlord fails within a reasonable time (or the time
specified herein, if applicable) to perform an obligation required to be
performed by it. Tenant agrees to give Landlord and any lender designated by
Landlord notice of any Landlord default, and a reasonable opportunity to cure
such default.

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

                                      40.
<PAGE>

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. Tenant
agrees to execute such other commercially reasonable documentation as may be
required by an institutional lender to evidence such subordination and to
attorn to any such ground lessor, mortgagee, trustee, beneficiary or
leaseback lessor in the event such party succeeds to Landlord's interest
hereunder and agrees to recognize this Lease. Moreover, Tenant's obligations
under this Lease shall be conditioned on Tenant's receipt within thirty (30)
days after mutual execution of this Lease, from any existing ground lessor,
mortgagee, trustee, beneficiary or leaseback lessor currently owning or
holding a security interest in the 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, 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 in writing 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,

                                      41.
<PAGE>

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.

18.      SECURITY.

         18.1 DEPOSIT. Upon execution of this Lease, Tenant shall deposit with
Landlord the sum of $5,500,000. Upon the closing of a loan providing permanent
financing for the Project, the amount of such deposit shall be reduced to
$1,375,000, provided only that (i) Tenant is not then in default under any of
the terms or conditions of this Lease, and no event has occurred which, with the
passage of time or the giving of notice or both would constitute a default, and
(ii) the lender in such financing has consented to such reduction in security
deposit. At Tenant's election, in lieu of a cash security deposit, Tenant may
provide one or more irrevocable letters of credit in amounts described above,
payable to Landlord, and issued by an institution and in form reasonably
satisfactory to Landlord. Such sums or the Letter of Credit (individually and
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 Term hereof; provided that
if at any time Tenant shall have maintained an investment grade credit rating of
BBB or better for a consecutive twelve month period, Landlord shall return the
Security Deposit to Tenant. 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, unreimbursed Operating Expenses 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. Landlord may also apply the
Security Deposit toward costs incurred to repair damages to the Premises or to
clean and bring the Premises to good order, condition and repair during its
Lease Term and upon expiration or sooner termination of this Lease. If any
portion of the Security Deposit is so used or applied, Tenant shall, within five
(5) 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

                                      42.
<PAGE>

so shall be a material breach of this Lease. Landlord shall be required to
keep any deposit under this Section separate from Landlord's general funds in
an interest bearing account reasonably acceptable to Tenant, and Tenant shall
be entitled to the interest thereon, to be paid to Tenant when and if the
Security Deposit is refundable to Tenant. If Tenant fully and faithfully
performs every provision of this Lease to be performed by it, the Security
Deposit, or any balance thereof, together with all accrued interest, 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 Premises. 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.

         18.2 PLEDGE OF SECURITY DEPOSIT. The Security Deposit may be pledged by
Landlord as additional collateral to any lender having a security interest in
the Property. The lender may use, apply or retain all or any part of the
Security Deposit for the payment of Building Costs, but only in the event that
lender shall have notified Landlord and Tenant that such Building Costs remain
unpaid and the parties shall have failed within thirty (30) days following
receipt of such notice to cure such nonpayment. For purposes of this Section,
"BUILDING COST(S)" shall mean any and all costs actually incurred in
constructing the Base Building Work, Common Area and the related site
improvements including, but not limited to, costs for demolition, grading,
utility fees, architectural and engineering fees, permits, surveys, appraisals,
insurance, legal and accounting fees, development overhead, construction
management, blueprinting, equity fees, construction lender, permanent lender and
mortgage banker fees, interest carry, site improvements, off-site improvements
and tenant improvements. If any portion of the Security Deposit is so applied,
upon the Phase I Rent Commencement Date, Tenant shall 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 constitute a material breach of this Lease.
It is expressly understood and agreed by Landlord and Tenant that nothing in
this Section shall change the parties' responsibilities for the payment of
Building Costs, as set forth on the Work Letter, and that in the event the
lender applies the Security Deposit to the payment of Building Costs which are
the responsibility of Landlord, Landlord shall promptly reimburse Tenant for all
such costs.

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 three (3) days after
deposit in the United States mail, registered or certified mail, postage
prepaid, assessed to the parties at their respective addresses as follows:

         To Tenant:                  150 Industrial Road
                                     San Carlos, CA  94070
                                     Attn:  Sharron Reiss-Miller, Vice President

         with a copy to:             150 Industrial Road
                                     San Carlos, CA  94070
                                     Attn:  Robert A. Donnally, Esq.

                                      43.
<PAGE>

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

         To Landlord:                Inhale 201 Industrial Road L.P.
                                     c/o Bernardo Property Advisors, Inc.
                                     11440 West Bernardo Ct., Suite 208
                                     San Diego, CA  92127
                                     Attn:  Alan D. Gold

         with a copy to:             Seltzer Caplan McMahon Vitek
                                     2100 Symphony Towers
                                     750 B Street
                                     San Diego, CA 92101
                                     Attn:  David J. Dorne, Esq.

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

                                      44.
<PAGE>

(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, the Agreement of Limited Partnership of Inhale 201 Industrial Road, L.P.
dated as of September __, 2000 (the "Partnership Agreement") and the
Contribution Agreement, contains all the representations and the entire
understanding between the parties hereto with respect to the subject matter
hereof. Except as to the agreements contained in the Partnership Agreement and
in the Contribution Agreement and their respective related exhibits, 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 created by this lease 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. Neither
party is the agent or representative of the other, except as expressly set forth
in the Agreement of Limited Partnership of Inhale 201 Industrial Road, L.P.

         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

                                      45.
<PAGE>

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. Notwithstanding anything to the contrary contained in this
Lease, 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 $1,000 per request.

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

         19.14 BROKERS. There are no brokers entitled to a commission in
connection with this Lease except BT Commercial, who will be paid by Landlord
pursuant to 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 person making such claim.

                                      46.
<PAGE>

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

         19.16 CORPORATE AUTHORITY. Each person signing this Lease on behalf of
Tenant or Landlord warrants that he or she is fully authorized to do so and, by
so doing, to bind the entity on whose behalf he or she is signing.

         19.17 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.

         19.18 SURVIVAL. Without limiting survival provisions which would
otherwise be implied or construed under applicable law, the provisions of
Sections 2.5, 7.4, 9.2, 9.3, 9.4, 11.4, 12.10, 12.11, 19.5 and 19.11 hereof
shall survive the termination of this Lease with respect to matters occurring
prior to the expiration of this Lease.

         19.19 WAIVER OF JURY TRIAL. The parties hereto shall, and they hereby
do, waive trial by jury in any action or proceeding or counterclaim brought by
either of the parties hereto against the other on any matters arising out of or
in any way connected with this Lease.

         19.20 EXCLUSIVITY. Landlord agrees that it shall not, during the Term
of this Lease or any period during which Tenant occupies all or any portion of
the Premises, lease or allow the use or occupancy of any portion of the Premises
or the Buildings to or by any party which is a competitor of Tenant.

         19.21 TENANT'S REMEDIES. Except to the extent expressly provided
herein, no event or occurrence during the Lease Term is intended to allow Tenant
the right to surrender or terminate this Lease or to relieve Tenant from any of
its obligations hereunder, and Tenant waives any rights now or hereafter
conferred upon it by statute or otherwise (except for rights conferred herein)
to surrender or terminate this Lease or to claim any abatement or suspension of
Rent or other sums payable hereunder.

         19.22 SECURITY MEASURES. Tenant acknowledges that the Rent payable to
Landlord hereunder does not and will not include the cost of guard service or
other security services and that Landlord shall have no obligation whatsoever to
provide same. Tenant agrees that Landlord shall nave no responsibility for the
protection of the Premises, Tenant, its agents and invitees or their property
from the acts of third parties.

                                      47.
<PAGE>

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

"Landlord"                                 "Tenant"

INHALE 201 INDUSTRIAL ROAD, L.P.,          INHALE THERAPEUTIC SYSTEMS, INC.
a California limited partnership           a Delaware corporation

By SciMed Prop III, a California           By:
  corporation, its General Partner            ----------------------------------
                                           Name:
                                                --------------------------------
                                           Title:
                                                 -------------------------------

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

<PAGE>

                             EXHIBIT A

                      Property Legal Description

All that certain real property in the State of California, County of San
Mateo, City of San Carlos more particularly described as follows:

ALL LANDS LYING WITHIN THE EXTERIOR BOUNDARIES OF THAT MAP ENTITLED
"REVERSION TO ACREAGE OF THE LANDS OF ARNDT ELECTRONICS LYING WITHIN THE
COUNTY OF SAN MATEO, BEING PARCELS 1,2,3 AND 4 AS SHOWN ON THAT CERTAIN
PARCEL MAP FILED IN VOLUME 51 OF PARCEL MAPS AT PAGE 71 RECORDS OF SAN
MATEO," FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN MATEO COUNTY, STATE
OF CALIFORNIA, ON OCTOBER 6, 1986 IN VOLUME 58 OF PARCEL MAPS AT PAGE 13.

ASSESSOR'S PARCEL NOS. 046-020-370    JOINT PLAN NOS.  046-002-020-22A
                       046-020-380                     046-002-020-22-01A
                                                       046-002-020-22-02A
                                                       046-002-020-22-03A
                                                       046-002-020-23A
                                                       046-002-020-23-01A

<PAGE>

                                    EXHIBIT B

                                    SITE PLAN

                                   (ATTACHED)

<PAGE>

                                    EXHIBIT B

                                      [MAP]

                                               SITE PLAN
                                               DRAWING TITLE
                                               INHALE B4-EXT-PH
                                               201 INDUSTRIAL ROAD
                                               SAN CARLOS, CA

<PAGE>

                                    EXHIBIT C

                                   WORK LETTER

         This Work Letter ("WORK LETTER") constitutes part of the Build-to-Suit
Lease dated as September __, 2000 (the "LEASE") between INHALE 201 INDUSTRIAL
ROAD. L.P., a California limited partnership ("LANDLORD"), and Inhale
Therapeutic Systems, Inc., a Delaware corporation ("TENANT"). The terms of this
Work Letter are incorporated in the Lease for all purposes.

1.       DEFINED TERMS.

         As used in this Work Letter, the following capitalized terms have the
following meanings:

         (a) APPROVED PLANS: Approved Tenant Improvement Plans for Phase 1A,
Approved Tenant Improvement Plans for Phase 1B, Approved Tenant Improvement
Plans for Phase 2A, Approved Tenant Improvement Plans for Phase 2B, Approved
Base Building Work Plans for Building 1 and Approved Base Building Work Plans
for Building 2.

         (b) APPROVED TENANT IMPROVEMENT PLANS FOR BUILDING 1: Approved Tenant
Improvement Plans for Phase 1A (Plans and specifications prepared by the
Architect for the Tenant Improvements in Phase 1A and approved by both Landlord
and Tenant, and listed in the attached Schedule C-3 hereto), Approved Tenant
Improvement Plans for Phase 1B, as defined in Section 2(b), below.

         (c) APPROVED TENANT IMPROVEMENT PLANS FOR BUILDING 2: Plans and
specifications to be prepared by the Architect for the Tenant Improvements in
Phase 2A and 2B (provided Tenant has exercised the Phase 2B Expansion Option) in
Building 2 and to be approved by both Landlord and Tenant, with the
understanding that the Tenant Improvements for Building 2 will be similar in
size, quality and materials as the Tenant Improvements for Building 1.

         (d) APPROVED BASE BUILDING WORK PLANS FOR BUILDING 1: Plans and
specifications prepared by the Architect for the Base Building Work in Building
1 and approved by both Landlord and Tenant, and listed in the attached Schedule
C-1 and C-2 hereto.

         (e) APPROVED BASE BUILDING WORK PLANS FOR BUILDING 2: Plans and
specifications to be prepared by the Architect for the Base Building Work in
Building 2 and to be approved by both Landlord and Tenant, with the
understanding that the Building Shell and Building Core for Building 2 will be
similar in size, quality and materials as the Building Shell and Building Core
for Building 1.

         (f) ARCHITECT: Dowler Gruman Architects.

         (g) ASSIGNED CONSTRUCTION CONTRACTS: See definition in Section 2(f)
hereof.

                                  1
<PAGE>

         (h) BASE BUILDING WORK FOR BUILDING 1: The Building Core for Building
1, Building Shell for Building 1 and Site Improvements, as described by the
Approved Base Building Plans listed in the attached Schedules C-1 and C-2.

         (i) BASE BUILDING WORK FOR BUILDING 2: The Building Core and Building
Shell to be more fully described by the Approved Base Building Plans to be
prepared by Architect and approved by Landlord and Tenant.

         (j) BUILDING CORES: The core of Building 1, as more fully defined in
Schedule C-2, and the core for Building 2 to be more fully described by the
Approved Base Building Work Plans for Building 2 to be prepared by Architect and
approved by Landlord and Tenant.

