Document:

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                                                                   EXHIBIT 10.12

                          ORATEC INTERVENTIONS, INC.

                       1999 EMPLOYEE STOCK PURCHASE PLAN
                       ---------------------------------

     The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of ORATEC Interventions, Inc.

     1.  Purpose.  The purpose of the Plan is to provide employees of the
         -------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company.  It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code.  The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.

     2.   Definitions.
          -----------

          (a) "Board" means the Board of Directors of the Company.
               -----

          (b) "Code" means the Internal Revenue Code of 1986, as amended.
               ----

          (c) "Common Stock" means the Common Stock of the Company.
               ------------

          (d) "Company" means ORATEC Interventions, Inc., a Delaware
               -------
corporation.

          (e) "Compensation" means total cash compensation received by an
               ------------
Employee from the Company or a Designated Subsidiary.  By way of illustration,
but not limitation, Compensation includes regular compensation such as salary,
wages, overtime, shift differentials, bonuses (other than bonuses offered in
connection with, and as an inducement for, the commencement of employment),
commissions and incentive compensation, but excludes relocation, expense
reimbursements, tuition or other reimbursements, cash payments in lieu of sick
or vacation time benefits and income realized as a result of participation in
any stock option, stock purchase, or similar plan of the Company or any
Designated Subsidiary.

          (f) "Continuous Status as an Employee" means the absence of any
               --------------------------------
interruption or termination of service as an Employee.  Continuous Status as an
Employee shall not be considered interrupted in the case of (i) sick leave; (ii)
military leave; (iii) any other leave of absence approved by the Company,
provided that such leave is for a period of not more than 90 days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company and its Designated Subsidiaries.

          (g) "Contributions" means all amounts credited to the account of a
               -------------
participant pursuant to the Plan.
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          (h) "Corporate Transaction" means a sale of all or substantially all
               ---------------------
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation.

          (i) "Designated Subsidiaries" means the Subsidiaries which have been
               -----------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan; provided however that the Board shall only have the
discretion to designate Subsidiaries if the issuance of options to such
Subsidiary's Employees pursuant to the Plan would not cause the Company to incur
adverse accounting charges.

          (j) "Employee" means any person, including an Officer, who is
               --------
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.

          (k) "Exchange Act" means the Securities Exchange Act of 1934, as
               ------------
amended.

          (l) "Offering Date" means the first business day of each Offering
               -------------
Period of the Plan, except that in the case of an individual who becomes an
eligible Employee after the first business day of an Offering Period but prior
to the first business day of the fourth month of such Offering Period, the term
"Offering Date" shall mean the first business day of the fourth month coinciding
with or next succeeding the day on which that individual becomes an eligible
Employee.

              Options granted after the first business day of an Offering Period
will be subject to the same terms as the options granted on the first business
day of such Offering Period except that they will have a different grant date
(thus, potentially, a different exercise price) and, because they expire at the
same time as the options granted on the first business day of such Offering
Period, a shorter term.

          (m) "Offering Period" means a period of six (6)  months commencing on
               ---------------
May 1 and November 1 of each year, except for the first Offering Period as set
forth in Section 4(a).

          (n) "Officer" means a person who is an officer of the Company within
               -------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

          (o) "Plan" means this Employee Stock Purchase Plan.
               ----

          (p) "Purchase Date" means the last day of each Offering Period of the
               -------------
Plan.

          (q) "Purchase Price" means with respect to an Offering Period an
               --------------
amount equal to 85% of the Fair Market Value (as defined in Section 7(b) below)
of a Share of Common Stock on the Offering Date or on the Purchase Date,
whichever is lower; provided, however, that in the event (i) of any increase in
the number of Shares available for issuance under the Plan as a result of a
shareholder-approved amendment to the Plan, and (ii) all or a portion of such
additional Shares are to be issued with respect to an Offering Period that is
underway at the time of such increase ("Additional Shares"), and (iii) the Fair
                                        -----------------
Market Value of a Share of Common

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Stock on the date of such increase (the "Approval Date Fair Market Value") is
                                         -------------------------------
higher than the Fair Market Value on the Offering Date for any such Offering
Period, then in such instance the Purchase Price with respect to Additional
Shares shall be 85% of the Approval Date Fair Market Value or the Fair Market
Value of a Share of Common Stock on the Purchase Date, whichever is lower.

          (r) "Share" means a share of Common Stock, as adjusted in accordance
               -----
with Section 20 of the Plan.

          (s) "Subsidiary" means a corporation, domestic or foreign, of which
               ----------
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.

     3.   Eligibility.
          -----------

          (a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code.

          (b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own capital stock of
the Company and/or hold outstanding options to purchase stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or of any subsidiary of the Company, or (ii) if such
option would permit his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company and its
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) of the Fair Market Value (as defined in Section 7(b) below) of such
stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.

     4.   Offering Periods. The Plan shall be implemented by a series of
          ----------------
Offering Periods of six (6) months' duration, with new Offering Periods
commencing on or about May 1 and November 1 of each year (or at such other time
or times as may be determined by the Board of Directors). The first Offering
Period shall commence on the effective date of the Registration Statement on
Form S-1 for the initial public offering of the Company's Common Stock (the "IPO
                                                                             ---
Date") and continue until October 31, 2000. The Plan shall continue until
----
terminated in accordance with Section 20 hereof. The Board of Directors of the
Company shall have the power to change the duration and/or the frequency of
Offering Periods with respect to future offerings without shareholder approval
if such change is announced at least five (5) days prior to the scheduled
beginning of the first Offering Period to be affected.

     5.   Participation.
          -------------

          (a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's

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Human Resources Department prior to the applicable Offering Date, unless a later
time for filing the subscription agreement is set by the Board for all eligible
Employees with respect to a given Offering Period. The subscription agreement
shall set forth the percentage of the participant's Compensation (subject to
Section 6(a) below) to be paid as Contributions pursuant to the Plan.

          (b) Payroll deductions shall commence on the first full payroll paid
following the Offering Date and shall end on the last payroll paid on or prior
to the Purchase Date of the Offering Period to which the subscription agreement
is applicable, unless sooner terminated by the participant as provided in
Section 10.

     6.   Method of Payment of Contributions.
          ----------------------------------

          (a) A participant shall elect to have payroll deductions made on each
payday during the Offering Period in an amount not less than one percent (1%)
and not more than fifteen percent (15%) of such participant's Compensation on
each payday during the Offering Period.  All payroll deductions made by a
participant shall be credited to his or her account under the Plan.  A
participant may not make any additional payments into such account.

