Document:

SUBLEASE

     This  Sublease, dated March 8, 2002, is entered into by and between Tularik
Inc.,  a  Delaware  corporation  ("Sublandlord"), and Exelixis, Inc., a Delaware
corporation  ("Subtenant").

                                    RECITALS

     A.  Sublandlord  leases  certain  premises  (the  "Premises") consisting of
approximately  66,127  rentable  square  feet  of  space located in that certain
building  located  at  One Corporate Drive (formerly Two Corporate Drive), South
San Francisco, California (the "Building"). Sublandlord is the tenant under that
certain  Build-To-Suit  Lease  dated  the  20th  day of April, 1995 (the "Master
Lease")  with  Britannia  Developments,  Inc.,  a  California  corporation,  as
landlord;  Britannia  Development,  Inc. assigned its interest as landlord under
the  Master  Lease  to  Britannia  Gateway,  LLC  pursuant  to an Assignment and
Assumption  of  Lease  dated as of May 24, 1995; Britannia Gateway, LLC assigned
its  interest  under  the  Master  Lease  to  Britannia  Biotech Gateway Limited
Partnership,  a Delaware limited partnership ("Master Landlord"), pursuant to an
Assignment  and  Assumption  of  Lease dated as of August 8, 1996. A copy of the
Master  Lease  is  attached  hereto  as Exhibit A. Except as otherwise expressly
provided  herein, any capitalized terms herein without definition shall have the
same  meaning  as  they  have  in  the  Master  Lease.

     B.  Sublandlord  desires to sublease to Subtenant, and Subtenant desires to
Sublease  from  Sublandlord,  approximately four thousand one hundred ninety one
(4,191)  square  feet  of  the  Premises  in  the Building, as more particularly
described  on  Exhibit B hereto and made a part hereof (the "Sublease Premises")
during  the  Term,  pursuant  to  the  terms  and  provisions  hereof.

     Now,  Therefore, in consideration of the covenants and conditions contained
herein,  Sublandlord  and  Subtenant  agree  as  follows:

                                    AGREEMENT

     1. Term. The term of this Sublease (the "Term") shall commence on the later
of  (i) March 1, 2002, (ii) the date Sublandlord has delivered possession of the
Sublease  Premises  to  Subtenant, or (iii) the date Master Landlord consents to
this  Sublease  (the  "Commencement  Date")  and  shall  expire,  unless  sooner
terminated  or extended pursuant to the further provisions hereof, at 11:59 p.m.
on  the  date  that  is  twelve (12) months after the Commencement Date, or such
earlier  date  as  the  Master  Lease  may  be  terminated pursuant to the terms
thereof.

     2.  Sublease  Premises.  During  the Term, Sublandlord hereby subleases the
Sublease  Premises  to  Subtenant,  and  Subtenant hereby subleases the Sublease
Premises  from  Sublandlord,  on  the  terms  and  conditions  set forth herein.
Subtenant  shall  additionally  have  the  right  to use during the Term without
charge  therefor  the  freestanding  equipment  which is identified on Exhibit C
                                                                       ---------
attached  hereto  and  made  a  part hereof, and all items of built-in equipment
located  in  or  serving  the  Sublease  Premises  as  of the Commencement Date.

     3.  Rent.

          (a)  Commencing  as of the Commencement Date and continuing thereafter
on  the first (1st) day of each and every month during the Term, Subtenant shall
pay  to  Sublandlord in advance the sum of $27,241.50 ($6.50 per rentable square
foot)  as  rent for the Sublease Premises (the "Rent"). Rent for any period less
than  a  calendar  month shall be a pro rata portion of the monthly installment.
Rent  shall be payable to Sublandlord, in advance, in lawful money of the United
States,  without  prior notice, demand, or offset, on or before the first day of
each  calendar  month  during  the  Term, at the address set forth in Section 23
below  or  at  such  other  address as may be designated in writing from time to
time.  The  first month's Rent payable hereunder shall be paid by Subtenant upon
the  mutual  execution  of  this  Sublease.

          (b)  Sublandlord  shall be responsible at its sole cost for paying the
following  amounts  and/or  providing  the  following  services: property taxes,
property  insurance (Building only), common area maintenance, HVAC, utilities on
the  Premises,  property  dues,  elevator  maintenance,  sprinklers,  security
(including  access  card  system),  garbage, pest control, earthquake insurance,
water  treatment  costs,  and  maintenance, repair and replacement (except where
caused  by  the  negligence  or willful misconduct of Subtenant) of all Building
operating  systems,  including  but not limited to HVAC, electrical, mechanical,
roll-up  doors  in  the shipping area, life-safety and plumbing, landscaping and
parking  lot  maintenance, and maintenance, repair and replacement (except where
caused  by  the  negligence  or willful misconduct of Subtenant) of all built-in
equipment  which  either  serves  or  is  located  within the Sublease Premises,
including  but  not  limited  to  the  autoclave, cagewasher, deionized/RO water
supply  system,  animal  holding  room  pressurization  equipment,  CO2  supply
equipment,  or  any  other  costs  that Sublandlord is required to pay under the
Master  Lease  pursuant to its terms.  Anything in this Sublease to the contrary
notwithstanding,  Sublandlord  shall  not  be responsible for any other services
required  by  Subtenant  (including, without limitation, janitorial services and
gas  supply  for  the  CO2  equipment).  Other  services  that  are  required by
Subtenant  may  be  negotiated  between  Sublandlord  and  Subtenant  and,  if
appropriate,  billed to Subtenant at Sublandlord's actual cost for such service.

          (c)  In  the  event  of  any  casualty  or  condemnation affecting the
Sublease Premises, Rent payable by Subtenant shall be abated hereunder, but only
to  the  extent  that  Rent under the Master Lease is abated with respect to the
Sublease  Premises,  and Subtenant waives any right to terminate the Sublease in
connection  with  such  casualty or condemnation except to the extent the Master
Lease  is  also  terminated  as to the Sublease Premises or any material portion
thereof.  In  the  event  of the termination of the Master Lease for any reason,
then  this  Sublease  shall  terminate  coincidentally  therewith  without  such
termination  constituting a default of Sublandlord unless the termination is due
to  a  default  by  Sublandlord  under the Master Lease which is not caused by a
default  by Subtenant under this Sublease. In the event of any taking, Subtenant
shall  have  no  claim  to  any award. In the event of any casualty, Sublandlord
shall  perform  such  restoration  as is required of Sublandlord pursuant to the
Master  Lease  and,  to  the  extent  such casualty is the result of Subtenant's
action  or  inaction,  Subtenant  shall restore the Sublease Premises as soon as
reasonably  practicable.

          (d)  Anything  in  this  Sublease  to  the  contrary  notwithstanding,
Subtenant  shall  be  liable  for, and shall pay and deliver evidence of payment
prior  to delinquency, all taxes levied against any personal property, fixtures,
machinery,  equipment,  apparatus,  systems  and  appurtenances  or improvements
placed  by  or  on behalf of Subtenant in, about, upon or in connection with the
Sublease  Premises  during  the  Term.

     4.  Security  Deposit.  Upon  execution  of  this Sublease, Subtenant shall
deposit  with Sublandlord the sum of $27,241.50 as a security deposit ("Security
Deposit").  Subtenant  hereby  grants  to Sublandlord a security interest in the
Security  Deposit,  including  but  not  limited  to replenishments thereof.  If
Subtenant  fails  to  pay Rent or other charges when due under this Sublease, or
fails  to perform any of its other obligations hereunder, Sublandlord may use or
apply  all or any portion of the Security Deposit for the payment of any Rent or
other amount then due hereunder and unpaid, for the payment of any other sum for
which  Sublandlord  may  become  obligated  by  reason of Subtenant's default or
breach,  or  for  any  loss  or  damage  sustained by Sublandlord as a result of
Subtenant's  default  or  breach.  If  Sublandlord  so  uses  any portion of the
Security  Deposit,  Subtenant  shall  restore  the  Security Deposit to the full
amount  originally  deposited  within  ten (10) days after Sublandlord's written
demand.  Sublandlord shall not be required to keep the Security Deposit separate
from its general accounts, and shall have no obligation or liability for payment
of  interest  on the Security Deposit.  The Security Deposit, or so much thereof
as  had  not  theretofore  been  applied  by  Sublandlord,  shall be returned to
Subtenant  within  thirty  (30) days of the expiration or earlier termination of
this  Sublease,  provided  Subtenant  has  vacated  the  Sublease  Premises.

     5.  Condition  of  the  Sublease  Premises.

          (a)  Subtenant agrees that (i) Sublandlord has made no representations
or warranties of any kind or nature whatsoever respecting the Sublease Premises,
the  Equipment  or  the  built-in  equipment  located in or serving the Sublease
Premises, their condition or suitability for Subtenant's use; and (ii) Subtenant
agrees  to  accept  the  Sublease  Premises  "as is, where is," with all faults,
without  any  obligation  on  the  part  of  Sublandlord  to  modify, improve or
otherwise  prepare  the  Sublease  Premises  for  Subtenant's  occupancy.

          (b)  Sublandlord  has  not  made  an  independent investigation of the
Premises  or  determination  with  respect  to  the  physical  and environmental
condition  of  the  Premises  including  without limitation the existence of any
underground tanks, pumps, piping, toxic or hazardous substances on the Premises.
No  investigation  has  been  made  by Sublandlord to ensure compliance with the
"American  With Disabilities Act" ("ADA").  ADA may require a variety of changes
to  the  Sublease Premises, including potential removal of barriers to access by
disabled  persons  and  provision  of  auxiliary  aids and services for hearing,
vision  or  speech  impaired  persons.  Subtenant  shall  rely solely on its own
investigations  and/or that of a licensed professional specializing in the areas
referenced  in  this  Section  5(b).

          (c)  Other  than  repairs  or  replacements  of existing improvements,
Subtenant  shall  not make any alterations, modifications or improvements to the
Sublease Premises without Sublandlord's prior written consent, which consent may
be  withheld  in  Sublandlord's  sole  discretion.