         (k) BUILDING SHELLS: The shell of Building 1, as more fully defined in
Schedule C-1, and the shell for Building 2 to be more fully described by the
Approved Base Building Work Plans for Building 2 to be prepared by Architect and
approved by Landlord and Tenant.

         (l) CERTIFICATE OF SUBSTANTIAL COMPLETION: the written certificate
signed by Architect with respect to each Phase, certifying that: (i) the
completion of the Base Building Work for such Phase has been completed (except
for Punch List Work), in good and workmanlike condition, in compliance with all
applicable Requirements, and in conformance with the Approved Plans for such
Base Building Work, and (ii) a Shell Final, or its equivalent, has been received
from all required governmental authorities.

         (m) CHANGE ORDER: See definition in Section 2(g)(ii) hereof.

         (n) COST OF IMPROVEMENT: See definition in Section 2(e) hereof.

         (o) DATE OF SUBSTANTIAL COMPLETION: the date of issuance of The
Certificate of Substantial Completion.

         (p) DEFINITIONS: Capitalized terms not otherwise defined in this Work
Letter shall have the definitions set forth in the Lease.

         (q) GENERAL CONTRACTOR: South Bay Construction, Rudolph and Sletten, or
any other general contractor selected by Tenant from the list attached as
SCHEDULE C-4, or any other general contractor selected by Tenant with the
approval of Landlord, which consent shall not be unreasonably withheld, delayed
or conditioned, and all of which are further subject to any approval of Lender
required by Lender.

         (r) IMPROVEMENTS: The Building Cores, 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 Work Letter.

         (s) LANDLORD DELAY: Any of the following types of delay in the
completion of construction of the Improvements:

                  (i) Any delay resulting from Landlord's failure to furnish, in
a timely manner, information requested by Tenant in Landlord's possession or
under Landlord's control or by the

                                  2
<PAGE>

Architect or General Contractor for Tenant's Work in connection with the
design or construction of the Improvements; or

                  (ii) Any material delay of any other kind or nature caused by
Landlord (or Landlord's contractors, agents or employees).

         (t) 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 Premises.

         (u) SHELL FINAL: Approval from the City of San Carlos confirming that
Building Shell and Site Improvements have been completed with required
Government Approvals.

         (v) 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 Work Letter.

         (w) SUBSTANTIAL COMPLETION OF BASE BUILDING WORK: Shall mean, with
respect to each Phase, the completion of the Base Building Work for such Phase
(except for Punch List Work), in good and workmanlike condition, in compliance
with all applicable Requirements, and in conformance with the Approved Plans for
such Base Building Work, and the receipt of a Shell Final, or its equivalent,
from all required governmental authorities as certified in a writing signed by
Architect.

         (x) TENANT DELAY: Any of the following types of delay in the completion
of construction of the Base Building Work:

                  (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 Base Building Work in connection with the design or construction
of the Base Building Work, or from Tenant's failure to approve in a timely
manner any matters requiring approval by Tenant;

                  (ii) 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

                  (iii) Any material delay of any other kind or nature caused by
Tenant (or Tenant's contractors, agents or employees).

         (y) TENANT IMPROVEMENTS: The improvements to or within the Premises,
other than improvements constituting part of the Base Building Work, shown on
the Approved Plans from time to time and to be constructed by Tenant pursuant to
the Lease and this Work Letter, including (but not limited to) the improvements
to Building 1 described on SCHEDULE C-3 attached to this Work Letter.

         (z) TENANT IMPROVEMENT ALLOWANCE: See definition in Section 4(b)
hereof.

                                  3
<PAGE>

         (aa) TENANT'S WORK: All of the Improvements other than those
constituting BASE BUILDING WORK, and such other materials and improvements as
Tenant deems necessary or appropriate for Tenant's use and occupancy of the
Premises.

         (bb) 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.

         (cc) USEABLE SQUARE FEET: Useable Square Feet shall mean, with respect
to Phase 1A, 38,633 square feet; with respect to Phase 1B, 38,474 square feet;
with respect to Phase 2A, 43,972 square feet; and with respect to Phase 2B,
44,840 square feet.

         (dd) WORK DEADLINES: The target dates for performance listed in the
Estimated Construction Schedule attached as EXHIBIT D to the Lease.

2.       PLANS, COST OF IMPROVEMENTS AND CONSTRUCTION.

         Landlord and Tenant shall comply with the procedures set forth in this
Section 2 in preparing, delivering and approving matters relating to the
Improvements.

         (a) APPROVED PLANS FOR BASE BUILDING WORK FOR BUILDING 1. Tenant and
Landlord have approved the Approved Base Building Work Plans for Building 1.

         (b) APPROVED PLANS FOR BASE BUILDING WORK FOR BUILDING 2. Tenant and
Landlord shall cooperate with Architect in the development of the plans and
specifications for the Base Building Work for Building 2 (once such plans and
specifications are approved by Landlord and Tenant, the "APPROVED BASE BUILDING
WORK PLANS FOR BUILDING 2"), with the understanding that the Building Shell and
Building Core for Building 2 will be similar in size, quality and materials as
the Building Shell and Building Core for Building 1.

         (c) APPROVED PLANS AND WORKING DRAWINGS FOR TENANT'S WORK FOR BUILDING
1. Tenant and Landlord have approved the Approved Tenant Improvement Plans for
Phase 1A. Tenant and Landlord shall cooperate with Architect in the development
of the plans and specifications for the Tenant's Work for Phase 1B (once such
plans and specifications are approved by Landlord and Tenant, the "APPROVED
TENANT IMPROVEMENT PLANS FOR PHASE 1B"), with the understanding that the Tenant
Improvements for Phase 1B will be similar in size, quality and materials as the
Tenant Improvements for Phase 1A

         (d) APPROVED PLANS AND WORKING DRAWINGS FOR TENANT'S WORK FOR BUILDING
2. Tenant and Landlord shall cooperate with Architect in the development of the
plans and specifications for the Tenant's Work for Building 2 (once such plans
and specifications are approved by Landlord and Tenant, the "APPROVED TENANT
IMPROVEMENT PLANS FOR BUILDING 2"), with the understanding that the Tenant
Improvements for Building 2 will be similar in size, quality and materials as
the Tenant Improvements for Building 1.

         (e) COST OF IMPROVEMENTS. "COST OF IMPROVEMENTS" shall mean, with
respect to any item or component for which a cost must be determined in order to
allocate such cost, or an

                                  4
<PAGE>

increase in such cost, to Base Building Work and/or Tenant's Work pursuant to
this Work Letter 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 construction of such item or component; (ii) all costs,
expenses, payments, fees and charges (other than 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 Work Letter.

         (f) CONSTRUCTION OF BASE BUILDING WORK. Tenant shall assign the
following construction contracts and Landlord shall assume such construction
contracts: (Phase 1 Shell and Site Construction) dated 3/14/00 between Tenant
and Rudolph & Sletten, (Phase 1 Core) dated 8/24/99 between Tenant and South Bay
Construction, (Phase 1 Shell and Site Design) dated 3/16/99 between Tenant and
Dowler Gruman Architects, and (Phase 1 Core Design) dated 7/18/00 between Tenant
and Dowler Gruman Architects (the "ASSIGNED CONSTRUCTION CONTRACTS"). Upon
receipt of such permits and approvals, Landlord shall, at Landlord's sole
expense (except as otherwise provided in the Lease or in this Work Letter),
diligently construct and complete the Improvements constituting BASE BUILDING
WORK substantially in accordance with the Approved Base Building Work 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.

         (g) CHANGES.

                  (i) BY LANDLORD. If Landlord determines at any time that
changes in Base Building Final Working Drawings or in any other aspect of the
Approved Plans relating to any item of BASE BUILDING 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 Base Building Final
Working Drawings, as applicable, reflecting such changes to be prepared by
Architect.

                  (ii) BY TENANT. If Tenant at any time desires any changes,
alterations or additions to the Approved Plans or Base Building Final Working
Drawings with respect to any of BASE BUILDING 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
notify Tenant within five (5) business days of (A) whether the matters proposed

                                  5

<PAGE>

in the Change Order are approved by Landlord (which approval shall not be
unreasonably withheld, delayed or conditioned, and Landlord's failure to
respond within such five (5) business days period shall be deemed Landlord's
approval), (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
or decrease, 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, of Tenant's approval of the
Change Order (including the estimated delays and cost increases or decreases,
if any, described in the 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 Section 4 hereof. If Tenant fails to notify Landlord in writing
of its approval of such Change Order within said five (5) business day
period, then such Change Order shall be deemed to be withdrawn and shall be
of no further effect.

         (h) With respect to all matters requiring Landlord's Approval herein,
Landlord's failure to respond within fifteen (15) days following Tenant's
request shall be deemed approval.

3.       COMPLETION.

         (a) Notwithstanding any other provisions of this Work Letter or of the
Lease, if Substantial Completion of any of the Base Building Work is delayed
beyond the applicable Work Deadline reflected in Exhibit D to the Lease as a
result of any Tenant Delay, then the applicable Rent Commencement Date pursuant
to Section 3.1 of the Lease shall be accelerated, day for day, by the number of
days by which such Tenant Delay delayed completion of the portions of Base
Building Work beyond such applicable Work Deadline. In the event Landlord
determines that the Rent Commencement Date should be advanced in accordance with
the foregoing, Landlord shall notify Tenant within five (5) business days of
commencement of the Tenant Delay purporting to cause the delay in completion.
Any dispute between Landlord and Tenant as to the existence or duration of
Tenant Delay shall be decided by the Architect.

         (b) When Landlord believes the Base Building Work for any Phase is
complete subject only to completion of Punch List Work, it shall so notify
Architect and if Architect concurs, Architect shall issue to Tenant Substantial
Completion Certificate for the Base Building Work for such Phase.

         (c) At any time within thirty (30) days after delivery of the
Substantial Completion Certificate, Tenant shall be entitled to submit one or
more lists to Landlord specifying Punch List Work to be performed on the
applicable Improvements constituting Base Building 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 Base Building Work, the Certificate of the Architect shall
be conclusive. Promptly after receipt by Tenant of the Certificate of
Substantial Completion, Landlord shall cause the

                                  6
<PAGE>

recordation of a Notice of Completion (as defined in Section 3093 of the
California Civil Code) with respect to relevant Base Building Work.

4.       PAYMENT OF COSTS.

         (a) BASE BUILDING WORK. Except as otherwise expressly provided in this
Work Letter or by mutual written agreement of Landlord and Tenant, the cost of
construction of BASE BUILDING WORK for each Phase 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.

         (b) TENANT'S WORK; TENANT IMPROVEMENT ALLOWANCE. Except as otherwise
expressly provided in this Work Letter or by mutual written agreement of
Landlord and Tenant, the cost of construction of the Tenant Improvements shall
be borne by Tenant, PROVIDED that Landlord shall provide Tenant a tenant
improvement allowance for each Phase equal to $125 per Useable Square Foot in
such Phase (the "TENANT IMPROVEMENT ALLOWANCE"). Landlord shall pay the Tenant
Improvement Allowance periodically, following demand by Tenant and submittal of
appropriate documentation reflecting the Cost of the Tenant Improvements in such
Phase. If the entire Tenant Improvement Allowance is not used toward the costs
of Tenant's Work, Tenant shall not receive a credit of such unused portion of
the Tenant Improvement Allowance

         (c) APPROVAL OF BUDGET FOR TENANT'S WORK. Notwithstanding anything to
the contrary set forth elsewhere in this Work Letter, Landlord shall not have
any obligation to fund to Tenant any portion of the Tenant Improvement Allowance
until Landlord shall have reasonably approved, in writing, the project budget
for the Tenant's Work (an "Approved Budget"). Landlord agrees that such approval
shall not be unreasonably withheld, delayed or conditioned. Attached hereto as
SCHEDULE C-5 is an Approved Budget for the portion of the Tenant's Work relating
to Phase 1A. If Tenant submits to Landlord a construction budget for any
Tenant's Work which shows that the cost of Tenant's Work shall exceed the amount
of the Tenant Improvement Allowance (a "Deficiency"), Tenant shall pay a pro
rata share of any sums requested in a "Funding Request" (as defined below). If
there exists a Deficiency for any Tenant Work (by reason of cost overruns or
Tenant Changes, as defined below), Landlord's obligation to expand or disburse
any portion of the Tenant Improvement Allowance shall be limited, for each Fund
Request, to an amount equal to (a) the total amount due under the Fund Request
multiplied by (b) a fraction, the numerator of which is the undisbursed balance
of the Tenant Improvement Allowance at the commencement of such Tenant's Work
and the denominator of which is the Approved Budget for such Tenant's Work. In
the alternative, if required by Lender, Tenant agrees to fund the Deficiency
into a cash collateral account pledged to the Lender from which disbursements
shall be made following full disbursement of the Tenant Improvement Allowance.
Tenant shall have until the loan from which the Tenant Improvement Allowance is
funded is no longer available to Landlord (through no fault or default of
Landlord) to expend the unused portion of the Tenant Improvement Allowance,
after which date landlord's obligation to fund such costs shall expire.