          (b) A participant may discontinue his or her participation in the Plan
as provided in Section 10, or, on one occasion only during an Offering Period
may decrease and on one occasion only during an Offering Period may increase the
rate of his or her Contributions with respect to the Offering Period by
completing and filing with the Company a new subscription agreement authorizing
a change in the payroll deduction rate.  The change in rate shall be effective
as of the beginning of the next calendar month following the date of filing of
the new subscription agreement, if the agreement is filed at least ten (10)
business days prior to such date and, if not, as of the beginning of the next
succeeding calendar month.

          (c) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's
payroll deductions may be decreased during any Offering Period scheduled to end
during the current calendar year to 0%.  Payroll deductions shall re-commence at
the rate provided in such participant's subscription agreement at the beginning
of the first Offering Period which is scheduled to end in the following calendar
year, unless terminated by the participant as provided in Section 10.  In
addition, a participant's payroll deductions may be decreased by the Company to
0% at any time during an Offering Period in order to avoid unnecessary payroll
contributions as a result of application of the maximum share limit set forth in
Section 7(a), in which case payroll deductions shall re-commence at the rate
provided in such participant's subscription agreement at the beginning of the
next Offering Period, unless terminated by the participant as provided in
Section 10.

     7.   Grant of Option.
          ---------------

          (a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Purchase Date a number of Shares of the Company's Common Stock
determined by dividing such Employee's Contributions accumulated prior to such
Purchase Date and retained in the participant's account as of the Purchase Date
by the applicable Purchase Price; provided however

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that the maximum number of Shares an Employee may purchase during each Offering
Period shall be 3,000 shares (subject to any adjustment pursuant to section 19
below,) and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 13.

          (b) The fair market value of the Company's Common Stock on a given
date (the "Fair Market Value") shall be determined based on the closing sales
           -----------------
price of the Common Stock for such date (or, in the event that the Common Stock
is not traded on such date, on the immediately preceding trading date), as
reported by the National Association of Securities Dealers Automated Quotation
(Nasdaq) National Market or, if such price is not reported, the mean of the bid
and asked prices per share of the Common Stock as reported by Nasdaq on such
date or, in the event the Common Stock is listed on a stock exchange, the Fair
Market Value per share shall be the closing sales price on such exchange on such
date (or, in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported in The Wall Street Journal.
                                                    -----------------------
For purposes of the Offering Date under the first Offering Period under the
Plan, the Fair Market Value of a share of the Common Stock of the Company shall
be the Price to Public as set forth in the final prospectus filed with the
Securities and Exchange Commission pursuant to Rule 424 under the Securities Act
of 1933, as amended.

     8.   Exercise of Option.  Unless a participant withdraws from the Plan as
          ------------------
provided in Section 10, his or her option for the purchase of Shares will be
exercised automatically on the Purchase Date of an Offering Period, and the
maximum number of full Shares subject to the option will be purchased at the
applicable Purchase Price with the accumulated Contributions in his or her
account.  No fractional Shares shall be issued.  The Shares purchased upon
exercise of an option hereunder shall be deemed to be transferred to the
participant on the Purchase Date.  During his or her lifetime, a participant's
option to purchase Shares hereunder is exercisable only by him or her.

     9.   Delivery.  As promptly as practicable after the Purchase Date of each
          --------
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, of the Shares purchased upon exercise of his or her option. No
fractional Shares shall be issued; any payroll deductions accumulated in a
participant's account which are not sufficient to purchase a full Share shall be
retained in the participant's account for the subsequent Offering Period,
subject to earlier withdrawal by the participant as provided in Section 10
below.  Any other amounts left over in a participant's account after a Purchase
Date shall be returned to the participant.

     10.  Withdrawal; Termination of Employment.
          -------------------------------------

          (a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
the Purchase Date by giving written notice to the Company.  All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current period will be automatically terminated, and no further
Contributions for the purchase of Shares will be made during the Offering
Period.

          (b) Upon termination of the participant's Continuous Status as an
Employee prior to the Purchase Date of an Offering Period for any reason,
including retirement or death, the

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Contributions credited to his or her account will be returned to him or her or,
in the case of his or her death, to the person or persons entitled thereto under
Section 14, and his or her option will be automatically terminated.

          (c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.

          (d) A participant's withdrawal from an offering will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.

     11.  Automatic Withdrawal.  Participants shall automatically be withdrawn
          --------------------
as of October 31, 2000 from the Offering Period beginning on the IPO Date and
re-enrolled in the Offering Period beginning on November 1, 2000 if the Fair
Market Value of the Shares on the IPO Date is greater than the Fair Market Value
of the Shares on October 31, 2000, unless a participant notifies the
Administrator prior to October 31, 2000 that he or she does not wish to be
withdrawn and re-enrolled.

     12.  Interest.  No interest shall accrue on the Contributions of a
          --------
participant in the Plan.

     13.  Stock.
          -----

          (a)  Subject to adjustment as provided in Section 19, the maximum
number of Shares which shall be made available for sale under the Plan shall be
425,000 Shares, plus an annual increase of the first day of each of the
Company's fiscal years in 2001, 2002 and 2003 equal to the lesser of (i) 425,000
Shares,  (ii) two percent (2.00%) of the Shares outstanding on the last day of
the immediately preceding fiscal year, or (iii) such lesser number of Shares as
is determined by the Board. The Shares may be authorized, but unissued, or
reacquired Common Stock.  If the Board determines that, on a given Purchase
Date, the number of shares with respect to which options are to be exercised may
exceed (i) the number of shares of Common Stock that were available for sale
under the Plan on the Offering Date of the applicable Offering Period, or (ii)
the number of shares available for sale under the Plan on such Purchase Date,
the Board may in its sole discretion provide (x) that the Company shall make a
pro rata allocation of the Shares of Common Stock available for purchase on such
Offering Date or Purchase Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Purchase Date, and continue all Offering Periods then in effect, or (y) that the
Company shall make a pro rata allocation of the shares available for purchase on
such Offering Date or Purchase Date, as applicable, in as uniform a manner as
shall be practicable and as it shall determine in its sole discretion to be
equitable among all participants exercising options to purchase Common Stock on
such Purchase Date, and terminate any or all Offering Periods then in effect
pursuant to Section 20 below.  The Company may make pro rata allocation of the
Shares available on the

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Offering Date of any applicable Offering Period pursuant to the preceding
sentence, notwithstanding any authorization of additional Shares for issuance
under the Plan by the Company's shareholders subsequent to such Offering Date.
(b) The participant shall have no interest or voting right in Shares covered by
his or her option until such option has been exercised.

          (c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.

     14.  Administration.  The Board, or a committee named by the Board, shall
          --------------
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan.