     6.  Use.  Subtenant  may  use  the  Sublease  Premises  as  administrative
offices,  for  research  and  development  purposes  and/or as a vivarium to the
extent  permitted  under  the  Master Lease and for no other purpose without the
approval  of the Master Landlord and Sublandlord.  Subtenant will not enter, nor
allow any agent, independent contractor or other person access from the Sublease
Premises  to any other portion of, the Premises without an escort by an employee
of  Sublandlord.  Sublandlord  shall  have  the  right  to  inspect the Sublease
Premises  at  any  time  after  giving  Subtenant twenty-four (24) hours notice;
provided,  however, that Sublandlord shall have the unrestricted right to access
the Sublease Premises at any time, without notice, in the event of an emergency.
If  Sublandlord  exercises  its  right  of  entry  under emergency circumstances
without  prior  notice  to  Subtenant,  Sublandlord  shall  nevertheless  notify
Subtenant by telephone concurrently with such entry, or if concurrent telephonic
notice is not reasonably possible, as soon thereafter as is reasonably possible,
provided  that Subtenant has informed Sublandlord of the person(s) who should be
notified  of  such  entry  and  their  telephone numbers.  Sublandlord agrees to
maintain  the  confidentiality  of  any  confidential, privileged or proprietary
information  regarding  Subtenant that Sublandlord may obtain through its access
to  the Sublease Premises.  Subtenant acknowledges and agrees that the operation
and  use  of  the  Sublease  Premises  may  require that Subtenant apply for and
receive  licenses  and/or  permits  from  various  federal,  state  and  local
governments,  and  Subtenant  covenants and agrees to apply for and receive such
licenses and/or permits as are required.  Subtenant shall provide to Sublandlord
copies  of  any  such  licenses  and/or  permits to the extent applicable to the
Sublease  Premises.  Subtenant  acknowledges,  agrees  and  covenants  that  its
occupancy,  operation  and  use  of  such  Sublease  Premises and/or its use and
handling  of  animals shall be in accordance with:  (a) all applicable state and
federal  regulations;  (b)  all  licenses  and  permits that either Subtenant or
Sublandlord  has  received  or  receives  in the future respecting such Sublease
Premises;  and  (c)  all  policies  and  procedures  Sublandlord  has reasonably
promulgated respecting such Sublease Premises.  In the event of any disagreement
concerning  the  interpretation  of  such  licenses,  permits,  policies  and/or
procedures,  the  determination  of  the  employee  of  Sublandlord charged with
ensuring  compliance  with  such  licenses,  permits, policies and/or procedures
shall  be  controlling.

     7.  Equipment  Repair.  All  required  repair  work  for  autoclaves  and
cagewashers shall be performed by Sublandlord's preventive maintenance suppliers
or  as  otherwise  determined  by  Sublandlord.

     8.  Master  Lease. This Sublease shall be subject and subordinate to all of
the  terms  and  provisions  of  the  Master Lease.  Except for payments of Rent
(which payments shall be made by Sublandlord) and except for those provisions of
the  Master  Lease  excluded  by  Section  9 below, Subtenant hereby assumes and
agrees  to  perform, during the Term, all of Sublandlord's obligations under the
Master  Lease  to  the  extent  such  obligations are applicable to the Sublease
Premises  and  accrue  after  the  date  hereof  pursuant  to  this  Sublease.

     9.  Incorporation  of  Master  Lease.

          (a)  Except  as  otherwise  provided  herein,  all  of  the  terms and
provisions  of  the  Master  Lease are incorporated into and made a part of this
Sublease  and  the  rights and obligations of the parties under the Master Lease
are  hereby  imposed  upon  the  parties  hereto  with  respect  to the Sublease
Premises,  the  Sublandlord  being  substituted for the "Landlord" in the Master
Lease, the Subtenant being substituted for the "Tenant" in the Master Lease, and
this  Sublease  being substituted for the "Lease" in the Master Lease, provided,
however,  that the term "Landlord" in Sections 1.2 and 12.1(a) shall mean Master
Landlord,  not  Sublandlord.  The parties specifically agree that any provisions
relating  to  any  construction obligations of "Landlord" under the Master Lease
with  respect to construction that occurred or was to have occurred prior to the
Commencement  Date  hereof, are hereby deleted.  Sublandlord shall not be liable
to Subtenant for any failure by Master Landlord to perform its obligations under
the  Master  Lease, nor shall such failure by Master Landlord excuse performance
by  Subtenant  of its obligations hereunder; provided, however, that Sublandlord
shall  use  its  commercially  reasonable  efforts  to  cause Master Landlord to
perform its obligations under the Master Lease.  Anything in the Master Lease to
the  contrary  notwithstanding,  no  personal  liability  shall  at  any time be
asserted  or  enforceable  against  any  assets  of  Sublandlord  or  against
Sublandlord's stockholders, directors, officers or partners on account of any of
Sublandlord's  obligations  or  actions  under  this  Sublease.  The  following
Sections  of  the  Master  Lease are not incorporated herein:  1.1(a), 2.1, 2.2,
2.3,  2.4, 2.6, 3.1, 4.1, Article 5, Article 6, Article 7, Article 9, Article 11
(except  Section  11.4,  which  is  incorporated), Sections 12.1(b) and 12.2(c),
Section  13.1, Section 15.1, Article 17, Section 20.1, 21.15, 21.16 and Exhibits
A-E.
          (b) Subtenant hereby agrees to indemnify and hold harmless Sublandlord
from  and  against any and all claims, liabilities, losses, damages and expenses
(including  reasonable  attorneys' fees) incurred by Sublandlord arising out of,
from  or  in  connection  with  (i)  the  use  or  occupancy  of the Premises by
Subtenant,  (ii)  Subtenant's negligence or willful misconduct causing damage to
the  Equipment  or  the  built-in  equipment  located in or serving the Sublease
Premises,  (iii)  any breach or default by Subtenant under this Sublease or (iv)
the  failure  of  Subtenant  to  perform  any  obligation  under  the  terms and
provisions  of the Master Lease assumed by Subtenant hereunder or required to be
performed  by Subtenant as provided herein, from and after the Commencement Date
of  this  Sublease.

          (c) Sublandlord hereby agrees to indemnify and hold harmless Subtenant
from  and  against any and all claims, liabilities, losses, damages and expenses
(including  reasonable  attorneys'  fees)  incurred by Subtenant arising out of,
from  or in connection with (i) Sublandlord's breach or default of any provision
of  this Sublease or any provisions of the Master Lease not assumed by Subtenant
hereunder  or  (ii)  acts  or omissions of Sublandlord under the Master Lease in
connection  with  the  Sublease  Premises prior to the Commencement Date of this
Sublease.

     10.  Sublandlord's  Obligations.

          (a)  Provided that Subtenant is not in default under the terms of this
Sublease,  Sublandlord  agrees to make timely payments of the Rent due under the
Master  Lease and to perform all of its other obligations under the Master Lease
(except to the extent assumed by Subtenant hereunder) to the end that the Master
Lease  shall  not  be  terminated  due  to  the  default  of  Sublandlord.

          (b)  To  the  extent  that  the  provision  of  any  services  or  the
performance  of  any maintenance or any other act (collectively "Master Landlord
Obligations")  is  the  responsibility  of  Master  Landlord,  Sublandlord, upon
Subtenant's  request,  shall  make  reasonable  efforts to cause Master Landlord
under  the  Master  Lease to perform such Master Landlord Obligations; provided,
however,  that  in  no  event  shall  Sublandlord be liable to Subtenant for any
liability,  loss  or  damage whatsoever in the event that Master Landlord should
fail  to  perform  the  same,  nor  shall  Subtenant be entitled to withhold the
payment of Rent or terminate this Sublease, unless such failure is the result of
an  event  of default on the part of Sublandlord under this Sublease, the Master
Lease,  or  both.  It  is  expressly understood that Sublandlord does not assume
Master  Landlord  Obligations  and  that  the  services  and  repairs  that  are
incorporated herein by reference, including but not limited to the furnishing of
elevators  or  other services or maintenance, restoration (following casualty or
destruction),  or  repairs  to  the  Building, Premises and/or Sublease Premises
which  are  Master  Landlord  Obligations  will  in  fact be furnished by Master
Landlord  and  not  Sublandlord, except to the extent otherwise provided herein.

          (c)  Sublandlord shall, at its sole cost and expense, maintain in good
condition  and  repair  all  portions of the Building and the Common Areas which
Sublandlord  is  obligated to maintain and repair pursuant to Section 12.2(a) of
the  Master  Lease,  except  for the interior portions of the Sublease Premises,
which,  subject  to  the  terms  hereof,  shall  be  maintained  by  Subtenant.

          (d)  Except  as provided in this Section 10, Sublandlord shall have no
other  obligations  to  Subtenant  with  respect to the Sublease Premises or the
performance  of  the  Master  Landlord  Obligations.

     11.  Insurance.

          (a)  Subtenant  shall be responsible for compliance with the insurance
provisions  of the Master Lease.  Such insurance shall insure the performance by
Subtenant  of  its  indemnification  obligations hereunder and shall name Master
Landlord  and  Sublandlord as additional insureds.  All insurance required under
this  Sublease  shall  contain an endorsement requiring thirty (30) days written
notice  from  the  insurance  company  to  Subtenant  and  Sublandlord  before
cancellation  or  change  in  the  coverage,  insureds  or amount of any policy.
Subtenant  shall  provide  Sublandlord with certificates of insurance evidencing
such  coverage  prior  to  the  commencement  of  this  Sublease.

          (b)  The  waiver of subrogation provision contained in Section 14.4 of
the Master Lease shall be deemed to be a three party agreement binding among and
inuring  to the benefit of Sublandlord, Subtenant and Master Landlord (by reason
of  its  consent  hereto).

     12.  Default.  In  addition  to  defaults  contained  in  the Master Lease,
failure  of Subtenant to make any payment of Rent within five (5) days following
receipt  by  Subtenant  of  written notice that such payment is delinquent shall
constitute  an  event  of  default  hereunder.  If  Subtenant's  default  causes
Sublandlord to default under the Master Lease, Subtenant shall defend, indemnify
and  hold  Sublandlord  harmless  from  all damages, costs (including reasonable
attorneys'  fees),  liability,  expenses  or  claims  relating  to such default.

     13.  Assignment  and  Subletting.  Sublandlord  shall  not  assign, sublet,
transfer,  pledge, hypothecate or otherwise encumber the Sublease Premises, this
Sublease or any interest therein, or permit the use or occupancy of the Sublease
Premises  by  any  other  person  other than Subtenant.  Any assignment, further
subletting,  occupancy  or  use without the prior consent of Subtenant shall, at
the  option  of  Subtenant,  terminate  this  Sublease.

     14.  Parking.  Subtenant  shall  have  Subtenant's  proportionate  share of
parking  rights as Sublandlord may have in connection with the Sublease Premises
pursuant  to  the  Master  Lease.