         (d) FUNDING REQUESTS. Upon submission by Tenant to Landlord of a
statement (a "Funding Request") setting forth the total amount requested
(including any Deficiency which may exist) and a reasonably detailed summary of
the work preformed (which may be satisfied by

                                  7
<PAGE>

a copy of an AIA standard form Application for Payment (G 702) executed by
the General Contractor and by the Architect) accompanied by lien releases for
the General Contractor and the subcontractors with respect to the prior
advance and such other documentation which may be required by the lender of
Landlord ("Lender"), within thirty (30) business days following receipt by
Landlord of a Funding Request and the accompanying materials, shall advance
to Tenant the amount set forth in the Funding Request; provided, however,
that with respect to any Funding Requests subject to reduction in accordance
with Section 4(c). Landlord shall advance to Tenant the amount calculated in
accordance with section 4(c). Tenant shall not make more than one Funding
Request in any thirty (30) day period, and any Funding Request (other than
the Final Funding Request) shall be for an amount not less than fifty
thousand dollars ($50,000.00).

         (e) USE OF THE TENANT IMPROVEMENT ALLOWANCE. The Tenant Improvement
Allowance may be used solely for the payment of Cost of Improvements.
Nothwithstanding the foregoing, the Tenant Improvement Allowance shall not be
used for the payment of i) personal property, equipment or specialty trade
fixtures unique to the business of Tenant (which shall not be deemed to include,
in any event, laboratory benches and casework or other laboratory furniture);
ii) any work performed by specialty contractors such as data cabling, telephone
and data equipment, audio/visual equipment, office furniture systems or security
systems; iii) any permitting or construction costs associated therewith specific
to the business of Tenant (such as FDA licensing requirements); (iv) charges and
expenses for changes to the Approved Plans which have not been approved by
Landlord; (v) wages, labor and overhead for overtime and premium time; (vi)
additional costs and expenses incurred on account of any contractor's default or
construction defects; (vii) offsite management or other general overhead costs
of Tenant; (vii) costs for which Tenant has a right of reimbursement from others
(including, without limitation, insurers and warranties); or (viii) the cost of
bringing the Property into compliance with applicable environmental laws, or
other statutes, laws, rules and regulations. The Tenant Improvement Allowance
shall in no event be used to purchase any office furniture, tabletop laboratory
equipment, telephone equipment, personal property or other non-building system
equipment of Tenant. Landlord is under no obligation to bear any portion of the
cost for any of Tenant's Work except to the extent of the Tenant Improvement
Allowance.

5.       TENANT'S WORK.

         Tenant shall construct and install in the respective Phase the Tenant's
Work, substantially in accordance with the Approved Tenant Improvement Plans or,
with respect to Tenant's Work not shown on the Approved Tenant Improvement
Plans, substantially in accordance with plans and specifications prepared by
Tenant and approved in writing by Landlord (which approval shall not be
unreasonably withheld, delayed or conditioned). Tenant's Work may be performed
concurrently with Landlord's performance of the Base Building Work, provided
that Tenant's Work does not unreasonably interfere with the Base Building Work.
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 Work Letter), and shall also be subject to the following
conditions:

         (a) CONTRACTOR REQUIREMENTS. The contractor engaged by Tenant for
Tenant's Work, and any subcontractors, shall be duly licensed in California.

                                  8
<PAGE>

         (b) COSTS AND EXPENSES OF TENANT'S WORK. Subject to Landlord's payment
or reimbursement obligations under Section 4(b) hereof with respect to the
Tenant Improvement Allowance, 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.

         (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) RISK OF LOSS. All materials, work, installations and decorations of
any nature brought onto or installed in the Premises, by or at the direction of
Tenant 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.

         (f) 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 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. All materials and
equipment furnished by Tenant shall be new or like new,

         (g) LANDLORD'S APPROVAL. Any approval or consent by Landlord shall in
no way obligate Landlord in any manner whatsoever in respect of the finished
product designed and/or constructed by Tenant. Any deficiency in design or
construction of the Tenant's Work, although the same has prior approval of
Landlord, shall be solely the responsibility of Tenant.

6.       NO AGENCY.

         Nothing contained in this Work Letter shall make or constitute either
Landlord or Tenant as the agent of the other.

7.       SURVIVAL.

         Without limiting survival provisions that would otherwise be implied or
construed under applicable law, the provisions of Section 5(c) of this Work
Letter shall survive the termination of the Lease with respect to matters
occurring prior to expiration of the Lease.

                                  9
<PAGE>

8.       TENANT'S AUTHORIZED REPRESENTATIVE.

         Tenant designates Sharron Reiss-Miller, Brigid Makes and William Voight
(collectively and individually, "Tenant's Authorized Representative") as the
person authorized to approve all plans, drawings, change orders and approvals
pursuant to this Work Letter. Landlord shall not be obligated to respond to or
act upon any such item until such item has been signed or initialed by Tenant's
Authorized Representative.

9.       LANDLORD'S AUTHORIZED REPRESENTATIVE.

         Landlord designates Alan D. Gold, Gary A. Kreitzer and John F. Wilson
(collectively and individually, "Landlord's Authorized Representative") as the
person authorized to approve all plans, drawings, change orders and approvals
pursuant to this Work Letter. Tenant shall not be obligated to respond to or act
upon any such item until such item has been signed or initialed by Landlord's
Authorized Representative.

10.      SUBJECT TO LEASE.

         This Work Letter is subject in all respects to the terms and conditions
of the Lease.

11.      LENDER REQUIREMENTS.

         This Work Letter is subject to the requirements of Lender. Tenant
agrees to cooperate with Landlord, at no material cost to Tenant and without
materially adversely affecting Tenant's rights or obligations hereunder, in
meeting Lender's requirements and in obtaining any required Lender approvals.

12.      MERGER.

         All understanding and agreements, oral and written, heretofore made
between the parties hereto and relating to the matters covered herein are merged
in this Work Letter, which, along with the Lease and its exhibits, the
Partnership Agreement, and the documents referenced therein and contemplated
thereby, fully and completely expresses the agreement between Landlord and
Tenant with regard to the matters set forth in this Work Letter.

13.      MISCELLANEOUS.

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

                                  10
<PAGE>

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

LANDLORD                                   TENANT

INHALE 201 INDUSTRIAL ROAD. L.P., a        INHALE THERAPEUTIC SYSTEMS INC.
California limited partnership             a Delaware corporation

                                           By:
                                              -------------------------------
By: SciMed Prop III, a California          Name:
corporation, its General Partner                -----------------------------
                                           Title:
                                                 ----------------------------

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

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

<PAGE>

                           SCHEDULE C-1 TO WORK LETTER

               DEFINITION OF BUILDING SHELL AND SITE IMPROVEMENTS

The "BUILDING SHELL" for Building 1 and the Site Improvements referred to in the
Work Letter to which this SCHEDULE C-1 is attached shall consist of work
described in the following plans:

(attached)

<PAGE>

EXHIBIT C-1 TO WORK LETTER

DOWLER-GRUMAN ARCHITECTS

Document Log

Inhale, Bldg. 4, Exterior, Ph-1, 99033
Shell and Site Improvements
==============================================
<TABLE>
<CAPTION>
                                                    CP-4,           CP-4,    Struct. P.C.  2nd P.C.C.
                                               Construction Set  Plan Check   Comments      Revised
SHT. NO.    SHEET NAME                            (11-11-99)     (12-3-99)    (2-7-00)     (2-15-00)
======================================================================================================
<S>         <C>                                <C>               <C>         <C>           <C>
A0          Cover Sheet and Project Data              x              x
------------------------------------------------------------------------------------------------------
A0.1        Code Compliance                           x              x
------------------------------------------------------------------------------------------------------
A0.2        Title 24, Energy Compliance               x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
C-1         Existing Topography & Proposed            x              x
            Site Plan
------------------------------------------------------------------------------------------------------
C-2         Site Grading Plan                         x              x
------------------------------------------------------------------------------------------------------
C-3         Sewer/Water & Storm Drain                 x              x
------------------------------------------------------------------------------------------------------
C-3.1       On-Siote Fire System Plan                                x
------------------------------------------------------------------------------------------------------
C-4         Grading / Utility Plan Details            x              x
------------------------------------------------------------------------------------------------------
C-5         Industrial Road Street Improvements       x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
L1.1        Entry Plaza & Courtyard Layout Plan       x              x
------------------------------------------------------------------------------------------------------
L1.2        Entry Plaza & Courtyard Layout Plan       x              x
------------------------------------------------------------------------------------------------------
L2.1        Plaza & Courtyard Layout Plan             x              x
------------------------------------------------------------------------------------------------------
L2.2        Landscape Hardscape Details               x              x
------------------------------------------------------------------------------------------------------
L2.3        Landscape Hardscape Details               x              x
------------------------------------------------------------------------------------------------------
L3.1        Irrigation Plan                           x              x
------------------------------------------------------------------------------------------------------
L4.1        Irrigation Details                        x              x
------------------------------------------------------------------------------------------------------
L4.2        Drip Irrigation Details                   x              x
------------------------------------------------------------------------------------------------------
L5.1        Planting Plan                             x              x
------------------------------------------------------------------------------------------------------
L6.1        Planting Details                          x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
A1.0        Overall Site Plan                         x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
A2.1.1.0    Overall Floor Plan-Level 1                x              x
------------------------------------------------------------------------------------------------------
A2.1.1.1    Phase 1 , Level 1, Floor Plan             x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
A2.1.2.0    Overall Floor Plan-Level 2                x              x
------------------------------------------------------------------------------------------------------
A2.1.2.1    Phase 1 , Level 2, Floor Plan             x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
A2.1.3.0    Overall Floor Plan-Level 3                x              x
------------------------------------------------------------------------------------------------------
A2.1.3.1    Phase 1 , Level 3, Floor Plan             x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
A2.1.4.0    Overall Floor Plan-Level 4                x              x
------------------------------------------------------------------------------------------------------
A2.1.4.1    Phase 1 , Level 4, Floor Plan             x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
A2.1.5.0    Overall Floor Plan Penthouse Level        x              x
------------------------------------------------------------------------------------------------------
A2.1.5.1    Phase 1 , Penthouse Level, Floor Plan     x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
A2.1.6.0    Overall Floor Plan - Roof Level           x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
A2.1.7.0    Not Used
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
A2.1.7.1    Enlarged Plans - Exterior Walls           x              x
------------------------------------------------------------------------------------------------------
A2.1.7.2    Enlarged Plans - Lobby Core               x              x
------------------------------------------------------------------------------------------------------
A2.1.7.3    Enlarged Plans and Sections - Stair No. 2 x              x
------------------------------------------------------------------------------------------------------
A2.1.7.4    Enlarged Plans and Sections - Stair No. 3 x              x
------------------------------------------------------------------------------------------------------
A2.1.7.5    Sections - Stair No. 1                    x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
A3.0        Not Used
------------------------------------------------------------------------------------------------------
A3.1        Door,Window, Wall Type & Mtg Hght Sched.  x              x
------------------------------------------------------------------------------------------------------
A3.1a       Fire Rated System Details                                x
------------------------------------------------------------------------------------------------------
A3.2        Exterior Window Schedule                  x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
A4.0        Not Used
------------------------------------------------------------------------------------------------------
A4.1        Building Sections                         x              x
------------------------------------------------------------------------------------------------------
A4.2        Wall Sections                             x              x
------------------------------------------------------------------------------------------------------
A4.3        Wall Sections                             x              x
------------------------------------------------------------------------------------------------------
A4.4        Wall Sections                             x              x
------------------------------------------------------------------------------------------------------
A4.5        Wall Sections                             x              x
------------------------------------------------------------------------------------------------------
A4.6        Wall Sections                             x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
A5.0        Overall Exterior Elevations               x              x
------------------------------------------------------------------------------------------------------
A5.1        Enlarged Exterior Elevations              x              x
------------------------------------------------------------------------------------------------------
A5.2        Enlarged Exterior Elevations              x              x
------------------------------------------------------------------------------------------------------