     15.  Designation of Beneficiary.
          --------------------------

          (a) A participant may file a written designation of a beneficiary who
is to receive any Shares and/or cash, if any, from the participant's account
under the Plan in the event of such participant's death prior to or subsequent
to the end of an Offering Period but prior to delivery to him or her of such
Shares and/or cash.  If a participant is married and the designated beneficiary
is not the spouse, spousal consent shall be required for such designation to be
effective.

          (b) Such designation of beneficiary may be changed by the participant
(and his or her spouse, if any) at any time by written notice.  In the event of
the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such Shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such Shares and/or cash to the spouse or to any
one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.

     16.  Transferability.  Neither Contributions credited to a participant's
          ---------------
account nor any rights with regard to the exercise of an option or to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 15) by the participant.  Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10.

     17.  Use of Funds.  All Contributions received or held by the Company under
          ------------
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.

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     18.  Reports.  Individual accounts will be maintained for each participant
          -------
in the Plan.  Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of Contributions,
the per Share Purchase Price, the number of Shares purchased and the remaining
cash balance, if any.

     19.  Adjustments Upon Changes in Capitalization; Corporate Transactions.
          ------------------------------------------------------------------

          (a) Adjustment.  Subject to any required action by the shareholders of
              ----------
the Company, the number of Shares covered by each option under the Plan which
has not yet been exercised and the number of Shares which have been authorized
for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), the maximum number of shares of Common Stock
                    --------
which may be purchased by a participant in an Offering Period, the number of
shares of Common Stock set forth in Section 13(a) above, and the price per Share
of Common Stock covered by each option under the Plan which has not yet been
exercised, shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock (including any
such change in the number of Shares of Common Stock effected in connection with
a change in domicile of the Company), or any other increase or decrease in the
number of Shares effected without receipt of consideration by the Company;
provided however that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive.  Except as expressly provided herein, no
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of Shares subject to
an option.

          (b) Corporate Transactions.  In the event of a dissolution or
              ----------------------
liquidation of the Company, the Offering Period then in progress will terminate
immediately prior to the consummation of such action, unless otherwise provided
by the Board.  In the event of a Corporate Transaction, each option outstanding
under the Plan shall be assumed or an equivalent option shall be substituted by
the successor corporation or a parent or Subsidiary of such successor
corporation.  In the event that the successor corporation refuses to assume or
substitute for outstanding options, the Offering Period then in progress shall
be shortened and a new Purchase Date shall be set (the "New Purchase Date"), as
                                                        -----------------
of which date any Offering Period then in progress will terminate. The New
Purchase Date shall be on or before the date of consummation of the transaction
and the Board shall notify each participant in writing, at least ten (10) days
prior to the New Purchase Date, that the Purchase Date for his or her option has
been changed to the New Purchase Date and that his or her option will be
exercised automatically on the New Purchase Date, unless prior to such date he
or she has withdrawn from the Offering Period as provided in Section 10.  For
purposes of this Section 19, an option granted under the Plan shall be deemed to
be assumed, without limitation, if, at the time of issuance of the stock or
other consideration upon a Corporate Transaction, each holder of an option under
the Plan would be entitled to receive upon exercise of the option the same
number and kind of shares of stock or the same amount of property, cash or
securities as such holder would have been entitled to receive upon the
occurrence of the transaction if the holder had been, immediately prior to the
transaction, the holder of the number of Shares of Common Stock covered by the
option at such

                                       8
<PAGE>

time (after giving effect to any adjustments in the number of Shares covered by
the option as provided for in this Section 19); provided however that if the
consideration received in the transaction is not solely common stock of the
successor corporation or its parent (as defined in Section 424(e) of the Code),
the Board may, with the consent of the successor corporation, provide for the
consideration to be received upon exercise of the option to be solely common
stock of the successor corporation or its parent equal in Fair Market Value to
the per Share consideration received by holders of Common Stock in the
transaction.

     The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per Share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of Shares of its outstanding Common Stock, and
in the event of the Company's being consolidated with or merged into any other
corporation.

     20.  Amendment or Termination.
          ------------------------

          (a) The Board may at any time and for any reason terminate or amend
the Plan.  Except as provided in Section 19, no such termination of the Plan may
affect options previously granted, nor may an amendment to the Plan make any
change in any option previously granted which adversely affects the rights of
any participant, provided that the Plan or an Offering Period may be terminated
or amended by the Board by the Board's setting a new Purchase Date with respect
to an Offering Period then in progress if the Board determines that termination
or amendment of the Plan and/or the Offering Period is in the best interests of
the Company and the shareholders or if continuation of the Plan and/or the
Offering Period would cause the Company to incur adverse accounting charges as a
result of a change after the effective date of the Plan in the generally
accepted accounting rules applicable to the Plan.  In addition, to the extent
necessary to comply with Rule 16b-3 under the Exchange Act, or under Section 423
of the Code (or any successor rule or provision or any applicable law or
regulation), the Company shall obtain shareholder approval in such a manner and
to such a degree as so required.

          (b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods, limit the
frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.

     21.  Notices.  All notices or other communications by a participant to the
          -------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in

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<PAGE>

the form specified by the Company at the location, or by the person, designated
by the Company for the receipt thereof.

     22.  Conditions Upon Issuance of Shares.  Shares shall not be issued with
          ----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such Shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, applicable state securities laws and the requirements of
any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.

     As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.

     23.  Term of Plan; Effective Date.  The Plan shall become effective upon
          ----------------------------
the IPO Date.  It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 20.

     24.  Additional Restrictions of Rule 16b-3.  The terms and conditions of
          -------------------------------------
options granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3.  This Plan shall be deemed to contain, and such options shall
contain, and the Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.

                                      10
<PAGE>

                          ORATEC INTERVENTIONS, INC.

                       1999 EMPLOYEE STOCK PURCHASE PLAN
                            SUBSCRIPTION AGREEMENT
                            ----------------------

                                                             New Election ______
                                                       Change of Election ______

     1.  I, ________________________, hereby elect to participate in the ORATEC
Interventions, Inc. 1999 Employee Stock Purchase Plan (the "Plan") for the
                                                            ----
Offering Period ______________, ____ to _______________, ____, and subscribe to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Plan.

     2.  I elect to have Contributions in the amount of ____% of my Compensation
on each payday following a full payroll period, as those terms are defined in
the Plan, applied to this purchase.  I understand that this amount must not be
less than 1% and not more than 15% of my Compensation during the Offering
Period.  (Please note that no fractional percentages are permitted).

     3.  I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement.  I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account.  I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan.  I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on the Purchase
Date of each Offering Period unless I otherwise withdraw from the Plan by giving
written notice to the Company for such purpose.