     15. Early Termination of Master Lease. If, without the fault of Sublandlord
or  Subtenant, the Master Lease should terminate prior to the expiration of this
Sublease,  neither  party  shall  have any liability to the other party.  To the
extent  that  the  Master  Lease  grants  Sublandlord any discretionary right to
terminate  the Master Lease, whether due to casualty, condemnation or otherwise,
Sublandlord  shall  be  entitled  to  exercise or not exercise such right in its
complete  and absolute discretion; provided, however, that Sublandlord shall use
reasonable  efforts  to  give to Subtenant as much prior notice of its intent to
terminate  as  practicable.

     16.  Consent  of  Master  Landlord. If Subtenant desires to take any action
that requires the consent of Master Landlord pursuant to the terms of the Master
Lease,  including,  without  limitation,  making any modification, alteration or
improvement  of  the  Sublease  Premises  or entering into a further sublease or
assignment  of  this Sublease, and in any event if Subtenant desires to make any
alternation  to  the  Sublease  Premises,  then, notwithstanding anything to the
contrary  herein,  (a)  Sublandlord  shall  have  the same rights of approval or
disapproval  as  Master Landlord has under the Master Lease, (b) Subtenant shall
not  take  any  such action until it obtains the consent of both Sublandlord and
Master  Landlord  and (c) Subtenant shall request that Sublandlord obtain Master
Landlord's  consent  on  Subtenant's  behalf,  unless  Sublandlord  agrees  that
Subtenant  may  contact  Master  Landlord  directly with respect to the specific
action  for  which  Master  Landlord's  consent  is  required.

     17.  Surrender of Sublease Premises. In lieu of any obligation or liability
set  forth  in the Master Lease, upon the termination of the Sublease, Subtenant
shall  surrender the Sublease Premises to Sublandlord broom-clean and in as good
a  condition  as  on the Commencement Date, ordinary wear and tear excepted.  In
addition,  Subtenant  shall  remove  any alterations, additions and improvements
made  by  or at the request of Subtenant (whether or not made with Sublandlord's
consent),  prior  to  the  termination  of the Sublease and restore the Sublease
Premises  to its prior condition, ordinary wear and tear excepted, repairing all
damage  caused  by  or  related to any such removal, all at Subtenant's expense.

     18.  No  Third Party Rights. The benefit of the provisions of this Sublease
is expressly limited to Sublandlord and Subtenant and their respective permitted
successors  and  assigns.  Under  no  circumstances  will  any  third  party  be
construed to have any rights as a third party beneficiary with respect to any of
said  provisions;  provided,  however, that Master Landlord shall be entitled to
the  benefit of Subtenant's assumption of Sublandlord's obligations, as "Tenant"
under  the  Master  Lease,  pursuant  to  Section  10  above.

     19.  Time of Essence. It is expressly understood and agreed that time is of
the  essence  with  respect  to  each  and  every  provision  of  this Sublease.

     20.  Attorneys' Fees. If any action or proceeding at law or in equity shall
be  brought  to enforce or interpret any of the provisions of this Sublease, the
prevailing  party  shall  be  entitled  to  recover  from  the  other  party its
reasonable attorneys' fees and costs incurred in connection with the prosecution
or  defense  of  such  action  or  proceeding.

     21.  Multiple  Parties.  Except  as otherwise expressly provided herein, if
more  than  one  person  or  entity  is  named  herein  as either Sublandlord or
Subtenant,  the  obligations  of  such  multiple  parties shall be the joint and
several  responsibility  of  all  persons  or  entities  named  herein  as  such
Sublandlord  or  Subtenant.

     22.  Approval  of Master Landlord. This Sublease shall be conditioned upon,
and  shall  not  take  effect  until,  receipt  of the written consent of Master
Landlord  thereto.  Upon  receipt  of  such  consent,  this  Sublease  shall  be
effective  as  of  the Commencement Date.  Sublandlord and Subtenant acknowledge
and  agree  that  in granting such consent, notwithstanding any other provisions
contained in or implied in this Sublease, Master Landlord shall not be deemed or
construed  (a) to have released Sublandlord from any responsibility for the full
and  timely  performance  of  all obligations of Sublandlord as Tenant under the
Master Lease as it pertains to the Sublease Premises, nor (b) to have authorized
Sublandlord  to  act  on  Master  Landlord's behalf in exercising or waiving any
rights,  remedies  or privileges of Master Landlord as Landlord under the Master
Lease as it pertains to the Sublease Premises, nor (c) to have assumed, incurred
or  undertaken any obligations or liabilities running directly to Subtenant with
respect  to  the  Sublease  Premises,  it  being  the  explicit  intention  and
understanding  of  the  parties  that,  notwithstanding  the  incorporation  by
reference  of  a portion of the Master Lease into this Sublease, Master Landlord
and  Sublandlord  shall  look solely to one another for the performance of their
respective obligations with respect to the Premises as Landlord and Tenant under
the  Master  Lease,  and that Sublandlord and Subtenant shall look solely to one
another  for the performance of their respective obligations with respect to the
Sublease  Premises  under  this  Sublease.

     23.  Notices.  The  addresses  specified in the Master Lease for receipt of
notices  to  each  of  the  parties are deleted and replaced with the following:

               To  Sublandlord  at:    Tularik  Inc.
                                       Two  Corporate  Drive
                                       South  San  Francisco,  CA  94080
                                       Attn:  Luis  Bayol

               To  Subtenant  at:      Exelixis,  Inc.
                                       170  Harbor  Way
                                       P.O.  Box  511
                                       South  San  Francisco,  CA  94083-0511
                                       Attn:  Glen  Sato

     24.  Brokers.  Each  party  hereto  represents  and  warrants  that  it has
dealt  with  no  broker  in  connection  with this Sublease and the transactions
contemplated  herein.  Each  party shall indemnify, protect, defend and hold the
other  party  harmless  from  all  costs  and  expenses  (including  reasonable
attorneys'  fees)  arising  from  or  relating  to  a  breach  of  the foregoing
representation  and  warranty.

     25.  No Existing Defaults. Sublandlord represents and warrants to Subtenant
that  as  of  the date hereof the Master Lease is in full force and effect, that
Sublandlord  has neither given nor received a notice of default under the Master
Lease,  and  that Sublandlord is not aware of any event which with the giving of
notice  or  the  passage  of  time could give rise to a default under the Master
Lease.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]

<PAGE>

     EXECUTED  as  of  the  date  first  written  above.

                                   SUBLANDLORD

                                   TULARIK  INC.
                                   a  Delaware  corporation

                                   By:    _______________________________

                                   Title: _______________________________

                                   SUBTENANT

                                   EXELIXIS,  INC.
                                   a  Delaware  corporation

                                   By:    _______________________________

                                   Title: _______________________________

                                   By:    _______________________________

                                   Title: _______________________________

                          [Signature Page To Sublease]

<PAGE>

                           CONSENT OF MASTER LANDLORD

     BRITANNIA  BIOTECH  GATEWAY, L.P., "Master Landlord" under the Master Lease
identified  in  that  certain Sublease dated, for reference purposes, March ___,
2002  to which this Consent is attached, hereby consents to said Sublease.  This
Consent  shall  not be deemed to relieve Sublandlord, as Tenant under the Master
Lease,  from  any  obligation or liability thereunder, nor shall this Consent be
deemed  Master  Landlord's  consent  to  any  further  subletting or assignment.

     By  its consent hereto, Master Landlord agrees to the waiver of subrogation
provision  described  in  Section  11(b)  of  the  attached  Sublease and to use
reasonable efforts to obtain an endorsement from its insurers providing for said
subrogation  waiver  from  such  insurers  in  favor  of  Subtenant.

                                   MASTER  LANDLORD:

                                   BRITANNIA  BIOTECH  GATEWAY,  L.P.
                                   a  Delaware  limited  partnership

                                   By:    _______________________________

                                   Britannia  Gateway, LLC, a  California
                                   limited  liability  company

                                   Managing  Partner

Date:____________________          By:    _______________________________

                                   Name:  _______________________________

                                   Title: _______________________________

<PAGE>

                                    EXHIBIT A

                                 [MASTER LEASE]
<PAGE>

                                    Exhibit B
                               [SUBLEASE PREMISES]

<PAGE>

                                    EXHIBIT C

                                    Equipment

RM  127)  4'  BIO-SAFETY-CABINET   S/N  51926XV
Model  NUAIRE  #  NU-407-400

RM  126)  6'  Bio-Safety-Cabinet   S/N  67337
Model  NUAIRE  #  NU-407-600

RM  137)  4'  Bio-Safety-Cabinet   S/N  72507
Model  NUAIRE  #  NU-407-400

RM  140)  4'  Bio-Safety-Cabinet   S/N  603889
Model  LabConCo  #  36209024964

Hallway  168)  Ice  Machine  S/N  375276-07K
Model  #  AFE400A-1A

RM  121)  2  ea.  6'  Steel  Shelving

Rm  122)  5  ea.  6'  Steel  Shelving

Receiving  area  124)  1ea.  4'  steel  and  1  ea.  2'  steel  shelving

Receiving  area  124)  1ea.  4x4  Oil  Spill  StationExhibit 10.21
-------------

                              EMPLOYMENT AGREEMENT

         This Employment Agreement  ("Agreement") is made effective as of May 1,
2002 ("Effective Date"), by and between Monterey Bay Bancorp,  Inc. ("Company"),
a  corporation  organized  under  the laws of the  State of  Delaware,  with its
principal  executive  offices  located at 567 Auto  Center  Drive,  Watsonville,
California, 95076; and Monterey Bay Bank ("Association"),  a federally chartered
savings and loan association,  a wholly-owned  subsidiary of the Company, and C.
Edward Holden  ("Executive").  This  Agreement  amends and  supersedes all prior
employment  agreements  between  or among  the  Company,  the  Association,  and
Executive.

         WHEREAS,  the  Association  wishes to obtain the services of Executive;
and

         WHEREAS, Executive is willing to serve in the employ of the Association
on a full-time basis;

         NOW,  THEREFORE,  in  consideration  of  the  mutual  covenants  herein
contained,  and upon the other terms and conditions  hereinafter  provided,  the
parties hereby agree as follows:

SECTION 1. EMPLOYMENT, DUTIES, AND RESPONSIBILITIES

(a) The Company and Association  (collectively  "Companies") agree to employ the
Executive  and  the  Executive  agrees  to be  employed  by the  Companies.  The
Executive  shall  serve as the  President  and Chief  Executive  Officer  of the
Companies.  The  Executive  also shall hold the position of Vice Chairman of the
Companies' board of directors ("Board"), subject to the Bylaws of the Companies.
The Executive shall be subject to an annual  performance review conducted by the
Board no later than May 1 of each year during the term of this Agreement.