                                                                              1
<PAGE>

EXHIBIT C-1 TO WORK LETTER

DOWLER-GRUMAN ARCHITECTS

Document Log

Inhale, Bldg. 4, Exterior, Ph-1, 99033
Shell and Site Improvements
==============================================
<CAPTION>
                                                    CP-4,           CP-4,    Struct. P.C.  2nd P.C.C.
                                               Construction Set  Plan Check   Comments      Revised
SHT. NO.    SHEET NAME                            (11-11-99)     (12-3-99)    (2-7-00)     (2-15-00)
======================================================================================================
<S>         <C>                                <C>               <C>         <C>           <C>
A6.0        Not Used
------------------------------------------------------------------------------------------------------
A6.1        Exterior Details - Site                   x              x
------------------------------------------------------------------------------------------------------
A6.2        Exterior Details - Site and Parking       x              x
------------------------------------------------------------------------------------------------------
A6.3        Exterior Details -                        x              x
------------------------------------------------------------------------------------------------------
A6.4        Exterior Details -                        x              x           x
------------------------------------------------------------------------------------------------------
A6.5        Exterior Details -                        x              x
------------------------------------------------------------------------------------------------------
A6.6        Exterior Details -                        x              x           x
------------------------------------------------------------------------------------------------------
A6.7        Exterior Details - Plan                   x              x
------------------------------------------------------------------------------------------------------
A6.8        Exterior Details - Roof                   x              x           x             x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
A7.0        Not Used
------------------------------------------------------------------------------------------------------
A7.1        Not Used
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
A8.0        Not Used
------------------------------------------------------------------------------------------------------
A8.1        Interior Details                          x              x
------------------------------------------------------------------------------------------------------
A8.2        Not Used
------------------------------------------------------------------------------------------------------
A8.3        Not Used
------------------------------------------------------------------------------------------------------
A8.4        Not Used
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
S2.1.1.0p   Pile Plan                                 x              x           x
------------------------------------------------------------------------------------------------------
S2.1.1.0pc  Pile Cap Plan                             x              x           x
------------------------------------------------------------------------------------------------------
S2.1.1.0    Level 1, Slab Plan                        x              x           x
------------------------------------------------------------------------------------------------------
S2.1.2.0    Level 2, Framing Plan                     x              x           x
------------------------------------------------------------------------------------------------------
S2.1.3.0    Level 3, Framing Plan                     x              x           x             x
------------------------------------------------------------------------------------------------------
S2.1.4.0    Level 4, Framing Plan                     x              x           x             x
------------------------------------------------------------------------------------------------------
S2.1.5.0    Roof Framing Plan                         x              x           x
------------------------------------------------------------------------------------------------------
S2.1.6.0    Penthouse Framing Plan                    x              x           x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
S3.1.1      Braced Frame Elevations                   x              x           x             x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
S4.1.1      General Notes & Typical Concrete Details  x              x           x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
S5.1.1      Concrete Details                          x              x           x
------------------------------------------------------------------------------------------------------
S5.1.2      Pile Cap Details                          x              x           x
------------------------------------------------------------------------------------------------------
S5.1.3      Concrete Slab Details                     x              x           x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
S7.1.1      Metal Deck Details                        x              x           x
------------------------------------------------------------------------------------------------------
S7.1.2      Typical Steel Framing Details             x              x           x             x
------------------------------------------------------------------------------------------------------
S7.1.3      Steel Column Details                      x              x           x
------------------------------------------------------------------------------------------------------
S7.1.4      Steel Details                             x              x           x             x
------------------------------------------------------------------------------------------------------
S7.1..5     Miscellaneous Steel Details               x              x           x
------------------------------------------------------------------------------------------------------
S7.1.6      Miscellaneous Steel Details                              x           x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
P1.0        Overall Site Plan Plumging/Process Piping                x
------------------------------------------------------------------------------------------------------
P2.1.1.1    Phase 1, Level 1, Plumbing Plan                          x
------------------------------------------------------------------------------------------------------
P2.1.2.1    Phase 1, Level 2, Plumbing Plan                          x
------------------------------------------------------------------------------------------------------
P2.1.3.1    Phase 1, Level 3, Plumbing Plan                          x
------------------------------------------------------------------------------------------------------
P2.1.4.1    Phase 1, Level 4, Plumbing Plan                          x
------------------------------------------------------------------------------------------------------
P2.1.5.1    Phase 1, Level 5, Plumbing Plan                          x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
E0.1        One Line Diagram, Details & Schedules     x              x
------------------------------------------------------------------------------------------------------
E1.0        Site Power Plan                           x              x
------------------------------------------------------------------------------------------------------
E1.1        Site Lighting Plan                        x              x
------------------------------------------------------------------------------------------------------
E2.1        Phase 1, Level 1, Lighting Plan           x              x
------------------------------------------------------------------------------------------------------
E2.2        Phase 1, Level 2, Lighting Plan           x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
PK1         Not Used
------------------------------------------------------------------------------------------------------
PK1.1       Fire Truck Turning Radius Study           x              x
------------------------------------------------------------------------------------------------------
PK1.2       Fire Truck Turning Radius Study           x              x
------------------------------------------------------------------------------------------------------
PK1.3       Fire Truck Turning Radius Study           x              x
------------------------------------------------------------------------------------------------------
PK2         Not Used
------------------------------------------------------------------------------------------------------
PK3         Sign Schedule Details                     x              x
------------------------------------------------------------------------------------------------------
PK4         Striping Details                          x              x
------------------------------------------------------------------------------------------------------
PK5         Typical Details                           x              x
------------------------------------------------------------------------------------------------------
PK6         Control Lane Plans & Details              x              x
------------------------------------------------------------------------------------------------------

                                                                              2
<PAGE>

EXHIBIT C-1 TO WORK LETTER

DOWLER-GRUMAN ARCHITECTS

Document Log

Inhale, Bldg. 4, Exterior, Ph-1, 99033
Shell and Site Improvements
==============================================
<CAPTION>
                                                    CP-4,           CP-4,    Struct. P.C.  2nd P.C.C.
                                               Construction Set  Plan Check   Comments      Revised
SHT. NO.    SHEET NAME                            (11-11-99)     (12-3-99)    (2-7-00)     (2-15-00)
======================================================================================================
<S>         <C>                                <C>               <C>         <C>           <C>
General Conditions - AIA A201                         x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
            Materials List
------------------------------------------------------------------------------------------------------
            Temporary Materials List
------------------------------------------------------------------------------------------------------
            Structural Outline Specifications
------------------------------------------------------------------------------------------------------

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

------------------------------------------------------------------------------------------------------
DIVISION 1 GENERAL REQUIREMENTS
------------------------------------------------------------------------------------------------------
       1010 Summary of the Work                       x              x
------------------------------------------------------------------------------------------------------
       1020 Allowances                                x              x
------------------------------------------------------------------------------------------------------
       1026 Unit Prices
------------------------------------------------------------------------------------------------------
       1028 Applications for Payment
------------------------------------------------------------------------------------------------------
       1030 Alternates                                x              x
------------------------------------------------------------------------------------------------------
       1045 Cutting and Patching                      x
------------------------------------------------------------------------------------------------------
       1049 Supporting from Building Structure        x              x
------------------------------------------------------------------------------------------------------
       1300 Submittals                                x              x
------------------------------------------------------------------------------------------------------
       1400 Quality Control                           x              x
------------------------------------------------------------------------------------------------------
       1430 Mock-Ups                                  x              x
------------------------------------------------------------------------------------------------------
       1500 Construction Facilities & Temporary       x              x
            Controls
------------------------------------------------------------------------------------------------------
       1540 Site Security & Safety                    x              x
------------------------------------------------------------------------------------------------------
       1600 Materials & Equipment                     x              x
------------------------------------------------------------------------------------------------------
       1640 Hazardous Materials                       x              x
------------------------------------------------------------------------------------------------------
       1700 Contract Closeout                         x              x
------------------------------------------------------------------------------------------------------
       1900 Colors                                    x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
DIVISION 2 SITE WORK
------------------------------------------------------------------------------------------------------
            Outline Specifications
------------------------------------------------------------------------------------------------------
       2050 Demolition
------------------------------------------------------------------------------------------------------
       2200 Earthwork                                 x              x
------------------------------------------------------------------------------------------------------
       2211 Site Grading                              x              x
------------------------------------------------------------------------------------------------------
       2226 Structural Excavation & Backfilling       x              x
------------------------------------------------------------------------------------------------------
       2235 Vapor Barrier & Sand Cushion              x              x
------------------------------------------------------------------------------------------------------
       2300 Piling                                    x              x
------------------------------------------------------------------------------------------------------
       2520 Site Concrete                             x              x
------------------------------------------------------------------------------------------------------
       2525 Specialty Walkway Paving and              x              x
            Surfacing
------------------------------------------------------------------------------------------------------
       2530 Sanitary Sewer
------------------------------------------------------------------------------------------------------
       2630 Storm Drainage
------------------------------------------------------------------------------------------------------
       2700 Site Utilities                            x              x
------------------------------------------------------------------------------------------------------
       2726 Trench Drains                             x              x
------------------------------------------------------------------------------------------------------
       2727 Site Drainage                             x              x
------------------------------------------------------------------------------------------------------
2505/2745   Asphaltic Concrete Paving                 x              x
------------------------------------------------------------------------------------------------------
       2753 Portland Cement Concrete Paving
------------------------------------------------------------------------------------------------------
       2770 Curbs and Gutters
------------------------------------------------------------------------------------------------------
       2810 Irrigation Systems                        x              x
------------------------------------------------------------------------------------------------------
       2830 Retaining Walls
------------------------------------------------------------------------------------------------------
       2920 Soil Preparation                          x              x
------------------------------------------------------------------------------------------------------
       2950 Trees, Plants, and Groundcovers           x              x
------------------------------------------------------------------------------------------------------
       2970 Landscape Maintenance                     x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
DIVISION 3 CONCRETE
------------------------------------------------------------------------------------------------------
       3100 Concrete Formwork                         x              x
------------------------------------------------------------------------------------------------------
       3200 Concrete Reinforcement                    x              x
------------------------------------------------------------------------------------------------------
       3300 Cast-in-Place Concrete                    x              x
------------------------------------------------------------------------------------------------------
       3410 Glass Fiber Reinforced Concrete Panels    x              x
------------------------------------------------------------------------------------------------------
       3450 Architectural Precast Concrete
------------------------------------------------------------------------------------------------------
       3455 Glass Fiber Reinforced Concrete           x              x
            Wall Panels
------------------------------------------------------------------------------------------------------
       3600 Concrete Tests and Inspections            x              x
------------------------------------------------------------------------------------------------------

                                                                              3
<PAGE>

EXHIBIT C-1 TO WORK LETTER

DOWLER-GRUMAN ARCHITECTS

Document Log

Inhale, Bldg. 4, Exterior, Ph-1, 99033
Shell and Site Improvements
==============================================
<CAPTION>
                                                    CP-4,           CP-4,    Struct. P.C.  2nd P.C.C.
                                               Construction Set  Plan Check   Comments      Revised
SHT. NO.    SHEET NAME                            (11-11-99)     (12-3-99)    (2-7-00)     (2-15-00)
======================================================================================================
<S>         <C>                                <C>               <C>         <C>           <C>
DIVISION 4 MASONRY
------------------------------------------------------------------------------------------------------
       4220 Concrete Unit Masonry
------------------------------------------------------------------------------------------------------
       4400 Stone
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
DIVISION 5 METALS
------------------------------------------------------------------------------------------------------
       5120 Structural Steel                          x              x
------------------------------------------------------------------------------------------------------
       5310 Steel Decking                             x              x
------------------------------------------------------------------------------------------------------
       5440 Light Gauge Framing                       x              x
------------------------------------------------------------------------------------------------------
       5445 Metal Wall Panels
------------------------------------------------------------------------------------------------------
       5500 Metal Fabrications                        x              x
------------------------------------------------------------------------------------------------------
       5510 Metal Stairs                              x              x
------------------------------------------------------------------------------------------------------
       5800 Expansion Control
------------------------------------------------------------------------------------------------------
       5805 Expansion Joint Covers                    x              x
------------------------------------------------------------------------------------------------------
       5999 Miscellaneous Metals                      x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
DIVISION 6 WOOD & PLASTICS
------------------------------------------------------------------------------------------------------
       6100 Rough Carpentry                           x              x
------------------------------------------------------------------------------------------------------
       6200 Finish Carpentry                          x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
DIVISION 7 THERMAL & MOISTURE PROTECTION
------------------------------------------------------------------------------------------------------
       7100 Waterproofing & Dampproofing
------------------------------------------------------------------------------------------------------
       7130 Below Grade Waterproofing                 x              x
------------------------------------------------------------------------------------------------------
       7142 Rubberized Asphalt Membrane               x              x
               Waterproofing
------------------------------------------------------------------------------------------------------
       7145 Crystallization Waterproofing             x              x
------------------------------------------------------------------------------------------------------
       7200 Insulation                                x              x
------------------------------------------------------------------------------------------------------
       7240 Exterior Insulation Finish System (EIFS)  x              x
------------------------------------------------------------------------------------------------------
       7400 Factory Formed Metal Panel System         x              x
------------------------------------------------------------------------------------------------------
       7410 Composite Aluminum Building Panels
------------------------------------------------------------------------------------------------------
       7450 Mineral Fiber Siding                      x              x
------------------------------------------------------------------------------------------------------
       7511 Built-up Roofing (Metal Deck)             x              x
------------------------------------------------------------------------------------------------------
       7610 Metal Roofing                             x              x
------------------------------------------------------------------------------------------------------
       7600 Flashing & Sheet Metal                    x              x
------------------------------------------------------------------------------------------------------
       7700 Roof Accessories                          x              x
------------------------------------------------------------------------------------------------------
       7810 Sparyu Applied Fire Resistive Coating     x              x
------------------------------------------------------------------------------------------------------
       7815 Intumescent Coatings                      x              x
------------------------------------------------------------------------------------------------------
       7840 Firesstoppping and Smokeseals             x              x
------------------------------------------------------------------------------------------------------
       7915 Compression Seals                         x              x
------------------------------------------------------------------------------------------------------
       7920 Sealants & Caulking                       x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
DIVISION 8 DOORS & WINDOWS
------------------------------------------------------------------------------------------------------
       8100 Hollow Metal Doors & Frames               x              x
------------------------------------------------------------------------------------------------------
       8200 Wood Doors                                x              x
------------------------------------------------------------------------------------------------------
       8300 Special Doors                             x              x
------------------------------------------------------------------------------------------------------
       8499 Exterior Aluminum door & Glass Systems    x              x
------------------------------------------------------------------------------------------------------
       8710 Finish Hardware                           x              x
------------------------------------------------------------------------------------------------------
       8800 Glazing                                   x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
DIVISION 9 FINISHES
------------------------------------------------------------------------------------------------------
       9290 Drywall Systems                           x              x
------------------------------------------------------------------------------------------------------
       9300 Ceramic Tile
------------------------------------------------------------------------------------------------------
       9900 Painting                                  x              x
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
DIVISION 10 SPECIALTIES
------------------------------------------------------------------------------------------------------
      10210 Louvers                                   x              x
------------------------------------------------------------------------------------------------------
      10430 Exterior Signs
------------------------------------------------------------------------------------------------------
      10440 Interior Signs
------------------------------------------------------------------------------------------------------
      10999 Miscellaneous Specialties
------------------------------------------------------------------------------------------------------