     4.  I understand that I may discontinue at any time prior to the Purchase
Date my participation in the Plan as provided in Section 10 of the Plan.  I also
understand that I can decrease or increase the rate of my Contributions on one
occasion only with respect to each rate change during an Offering Period by
completing and filing a new Subscription Agreement with such decrease or
increase taking effect as of the first payroll date following the date of filing
of the new Subscription Agreement, if filed at least five (5) business days
prior to such payroll date.  Further, I may change the rate of deductions for
future Offering Periods by filing a new Subscription Agreement, and any such
change will be effective as of the beginning of the next Offering Period.  In
addition, I acknowledge that, unless I discontinue my participation in the Plan
as provided in Section 10 of the Plan, my election will continue to be effective
for each successive Offering Period.
<PAGE>

     5.  I have received a copy of the Company's most recent description of the
Plan and a copy of the complete "ORATEC Interventions, Inc. 1999 Employee Stock
Purchase Plan."  I understand that my participation in the Plan is in all
respects subject to the terms of the Plan.

     6.  In connection with the initial public offering of the Company's
securities and upon request of the Company or the underwriters managing any
underwritten offering of the Company's securities, I agree not to sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise dispose
of any securities of the Company, however or whenever acquired, without the
prior written consent of the Company or such underwriters, as the case may be,
for such period of time (not to exceed 180 days) from the effective date of such
registration as may be requested by the Company or such managing underwriters
and to execute an agreement reflecting the foregoing as may be requested by the
underwriters at the time of the public offering; provided however, that I need
                                                 -------- -------
not so agree unless a majority of the Company's officers and directors and a
majority of the holders of at least 5% of the Company's outstanding securities
also agree to be similarly bound.

     7.  Shares purchased for me under the Plan should be issued in the name(s)
of (name of employee or employee and spouse only):

                                    _____________________________________

                                    _____________________________________

     8.  In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:

NAME:  (Please print)               _____________________________________
                                    (First)       (Middle)        (Last)

__________________________          _____________________________________
(Relationship)                      (Address)

                                    _____________________________________

     9.  I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Offering Date (the first day of the Offering
Period during which I purchased such shares) or within 1 year after the Purchase
Date, I will be treated for federal income tax purposes as having received
ordinary compensation income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares on the Purchase Date over
the price which I paid for the shares, regardless of whether I disposed of the
shares at a price less than their fair market value at the Purchase Date. The
remainder of the gain or loss, if any, recognized on such disposition will be
treated as capital gain or loss.

                                      -2-
<PAGE>

     I hereby agree to notify the Company in writing within 30 days after the
     ------------------------------------------------------------------------
date of any such disposition, and I will make adequate provision for federal,
-----------------------------------------------------------------------------
state or other tax withholding obligations, if any, which arise upon the
------------------------------------------------------------------------
disposition of the Common Stock.  The Company may, but will not be obligated to,
-------------------------------
withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.

     10.  If I dispose of such shares at any time after expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received compensation income only to the extent of
an amount equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I paid for
the shares under the option, or (2) 15% of the fair market value of the shares
on the Offering Date. The remainder of the gain or loss, if any, recognized on
such disposition will be treated as capital gain or loss.

     I understand that this tax summary is only a summary and is subject to
     ----------------------------------------------------------------------
change.  I further understand that I should consult a tax advisor concerning the
------
tax implications of the purchase and sale of stock under the Plan.

     11.  I hereby agree to be bound by the terms of the Plan. The effectiveness
of this Subscription Agreement is dependent upon my eligibility to participate
in the Plan.

SIGNATURE: _______________________________

SOCIAL SECURITY #: _______________________

DATE: ____________________________________

SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):

__________________________________________
(Signature)

__________________________________________
(Print name)

                                      -3-
<PAGE>

                          ORATEC INTERVENTIONS, INC.

                       1999 EMPLOYEE STOCK PURCHASE PLAN

                             NOTICE OF WITHDRAWAL
                             --------------------

     I, __________________________, hereby elect to withdraw my participation in
the ORATEC Interventions, Inc. 1999 Employee Stock Purchase Plan (the "Plan")
                                                                       ----
for the Offering Period that began on _________ ___, _____.  This withdrawal
covers all Contributions credited to my account and is effective on the date
designated below.

     I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.

     The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.

Dated:___________________           ___________________________________
                                    Signature of Employee

                                    ___________________________________
                                    Social Security Number<PAGE>

                                                                   EXHIBIT 10.13

                                     LEASE

THIS LEASE is made on the 7th day of May, 1998, by and between White Properties
Joint Venture (hereinafter called "Lessor") and Oratec Interventions
(hereinafter called "Lessee").

IN CONSIDERATION OF THE MUTUAL PROMISES HEREIN CONTAINED, THE PARTIES AGREE AS
FOLLOWS:

1.   Premises. Lessor leases to Lessee, and Lessee leases from Lessor, upon the
     --------
     terms and conditions herein set forth, those certain Premises ("Premises")
     situated in the City of Redwood City, County of San Mateo, California, as
     outlined in Exhibit "A" attached hereto and described as follows: +/-9,993
     square feet of a larger building, commonly known as 3696-A Haven Avenue,
     Redwood City, California. Lessee's pro-rata share of the building is +/-
     43.37%.

2.   Term. The term of this Lease shall be for five (5) years, commencing on
     ----
     July 1, 1998, or on the later date on which Lessor delivers the Premises
     with all tenant improvements to be installed by Lessor complete, and final
     city approvals or approval necessary for lawful occupancy of the Premises
     having been received, and ending five years thereafter, unless sooner
     terminated pursuant to any provision hereof.

3.   Rent.  Lessee shall pay to Lessor rent for the Premises of Eight thousand
     -----
     month in lawful money of the United States of America, subject to
     adjustment as provided in Section A of this Paragraph. Rent shall be paid
     without deduction or offset, prior notice, or demand, at such place as may
     be designated from time to time by Lessor as follows: $8,744.00 shall be
     paid upon execution of the Lease by both Lessor and Lessee, which sum
     represents the amount of the first month's rent. A deposit of $17,488.00 as
     a Security Deposit shall be made by Lessee and held by Lessor pursuant to
     Paragraph 5 of this Lease, and shall be paid upon execution of the Lease by
     both Lessor and Lessee. If Lessee is not in default of any provision of
     this Lease, this sum, without interest thereon, shall be applied toward the
     rent due for the last month of the term of this Lease or the extended term,
     pursuant to any extension of the initial term in accordance with the
     provisions of this Lease. Monthly rent shall be paid in advance on the
     first (1st) day of each calendar month as follows:

<TABLE>
<CAPTION>
             Months       Monthly Rent/NNN
                          ----------------
             <S>          <C>
             01-06            $ 8,744.00
             07-12            $18,698.00
             13-24            $19,397.00
             25-36            $20,124.00
             37-48            $20,881.00
             49-60            $21,668.00
</TABLE>

     Rent for any period during the term hereof which is for less than one (1)
     full month shall be a pro-rata portion of the monthly rent payment. Lessee
     acknowledges that late payment by Lessee to Lessor of rent or any other
     payment due Lessor will cause Lessor to incur costs not contemplated by
     this Lease, the exact amount of such costs being extremely difficult and
     impracticable to fix. Such costs include, without limitation, processing
     and accounting charges, and late charges that may be imposed on Lessor by
     the terms of any encumbrance and note secured by any encumbrance covering
     the Premises. Therefore, if any installment of rent or other payment due
     from Lessee is not received by Lessor within ten (10) days following the
     date it is due and payable, Lessee shall pay to Lessor an additional sum of
     ten percent (10%) of the overdue amount as a late charge. The parties agree
     that this late charge represents a fair and reasonable estimate of the
     costs that Lessor will

                                       1
<PAGE>

     incur by reason of late payment by Lessee. Acceptance of any late charge
     shall not constitute a waiver of Lessee's default with respect to the
     overdue amount, nor prevent Lessor from exercising any of the other rights
     and remedies available to Lessor.

          If, for any reason whatsoever, Lessor cannot deliver possession of the
     Premises on the commencement date set forth in Paragraph 2 above, this
     Lease shall not be void or voidable, nor shall Lessor be liable to Lessee
     for any loss or damage resulting therefrom; but in such event, Lessee shall
     not be obligated to pay rent until possession of the Premises is tendered
     to Lessee and the commencement and termination dates of this Lease shall be
     revised to conform to the date of Lessor's delivery of possession. In the
     event that Lessor shall permit Lessee to occupy the Premises prior to the
     commencement date of the term, such occupancy shall be subject to all of
     the provisions of this Lease, including the obligation to pay rent at the
     same monthly rate as that prescribed for the first month of the Lease term.
     Lessee shall have the right to enter the Premises prior to commencement
     date to install fixtures and equipment, provided Lessee shall not
     unreasonably interfere with construction of improvements by Lessor's
     contractors.

     A.   Cost-of-Living Increase.  Not applicable.
          -----------------------

     B.   All taxes, insurance premiums, Outside Area Charges, late charges,
          costs and expenses which Lessee is required to pay hereunder, together
          with all interest and penalties that may accrue thereon in the event
          of Lessee's failure to pay such amounts, and all reasonable damages,
          costs, and attorney's fees and expenses which Lessor may incur by
          reason of any default of Lessee or failure on Lessee's part to comply
          with the terms of this Lease, shall be deemed to be additional rent
          (hereinafter, "Additional Rent"), and, in the event of non-payment by
          Lessee, Lessor shall have all of the rights and remedies with respect
          thereto as Lessor has for the non-payment of monthly installment of
          rent.

4.   Option to Extend Term.
     ---------------------

     A.   Lessee shall have the option to extend the term on all the provisions
          contained in this Lease for one (1) three (3)-year periods ("extended
          term(s)") at an adjusted rental calculated as provided in Subparagraph
          B below on the condition that:

          (i)  Lessee has given to Lessor written notice of exercise of that
               option ("option notice") at least six (6) months before
               expiration of the initial term or extended term(s), as the case
               may be.

          (ii) Lessee is not in default in the performance of any of the terms
               and conditions of the Lease on the date of giving the option
               notice, and Lessee is not in default on the date that the
               extended term is to commence, in each case beyond the grace
               period provided herein.

     B.   Monthly rent for the extended term shall be the then prevailing market
          rent for similar buildings in the area as agreed upon by the parties
          within no more than thirty (30) days after exercise by Lessee of the
          option described herein. If the parties are unable to agree on such
          amount within that time period, Lessee may rescind its option exercise
          or, by written notice to Lessor, request that the rent be determined
          by an appraisal conducted in a manner reasonably acceptable and
          binding to both parties.

     C.   In no event shall the monthly rent for any extended term be less than
          the monthly rent paid immediately prior to such extended term.

                                       2
<PAGE>

5.   Security Deposit.  Lessor acknowledges that Lessee has deposited with
     ----------------
     Lessor a Security Deposit in the sum of $17,488.00 to secure the full and
     faithful performance by Lessee of each term, covenant, and condition of
     this Lease. If Lessee shall at any time fail to make any payment or fail to
     keep or perform any term, covenant, or condition on its part to be made or
     performed or kept under this Lease, Lessor may, but shall not be obligated
     to and without waiving or releasing Lessee from any obligation under this
     Lease, use, apply, or retain the whole or any part of said Security Deposit
     (a) to the extent of any sum due to Lessor; or (b) to compensate Lessor for
     any loss, damage, attorneys' fees or expense sustained by Lessor due to
     Lessee's default. In such event, Lessee shall, within five (5) days of
     written demand by Lessor, remit to Lessor sufficient funds to restore the
     Security Deposit to its original sum. No interest shall accrue on the
     Security Deposit. Should Lessee comply with all the terms, covenants, and
     conditions of this Lease and, at the end of the term of this Lease, leave
     the Premises in the condition required by this Lease, then said Security
     Deposit or any balance thereof, less any sums owing to Lessor, shall be
     returned to Lessee within fifteen (15) days after the termination of this
     Lease and vacancy of the Premises by Lessee. Lessor can maintain the
     Security Deposit separate and apart from Lessor's general funds, or can co-
     mingle the Security Deposit with the Lessor's general and other funds.

6.   Use of the Premises. The Premises shall be used exclusively for the purpose
     -------------------
     of research and development, storage, distribution, offices and marketing
     of medical devices.

          Lessee shall not use or permit the Premises, or any part thereof, to
     be used for any purpose or purposes other than the purpose for which the
     Premises are hereby leased; and no use shall be made or permitted to be
     made of the Premises, nor acts done, which will increase the existing rate
     of insurance upon the building in which the Premises are located, or cause
     a cancellation of any insurance policy covering said building, or any part
     thereof, nor shall Lessee sell or permit to be kept, used, or sold, in or
     about the Premises, any article which may be prohibited by the standard
     form of fire insurance policies. Lessee shall not commit or suffer to be
     committed any waste upon the Premises or any public or private nuisance or
     other act or thing which may disturb the quiet enjoyment of any other
     tenant in the building in which the premises are located; nor, without
     limiting the generality of the foregoing, shall Lessee allow the Premises
     to be used for any improper, immoral, unlawful, or objectionable purpose.