(b) Except for periods of absence  occasioned  by illness,  reasonable  vacation
periods,  and  reasonable  leaves of absence,  Executive  agrees to perform such
duties as may be assigned by the Board, to devote all of his working time to the
business of the Companies,  and to use his best efforts to advance the interests
of the Companies  and their  stockholders  including,  without  limitation,  the
performance by the Executive of all necessary and reasonable services consistent
with his positions of President and Chief Executive  Officer,  and, as the Board
may request from time to time,  membership in and service to such  organizations
specified by the Board.  However, the expenditure of reasonable amounts of time,
for which Executive shall not be compensated by the Companies,  for educational,
charitable,  or  professional  activities  shall  not be deemed a breach of this
Agreement if those  activities  do not  materially  interfere  with the services
required of Executive under this Agreement.

                                                                    Page 1 Of 23
<PAGE>

SECTION 2. TERM OF AGREEMENT

         (a) The Association  agrees to employ the Executive,  and the Executive
agrees to accept employment by the Association, in accordance with the terms and
provisions of this  Agreement,  for the period  commencing on the Effective Date
and continuing for a period of twenty-four (24) full calendar months,  ending on
the second anniversary of the Effective Date ("TERM").

         (b)  Commencing on the first  anniversary  date of the  Agreement,  and
continuing on each  anniversary  thereafter,  the  disinterested  members of the
Board shall extend the Agreement an additional year such that the remaining term
of the Agreement shall be two (2) years unless the Executive or Board elects not
to extend the term of this Agreement by giving written notice to the other party
in accordance with Section 7 and Section 9 of this  Agreement.  If the Agreement
is  extended  pursuant to this  Section 2, the "TERM"  definition  herein  shall
include the period of extension.

SECTION 3. COMPENSATION AND REIMBURSEMENT.

         (a) During the TERM, the Executive  shall receive a base salary,  which
shall be paid in equal installments on a semi-monthly  basis, at the annual rate
of not less than  $257,500 per year ("Base  Salary").  Base Salary shall include
any  amounts of  compensation  deferred  by  Executive  under any  qualified  or
non-qualified  employee benefit plan maintained by the  Association.  During the
TERM,  Executive's Base Salary shall be reviewed at least annually. Any increase
in Base Salary shall become the Base Salary for purposes of this Agreement.

         (b) In  addition  to the Base  Salary  provided  for by  Section  3(a),
Executive  will be  entitled to  participate  in or receive  benefits  under any
employee  benefit  plans  including  but  not  limited  to,   retirement  plans,
supplemental  retirement  plans,  pension  plans,  employee  stock option plans,
profit-sharing plans,  health-and-accident plans, medical coverage, or any other
employee benefit plan or arrangement currently made available by the Association
or Company or made  available  in the  future to its senior  executives  and key
management  employees,  subject  to and on a basis  consistent  with the  terms,
conditions, and overall administration of such plans and arrangements. Executive
will be entitled to incentive  compensation  and bonuses as provided in any plan
of the  Association  or Company in which  Executive is eligible to  participate.
Nothing paid to the Executive under any such plan or arrangement  will be deemed
to be in lieu of other  compensation  to which the  Executive is entitled  under
this Agreement.

         (c) In  addition to the Base Salary  provided  for by Section  3(a) and
other  compensation  provided for by Section 3(b), the Association  shall pay or
reimburse  Executive  for all  reasonable  travel,  auto  allowance,  and  other
reasonable  business  related  expenses  incurred by Executive in performing his
obligations  under  this  Agreement.  Executive  shall  submit  monthly  to  the
Association a request for reimbursement  together with supporting  documentation
and, if applicable, receipts.

                                                                    Page 2 Of 23
<PAGE>

SECTION 4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.

         (a)  If  the   Association   or   Company   terminates,   actually   or
constructively,  the Executive's employment during the TERM for any reason other
than a termination  governed by Section 5 hereof,  or termination  for Cause, as
defined in Section 7 hereof, the Association shall be obligated to pay Executive
within  thirty  (30)  days  after  his  termination,  or,  in the  event  of his
subsequent death, his beneficiary or  beneficiaries,  or his estate, as the case
may be, in a lump sum  amount  equal to (i) the cost of  providing  medical  and
dental coverage through COBRA continuation coverage,  similar to the coverage in
effect at the time of Executive's termination, for a period of one year, (ii) an
amount equal to the then currently  targeted annual bonus as defined in the Cash
Incentive  Bonus Plan of the  Association,  regardless  of the time of year such
termination  occurs and in addition to any annual  bonus earned but not yet paid
for Executive's  services  provided in a prior year, and (iii) the greater of an
amount  equal to one times  Executives  then  current  year's Base Salary or the
Executive's pro-rata Base Salary for the remainder of the TERM of the Agreement.
Such  payments  shall  not be  reduced  in the  event  Executive  obtains  other
employment following  termination of employment.  No payments under this Section
4(a) are to be "grossed up" or otherwise adjusted based upon the personal income
tax consequences to or status of Executive.  No payments under this Section 4(a)
are to be discounted or "present valued" in any manner. If Executive voluntarily
resigns during the term of this  Agreement,  other than in the event of a Change
In Control or Threatened  Change In Control as  hereinafter  defined,  or in the
event of an actual or  constructive  termination  as defined in this  Section 4,
Executive shall not be entitled to receive any payments or benefits beyond those
earned through the date of such voluntary resignation.  Constructive termination
under this Section will be deemed to occur if the  Executive is forced to resign
his employment due to intolerable  conditions as defined by California law or if
Executive  terminates his  employment due to (i) a reduction of the  Executive's
title or status or resulting from a formal change in such title or status,  (ii)
a material  reduction in Executive's  responsibilities,  (iii) the assignment to
the   Executive  of  any  duties   inconsistent   with  his  title,   duties  or
responsibilities   in  effect,   (iv)  a  material   reduction  in   Executive's
compensation or benefits (with material in this regard defined as 5.0% or more),
(v) a relocation of  Executive's  principal  place of employment by more than 30
miles from its location as of the date of this Agreement,  or (vi) a significant
increase in the Executive's travel  requirements such that Executive is required
to travel more than 30 business days per year.

         (b) In the event the  Association is not in compliance with its minimum
regulatory  capital  requirements  or if such payments  pursuant to Section 4(a)
would cause the Association's capital to be reduced below its minimum regulatory
capital  requirements,  such payments or parts thereof,  shall be deferred until
such time as the Association or successor thereto is in capital compliance.

                                                                    Page 3 Of 23
<PAGE>

SECTION 5. CHANGE IN CONTROL.

         (a) For  purposes  of this  Agreement,  a "Change  in  Control"  of the
Association  or  Company  shall  mean an event of a nature  that:  (i)  would be
required to be reported in response to Item I of the Current Report on Form 8-K,
as in  effect  on the  date  hereof,  pursuant  to  Section  13 or  15(d) of the
Securities  Exchange  Act of 1934 (the  "Exchange  Act");  or (ii)  results in a
Change in Control of the  Association  or the Company  within the meaning of the
Home Owners' Loan Act of 1933 and / or the Rules and Regulations  promulgated by
the Office of Thrift  Supervision  ("OTS") (or its  predecessor  agency),  as in
effect on the date hereof  (provided,  that in applying the definition of change
in control as set forth under the rules and  regulations  of the OTS,  the Board
shall substitute its judgment for that of the OTS); or (iii) without  limitation
such a Change in Control  shall be deemed to have  occurred  at such time as (A)
any  "person"  (as the term is used in Sections  13(d) and 14(d) of the Exchange
Act) is or becomes  the  "beneficial  owner" (as defined in Rule 13d-3 under the
Exchange Act),  directly or indirectly,  of voting securities of the Association
or the Company  representing  25% or more of the  Association's or the Company's
outstanding voting securities or the right to acquire such securities except for
any voting securities of the Association  purchased by the Company in connection
with the  conversion  of the  Association  to the stock form and any  securities
purchased by any tax qualified  employee  benefit plan of the Association or the
Company,  or (B)  individuals  who  constitute the Board on the date hereof (the
"Incumbent  Board")  cease for any  reason  to  constitute  at least a  majority
thereof,  provided  that any person  becoming a director  subsequent to the date
hereof whose election was approved by a vote of at least  three-quarters  of the
directors  comprising the Incumbent  Board, or whose  nomination for election by
the stockholders was approved by the same Nominating  Committee serving under an
Incumbent Board, shall be, for purposes of this clause "B", considered as though
he were a  member  of the  Incumbent  Board,  or (C) a plan  of  reorganization,
merger,  consolidation,  sale  of all or  substantially  all the  assets  of the
Association  or  the  Company  or  similar   transaction  occurs  in  which  the
Association or the Company is not the resulting entity, provided,  however, that
such an event  listed  above  will be  deemed to have  occurred  or to have been
effectuated  upon  the  receipt  of  all  required  regulatory  and  stockholder
approvals not including the lapse of any statutory waiting periods.

         (b) For  purposes  of this  Agreement,  the term  Threatened  Change in
Control ("Threatened Change in Control") shall mean any pending tender offer for
any class of the  Association's  or the  Company's  outstanding  shares,  or any
pending bona fide offer to acquire the  Association  or the Company by merger or
consolidation,  or any other  pending  action or plan to effect,  or which would
lead to, a Change in Control of the  Association  or the Company.  A "Threatened
Change in Control  Period" shall commence on the first day the action  described
in the preceding  sentence  become  manifest and shall end when such actions are
abandoned or the Change in Control occurs.

                                                                    Page 4 Of 23
<PAGE>

         (c) If a Change in Control or Threatened Change in Control has occurred
or the Board  has  determined  that a Change in  Control  has  occurred  and the
Executive's  employment  is  terminated  by either a  Voluntary  or  Involuntary
Termination: (i) within twenty-four (24) months following the date of the Change
in  Control,  (ii)  within  six (6)  months  prior to the date of the  Change in
Control,  or (iii)  during a  Threatened  Change  in  Control  Period,  then the
benefits  described  in Section  5(d)  below  shall be paid or  provided  to the
Executive.

         (d)  Benefits to be Provided:  If the  Executive  becomes  eligible for
benefits  under  Section  5(c) above,  the  Association  shall pay or provide to
Executive,  or in  the  event  of  his  subsequent  death,  his  beneficiary  or
beneficiaries,  or his estate, as the case may be, the compensation and benefits
("Severance Payments") set forth in this Section 5(d).