                                                                              4
<PAGE>

EXHIBIT C-1 TO WORK LETTER

DOWLER-GRUMAN ARCHITECTS

Document Log

Inhale, Bldg. 4, Exterior, Ph-1, 99033
Shell and Site Improvements
==============================================
<CAPTION>
                                                    CP-4,           CP-4,    Struct. P.C.  2nd P.C.C.
                                               Construction Set  Plan Check   Comments      Revised
SHT. NO.    SHEET NAME                            (11-11-99)     (12-3-99)    (2-7-00)     (2-15-00)
======================================================================================================
<S>         <C>                                <C>               <C>         <C>           <C>
------------------------------------------------------------------------------------------------------
DIVISION 11 EQUIPMENT
------------------------------------------------------------------------------------------------------
      11150 Parking Control Equipment                 x              x
------------------------------------------------------------------------------------------------------
      11160 Loading Dock Equipment                    x              x
------------------------------------------------------------------------------------------------------
      11170 Waste Handling Equipment
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
DIVISION 12 FURNISHINGS
------------------------------------------------------------------------------------------------------

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

------------------------------------------------------------------------------------------------------
DIVISION 13 SPECIAL CONSTRUCTION
------------------------------------------------------------------------------------------------------

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

------------------------------------------------------------------------------------------------------
DIVISION 14 CONVEYING SYSTEMS
------------------------------------------------------------------------------------------------------
      14240 Passenger Elevators (2- 4 stops)          x              x
------------------------------------------------------------------------------------------------------
      14245 Freight Elevators (1-3 stops)
------------------------------------------------------------------------------------------------------
      14600 Jib Crane & Hoist                         x              x
------------------------------------------------------------------------------------------------------
      14610 Davit System
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
DIVISION 15 MECHANICAL (Design by Murphy)
------------------------------------------------------------------------------------------------------
            Outline Mechanicl Equipment
              Specifications
------------------------------------------------------------------------------------------------------
      15400 Plumbing                                  x              x
------------------------------------------------------------------------------------------------------
      15500 Heating, Ventilating, & Air Conditioning
------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------
DIVISION 16 ELECTRICAL (Silverman & Light)
------------------------------------------------------------------------------------------------------
            Outline Electrical Specifications
------------------------------------------------------------------------------------------------------
      16010 Electrical General Provisions             x              x
------------------------------------------------------------------------------------------------------
      16050 Basic Materials and Methods               x              x
------------------------------------------------------------------------------------------------------
      16195 Electrical Identification
------------------------------------------------------------------------------------------------------
      16250 Automatic Transfer Switches
------------------------------------------------------------------------------------------------------
      16400 Service and Distribution
------------------------------------------------------------------------------------------------------
      16500 Lighting
------------------------------------------------------------------------------------------------------
      16620 Emergency Generators
------------------------------------------------------------------------------------------------------
      16721 Fire Alarm/Life Safety System
------------------------------------------------------------------------------------------------------
      16900 Electrical Controls
------------------------------------------------------------------------------------------------------
      16901 Electrical Sensing and Measurement
------------------------------------------------------------------------------------------------------
      16920 Motor Control Centers
------------------------------------------------------------------------------------------------------
      16950 Testing Requirements
------------------------------------------------------------------------------------------------------
      16960 Short Circuit Analysis and Coordination
------------------------------------------------------------------------------------------------------
</TABLE>

                                                                              5

<PAGE>

                           SCHEDULE C-2 TO WORK LETTER

                           DEFINITION OF BUILDING CORE

The "BUILDING CORE" for Building 1 as defined in the Work Letter to which
this SCHEDULE C-2 is attached shall consist of work described in the
following plans: (attached)

<PAGE>

EXHIBIT C-2 TO WORK LETTER

DOWLER-GRUMAN ARCHITECTS

Documents Log

Inhale, Bldg. 4, Interior, Ph-1, 99086
Tenant Improvements

========================================

<TABLE>
<CAPTION>
                                                     Design     Progress    Plan
                                                   Development    Print     Check     Bld Set
SHT. NO.    SHEET NAME                              (10-29-99)  (12-7-99)  (1-7-00)  (2-28-00)
==================================================================================================
ARCHITECTURAL
==================================================================================================
<S>         <C>                                    <C>          <C>        <C>       <C>
A0          Cover Sheet and Project Data                x           x         x          x
--------------------------------------------------------------------------------------------------
A0.1        Code Compliance                             x           x         x          x
--------------------------------------------------------------------------------------------------
A0.2        Phase A, Level-4, Code Compliance                       x         x          x
--------------------------------------------------------------------------------------------------
A0.3        Title 24 Code Compliance
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
A1.0        Overall Site Plan                                                 R          R
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
A2.1.1.1    Phase A , Level 1, Floor Plan               x           x         x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
A2.1.2.1    Phase A , Level 2, Floor Plan               x           x         x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
A2.1.3.1    Phase A , Level 3, Floor Plan               x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
A2.1.3.1r   Phase A, Level 3, Reflected Ceiling Plan    x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
A2.1.4.1    Phase A , Level 4, Floor Plan               x           x         x          x
--------------------------------------------------------------------------------------------------
A2.1.4.2    Phase A , Level 4, Area A, Floor Plan       x           x         x          x
--------------------------------------------------------------------------------------------------
A2.1.4.3    Phase A , Level 4, Area B, Floor Plan       x           x         x          x
--------------------------------------------------------------------------------------------------
A2.1.4.4    Phase A , Level 4, Area C, Floor Plan       x           x         x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
A2.1.5.1    Phase A , Penthouse Level, Floor Plan       x           x         x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
A2.1.7.1    Not Used
--------------------------------------------------------------------------------------------------
A2.1.7.2    Phase A, Enlarged Plans, Lobby Core         x           x         x          x
--------------------------------------------------------------------------------------------------
A2.1.7.3    Enlarged Plans - Stairs No. 2 & 3           x           x         x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
A2.1.4.2c   Phase A , Level 4, Area A, Casework Plan                x         x          x
--------------------------------------------------------------------------------------------------
A2.1.4.3c   Phase A , Level 4, Area B, Casework Plan                x         x          x
--------------------------------------------------------------------------------------------------
A2.1.4.4c   Phase A , Level 4, Area C, Casework Plan                x         x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
A2.1.4.2q   Phase A , Level 4, Area A, Equipment Plan                         x          x
--------------------------------------------------------------------------------------------------
A2.1.4.3q   Phase A , Level 4, Area B, Equipment Plan                         x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
A2.1.4.1f   Phase A, Level 4, Finish Plan                           x         x          x
--------------------------------------------------------------------------------------------------
A2.1.4.2f   Phase A , Level 4, Area A, Finish Plan                  x         x          x
--------------------------------------------------------------------------------------------------
A2.1.4.3f   Phase A , Level 4, Area B, Finish Plan                  x         x          x
--------------------------------------------------------------------------------------------------
A2.1.4.4f   Phase A , Level 4, Area C, Finish Plan                  x         x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
A2.1.7.1f   Not Used
--------------------------------------------------------------------------------------------------
A2.1.7.2f   Phase A, Lobby Core, Finish Plans                       x         x          x
--------------------------------------------------------------------------------------------------
A2.1.7.3f   Stairs No. 2 & 3 Finish Plans                           x         x          x
--------------------------------------------------------------------------------------------------

                                                                              1
<PAGE>

<CAPTION>

EXHIBIT C-2 TO WORK LETTER

DOWLER-GRUMAN ARCHITECTS

Documents Log

Inhale, Bldg. 4, Interior, Ph-1, 99086
Tenant Improvements

========================================

                                                     Design     Progress    Plan
                                                   Development    Print     Check     Bld Set
SHT. NO.    SHEET NAME                              (10-29-99)  (12-7-99)  (1-7-00)  (2-28-00)
==================================================================================================
<S>         <C>                                     <C>         <C>        <C>       <C>
A2.1.4.1r   Phase A, Level 4, Reflected Ceiling Plan    x                     x          x
--------------------------------------------------------------------------------------------------
A2.1.4.2r   Phase A , Level 4, Area A, RCP                                    x          x
--------------------------------------------------------------------------------------------------
A2.1.4.3r   Phase A , Level 4, Area B, RCP                                    x          x
--------------------------------------------------------------------------------------------------
A2.1.4.4r   Phase A , Level 4, Area C, RCP                                    x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
A2.1.7.1r   Not Used
--------------------------------------------------------------------------------------------------
A2.1.7.2r   Phase A, Lobby Core, Reflected Ceiling                            x          x
              Plan
--------------------------------------------------------------------------------------------------
A2.1.7.3r   Stairs No. 2 & 3 Refl. Ceiling                                    x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
A3.0        Not Used
--------------------------------------------------------------------------------------------------
A3.1        Door & Window Schedule                      x           x         x          x
--------------------------------------------------------------------------------------------------
A3.2        Partition Types                                         x         x          x
--------------------------------------------------------------------------------------------------
A3.3        Casework Schedule                                       x         x          x
--------------------------------------------------------------------------------------------------
A3.4        Penetration Details                                     x         x          x
--------------------------------------------------------------------------------------------------
A3.5.1      Equipment Matrix
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
A4.0        Not Used
--------------------------------------------------------------------------------------------------
A4.1        Wall Sections                                           x         x          x
--------------------------------------------------------------------------------------------------
A4.2        Wall Details                                x           x         x          x
--------------------------------------------------------------------------------------------------
A4.3        Not Used                                    x
--------------------------------------------------------------------------------------------------
A4.4        Not Used                                    x
--------------------------------------------------------------------------------------------------
A4.5        Not Used                                    x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
A7.0        Not Used
--------------------------------------------------------------------------------------------------
A7.1        Interior Sections                           x           x         x          x
--------------------------------------------------------------------------------------------------
A7.2        Interior Sections                           x           x         x          x
--------------------------------------------------------------------------------------------------
A7.3        Interior Elevations                                     x         x          x
--------------------------------------------------------------------------------------------------
A7.4        Interior Elevations                                     x         x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
A8.0        Not Used
--------------------------------------------------------------------------------------------------
A8.1        Interior Details - Doors & Windows                      x         x          x
--------------------------------------------------------------------------------------------------
A8.2        Interior Details -Partitions                            x         x          x
--------------------------------------------------------------------------------------------------
A8.3        Interior Details - Finishes & Exterior                  x         x          x
              Details - Roofing
--------------------------------------------------------------------------------------------------
A8.4        Ineterior Details - Ceiling                             x         x          x
--------------------------------------------------------------------------------------------------
A8.5        Interior Details - Casework                             x         x          x
--------------------------------------------------------------------------------------------------
A8.6        Interior Details - Miscellaneous                        x         x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
STRUCTURAL
--------------------------------------------------------------------------------------------------
S2.1.4.1    Framing Plan, Level 4, Phase A                                    x          x
--------------------------------------------------------------------------------------------------
S2.1.5.1    Roof Framing Plan                                                 x          x
--------------------------------------------------------------------------------------------------
S7.1.6      Misc. Details                                                     x          x
--------------------------------------------------------------------------------------------------