          Lessee shall not place any harmful liquids in the drainage system of
     the Premises or of the building of which the Premises form a part. No waste
     materials or refuse shall be dumped upon or permitted to remain upon any
     part of the Premises outside of the building proper except in trash
     containers placed inside exterior enclosures designated for that purpose by
     Lessor, or inside the building proper where designated by Lessor. No
     materials, supplies, equipment, finished or semi-finished products, raw
     materials, or articles of any nature shall be stored upon or permitted to
     remain on any portion of the Premises outside of the building proper.

          Lessor represents and warrants to Lessee that to the best of knowledge
     there are no Toxic or Hazardous materials present on, at or under the
     Premises, which shall be deemed to include underlying land and groundwater,
     at the time of Lessee's occupancy. Lessor shall indemnify, defend and hold
     harmless Lessee, its partners, directors, officers, employees, lenders, and
     successors against all claims, obligations, liabilities, demands, damages,
     judgements, and costs, including reasonable attorneys' fees arising from or
     in connection with any prior Toxic or Hazardous materials that existed
     prior to Lessee's occupancy of the Premises. Lessee in turn represents to
     Lessor that it does not now and will not in the future permit the use or
     storage on the Premises of Toxic or Hazardous materials, excluding, however
     basic janitorial, maintenance and office supplies, and materials commonly
     used in connection with Lessee's business as described in paragraph 6
     hereof. For purposes of this paragraph 6 "Toxic or Hazardous Materials"
     shall mean any product, substance, chemical, material or waste whose
     presence, nature, quality and/or intensity or existence, use, manufacture,
     disposal, transportation, spill, release or effect, either by itself or in

                                       3
<PAGE>

     combination with other materials expected to be on the leased premises, is
     either (i) potentially injurious to the public health, safety or welfare,
     the environment, or the leased premises; (ii) regulated or monitored by any
     governmental authority; or (iii) a basis for potential liability of Lessee
     and Lessor to any governmental agency or third party under any applicable
     statute or common law theory. "Toxic or Hazardous Materials" shall include,
     but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any
     products or by-products thereof.

          Lessee hereunder shall be responsible for and indemnify, and hold
     Lessor and its partners, directors, officers, employees, lenders,
     successors and assigns harmless from all claims, obligations, liabilities,
     demands, damages, judgments and costs, including reasonable attorneys' fees
     arising at any time during or in connection with Lessee's causing or
     permitting any materials referred to under any governmental provisions or
     regulatory scheme as "hazardous" or "toxic" or which contain petroleum,
     gasoline, or other petroleum product, to be brought upon, stored,
     manufactured, generated, handled, disposed, or used on, under or about the
     Premises. Lessee's and Lessor's obligations hereunder shall survive the
     termination of this Lease.

          If, at any time during the term of this Lease, Lessor suspects that
     toxic waste, spillage, or other contaminants may be present on the
     Premises, Lessor may order a soils report, or its equivalent. If Lessee has
     breached the terms of this Section 6, Lessee shall pay the expense of
     preparing the referenced report, and Lessee shall pay such costs within
     fifteen (15) days from the date of the invoice by Lessor. If any such toxic
     waste, spillage, or other contaminants are found upon the Premises, Lessee
     shall deposit with Lessor, within fifteen (15) days of notice from Lessor
     to Lessee to do so, the amount necessary to remove the substances and
     remedy the problem.

          Lessee shall abide by all laws, ordinances, and statutes, as they now
     exist or may hereafter be enacted by legislative bodies having jurisdiction
     thereof, relating to its use and occupancy of the Premises, provided
     nothing herein will require Lessee to pay for or perform any of the
     following: removal, remediation, investigation or clean up of any Hazardous
     Substances the presence on, in or under the Premises of which is not
     attributable to Lessee, its agents, employees or contractors.

7.   Improvements: Lessor, at Lessor's sole cost and expense shall install
     ------------
     tenant improvements as specified on Exhibit B. Possession of the premises,
     pursuant to Paragraph 13 of this lease, shall be deemed tendered upon
     receipt of final city approvals.

8.   Taxes and Assessments.
     ----------------------

     A.   Lessee shall pay before delinquency any and all taxes, assessments,
     license fees, and public charges levied, assessed, or imposed upon or
     against Lessee's fixtures, equipment, furnishings, furniture, appliances,
     and personal property installed or located on or within the Premises.
     Lessee shall cause said fixtures, equipment, furnishings, furniture,
     appliances, and personal property to be assessed and billed separately from
     the real property of Lessor. If any of Lessee's said personal property
     shall be assessed with Lessor's real property, Lessee shall pay to Lessor
     the taxes attributable to Lessee within thirty (30) days before delinquency
     and following timely receipt of a written statement from Lessor setting
     forth the taxes applicable to Lessee's property.

     B.   All property taxes or assessments levied or assessed by or hereafter
     levied or assessed by any governmental authority against the Premises or
     any portion of such taxes or assessments which becomes due or accrued
     during the term of this Lease shall be paid by Lessor. Lessee shall pay to
     Lessor Lessee's proportionate share of such taxes or assessments within
     thirty (30) days before delinquency and following timely receipt of
     Lessor's invoice demanding such payment. Lessee's liability hereunder shall
     be prorated to reflect the commencement and termination dates of this
     Lease.

                                       4
<PAGE>

9.   Insurance.
     ---------

     A.   Indemnity. Lessee agrees to indemnify and defend Lessor against and
          ---------
     hold Lessor harmless from any and all demands, claims, causes of action,
     judgments, obligations, or liabilities, and all reasonable expenses
     incurred in investigating or resisting the same (including reasonable
     attorneys' fees) on account of, or arising out of, the use, or occupancy of
     the Premises. This Lease is made on the express condition that Lessor shall
     not be liable for, or suffer loss by reason of, injury to person or
     property, from whatever cause, in any way connected with the condition,
     use, or occupancy of the Premises, specifically including, without
     limitation, any liability for injury to the person or property of Lessee,
     its agents, officers, employees, licensees, and invitees occurring for any
     reason other than gross negligence or willful misconduct of Lessor its
     agents, employees or contractors, or a breach of the obligations of Lessor
     hereunder.

     B.   Liability Insurance. Lessee shall obtain, and at all times during the
          -------------------
     term hereof, keep in force, at its own cost and expense, Commercial General
     Liability insurance with limits of $1,000,000 combined single limit for
     Bodily Injury and Property Damage per occurrence and in the aggregate.
     Tenant's insurance shall name Lessor as additional insured as respects the
     use and occupancy of the leased Premises and shall provide that Lessee's
     insurance company shall endeavor to furnish Lessor with 30 days advance
     notice of cancellation of Lessee's insurance policy. Lessee shall furnish
     Lessor with a certificate of insurance to this effect.