                  (i).     Salary:  The  Executive  will continue to receive his
                           current  Base  Salary,   including  auto   allowance,
                           (subject to withholding of all applicable  income and
                           payroll taxes) for a period of thirty-six (36) months
                           from his date of termination in the same manner as it
                           was  being  paid  as  of  the  date  of  termination;
                           provided,  however,  that the  payments  provided for
                           hereunder shall be paid in a single lump sum payment,
                           to  be  paid  not  later   than  30  days  after  his
                           termination of employment.

                  (ii).    Bonuses and  Incentives:  The Executive shall receive
                           bonus   payments   from  the   Association   for  the
                           thirty-six  (36) months  following the month in which
                           his  employment  is  terminated in an amount for each
                           month equal to one-twelfth  of the average  ("Average
                           Bonus")  of the  bonuses  paid  to him  for  the  two
                           calendar  years  immediately  preceding  the  year in
                           which such termination occurs. Any bonus amounts that
                           the   Executive  had   previously   earned  from  the
                           Association  but  which may not yet have been paid as
                           of the date of  termination  shall not be affected by
                           this  provision.   Executive  shall  also  receive  a
                           prorated bonus of any uncompleted  fiscal year at the
                           date  of  termination  equal  to  the  Average  Bonus
                           multiplied  by the  number  of days he worked in such
                           year   divided  by  365  days.   The  bonus   amounts
                           determined  herein  (including the Average Bonus, any
                           previously  earned but unpaid bonus, and the prorated
                           bonus for any uncompleted  fiscal year) shall be paid
                           in a single  lump sum  payment,  to be paid not later
                           than 30 days after termination of employment.

                                                                    Page 5 Of 23
<PAGE>

                  (iii).   Employee Stock  Ownership  Plan: The Executive  shall
                           receive  supplemental  payments from the  Association
                           for the thirty-six (36) months following the month in
                           which his  employment  is terminated in an amount for
                           each month  equal to  one-twelfth  of the fair market
                           value as of December 31 of the  Association's  annual
                           contribution  to its Employee  Stock  Ownership  Plan
                           ("ESOP")  made on his behalf for the Plan year ending
                           immediately preceding his date of termination. If, as
                           of the date of Executive's termination, the Executive
                           is not fully  vested in his  benefit  under the ESOP,
                           the Association  shall also pay to the Executive,  an
                           additional payment equal to the amount of his account
                           under the ESOP which was forfeited as a result of his
                           termination  based upon the fair  market  value as of
                           the  most  recent   December  31.  The   supplemental
                           payments  determined  herein  shall be paid in a lump
                           sum payment,  to be paid not later than 30 days after
                           termination of employment.

                  (iv).    401(k) Plan: The Executive shall receive supplemental
                           payments from the Association for the thirty-six (36)
                           months following the month in which his employment is
                           terminated  in an  amount  for  each  month  equal to
                           one-twelfth  of  the  Association's  annual  matching
                           contribution  to its 401(k) Plan  ("401(k)")  made on
                           Executive's   behalf   for  the  Plan   year   ending
                           immediately preceding his date of termination. If, as
                           of the date of Executive's termination, the Executive
                           is not fully  vested in his benefit  under the 401(k)
                           Plan,   the   Association   shall  also  pay  to  the
                           Executive,  an additional payment equal to the amount
                           of his  account  under  the  401(k)  Plan  which  was
                           forfeited  as  a  result  of  his  termination.   The
                           supplemental payments determined herein shall be paid
                           in a lump sum  payment,  to be paid not later than 30
                           days after termination of employment.

                                                                    Page 6 Of 23
<PAGE>

                  (v).     Health,  Dental,  and Life  Insurance  Coverage:  The
                           health,  dental, and life insurance benefits coverage
                           (including  any executive  medical plan)  provided to
                           the  Executive  at his date of  termination  shall be
                           continued  by the  Association  at the  Association's
                           expense at the same  level and in the same  manner as
                           if his  employment had not  terminated,  beginning on
                           the date of such  termination  and ending on the date
                           thirty-six   (36)   months  from  the  date  of  such
                           termination.  Any additional  coverages the Executive
                           had at  termination,  including  dependent  coverage,
                           will also be  continued  for such  period on the same
                           terms,  to the  extent  permitted  by the  applicable
                           policies or  contracts.  Any costs the  Executive was
                           paying for such  coverages at the time of termination
                           shall  be paid by the  Executive  by  separate  check
                           payable to the Association each month in advance.  If
                           the terms of any  benefit  plan  referred  to in this
                           Section do not permit continued  participation by the
                           Executive,  the  Association  will pay  Executive its
                           costs for providing such coverage  within thirty (30)
                           days prior to the  conclusion of such  coverage.  The
                           coverages  provided  for in  this  Section  shall  be
                           applied against and reduce the period for which COBRA
                           will be  provided.  If the  Executive is covered by a
                           split-dollar or similar life insurance program at the
                           date of termination,  he shall have the option in his
                           sole  discretion to have such policy  transferred  to
                           him upon  termination,  provided that the Association
                           is paid at par value (no premium or discount) for its
                           interest  in the  life  insurance  policy  upon  such
                           transfer.

                  (vi).    Stock  Options:  Upon the  occurrence  of a Change in
                           Control  (whether or not  Executive's  employment  is
                           terminated),  all outstanding  stock options (whether
                           incentive stock options, non-statutory stock options,
                           or  other  type(s)  of  stock  options)   granted  to
                           Executive  under  the  1995  Stock  Option  Plan,  as
                           amended and restated from time to time,  and any such
                           similar stock option plans ("Stock  Option Plans") of
                           the  Association  or Company shall become 100% vested
                           and immediately exercisable. To the extent necessary,
                           the   provisions  of  this  Section   5(d)(vi)  shall
                           constitute  an  amendment  of the  Executive's  stock
                           option agreements under the Stock Option Plans.

                  (vii).   Stock  Awards:  Upon the  occurrence  of a Change  in
                           Control  (whether or not  Executive's  employment  is
                           terminated),  all outstanding stock awards granted to
                           Executive under the 1995 Performance  Equity Plan, as
                           amended and restated from time to time,  and any such
                           similar  stock award plans  ("Stock  Award Plans") as
                           implemented  by the  Association or Company from time
                           to time shall  become  100%  vested  and  immediately
                           distributed.  To the extent necessary, the provisions
                           of  this  Section   5(d)(vii)  shall   constitute  an
                           amendment of the Executive's  stock award  agreements
                           under the Stock Award Plans.

                                                                    Page 7 Of 23
<PAGE>

                  (viii).  Non-Qualified Plans: The Executive shall receive from
                           the Association the nominal  financial  equivalent of
                           thirty  six (36)  months  worth of the  Association's
                           contributions to or payments under (for the exclusive
                           benefit of Executive) any non-qualified  compensation
                           or benefit  plan in effect at the date of a Change In
                           Control  for which  Executive  was a  participant  or
                           beneficiary.

                  (ix).    Employee  Mortgage Loans: The Executive shall receive
                           from  the  Association  or its  successor  or  assign
                           either a continuation  of any employee  mortgage loan
                           rate  discount  in  effect  at the  date of the  loan
                           origination  for a period of the lesser of thirty six
                           months or the  maturity of the  mortgage  loan,  or a
                           payment  equal to the employee  loan rate discount in
                           effect on the date of the loan origination multiplied
                           by three (3) multiplied by the outstanding  principal
                           balance of the employee  mortgage loan on the date of
                           a Change In Control.

                  (x).     Vision, Short Term Disability,  Long Term Disability:
                           The Association  will have no obligation to Executive
                           for coverages  for or payment for vision,  short term
                           disability,  or long term disability  insurance under
                           this Section 5(d).

         (e) In the event the  Association is not in compliance with its minimum
capital  requirements or if such payments would cause the Association's  capital
to be reduced below its minimum regulatory capital  requirements,  such payments
or part  thereof  shall  be  deferred  until  such  time as the  Association  or
successor thereto is in capital compliance. Any such payments under Section 5(d)
shall not be reduced in the event Executive  obtains other employment  following
termination.  No payments  under this  Section  5(d) are to be  "grossed  up" or
otherwise  adjusted based upon the personal income tax consequences to or status
of  Executive.  No payments  under this  Section  5(d) are to be  discounted  or
"present valued" in any manner.

                                                                    Page 8 Of 23
<PAGE>

SECTION 6. LIMITATION AND ADJUSTMENT OF BENEFITS

         (a) Notwithstanding  anything in this Agreement to the contrary, if, in
the opinion of independent tax  accountants or counsel  selected and retained by
the Companies and reasonably acceptable to the Executive ("Tax Counsel"), any of
the  compensation or benefits  payable,  or to be provided,  to Executive by the
Companies  under  this  Agreement  are  treated as an excess  parachute  payment
("Excess  Severance  Payments") as defined in Section 280G(b)(1) of the Internal
Revenue Code of 1986, as amended  ("Internal Revenue Code") (whether alone or in
conjunction  with  payments  or  benefits  by  the  Companies  outside  of  this
Agreement),  the Companies shall direct Tax Counsel to determine and compare (i)
Executive's  net income after  Executive's  payment of all federal,  state,  and
local taxes assuming that all of the  compensation  and benefits  payable by the
Companies  under  this  Agreement  and all such other  arrangements  are paid to
Executive and Executive pays the "Excise Tax" (as imposed under Internal Revenue
Code  Section  4999);  and (ii)  Executive's  net  income  after  payment of all
federal,  state and local taxes  assuming that the total amount of  compensation
and benefits  payable by the Companies  under this  Agreement and all such other
arrangements  is reduced such that no Excess  Severance  Payments result and the
Excise Tax is not triggered.  If the amount  calculated under (ii) above is less
than 95% of the amount calculated under (i) above, then the full amount due from
the Companies under all such arrangements shall be payable to Executive.  If the
amount  calculated  under (ii)  above is at least 95% of the  amount  calculated
under (i) above,  then the total amount of  compensation  and  benefits  payable
under all such arrangements shall be reduced, as provided in Section 6(b) below,
such that Executive shall receive no Excess Severance Payments and shall have no
personal liability for Excise Tax.

         (b) In the event that the amount of any Severance  Payments,  including
any  benefits,  which would be payable to or for the benefit of Executive  under
this  Agreement  must be  modified  or  reduced to comply  with this  Section 6,
Executive shall direct which  Severance  Payments are to be modified or reduced,
including  allocating a portion of such Severance  Payments as compensation  for
ongoing obligations by Executive pursuant to Section 11; provided, however, that
no  increase in the amount of any payment or change in the timing of the payment
shall be made without the consent of the Companies.