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

                                                                              2
<PAGE>

<CAPTION>

EXHIBIT C-2 TO WORK LETTER

DOWLER-GRUMAN ARCHITECTS

Documents Log

Inhale, Bldg. 4, Interior, Ph-1, 99086
Tenant Improvements

========================================

                                                         Design     Progress    Plan
                                                       Development    Print     Check     Bld Set
SHT. NO.    SHEET NAME                                  (10-29-99)  (12-7-99)  (1-7-00)  (2-28-00)
==================================================================================================
<S>         <C>                                         <C>         <C>        <C>       <C>
MECHANICAL
--------------------------------------------------------------------------------------------------
M-0.1       Mechanical Equipment Schedule                   x           x         x          x
--------------------------------------------------------------------------------------------------
MT-24       Mechanical Titel-24 Compliance                                        x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
M2.1.2.2    Phase A, Level 2, Area A, Mechanical Plan                             x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
M2.1.4.1    Phase A, Level 4, Mechanical Plan                           x         x          x
--------------------------------------------------------------------------------------------------
M2.1.4.2    Phase A, Level 4, Area A, Mechanical Plan                             x          x
--------------------------------------------------------------------------------------------------
M2.1.4.3    Phase A, Level 4, Area B, Mechanical Plan                             x          x
--------------------------------------------------------------------------------------------------
M2.1.4.4    Phase A, Level 4, Area C, Mechanical Plan                             x          x
--------------------------------------------------------------------------------------------------
M2.1.7.2    Enlarged Mechanical Lobby Core Plans                                             x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
M2.1.5.1    Phase A, Penthouse Level, Mechanical Plan       x           x         x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
M3.1        Mechanical Sections & Details                               x         x          x
--------------------------------------------------------------------------------------------------

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

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

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

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

--------------------------------------------------------------------------------------------------
PLUMBING
--------------------------------------------------------------------------------------------------
P0          General                                                               x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
P2.1.1.1    Phase A, Level 1, Piping Plan                                         x          x
--------------------------------------------------------------------------------------------------
P2.1.2.1    Phase A, Level 2, Piping Plan                                         x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
P2.1.3.1    Phase A, Level 3, Piping Plan                                         x          x
--------------------------------------------------------------------------------------------------
P2.1.3.2    Phase A, Level 3, Area A, Piping Plan                                 x          x
--------------------------------------------------------------------------------------------------
P2.1.3.3    Phase A, Level 3, Area B, Piping Plan                                 x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
P2.1.4.1    Phase A, Level 4, Piping Plan                                         x          x
--------------------------------------------------------------------------------------------------
P2.1.4.2    Phase A, Level 4, Area A, Piping Plan                                 x          x
--------------------------------------------------------------------------------------------------
P2.1.4.3    Phase A, Level 4, Area B, Piping Plan                                 x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
P2.1.5.1    Phase A, Penthouse Level, Piping Plan                                 x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
P3.1        Enlarged Toilet Core Plans, Isometric, Riser                          x          x
--------------------------------------------------------------------------------------------------
P4.1        Partial 4th Flr. Plan, Mechanical Room                      x         x          x
              and Detail
--------------------------------------------------------------------------------------------------
P6.1        Details                                                               x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
P2.1        Partial Third Floor Plan Mechanical             x
              Room and detail piping
--------------------------------------------------------------------------------------------------
P2.1.3.1    Partial Third Floor Plan - Piping               x
--------------------------------------------------------------------------------------------------
P2.1.3.2    Partial Third Floor Plan Piping                 x
--------------------------------------------------------------------------------------------------
P2.1.3.3    Partial Third Floor Plan - Piping               x
--------------------------------------------------------------------------------------------------
P2.1.3.4    Partial Third Floor Plan - Piping               x
--------------------------------------------------------------------------------------------------

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

                                                                              3
<PAGE>

<CAPTION>

EXHIBIT C-2 TO WORK LETTER

DOWLER-GRUMAN ARCHITECTS

Documents Log

Inhale, Bldg. 4, Interior, Ph-1, 99086
Tenant Improvements

========================================

                                                         Design     Progress    Plan
                                                       Development    Print     Check     Bld Set
SHT. NO.    SHEET NAME                                  (10-29-99)  (12-7-99)  (1-7-00)  (2-28-00)
==================================================================================================
<S>         <C>                                         <C>         <C>        <C>       <C>
ELECTRICAL
--------------------------------------------------------------------------------------------------
E0.1        Legend, Titel 24 and Schedules                                        x          x
--------------------------------------------------------------------------------------------------
E0.2        One Line Diagram                                                      x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
E2.1.1.1    Phase A, Level 1, Electrical Plan                                     x          x
--------------------------------------------------------------------------------------------------
E2.1.2.1    Phase A, Level 2, Electrical Plan                           x         x          x
--------------------------------------------------------------------------------------------------
E2.1.3.1    Phase A, Level 3, Electrical Plan                           x         x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
E2.1.4.1    Phase A, Level 4, Electrical Plan                           x         x          x
--------------------------------------------------------------------------------------------------
E2.1.4.2    Phase A, Level 4, Area A, Electrical Plan                             x          x
--------------------------------------------------------------------------------------------------
E2.1.4.3    Phase A, Level 4, Area B, Electrical Plan                             x          x
--------------------------------------------------------------------------------------------------
E2.1.4.4    Phase A, Level 4, Area C, Electrical Plan                             x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
E2.1.5.1    Phase A, Penthouse Level, Electrical Plan                             x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
E6.0        Panel Schedules                                                       x          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
            Interior Phase 1, Level 4, Power Plan           x
--------------------------------------------------------------------------------------------------
            2nd Floor Power Plan                            x
--------------------------------------------------------------------------------------------------
            3rd Floor Power Plan                            x
--------------------------------------------------------------------------------------------------

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

                                                                              4
<PAGE>

<CAPTION>

EXHIBIT C-2 TO WORK LETTER

DOWLER-GRUMAN ARCHITECTS

Documents Log

Inhale, Bldg. 4, Interior, Ph-1, 99086
Tenant Improvements

========================================

                                                     Design     Progress    Plan
                                                   Development    Print     Check     Bld Set
SHT. NO.    SHEET NAME                              (10-29-99)  (12-7-99)  (1-7-00)  (2-28-00)
==================================================================================================
<S>                                                 <C>         <C>        <C>       <C>
General Conditions -AIA 111,  AIA A201                                        x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
DIVISION 1 GENERAL REQUIREMENTS
--------------------------------------------------------------------------------------------------
       1010 Summary of the Work                                               x
--------------------------------------------------------------------------------------------------
       1018 Owner Furnished Equipment                                         x
--------------------------------------------------------------------------------------------------
       1020 Allowances                                                        x
--------------------------------------------------------------------------------------------------
       1030 Alternates                                                        x
--------------------------------------------------------------------------------------------------
       1045 Cutting and Patching                                              x
--------------------------------------------------------------------------------------------------
       1049 Supporting from Building Structure                                x
--------------------------------------------------------------------------------------------------
       1300 Submittals                                                        x
--------------------------------------------------------------------------------------------------
       1400 Quality Control                                                   x
--------------------------------------------------------------------------------------------------
       1430 Mock-Ups                                                          x
--------------------------------------------------------------------------------------------------
       1500 Construction Facilities & Temporary                               x
              Controls
--------------------------------------------------------------------------------------------------
       1540 Site Security & Safety                                            x
--------------------------------------------------------------------------------------------------
       1600 Materials & Equipment                                             x
--------------------------------------------------------------------------------------------------
       1640 Hazardous Materials                                               x
--------------------------------------------------------------------------------------------------
       1700 Contract Closeout                                                 x
--------------------------------------------------------------------------------------------------
       1900 Colors                                                            x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
DIVISION 2 SITE WORK
--------------------------------------------------------------------------------------------------
       2070 Selective Demolition                                              x
--------------------------------------------------------------------------------------------------
       2831 Chain Link Fence and Gate                                         x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
DIVISION 3 CONCRETE
--------------------------------------------------------------------------------------------------
       3320 Leveling Topping                                                  x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
DIVISION 4 MASONRY
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
DIVISION 5 METALS
--------------------------------------------------------------------------------------------------
       5999 Miscellaneous Metals                                              x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
DIVISION 6 WOOD & PLASTICS
--------------------------------------------------------------------------------------------------
       6200 Finish Carpentry                                                  x
--------------------------------------------------------------------------------------------------
       6410 Custom Casework                                                   x
--------------------------------------------------------------------------------------------------
       6640 FRP Panels                                                        x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
DIVISION 7 THERMAL & MOISTURE PROTECTION
--------------------------------------------------------------------------------------------------
       7200 Insulation                                                        x
--------------------------------------------------------------------------------------------------
       7510 Repairs to Existing Built-up                                      x
              Bituminous Roofing
--------------------------------------------------------------------------------------------------
       7600 Flashing & Sheet Metal                                            x
--------------------------------------------------------------------------------------------------
       7840 Firesstoppping and Smokeseals                                     x
--------------------------------------------------------------------------------------------------
       7920 Sealants & Caulking                                               x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
DIVISION 8 DOORS & WINDOWS
--------------------------------------------------------------------------------------------------
       8100 Hollow Metal Doors & Frames                                       x
--------------------------------------------------------------------------------------------------
       8305 Access Doors                                                      x
--------------------------------------------------------------------------------------------------
       8710 Finish Hardware                                                   x
--------------------------------------------------------------------------------------------------
       8800 Glazing                                                           x
--------------------------------------------------------------------------------------------------

                                                                              5
<PAGE>

<CAPTION>

EXHIBIT C-2 TO WORK LETTER

DOWLER-GRUMAN ARCHITECTS

Documents Log

Inhale, Bldg. 4, Interior, Ph-1, 99086
Tenant Improvements

========================================

                                                     Design     Progress    Plan
                                                   Development    Print     Check     Bld Set
SHT. NO.    SHEET NAME                              (10-29-99)  (12-7-99)  (1-7-00)  (2-28-00)
==================================================================================================
<S>                                                 <C>         <C>        <C>       <C>
--------------------------------------------------------------------------------------------------
DIVISION 9 FINISHES
--------------------------------------------------------------------------------------------------
       9290 Drywall Systems                                                   x
--------------------------------------------------------------------------------------------------
       9500 Acoustical Treatment                                              x
--------------------------------------------------------------------------------------------------
       9600 Stone Flooring                                                    x
--------------------------------------------------------------------------------------------------
       9650 Resilient Flooring                                                x
--------------------------------------------------------------------------------------------------
       9680 Carpeting                                                         x
--------------------------------------------------------------------------------------------------
       9800 Special Coatings                                                  x
--------------------------------------------------------------------------------------------------
       9900 Painting                                                          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
DIVISION 10 SPECIALTIES
--------------------------------------------------------------------------------------------------
      10100 Markerboard and Tackboard                                         x
--------------------------------------------------------------------------------------------------
      10150 Metal Toilet Partitions                                           x
--------------------------------------------------------------------------------------------------
      10260 Corner Guards                                                     x
--------------------------------------------------------------------------------------------------
      10441 Accessibility and Safety Signage                                  x
--------------------------------------------------------------------------------------------------
      10520 Fire Extinguisher Cabinets and                                    x
              Accessories
--------------------------------------------------------------------------------------------------
      10605 Mesh Partitions                                                   x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
DIVISION 11 EQUIPMENT
--------------------------------------------------------------------------------------------------
      11132 Projection Screens                                                x
--------------------------------------------------------------------------------------------------
      11455 Appliances                                                        x
--------------------------------------------------------------------------------------------------
      11600 Laboratory Equipment                                              x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
DIVISION 12 FURNISHINGS
--------------------------------------------------------------------------------------------------
      12500 Window Treatment                                                  x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
DIVISION 13 SPECIAL CONSTRUCTION
--------------------------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------------------------
DIVISION 14 CONVEYING SYSTEMS
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
DIVISION 15 MECHANICAL (Design by Murphy)
--------------------------------------------------------------------------------------------------
      15400 Plumbing                                                          x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
DIVISION 16 ELECTRICAL (Silverman & Light)
--------------------------------------------------------------------------------------------------
      16010 Electrical General Provisions                                     x
--------------------------------------------------------------------------------------------------
      16050 Basic Materials and Methods                                       x
--------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------
</TABLE>

                                                                              6

<PAGE>

                           SCHEDULE C-3 TO WORK LETTER

                        DEFINITION OF TENANT IMPROVEMENTS

The TENANT IMPROVEMENTS FOR BUILDING 1 referred to in the Work Letter to
which this SCHEDULE C-2 are described by the following plans: (attached)

<PAGE>

EXHIBIT C-3 TO WORK LETTER

DOWLER-GRUMAN ARCHITECTS

Document Log

Inhale, Bldg. 4, Interior, Ph-1, 99086
Core Improvements
=============================================