     C.   Property Insurance. Lessor shall obtain and keep in force during the
          ------------------
     term of this Lease a policy or policies of insurance covering loss or
     damage to the Premises in "all risk" extended coverage form (which may
     include earthquake and/or flood insurance), in the amount of the full
     replacement value thereof. Lessee shall pay to Lessor its pro-rata share of
     the cost of said insurance within ten (10) days of Lessee's receipt of
     Lessor's invoice demanding such payment. Lessee acknowledges that such
     insurance procured by Lessor shall contain a deductible which reduces
     Lessee's cost for such insurance, and , in the event of loss or damage,
     Lessee shall be required to pay to Lessor the amount of such deductible,
     which payment shall not exceed Five Thousand Dollars ($5,000) for any one
     occurrence.

     D.   Lessee and Lessor hereby release each other and their respective
     partners, officers, agents, employees, and servants, from any and all
     claims, demands, loss, expense, or injury to the Premises or to the
     furnishings, fixtures, equipment, inventory, or other property of the
     releasing party in, about, or upon the Premises, which is caused by or
     results from perils, events, or happenings which are the subject of
     insurance in force at the time of such loss, however, that such waiver
     shall be effective only to the extent permitted by the insurance covering
     such loss..

10.  Reimbursable Expenses and Utilities. Lessee shall pay its pro-rata share of
     all water, gas, light, heat, power, electricity, telephone, trash removal,
     landscaping, sewer charges, and all other services, including normal and
     customary property management fees (not to exceed three percent (3%) of the
     base rent payable hereunder), supplied to or consumed on the Premises. In
     the event that any utility to the Premises is separately metered, Lessee
     shall pay the cost of any such utility. In the event that any such services
     are billed directly to Lessor, then Lessee shall pay Lessor for such
     expenses within ten (10) days of Lessee's receipt of Lessor's invoice
     demanding payment.

          In no event shall Lessee have any obligation to perform, to pay
     directly, or to reimburse Lessor for, all or any portion of the following
     repairs, maintenance, improvements, replacements, premiums, claims, losses,
     fees, commissions, charges, disbursements, attorneys' fees, experts' fees,
     costs and expenses (collectively, "Costs"): (i) Costs for which Lessor has
     received reimbursement from others; (ii) Costs associated with utilities
     and services of a type not provided to Lessee; (iii) costs incurred in
     connection with negotiations or disputes between Lessor and other

                                       5
<PAGE>

     occupants of the Building, provided that Lessee is not the cause of such
     dispute or negotiation; (iv) Costs arising from the violation of Lessor or
     any occupant of the Building (other than Lessee) of the terms and
     conditions of any lease or other agreement (provided that Lessee is not the
     cause of such violation); or (v) depreciation or other expense reserves
     unless required by Lessor's lender.

11.  Repairs and Maintenance.
     -----------------------

     A.   Subject to provisions of paragraph 15, Lessor shall keep and maintain
          in good order, condition and repair the structural elements of the
          Premises including the roof, roof membrane, paving, floor slab,
          foundation, exterior walls, landscaping, irrigation and elevators.
          Lessor shall make such repairs, replacements, alterations or
          improvements as Lessor deems reasonably necessary with respect to such
          structural elements and Lessee shall pay to Lessor, within ten (10)
          business days of Lessor's invoice to Lessee therefor, Lessee's pro-
          rata share of such repairs, replacements, alterations or improvements;
          provided, however, that replacement and improvement costs in excess of
          $5,000 per occurrence shall be amortized over the useful life of such
          replacements or improvements, and Lessee shall be obligated to pay, as
          additional rent, only the amount which coincides with the remaining
          term of the Lease. Notwithstanding the foregoing, if the reason for
          any repair, replacement, alteration or improvement is caused by Lessee
          or arises because of a breach of Lessee's obligations under this
          Lease, then Lessee shall pay 100% of the costs or expense to remedy
          the same.

     B.   Except as expressly provided in Subparagraph A above, Lessee shall, at
          its sole cost, keep and maintain the entire Premises and every part
          thereof, including, without limitation, the windows, window frames,
          plate glass, glazing, truck doors, doors, all door hardware, interior
          of the Premises, interior walls and partitions, and electrical,
          plumbing, lighting, heating, and air conditioning systems in good and
          sanitary order, condition, and repair subject to the limitations set
          forth in Section 11A above. Lessee shall, at all times during the
          Lease term and at his expense, have in effect a service contract for
          the maintenance of the heating, ventilating, and air-conditioning
          (HVAC) equipment with an HVAC repair and maintenance contractor
          approved by Lessor which provides for periodic inspection and
          servicing at least once every three (3) months during the term hereof.
          Lessee shall further provide Lessor with a copy of such contract and
          all periodic service reports. Should Lessee fail to maintain the
          Premises or make repairs required of Lessee hereunder forthwith upon
          notice from Lessor, Lessor, in addition to all other remedies
          available hereunder or by law, and without waiving any alternative
          remedies, may make the same, and in that event, Lessee shall reimburse
          Lessor as additional rent for the cost of such maintenance or repairs
          on the next date upon which rent becomes due.

               Lessee hereby expressly waives the provision of Subsection 1 of
          Section 1932, and Sections 1941 and 1942 of the Civil Code of
          California and all rights to make repairs at the expense of Lessor, as
          provided in Section 942 of said Civil Code.

12.  Alterations and Additions.  Lessee shall not make, or suffer to be made,
     --------------------------
     alterations, improvements, or additions in, on, or about, or to the
     Premises or any part thereof, without prior written consent of Lessor,
     which shall not be unreasonably withheld or delayed, and without a valid
     building permit issued by the appropriate governmental authority. Lessor
     retains, at his sole option, the right to retain a General Contractor of
     his own choosing to perform all repairs, alterations, improvements, or
     additions in, on, about, or to said Premises or any part thereof. As a
     condition to giving such consent, Lessor may require that Lessee agree to
     remove any such alterations, improvements, or additions at the termination
     of this Lease, and to restore the Premises to their prior condition. Upon
     Lessee's written request, Lessor shall designate, at the time that Lessor
     consents

                                       6
<PAGE>

     to the installation of any such alteration, improvement or addition,
     whether removal of any such alteration, improvement or addition will be
     required. Any alteration, addition, or improvement to the Premises, shall
     become the property of Lessor upon the expiration or earlier termination of
     the Lease term (except with respect to those items which have been
     installed at the sole expense of Lessee, which Lessee may remove, provided
     that Lessee repairs any damage attributable to such removal), and shall
     remain upon and be surrendered with the Premises at the termination of this
     Lease. Alterations and additions which are not to be deemed as trade
     fixtures include heating, lighting, electrical systems, air conditioning,
     partitioning, electrical signs, carpeting, or any other installation which
     has become an integral part of the Premises. In the event that Lessor
     consents to Lessee's making any alterations, improvements, or additions,
     Lessee shall be responsible for preparing and providing Lessor with a
     notice of non-responsibility which Lessor shall sign and return to Lessee
     for posting , which shall remain posted until completion of the
     alterations, additions, or improvements. Lessee's failure to post notices
     of non-responsibility as required hereunder shall be a breach of this
     Lease.