                                                                    Page 9 Of 23
<PAGE>

         (c) This  Section  6 shall be  interpreted  so as to  maximize  the net
after-tax dollar value to Executive. In determining whether any Excess Severance
Payments  exist and the most  advantageous  outcome for  Executive,  the parties
shall take into account all  provisions  of Internal  Revenue Code Section 280G,
and the Regulations thereunder, including making appropriate adjustments to such
calculations for amounts established to be "Reasonable Compensation" as provided
in Section 280G(b)(4) of the Code. The Company, Association, and Executive shall
cooperate  fully with Tax Counsel and provide Tax Counsel with all  compensation
and benefit amounts,  personal tax information,  and other information necessary
or helpful in  calculation  of such net after-tax  amounts.  In the event of any
Internal Revenue Service examination, audit, or other inquiry, the Companies and
Executive  agree to take  action to  provide,  and to  cooperate  in  providing,
evidence to the Internal Revenue Service (and, if applicable,  the state revenue
department) to achieve this goal.

         (d) If it is established  pursuant to a final  determination of a court
or an  Internal  Revenue  Service  proceeding,  or pursuant to an opinion of Tax
Counsel,  that  notwithstanding the good faith of the Companies and Executive in
applying  the terms of this  Section 6, either (i) the amounts paid to Executive
unintentionally  constituted  Excess Severance Payments and triggered the Excise
Tax,  even though the payments to  Executive  were reduced in an effort to avoid
such result; or (ii) the amounts paid to Executive were reduced by more than was
necessary to avoid  triggering  the Excise Tax,  then the parties shall make the
applicable  correction  that will  achieve the goal  described  in Section  6(c)
hereof.  In the  event the  error  referred  to in  clause  (i)  hereof  occurs,
Executive is hereby required to repay to the Companies, within 15 days after the
error is  discovered,  the amount  necessary to avoid the Excise Tax;  provided,
however, that if Executive, based on advice from Tax Counsel and Executive's own
tax  advisor,  determines  that the  return  of such  amounts  will not serve to
eliminate the Excess  Severance  Payments and the Excise Tax, the Companies then
shall be obligated to pay to Executive,  within 15 days after Executive notifies
the  Companies  of  Executive's  determination,  the  total  amount by which the
original amount of Executive's  compensation  and benefits were reduced pursuant
to the terms of Section 6(a) and (b) hereof.  In the event the error referred to
in clause (ii) hereof  occurs,  the  Companies  are hereby  required to repay to
Executive,  within 30 days after the error is discovered,  the maximum amount of
the  compensation  and  benefits  that  were  reduced  pursuant  to the terms of
Sections 6(a) and (b) hereof that Executive may receive  without  triggering the
Excise Tax.

                                                                   Page 10 Of 23
<PAGE>

SECTION 7. TERMINATION FOR CAUSE.

         (a) For purposes of this  Agreement,  the term  "Cause"  shall mean (i)
fraud  or  misappropriation  with  respect  to the  business  or  assets  of the
Association  or the Company;  (ii) gross  negligence  or willful  misconduct  by
Executive  in the  performance  of his  duties;  (iii) any  habitual or repeated
neglect of his duties by Executive  which  Executive fails to cure upon ten (10)
days written notice; (iv) a material breach of this Agreement by Executive;  (v)
Executive's   inability  as  a  result  of  physical  or  mental  incapacity  to
substantially  perform his duties for the  Companies  on a full time basis for a
period exceeding six (6) months;  (vi) violation of any law, rule, or regulation
(excluding  Vehicle Code  convictions,  or marijuana  convictions  more than two
years old) that has a material  adverse effect upon the  Association or Company,
(vii) violation of any final cease-and-desist  order; (viii) the use of drugs or
alcohol that interferes with the Executive's  performance of his job duties;  or
(ix) any breach of fiduciary duty involving  personal  profit;  (x) any unlawful
conduct by Executive injurious to the interest, property,  operations,  business
or reputation of the Association, or (xi) conviction for any criminal felony.

         (b) Executive shall not have the right to receive compensation or other
benefits for any period after  Termination for Cause. Any unvested stock options
and related  limited rights granted to Executive  under any stock option plan or
unvested  awards  granted  to  Executive  under  any stock  benefit  plan of the
Association,  the Company, or any subsidiary or affiliate thereof,  shall become
null and void effective upon  Executive's  receipt of Notice of Termination  for
Cause pursuant to Section 9 hereof, and shall not be exercisable by or delivered
to Executive at any time subsequent to such Termination for Cause.

SECTION 8. VOLUNTARY RESIGNATION

         Nothing in this Agreement shall prevent or limit  Executive's right and
ability to voluntarily  resign and / or seek other gainful  employment  provided
that  Executive  gives not less than  sixty (60) days  prior  written  notice of
resignation to the Companies.  If Executive determines to voluntarily resign (i)
other  than in  conjunction  with a Change In Control  or  Threatened  Change In
Control  as defined  and  described  in Section 5 hereto,  or (ii) other than in
conjunction with an actual or constructive  termination as defined and described
in Section 4 hereto,  Executive shall be entitled to no additional  compensation
beyond that  generally  available to all or  substantially  all of the full-time
employees of the  Association at that time, and Executive shall only be entitled
to  that  compensation  and  benefits  earned  and  vested  at the  date of such
voluntary  resignation.  In  conjunction  with  such  a  voluntary  resignation,
Executive shall have no obligation or requirement to return any  compensation or
benefits earned or vested through the date of such voluntary  resignation to the
Association.

                                                                   Page 11 Of 23
<PAGE>

SECTION 9. NOTICE.

         A  termination  for  Cause by the  Association  or the  Company  of the
Executive's  employment  shall be  effective  upon  receipt of a written  notice
communicated  to the  Executive.  A  termination  other than for Cause  shall be
effective sixty (60) days after receipt of a written notice  communicated to the
Executive.

SECTION 10. POST-TERMINATION OBLIGATIONS.

         (a) All payments and benefits to Executive  under this Agreement  shall
be subject to Executive's  compliance with this Section 10 for one (1) full year
after the earlier of expiration of this  Agreement or termination of Executive's
employment.

         (b) Executive shall, upon reasonable  notice,  furnish such information
and  assistance to the Companies as may  reasonably be required by the Companies
in  connection  with any  litigation in which it or any of its  subsidiaries  or
affiliates  is,  or may  become,  a party.  Executive's  obligation  under  this
paragraph  shall  only be in  effect if the  Companies  provide  Executive  with
liability  insurance  coverage and  indemnification  similar to that provided to
current senior management personnel and as described in Section 22.

         (c) All written or printed  materials,  notebooks,  and records used by
Executive  in  performing  duties  for the  Companies,  other  than  Executive's
personal  notes and  diaries,  are and shall  remain  the sole  property  of the
Companies.  Upon termination of employment,  Executive shall promptly return all
such material (including all copies) to the Companies.

SECTION 11. NON-DISCLOSURE, NO-SOLICIATION AND UNFAIR COMPETITION.

         (a) Executive  agrees and  acknowledges  that during the performance of
his duties with the Companies,  he will receive and have access to confidential,
proprietary,  and/or trade secret information concerning the business activities
and plans for business  activities  of the  Companies  and  affiliates  thereof.
Executive  recognizes  and  acknowledges  that  the  knowledge  of the  business
activities  and plans for business  activities of the  Companies and  affiliates
thereof,  as may exist from time to time,  is a  valuable,  special,  and unique
asset of the business of the Companies.  Executive will not, during or after the
TERM,  disclose  any  knowledge of the past,  present,  planned,  or  considered
business activities of the Companies or affiliates thereof to any person,  firm,
corporation,   or  other   entity  for  any   reason  or   purpose   whatsoever.
Notwithstanding the foregoing,  Executive may disclose any knowledge of banking,
financial  and/or  economic  principles,   concepts  or  ideas,  which  are  not
exclusively  derived from the business  plans,  and activities of the Companies.
Further,  Executive may disclose  information  regarding the business activities
and proprietary  information of the Companies to the OTS, Federal  Reserve,  and
the  Federal  Deposit  Insurance  Corporation  ("FDIC")  pursuant  to  a  formal
regulatory   request  or  as  mandated  by  order  of  a  court  of   applicable
jurisdiction.

                                                                   Page 12 Of 23
<PAGE>

         (b) Executive  further agrees and  acknowledges  that the Companies and
affiliates have invested  substantial time, effort, and expense in compiling its
confidential,  trade secret  information  and in assembling its present staff of
personnel,  and have an interest  in  preventing  any unfair use of  information
which  the  Executive  has  obtained  solely  through  his  employment  with the
Companies. In order to protect the confidentiality of the Companies' proprietary
confidential  information,  Executive  agrees that during his employment and for
one year thereafter,  he shall not do the following:  (1) approach,  solicit, or
accept  business  from, or otherwise do business or  communicate in any way with
any customer of the Association,  utilizing  information which the Executive has
obtained solely through his employment with the Association,  for the purpose of
engaging in or assisting  others in engaging in Competition  (as defined herein)
with the Association; (2) approach, counsel, or attempt to induce any person who
is then in the employ of the Association to leave the employ of the Association,
or employ or  attempt  to employ  any such  person or any person who at any time
during the preceding twelve (12) months or during the TERM of this Agreement was
in the  employ  of  the  Association,  unless  such  person  has  initially  and
voluntarily  approached  Executive or Executive's new employing entity of his or
her own accord; or (3) aid, assist, or counsel any other person, firm or counsel
any other person, firm or corporation to do any of the above. For the purpose of
this Agreement,  a person or business is in Competition with the business of the
Association if the business  involves the solicitation for, sale or distribution
of financial  products and services  anywhere within the  Association's  primary
service area in the counties of Santa Cruz,  Monterey,  and contiguous counties.
The  provisions  of this  paragraph  do not  apply in the  event of a Change  of
Control.

         (c) Executive agrees that in addition to any and all remedies available
at law or equity  (including  money damages),  the Companies may seek injunctive
relief  and/or a decree  for  specific  performance  to  prevent  any  breach or
threatened breach by the Executive or any other person acting for, along with or
under the  direction  of the  Executive of this Section 11, where such breach or
threatened  breach  will  result in  irreparable  and  continuing  damage to the
Companies for which there will be no adequate remedy at law. The Companies shall
be entitled  to seek such  equitable  relief in any forum,  including a court of
law,  notwithstanding the provision of Section 20 and the arbitration  provision
referenced  therein.  The  Companies  may pursue any of the  remedies  described
herein  concurrently  or  consecutively  in any  order as to any such  breach or
violation,  and the  pursuit  of one of such  remedies  at any time  will not be
deemed an election of remedies or waiver of the right to pursue any of the other
such remedies.