<TABLE>
<CAPTION>
                                                           Design    Progress    Plan
                                                        Development    Print     Check     Bld set
SHT. NO.    SHEET NAME                                   (10-29-99)  (12-7-99)  (1-7-00)  (2-28-00)
=====================================================================================================
ARCHITECTURAL
=====================================================================================================
<S>         <C>                                         <C>           <C>       <C>        <C>
A0          Cover Sheet and Project Data                      x          x         x          x
-----------------------------------------------------------------------------------------------------
A0.1        Code Compliance                                   x          x         x          x
-----------------------------------------------------------------------------------------------------
A0.2        Phase A, Level-4, Code Compliance                            x         x          x
-----------------------------------------------------------------------------------------------------
A0.3        Title 24 Code Compliance
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
A1.0        Overall Site Plan                                                      R          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
A2.1.1.1    Phase A , Level 1, Floor Plan                     x          x         x          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
A2.1.2.1    Phase A , Level 2, Floor Plan                     x          x         x          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
A2.1.3.1    Phase A , Level 3, Floor Plan                     x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
A2.1.3.1r   Phase A, Level 3, Reflected Ceiling Plan          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
A2.1.4.1    Phase A , Level 4, Floor Plan                     x          x         x          x
-----------------------------------------------------------------------------------------------------
A2.1.4.4    Phase A , Level 4, Area C, Floor Plan             x          x         x          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
A2.1.5.1    Phase A , Penthouse Level, Floor Plan             x          x         x          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
A2.1.7.2    Phase A, Enlarged Plans, Lobby Core               x          x         x          x
-----------------------------------------------------------------------------------------------------
A2.1.7.3    Enlarged Plans - Stairs No. 2 & 3                 x          x         x          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
A2.1.4.1f   Phase A, Level 4, Finish Plan                                x         x          x
-----------------------------------------------------------------------------------------------------
A2.1.4.4f   Phase A , Level 4, Area C, Finish Plan                       x         x          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
A2.1.7.2f   Phase A, Lobby Core, Finish Plans                            x         x          x
-----------------------------------------------------------------------------------------------------
A2.1.7.3f   Stairs No. 2 & 3 Finish Plans                                x         x          x
-----------------------------------------------------------------------------------------------------

                                                                              1
<PAGE>

<CAPTION>

EXHIBIT C-3 TO WORK LETTER

DOWLER-GRUMAN ARCHITECTS

Document Log

Inhale, Bldg. 4, Interior, Ph-1, 99086
Core Improvements
=============================================

                                                             Design    Progress    Plan
                                                          Development    Print     Check     Bld set
SHT. NO.    SHEET NAME                                     (10-29-99)  (12-7-99)  (1-7-00)  (2-28-00)
=====================================================================================================
<S>         <C>                                           <C>           <C>       <C>        <C>
A2.1.4.1r   Phase A, Level 4, Reflected Ceiling Plan            x                    x          x
-----------------------------------------------------------------------------------------------------
A2.1.4.4r   Phase A , Level 4, Area C, RCP                                           x          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
A2.1.7.2r   Phase A, Lobby Core, Reflected Ceiling Plan                              x          x
-----------------------------------------------------------------------------------------------------
A2.1.7.3r   Stairs No. 2 & 3 Refl. Ceiling                                           x          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
A3.1        Door & Window Schedule                              x          x         x          x
-----------------------------------------------------------------------------------------------------
A3.2        Partition Types                                     x         x          x
-----------------------------------------------------------------------------------------------------
A3.4        Penetration Details                                 x         x          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
A4.1        Wall Sections                                       x         x          x
-----------------------------------------------------------------------------------------------------
A4.2        Wall Details                                        x          x         x          x
-----------------------------------------------------------------------------------------------------
A7.2        Interior Sections                                   x          x         x          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
A8.1        Interior Details - Doors & Windows                             x         x          x
-----------------------------------------------------------------------------------------------------
A8.2        Interior Details -Partitions                                   x         x          x
-----------------------------------------------------------------------------------------------------
A8.3        Interior Details - Finishes & Exterior                         x         x          x
              Details - Roofing
-----------------------------------------------------------------------------------------------------
A8.4        Interior Details - Ceiling                                     x         x          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
STRUCTURAL
-----------------------------------------------------------------------------------------------------
S2.1.4.1    Framing Plan, Level 4, Phase A                                           x          x
-----------------------------------------------------------------------------------------------------
S2.1.5.1    Roof Framing Plan                                                        x          x
-----------------------------------------------------------------------------------------------------
S7.1.6      Misc. Details                                                            x          x
-----------------------------------------------------------------------------------------------------

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

                                                                              2
<PAGE>

<CAPTION>

EXHIBIT C-3 TO WORK LETTER

DOWLER-GRUMAN ARCHITECTS

Document Log

Inhale, Bldg. 4, Interior, Ph-1, 99086
Core Improvements
=============================================

                                                             Design    Progress    Plan
                                                          Development    Print     Check     Bld set
SHT. NO.    SHEET NAME                                     (10-29-99)  (12-7-99)  (1-7-00)  (2-28-00)
=====================================================================================================
<S>         <C>                                           <C>           <C>       <C>        <C>
MECHANICAL
-----------------------------------------------------------------------------------------------------
M-0.1       Mechanical Equipment Schedule                       x          x         x          x
-----------------------------------------------------------------------------------------------------
MT-24       Mechanical Titel-24 Compliance                                           x          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
M2.1.2.2    Phase A, Level 2, Area A, Mechanical Plan                                x          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
M2.1.4.1    Phase A, Level 4, Mechanical Plan                              x         x          x
-----------------------------------------------------------------------------------------------------
M2.1.4.2    Phase A, Level 4, Area A, Mechanical Plan                                x          x
-----------------------------------------------------------------------------------------------------
M2.1.4.4    Phase A, Level 4, Area C, Mechanical Plan                                x          x
-----------------------------------------------------------------------------------------------------
M2.1.7.2    Enlarged Mechanical Lobby Core Plans                                                x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
M2.1.5.1    Phase A, Penthouse Level, Mechanical Plan           x          x         x          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
M3.1        Mechanical Sections & Details                                  x         x          x
-----------------------------------------------------------------------------------------------------

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

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

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

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

-----------------------------------------------------------------------------------------------------
PLUMBING
-----------------------------------------------------------------------------------------------------
P0          General                                                          x          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
P2.1.1.1    Phase A, Level 1, Piping Plan                                    x          x
-----------------------------------------------------------------------------------------------------
P2.1.2.1    Phase A, Level 2, Piping Plan                                    x          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
P2.1.4.1    Phase A, Level 4, Piping Plan                                    x          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
P6.1        Details                                                          x          x
-----------------------------------------------------------------------------------------------------

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

                                                                              3
<PAGE>

EXHIBIT C-3 TO WORK LETTER

DOWLER-GRUMAN ARCHITECTS

Document Log

Inhale, Bldg. 4, Interior, Ph-1, 99086
Core Improvements
=============================================

<CAPTION>
                                                             Design    Progress    Plan
                                                          Development    Print     Check     Bld set
SHT. NO.    SHEET NAME                                     (10-29-99)  (12-7-99)  (1-7-00)  (2-28-00)
=====================================================================================================
<S>                                                       <C>          <C>        <C>       <C>

ELECTRICAL
-----------------------------------------------------------------------------------------------------
E0.1        Legend, Titel 24 and Schedules                                           x          x
-----------------------------------------------------------------------------------------------------
E0.2        One Line Diagram                                                         x          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
E2.1.1.1    Phase A, Level 1, Electrical Plan                                        x          x
-----------------------------------------------------------------------------------------------------
E2.1.2.1    Phase A, Level 2, Electrical Plan                              x         x          x
-----------------------------------------------------------------------------------------------------
E2.1.3.1    Phase A, Level 3, Electrical Plan                      x         x          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
E2.1.4.1    Phase A, Level 4, Electrical Plan                      x         x          x
-----------------------------------------------------------------------------------------------------
E2.1.4.4    Phase A, Level 4, Area C, Electrical Plan                        x          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
E2.1.5.1    Phase A, Penthouse Level, Electrical Plan                        x          x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
E6.0        Panel Schedules                                                  x          x
-----------------------------------------------------------------------------------------------------

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

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

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

                                                                              4
<PAGE>

<CAPTION>

EXHIBIT C-3 TO WORK LETTER

DOWLER-GRUMAN ARCHITECTS

Document Log

Inhale, Bldg. 4, Interior, Ph-1, 99086
Core Improvements
=============================================

                                                             Design    Progress    Plan
                                                          Development    Print     Check     Bld set
SHT. NO.    SHEET NAME                                     (10-29-99)  (12-7-99)  (1-7-00)  (2-28-00)
=====================================================================================================
<S>                                                       <C>           <C>       <C>        <C>
General Conditions -AIA 111,  AIA A201                                               x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
DIVISION 1 GENERAL REQUIREMENTS
-----------------------------------------------------------------------------------------------------
       1010 Summary of the Work                                                      x
-----------------------------------------------------------------------------------------------------
       1018 Owner Furnished Equipment                                                x
-----------------------------------------------------------------------------------------------------
       1020 Allowances                                                               x
-----------------------------------------------------------------------------------------------------
       1030 Alternates                                                               x
-----------------------------------------------------------------------------------------------------
       1045 Cutting and Patching                                                     x
-----------------------------------------------------------------------------------------------------
       1049 Supporting from Building Structure                                       x
-----------------------------------------------------------------------------------------------------
       1300 Submittals                                                               x
-----------------------------------------------------------------------------------------------------
       1400 Quality Control                                                          x
-----------------------------------------------------------------------------------------------------
       1430 Mock-Ups                                                                 x
-----------------------------------------------------------------------------------------------------
       1500 Construction Facilities & Temporary
               Controls
-----------------------------------------------------------------------------------------------------
       1540 Site Security & Safety                                                   x
-----------------------------------------------------------------------------------------------------
       1600 Materials & Equipment                                                    x
-----------------------------------------------------------------------------------------------------
       1640 Hazardous Materials                                                      x
-----------------------------------------------------------------------------------------------------
       1700 Contract Closeout                                                        x
-----------------------------------------------------------------------------------------------------
       1900 Colors                                                                   x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
DIVISION 2 SITE WORK
-----------------------------------------------------------------------------------------------------
       2070 Selective Demolition                                                     x
-----------------------------------------------------------------------------------------------------
       2831 Chain Link Fence and Gate                                                x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
DIVISION 3 CONCRETE
-----------------------------------------------------------------------------------------------------
       3320 Leveling Topping                                                         x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
DIVISION 4 MASONRY
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
DIVISION 5 METALS
-----------------------------------------------------------------------------------------------------
       5999 Miscellaneous Metals                                                     x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
DIVISION 6 WOOD & PLASTICS
-----------------------------------------------------------------------------------------------------
       6200 Finish Carpentry                                                         x
-----------------------------------------------------------------------------------------------------
       6640 FRP Panels                                                               x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
DIVISION 7 THERMAL & MOISTURE PROTECTION
-----------------------------------------------------------------------------------------------------
       7200 Insulation                                                               x
-----------------------------------------------------------------------------------------------------
       7510 Repairs to Existing Built-up                                             x
              Bituminous Roofing
-----------------------------------------------------------------------------------------------------
       7600 Flashing & Sheet Metal                                                   x
-----------------------------------------------------------------------------------------------------
       7840 Firesstoppping and Smokeseals                                            x
-----------------------------------------------------------------------------------------------------
       7920 Sealants & Caulking                                                      x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
DIVISION 8 DOORS & WINDOWS
-----------------------------------------------------------------------------------------------------
       8100 Hollow Metal Doors & Frames                                              x
-----------------------------------------------------------------------------------------------------
       8305 Access Doors                                                             x
-----------------------------------------------------------------------------------------------------
       8710 Finish Hardware                                                          x
-----------------------------------------------------------------------------------------------------
       8800 Glazing                                                                  x
-----------------------------------------------------------------------------------------------------

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

                                                                              5
<PAGE>

<CAPTION>

EXHIBIT C-3 TO WORK LETTER

DOWLER-GRUMAN ARCHITECTS

Document Log

Inhale, Bldg. 4, Interior, Ph-1, 99086
Core Improvements
=============================================