                                                                   Page 13 Of 23
<PAGE>

SECTION 12. SOURCE OF PAYMENTS.

         All payments provided in this Agreement shall be timely paid in cash or
check  from  the  general  funds  of  the  Association.  The  Company,  however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder  to  Executive  and,  if  such  amounts  and  benefits  due  from  the
Association are not timely paid or provided by the Association, such amounts and
benefits shall be paid or provided by the Company.

SECTION 13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.

         This Agreement  contains the entire  understanding  between the parties
hereto  and  supersedes  any and all prior  employment  agreements  between  the
Company or Association or any  predecessor  of the Company or  Association,  and
Executive,  except that this Agreement shall not affect or operate to reduce any
benefit or compensation  inuring to Executive of a kind elsewhere  provided.  No
provision  of this  Agreement  shall be  interpreted  to mean that  Executive is
subject  to  receiving  fewer  benefits  than  those  available  to him  without
reference to this Agreement.

SECTION 14. NO ATTACHMENT.

         (a) Except as required by law, no right to receive  payments under this
Agreement  shall be  subject to  anticipation,  commutation,  alienation,  sale,
assignment,  encumbrance,  charge,  pledge, or  hypothecation,  or to execution,
attachment,  levy, or similar process or assignment by operation of law, and any
attempt,  voluntary  or  involuntary,  to affect any such action  shall be null,
void, and of no effect.

         (b) This Agreement  shall be binding upon, and inure to the benefit of,
Executive and the  Association and Company and their  respective  successors and
assigns.

SECTION 15. MODIFICATION AND WAIVER.

         (a)  This  Agreement  may  not be  modified  or  amended  except  by an
instrument in writing signed by the parties hereto.

         (b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement,  except by written  instrument of the party charged with such
waiver or estoppel.  No such written waiver shall be deemed a continuing  waiver
unless specifically  stated therein,  and each such waiver shall operate only as
to the specific  term or condition  waived and shall not  constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.

                                                                   Page 14 Of 23
<PAGE>

SECTION 16. REQUIRED PROVISIONS.

         (a) The Association may terminate  Executive's  employment at any time,
but any termination by the Association,  other than Termination for Cause, shall
not prejudice  Executive's  right to  compensation  or other benefits under this
Agreement.  Executive shall not have the right to receive  compensation or other
benefits  for any  period  after  Termination  for Cause as defined in Section 7
hereinabove.

         (b) If Executive is suspended from office and/or temporarily prohibited
from  participating  in the  conduct  of the  Association's  affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12
U.S.C.  ss.1818(e)(3)  or  (g)(1);  the  Association's  obligations  under  this
contract  shall  be  suspended  as of the  date of  service,  unless  stayed  by
appropriate  proceedings.  If the  charges  in the  notice  are  dismissed,  the
Association  may in  its  discretion  (i)  pay  Executive  all  or  part  of the
compensation  withheld while their contract  obligations were suspended and (ii)
reinstate (in whole or in part) any of the obligations which were suspended.

         (c)  If  Executive  is  removed  and/or  permanently   prohibited  from
participating  in the conduct of the  Association's  affairs by an order  issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
ss.1818(e)(4) or (g)(1),  all obligations of the Association under this contract
shall terminate as of the effective date of the order,  but vested rights of the
contracting parties shall not be affected.

         (d) If the  Association is in default as defined in Section  3(x)(1) of
the Federal Deposit  Insurance Act, 12 U.S.C.  ss.1813(x)(1)  all obligations of
the  Association  under this contract shall terminate as of the date of default,
but this  paragraph  shall not  affect  any  vested  rights  of the  contracting
parties.

         (e) All  obligations  of the  Association  under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution, (i) by the Director of
the OTS (or his  designee)  or the  FDIC,  at the time the FDIC  enters  into an
agreement to provide  assistance  to or on behalf of the  Association  under the
authority  contained in Section 13(c) of the Federal  Deposit  Insurance Act, 12
U.S.C.  ss.1823(c);  or (ii) by the Director of the OTS (or his designee) at the
time the Director (or his  designee)  approves a  supervisory  merger to resolve
problems related to the operations of the Association or when the Association is
determined by the Director to be in an unsafe or unsound  condition.  Any rights
of the parties that have already vested,  however, shall not be affected by such
action.

         (f) Any  payments  made to  Executive  pursuant to this  Agreement,  or
otherwise,  are  subject  to and  conditioned  upon  compliance  with 12  U.S.C.
ss.1828(k) and 12 C.F.R.  ss.545.121 and any rules and  regulations  promulgated
thereunder.

                                                                   Page 15 Of 23
<PAGE>

SECTION 17. SEVERABILITY.

         If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this  Agreement or any part of such  provision not held so invalid,  and each
such other  provision and part thereof shall to the full extent  consistent with
law continue in full force and effect.

SECTION 18. HEADINGS FOR REFERENCE ONLY.

         The headings of sections and paragraphs  herein are included solely for
convenience of reference and shall not control the meaning or  interpretation of
any of the provisions of this Agreement.

SECTION 19. GOVERNING LAW.

         The  validity,  interpretation,  performance  and  enforcement  of this
Agreement shall be governed by the laws of the State of California,  but only to
the extent not superseded by federal law.

SECTION 20. ARBITRATION.

         In  the  event  there  is  any  dispute   arising  out  of  Executive's
employment,  the  termination  of  that  employment,  or  arising  out  of  this
Agreement,  the  Executive  and  Association  and  Company  agree to submit such
dispute to binding  arbitration in accordance  with the terms of the Alternative
Dispute  Resolution  Agreement  set forth in  Appendix A to this  Agreement  and
incorporated herein.

SECTION 21. PAYMENT OF COSTS AND LEGAL FEES.

         All  reasonable  costs and legal  fees paid or  incurred  by  Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Association if Executive is successful on the
merits pursuant to a legal judgment, arbitration, or settlement.

                                                                   Page 16 Of 23
<PAGE>

SECTION 22. INDEMNIFICATION.

         (a) The Association and Company shall provide Executive  (including his
heirs,  executors and administrators)  with coverage under a standard directors'
and officers'  liability insurance policy as approved by the Board of Directors,
at its expense,  and to the extent not otherwise provided through such insurance
policy, shall indemnify Executive (and his heirs,  executors and administrators)
to the fullest  extent  permitted  under  federal law against all  expenses  and
liabilities  reasonably incurred by him in connection with or arising out of any
action,  suit or  proceeding in which he may be involved by reason of his having
been a director  or officer of the  Association  or Company  (whether  or not he
continues to be a director or officer at the time of incurring  such expenses or
liabilities),  such expenses and liabilities to include,  but not be limited to,
judgments,  court  costs,  and  attorneys'  fees,  and the  cost  of  reasonable
settlements.

         (b) Any payments made to Executive pursuant to this Section are subject
to and conditioned  upon  compliance with 12 C.F.R.  ss.545.121 and any rules or
regulations promulgated thereunder.

SECTION 23. SUCCESSOR TO THE ASSOCIATION OR COMPANY.

         The Companies  shall require any successor or assignee,  whether direct
or  indirect,  by  purchase,  merger,  consolidation,  or  otherwise,  to all or
substantially  all  the  business  or  assets  of the  Association  or  Company,
expressly  and  unconditionally  to assume and agree to perform all  obligations
under  this  Agreement,  in the  same  manner  and to the same  extent  that the
Companies  would be required to perform if no such  succession or assignment had
taken place.

                                                                   Page 17 Of 23
<PAGE>

         IN WITNESS  WHEREOF,  Monterey Bay Bank and Monterey Bay Bancorp,  Inc.
have caused this Agreement to be executed and their seals to be affixed hereunto
by their duly authorized  officers and directors,  and Executive has signed this
Agreement, on the first day of May, 2002.

<TABLE>
<S>                                                           <C>
ATTEST:                                                       MONTEREY BAY BANK

By:      /s/ Mary Anne Carson                        By:      /s/ McKenzie Moss
         -----------------------------------                  --------------------------
         Corporate Secretary                                  McKenzie Moss
                                                              Chairman of the Board

[SEAL]

ATTEST:                                                       MONTEREY BAY BANCORP, INC.
                                                              (Guarantor)

By:      /s/ Mary Anne Carson                        By:      /s/ McKenzie Moss
         -----------------------------------                  --------------------------
         Corporate Secretary                                  McKenzie Moss
                                                              Chairman of the Board

[SEAL]

WITNESS:                                                      EXECUTIVE:

/s/ Carlene Anderson                                          /s/ C. Edward Holden
--------------------------------------------                  --------------------------
Carlene Anderson                                              C. Edward Holden
                                                              President & Chief Executive Officer
</TABLE>

                                                                   Page 18 Of 23
<PAGE>

                                   APPENDIX A

                         ALTERNATIVE DISPUTE RESOLUTION

I.       AGREEMENT TO ARBITRATE

         In the event that any employment  dispute  arises between  Monterey Bay
         Bank  ("Association") and C. Edward Holden  ("Executive"),  the parties
         involved  will make all  efforts to resolve  any such  dispute  through
         informal  means.  If these informal  attempts at resolution fail and if
         the  dispute  arises out of or is  related to a breach of the  parties'
         Employment Agreement, the termination of employment or alleged unlawful
         discrimination,  Association  and Executive  will submit the dispute to
         final and binding arbitration.

         By accepting  employment with the  Association,  Executive  agrees that
         arbitration is the exclusive  remedy for all such arbitrable  disputes;
         with respect to such disputes,  no other action may be brought in court
         or any other forum (except  actions to compel  arbitration  hereunder).
         THIS ADR AGREEMENT IS A WAIVER OF THE PARTIES'  RIGHTS TO A CIVIL COURT
         ACTION FOR A DISPUTE  RELATING TO  TERMINATION OF EMPLOYMENT OR ALLEGED
         UNLAWFUL DISCRIMINATION,  WHICH INCLUDES RETALIATION OR SEXUAL OR OTHER
         UNLAWFUL  HARASSMENT;  ONLY AN  ARBITRATOR,  NOT A JUDGE OR JURY,  WILL
         DECIDE THE DISPUTE.

         Employment  disputes  arising  out  of or  related  to  termination  of
         employment or alleged unlawful  discrimination,  including retaliation,
         sexual or other unlawful harassment,  shall include, but not be limited
         to, the following:  alleged  violations of federal,  state and/or local
         constitutions,  statutes or regulations;  claims based on any purported
         breach of contractual  obligation,  including breach of the covenant of
         good faith and fair dealing;  and claims based on any purported  breach
         of duty  arising  in  tort,  including  violations  of  public  policy.
         Disputes related to workers'  compensation  and unemployment  insurance
         are not arbitrable hereunder. Claims for benefits covered by a separate
         benefit plan that provides for  arbitration are not covered by this ADR
         Agreement.  Claims  that are filed with or are being  processed  by the
         U.S. Equal  Employment  Opportunity  Commission  ("EEOC"),  or that are
         brought  under Title VII of the Civil  Rights Act of 1964,  as amended,
         are not arbitrable  under this  Agreement,  except that the parties may
         agree in writing to do so with  respect to each such  dispute  that may
         arise.

II.      ARBITRATION PROCEDURES

         (a) Attempt At Informal Resolution Of Disputes

         Prior to  submission  of any dispute to  arbitration,  Association  and
         Executive  shall  attempt to resolve  the  dispute  informally  through
         mediation. Association and Executive will select a mediator from a list
         provided  by the State  Mediation  and  Conciliation  Service  or other
         similar  agency who will  assist the parties in  attempting  to reach a
         settlement of the dispute. The mediator may make settlement suggestions
         to the parties but shall not have the power to impose a settlement upon
         them.  If the  dispute is resolved in  mediation,  the matter  shall be
         deemed closed.  If the dispute is not resolved in mediation and goes to
         the next step  (binding  arbitration),  any  proposals  or  compromises
         suggested  by  either  of the  parties  or the  mediator  shall  not be
         referred  to or have any  bearing  on the  arbitration  procedure.  The
         mediator  cannot  also  serve  as  the  arbitrator  in  the  subsequent
         proceeding unless all parties expressly agree in writing.

         (b) Request for Arbitration

         Should  Association  or  Executive  wish to pursue  arbitration  of any
         arbitrable dispute,  Association,  Executive or its/his  representative
         must submit a written "Request For Arbitration" to the other party with
         (1) year of the  alleged  conduct  giving rise to the  dispute.  If the
         "Request  for  Arbitration"  is not  submitted in  accordance  with the
         aforementioned  time  limitations,  the party will not be able to bring
         its/his claims to this or any other forum. Unless otherwise required by
         law, the "Request For  Arbitration"  shall clearly state it is "Request
         For  Arbitration"  at the  beginning of the first page and includes the
         following  information:  (1)

                                                                   Page 19 Of 23
<PAGE>

         a factual description of the dispute in sufficient detail to advise the
         other party of the nature of the dispute, (2) the date when the dispute
         first arose, and (3) the relief requested by requesting party.

         A Request  for  Arbitration  must be mailed to the other  party's  last
         known address or  hand-delivered  to that party.  The party to whom the
         Request for  Arbitration  is directed  will respond  within thirty (30)
         days so that  the  parties  can  begin  the  process  of  selecting  an
         Arbitrator. Such response may include any counterclaims.

         (c) Selection Of The Arbitrator

         All disputes will be resolved by a single Arbitrator,  selected through
         and under the American  Arbitration  Association's  "National Rules for
         the Resolution of Employment Disputes" as amended and effective June 1,
         1997.

         (d) The Arbitrator's Authority

         The Arbitrator shall have the powers enumerated below:

         1.       Ruling  on  motions   regarding   discovery,   and  ruling  on
                  procedural   and   evidentiary   issues   arising  during  the
                  arbitration.

         2.       Ruling on  motions  to  dismiss  and/or  motions  for  summary
                  judgment  applying the standards  governing such motions under
                  the Federal Rules of Civil Procedure.

         3.       Issuing  protective orders on the motion of any party or third
                  party witness, such protective orders may include, but are not
                  limited to, sealing the record of the arbitration, in whole or
                  in  part   (including   discovery   proceedings  and  motions,
                  transcripts,  and the  decision  and  award),  to protect  the
                  privacy or other constitutional or statutory rights of parties
                  and/or witnesses.

         4.       Determining  only  the  issue(s)  submitted  to  him/her.  The
                  issue(s) must be identifiable in the "Request For Arbitration"
                  or  counterclaim(s).  Except as required by law,  any issue(s)
                  not  identifiable  in those  documents is outside the scope of
                  the  Arbitrator's  jurisdiction  and any award  involving such
                  issue(s), upon motion by a party, shall be vacated.

         (e) Discovery

         The discovery  process shall proceed and be governed,  consistent  with
         the standards of the Federal Rules of Civil Procedure, as follows:

         1.       Unless otherwise required by law, parties may obtain discovery
                  by any of the following methods:

                  a.       Depositions   of  non-expert   witnesses   upon  oral
                           examination, five (5) per side as of right, with more
                           permitted if leave is obtained from the Arbitrator;

                  b.       Written  interrogatories,  up to a  maximum  combined
                           total  of  twenty  (20),  with the  responding  party
                           having twenty (20) days to respond;

                  c.       Request  for  production  of  documents  or things or
                           permission  to enter upon land or other  property for
                           inspection,  with the responding  party having twenty
                           (20) days to produce the documents and allow entry or
                           to file objections to the request;

                  d.       Physical and mental  examination,  in accordance with
                           Federal Rule of Civil Procedure 35(a); and

                                                                   Page 20 Of 23
<PAGE>

                  e.       Any   motion  to  compel   production,   answers   to
                           interrogatories  or entry onto land or property  must
                           be made to the Arbitrator within fifteen (15) days of
                           receipt of objections.

         2.       To the extent  permitted  by the  Federal  Arbitration  Act or
                  applicable  California law, each party shall have the right to
                  subpoena  witnesses and documents during discovery and for the
                  arbitration.

         3.       All discovery  requests  shall be submitted no less than sixty
                  (60) days before the hearing date.

         4.       The scope of discoverable evidence shall be in accordance with
                  Federal Rule of Civil Procedure 26(b)(1).

         5.       The   Arbitrator   shall  have  the  power  to   enforce   the
                  aforementioned   discovery   rights  and  obligations  by  the
                  imposition  of  the  same  terms,  conditions,   consequences,
                  liabilities,  sanctions and penalties as can or may be imposed
                  in like  circumstances  in a civil  action by a federal  court
                  under the Federal Rules of Civil Procedure.

         (f) Hearing Procedure

         The  hearing  shall  proceed  according  to  the  American  Arbitration
         Association's   "National   Rules  for  the  Resolution  of  Employment
         Disputes" as amended and  effective  June 1, 1997,  with the  following
         amendments:

                  1.       The  Arbitrator  shall  rule  at  the  outset  of the
                           arbitration on procedural issues that bear on whether
                           the arbitration is allowed to proceed.

                  2.       Each party has the burden of proving  each element of
                           its claims or  counterclaims,  and each party has the
                           burden of proving any of its affirmative defenses.

                  3.       In  addition  to,  or in  lieu of  closing  argument,
                           either  party  shall  have  the  right to  present  a
                           post-hearing  brief,  and the due date for exchanging
                           any  post-hearing  briefs shall be mutually agreed on
                           by the parties and the Arbitrator.

         (g) Substantive Law

                  1.       The  parties  agree  that they will be  afforded  the
                           identical legal equitable,  and statutory remedies as
                           would be  afforded  them were they to bring an action
                           in a court of competent jurisdiction.

                  2.       The  applicable  substantive  law shall be the law of
                           the  State of  California  or  federal  law.  If both
                           federal  and state law are  applicable  to a cause of
                           action,  Executive  shall have the right to elect his
                           choice of law.  Choice of  substantive  law in no way
                           affects the  procedural  aspects of the  arbitration,
                           which are  exclusively  governed by the provisions of
                           this ADR Agreement.

         (h) Opinion And Award

         The Arbitrator  shall issue a written opinion and award, in conformance
         with the following requirements:

                  1.       The opinion and award must be signed and dated by the
                           Arbitrator.

                  2.       The  Arbitrator's  opinion and award shall decide all
                           issues submitted.

                  3.       The  Arbitrator's  opinion  and award shall set forth
                           the  legal  principles  supporting  each  part of the
                           opinion.

                                                                   Page 21 Of 23
<PAGE>

                  4.       The Arbitrator shall have the same authority to award
                           remedies,  damages  and costs as  provided to a judge
                           and/or jury under parallel circumstances.

         (i) Enforcement Of Arbitrator's Award

         Following  the  issuance of the  Arbitrator's  decision,  any party may
         petition  a  court  to   confirm,   enforce,   correct  or  vacate  the
         Arbitrator's  opinion  and award  under the  Federal  Arbitration  Act,
         and/or applicable California law.

         (j) Fees And Costs

         Unless otherwise  required by law, fees and costs shall be allocated in
         the following manner:

                  1.       Each  party   shall  be   responsible   for  its  own
                           attorneys' fees, except as otherwise provided by law.

                  2.       The  Association  shall  pay the  entire  cost of the
                           arbitrator's  services,  the  facility  in which  the
                           arbitration  is to be held,  and any  similar  costs,
                           except that Executive shall  contribute  toward these
                           costs an amount equal to the then-current  filing fee
                           in  California  Superior  Court  charged for filing a
                           complaint or for first appearing, whichever is lower.

                  3.       The Association  shall pay the entire cost of a court
                           reporter to transcribe the  arbitration  proceedings.
                           Each party shall  advance  the cost for said  party's
                           transcript  of  the  proceedings.  Each  party  shall
                           advance its own costs for witness  fees,  service and
                           subpoena charges,  copying, or other incidental costs
                           that each  party  would  bear  during the course of a
                           civil lawsuit.

                  4.       Each  party  shall  be  responsible   for  its  costs
                           associated with discovery,  except as required by law
                           or court order.

                                                                   Page 22 Of 23
<PAGE>

III.     Severability

         In the event that any  provision of this ADR Agreement is determined by
         a  court  of  competent   jurisdiction   to  be  illegal,   invalid  or
         unenforceable  to any extent,  such term or provision shall be enforced
         to the extent  permissible  under the law and all  remaining  terms and
         provisions  of this ADR  Agreement  shall  continue  in full  force and
         effect.

                                                  EXECUTIVE:

DATED:  May 1, 2002                               By:      /s/ C. Edward Holden
                                                           --------------------
                                                           C. Edward Holden

                                                  MONTEREY BAY BANK

DATED:  May 1, 2002                               By:      /s/ McKenzie Moss
                                                           -----------------
                                                           McKenzie Moss
                                                           Chairman of the Board

                                                  MONTEREY BAY BANCORP, INC.
                                                  (Guarantor)

DATED:  May 1, 2002                               By:      /s/ McKenzie Moss
                                                           -----------------
                                                           McKenzie Moss
                                                           Chairman of the Board

                                                                   Page 23 Of 23

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