                                                             Design    Progress    Plan
                                                          Development    Print     Check     Bld set
SHT. NO.    SHEET NAME                                     (10-29-99)  (12-7-99)  (1-7-00)  (2-28-00)
=====================================================================================================
<S>                                                       <C>           <C>       <C>        <C>
DIVISION 9 FINISHES
-----------------------------------------------------------------------------------------------------
       9290 Drywall Systems                                                          X
-----------------------------------------------------------------------------------------------------
       9500 Acoustical Treatment                                                     X
-----------------------------------------------------------------------------------------------------
       9600 Stone Flooring                                                           X
-----------------------------------------------------------------------------------------------------
       9650 Resilient Flooring                                                       X
-----------------------------------------------------------------------------------------------------
       9680 Carpeting                                                                X
-----------------------------------------------------------------------------------------------------
       9800 Special Coatings                                                         X
-----------------------------------------------------------------------------------------------------
       9900 Painting                                                                 X
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
DIVISION 10 SPECIALTIES
-----------------------------------------------------------------------------------------------------
      10260 Corner Guards                                                            X
-----------------------------------------------------------------------------------------------------
      10441 Accessibility and Safety Signage                                         X
-----------------------------------------------------------------------------------------------------
      10520 Fire Extinguisher Cabinets and                                           X
              Accessories
-----------------------------------------------------------------------------------------------------
      10605 Mesh Partitions                                                          X
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
DIVISION 11 EQUIPMENT
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
DIVISION 12 FURNISHINGS
-----------------------------------------------------------------------------------------------------
      12500 Window Treatment                                                         X
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
DIVISION 13 SPECIAL CONSTRUCTION
-----------------------------------------------------------------------------------------------------

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

-----------------------------------------------------------------------------------------------------
DIVISION 14 CONVEYING SYSTEMS
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
DIVISION 15 MECHANICAL (Design by Murphy)
-----------------------------------------------------------------------------------------------------
      15400 Plumbing                                                                 x
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
DIVISION 16 ELECTRICAL (Silverman & Light)
-----------------------------------------------------------------------------------------------------
      16010 Electrical General Provisions                                            X
-----------------------------------------------------------------------------------------------------
      16050 Basic Materials and Methods                                              X
-----------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------
</TABLE>

                                                                              6

<PAGE>

                           SCHEDULE C-4 TO WORK LETTER

                              APPROVED CONTRACTORS

Rudolph & Slette4n
South Bay Construction
DPR Construction, Inc.
XL Construction Corp.
Devcon Construction
Vance Brown Construction
Hathaway Dinwiddie Construction
Dome Construction
San Jose Construction
Blach Construction
Technical Builders
Mai Industries
LE Wenz Co.
Swinerton
Webcor Builders

<PAGE>

                           SCHEDULE C-5 TO WORK LETTER

                   APPROVED BUDGET FOR TENANT'S WORK (PHASE 1)

                                   (ATTACHED)

<PAGE>

                                 EXHIBIT C-5

                      Phase 1A Tenant Improvement Budget

<TABLE>
<S>                                                             <C>
              Design (soft costs)                                 $299,665

              Construction                                      $4,463,904

              Contingency                                          $65,556
                                                                ----------
              TOTAL TI BUDGET                                   $4,829,125
</TABLE>

<PAGE>

<TABLE>
<S>                                  <C>          <C>        <C>
         Phase 1 - 2nd Floor            930       $  125     $    116,250
         Phase 1 - 4th Floor         37,703       $  125     $  4,712,875
                                     38,633                  $  4,829,125
</TABLE>

<PAGE>

                                    EXHIBIT D

                         ESTIMATED CONSTRUCTION SCHEDULE

Phase 1A      Certificate of Substantial Completion by September 1, 2000

Phase 1B      Certificate of Substantial Completion by September 1, 2000

Phase 2A      Certificate of Substantial Completion by September 1, 2001

Phase 2B      Assuming Tenant exercises its Phase 2B Expansion Option:

              Certificate of Substantial Completion by September 1, 2001

<PAGE>

                                    EXHIBIT E

                    ACKNOWLEDGMENT OF RENT COMMENCEMENT DATE

         This Acknowledgment is executed as of __________________________, by
____________________________, a _____________________ ("LANDLORD"), and
________________________________, a _____________________ ("TENANT"), pursuant
to Section 2.4 of the Build-to-Suit Lease dated between Landlord and Tenant (the
"LEASE") covering premises located at 201 Industrial Road, San Carlos, CA 94070
(the "PROPERTY").

         Landlord and Tenant hereby acknowledge and agree as follows:

         1. The [Phase 1A, Phase 1B, Phase 2A, Phase 2B] 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.

         EXECUTED as of the date first set forth above.

LANDLORD                                                      TENANT

INHALE 201 INDUSTRIAL ROAD. L.P.,        INHALE THERAPEUTIC SYSTEMS INC.,
a California limited partnership         a Delaware corporation

By: SciMed Prop III, a California        By:
corporation, its General Partner            --------------------------------
                                         Name:
                                              ------------------------------
                                         Title:
                                               -----------------------------

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

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

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                              PAGE
<S>   <C>                                                                                                     <C>
1.    PROPERTY.................................................................................................4

      1.1   Lease of Premises..................................................................................4

            (a)  Buildings, Property, Improvements.............................................................4

            (b)  Use of Common Areas...........................................................................5

      1.2   Phase 2B Expansion Option..........................................................................6

2.    TERM.....................................................................................................7

      2.1   Term...............................................................................................7

      2.2   Early Possession...................................................................................7

      2.3   Delay In Possession................................................................................7

      2.4   Acknowledgement of Rent Commencement...............................................................7

      2.5   Holding Over.......................................................................................7

      2.6   Options To Extend Term.............................................................................8

3.    RENTAL...................................................................................................8

      3.1   Minimum Rental.....................................................................................8

            (a)  Commencement of Rental Obligations for Phase 1................................................8

            (b)  Commencement of Rental Obligations for Phases 2A and 2B.......................................8

            (c)  Rental Amounts for Phase 1A, Phase 1B, Phase 2A, and Phase 2B:  Annual Increases..............9

            (d)  Rental Amounts During First Extended Term.....................................................9

            (e)  Rental Amounts During Second Extended Term...................................................10

      3.2   Late Charge.......................................................................................10

4.    PARKING.................................................................................................11

5.    CONSTRUCTION............................................................................................11

      5.1   Construction of Improvements......................................................................11

            (a)  Base Building Work; Performance and Payment..................................................11

            (b)  Tenant's Work................................................................................11

            (c)  Compliance with Law..........................................................................11

6.    TAXES...................................................................................................12

      6.1    Personal Property................................................................................12

      6.2    Real Property....................................................................................12

<PAGE>

            (a)  Real Property Taxes..........................................................................12

            (b)  Protests.....................................................................................12

            (c)  Refunds......................................................................................13

            (d)  Other Taxes..................................................................................13

            (e)  Tax and Insurance Escrows....................................................................13

7.    OPERATING EXPENSES......................................................................................13

      7.1   Payment of Operating Expenses.....................................................................13

            (a)  Tenant's Operating Cost Share................................................................13

            (b)  Adjustment of Share Following Change Size of Premises........................................14

      7.2   Definition Of Operating Expenses..................................................................14

            (a)  Inclusions...................................................................................14

            (b)  Exclusions...................................................................................15

      7.3   Determination Of Operating Expenses...............................................................16

      7.4   Final Accounting For Lease Year...................................................................17

            (a)  Annual Statement.............................................................................17

            (b)  Audit Rights.................................................................................17

      7.5   Proration.........................................................................................17

      7.6   Reserve Account...................................................................................18

      7.7   Property Management Fee...........................................................................18

8.    UTILITIES...............................................................................................18

      8.1   Payment...........................................................................................18

      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 and Personal Property..............................................................20

      9.4  No Liens...........................................................................................20

      9.5  Signs..............................................................................................20

10.   MAINTENANCE AND REPAIRS.................................................................................20

      10.1 Tenant's Obligation For Maintenance................................................................20

                                                ii.
<PAGE>

      (a)  Good Order, Condition And Repair................................................................21

      (b)  Tenant's Option to Require Landlord to Maintain and Repair Both Buildings and Common Areas......21

      (c)  Landlord's Remedy...............................................................................22

      (d)  Condition Upon Surrender........................................................................22

      10.2 Landlord's Obligation For Maintenance...........................................................22

      (a)  Good Order, Condition And Repair................................................................22

      (b)  No Abatement....................................................................................23

      (c)  Landlords' Right of Entry for Repairs...........................................................23

11.   USE OF PROPERTY......................................................................................23

      11.1  Permitted Use..................................................................................23

      11.2  No Nuisance....................................................................................23

      11.3  Compliance With Laws...........................................................................23

      11.4  Environmental Matters..........................................................................24

            (a)  Definition of Hazardous Materials.........................................................24

            (b)  Tenant's Obligations Re: Hazardous Substances.............................................24

            (c)  Tenant's Indemnity........................................................................26

            (d)  Survival..................................................................................26

12.   INSURANCE AND INDEMNITY..............................................................................26

      12.1  Landlord's Insurance...........................................................................26

      12.2  Tenant's Insurance.............................................................................27

      12.3  Insurers; Primary Insurance....................................................................28

      12.4  Blanket Policy.................................................................................28

      12.5  Deductibles....................................................................................28

      12.6  Certificates...................................................................................28

      12.7  Adjustment in the Event of Loss................................................................29

      12.8  Proration Upon Termination.....................................................................29

      12.9  Waiver Of Subrogation..........................................................................29

      12.10 Indemnification................................................................................29

            (a)  Tenant's Indemnification Obligations......................................................29

                                              iii.
<PAGE>

            (b)  Landlord's Indemnification Obligations....................................................30

      12.11 Limitation on Landlord Liability...............................................................30

13.   SUBLEASE AND ASSIGNMENT..............................................................................31

      13.1  Assignment And Sublease Of Building............................................................31

            (a)  Consent Required..........................................................................31

            (b)  Permitted Transfers.......................................................................32

            (c)  Consent Required..........................................................................32

            (d)  Procedure to Obtain Consent...............................................................32

      13.2  Rights Of Landlord:  Effect of Landlord's Consent..............................................33

      13.3  Advertising....................................................................................33

      13.4  Writing Required...............................................................................33

      13.5  Transfer Premiums..............................................................................33

14.   RIGHT OF ENTRY AND QUIET ENJOYMENT...................................................................34

      14.1  Right Of Entry.................................................................................34

      14.2  Quiet Enjoyment................................................................................34

15.   CASUALTY AND TAKING..................................................................................34

      15.1  Damage or Destruction..........................................................................34

            (a)      Termination Rights....................................................................34

            (b)      Limitations on Parties' Obligations...................................................35

            (c)      Entitlement to Insurance Proceeds.....................................................35

            (d)      Abatement of Rent.....................................................................36

      15.2  Condemnation...................................................................................36

            (a)      Termination Rights....................................................................36

            (b)      Limitations on Parties' Obligations...................................................36

      15.3  Reservation Of Compensation....................................................................37

      15.4  Restoration Of Improvements....................................................................37

16.   DEFAULT..............................................................................................38

      16.1  Events Of Default..............................................................................38

            (a)      Nonpayment............................................................................38

            (b)      Other Obligations.....................................................................38

                                             iv.
<PAGE>

            (c)      General Assignment....................................................................38

            (d)      Bankruptcy............................................................................38

            (e)      Receivership..........................................................................38

            (f)      Attachment............................................................................39

            (g)      Insolvency............................................................................39

      16.2  Remedies Upon Tenant's Default.................................................................39

            (a)      Re-entry; Termination.................................................................39

            (b)      Continuation of Lease.................................................................39

            (c)      Remedies..............................................................................39

      16.3  Remedies Cumulative............................................................................40

17.   SUBORDINATION, ATTORNMENT AND SALE...................................................................40

      17.1  Subordination To Mortgage......................................................................40

      17.2  Sale of Landlord's Interest....................................................................41

      17.3  Estoppel Certificates..........................................................................41

18.   SECURITY.............................................................................................42

      18.1  Deposit........................................................................................42

      18.2  Pledge of Security Deposit.....................................................................43

19.   MISCELLANEOUS........................................................................................43

      19.1  Notices........................................................................................43

      19.2  Successors And Assigns.........................................................................44

      19.3  No Waiver......................................................................................44

      19.4  Severability...................................................................................44

      19.5  Litigation Between Parties.....................................................................44

      19.6  Surrender......................................................................................45

      19.7  Interpretation.................................................................................45

      19.8  Entire Agreement...............................................................................45

      19.9  Governing Law..................................................................................45

      19.10 No Partnership.................................................................................45

      19.11 Financial Information..........................................................................45

      19.12 Costs..........................................................................................46

                                                   v.
<PAGE>

      19.13 Time...........................................................................................46

      19.14 Brokers........................................................................................46

      19.15 Memorandum of Lease............................................................................46

      19.16 Corporate Authority............................................................................46

      19.17 Execution and Delivery.........................................................................47

      19.18 Survival.......................................................................................47

      19.19 Waiver of Jury Trial...........................................................................47
</TABLE>

                                                 vi.
<PAGE>

                                    EXHIBITS

                  Exhibit A         Real Property Description

                  Exhibit B         Site Plan

                  Exhibit C         Work Letter

                  Exhibit D         Estimated Construction Schedule

                  Exhibit E         Acknowledgment of Rent Commencement Date

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00017-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00017-of-00352.parquet"}]]