          Notwithstanding anything to the contrary herein, if, during the term
     hereof, any alteration, addition, or change of any sort through all or any
     portion of the Premises or of the building of which the Premises form a
     part, is required by law, regulation, ordinance, or order of any public
     agency, including without limitation Americans with Disabilities Act (ADA)
     , then if such legal requirement is not imposed because of Lessee's
     specific use of the Premises and is not "triggered" by Lessee's alterations
     or Lessee's application for a building permit or any other governmental
     approval (in which instance Lessee shall be responsible for 100% of the
     cost of such improvement), Lessor shall be responsible for constructing
     such improvement and Lessee shall be responsible for its proportional share
     of the cost for said improvement, amortized over the useful life of such
     improvement that coincides with the remaining Lease term including any
     extensions.

13.  Acceptance of the Premises and Covenant to Surrender. By entry and taking
     ----------------------------------------------------
     possession of the Premises pursuant to this Lease, Lessee accepts the
     Premises as being in good and sanitary order, condition, and repair, and
     accepts the Premises in their condition existing as of date of such entry,
     and Lessee further accepts any tenant improvements to be constructed by
     Lessor, if any, as being completed in accordance with the plans and
     specifications for such improvements, subject to items identified by Lessee
     in one final punch list submitted to Lessor within thirty (30) days of
     occupancy, which items Lessor shall promptly correct.

          Lessee agrees on the last day of the term hereof, or on sooner
     termination of this Lease, to surrender the Premises, together with all
     alterations, additions, and improvements which may have been made in, to,
     or on the Premises by Lessor or Lessee, unto Lessor in good and sanitary
     order, condition, and repair, excepting for such wear and tear as would be
     normal for the period of the Lessee's occupancy. Lessee, on or before the
     end of the term or sooner termination of this Lease, shall remove all its
     personal property and trade fixtures from the Premises, and all property
     not so removed shall be deemed abandoned by Lessee. Lessee further agrees
     that at the end of the term or sooner termination of this Lease, Lessee, at
     its sole expense, shall have the carpets steam cleaned, the walls and
     columns painted, the flooring waxed, any damaged ceiling tile replaced, the
     windows cleaned, the drapes cleaned, and any damaged doors replaced, if
     necessary to restore the Premises to its original condition, normal wear
     and tear excepted.

          If the Premises are not surrendered at the end of the term or sooner
     termination of this Lease, Lessee shall indemnify Lessor against loss or
     liability resulting from delay by Lessee in so surrendering the Premises,
     including, without limitation, any claims made by any succeeding tenant
     founded on such delay.

14.  Default.  In the event of any breach of this Lease by the Lessee, or an
     -------
     abandonment of the Premises by the Lessee, which is not cured within ten
     (10) days after written notice thereof in the case of any monetary
     obligation and which is not cured within thirty (30) days after written
     notice thereof in the

                                       7
<PAGE>

     case of any non-monetary obligation, the Lessor has the option of (1.)
     removing all persons and property from the Premises and repossessing the
     Premises, in which case any of the Lessee's property which the Lessor
     removes from the Premises may be stored in a public warehouse or elsewhere
     at the cost of, and for the account of, Lessee; or (2.) allowing the Lessee
     to remain in full possession and control of the Premises. If the Lessor
     chooses to repossess the Premises, the Lease will automatically terminate
     in accordance with the provisions of the California Civil Code, Section
     1951.2. In the event of such termination of the Lease, the Lessor may
     recover from the Lessee: (1.) the worth at the time of award of the unpaid
     rent which had been earned at the time of termination, including interest
     at the maximum rate an individual is permitted by law to charge; (2.) the
     worth at the time of award of the amount by which the unpaid rent which
     would have been earned after termination until the time of award exceeds
     the amount of such rental loss that the Lessee proves could have been
     reasonably avoided, including interest at the maximum rate an individual is
     permitted by law to charge; (3.) the worth at the time of award of the
     amount by which the unpaid rent for the balance of the term after the time
     of award exceeds the amount of such rental loss that the Lessee proves
     could be reasonably avoided; and (4.) any other amount necessary to
     compensate the Lessor for all the detriment proximately caused by the
     Lessee's failure to perform his obligations under the Lease or which, in
     the ordinary course of things, would be likely to result therefrom. "The
     worth at the time of award," as used in (1.) and (2.) of this Paragraph, is
     to be computed by allowing interest at the maximum rate an individual is
     permitted by law to charge. "The worth at the time of award," as used in
     (3.) of this Paragraph, is to be computed by discounting the amount at the
     discount rate of the Federal Reserve Bank of San Francisco at the time of
     award, plus one percent (1%).

          If the Lessor chooses not to repossess the Premises, but allows the
     Lessee to remain in full possession and control of the Premises, then, in
     accordance with provisions of the California Civil Code, Section 1951.4,
     the Lessor may treat the Lease as being in full force and effect, and may
     collect from the Lessee all rents as they become due through the
     termination date of the Lease, as specified in the Lease. For the purpose
     of this paragraph, the following do not constitute a termination of
     Lessee's right to possession: (1.) acts of maintenance or preservation, or
     efforts to relet the property; (2.) the appointment of a receiver on the
     initiative of the Lessor to protect his interest under this Lease.

          Lessee shall be liable immediately to Lessor for all costs Lessor
     incurs in reletting the Premises, including, without limitation, brokers'
     commissions, reasonable expenses of remodeling the Premises required by the
     reletting, and like costs. Reletting can be for a period shorter or longer
     than the remaining term of this Lease. Lessee shall pay to Lessor the rent
     due under this Lease on the dates the rent is due, less the rent Lessor
     receives from any reletting. No act by Lessor allowed by this Section shall
     terminate this Lease unless Lessor notifies Lessee that Lessor elects to
     terminate this Lease. After Lessee's default and for as long as Lessor does
     not terminate Lessee's right to possession of the Premises, if Lessee
     obtains Lessor's consent, Lessee shall have the right to assign or sublet
     its interest in this Lease, but Lessee shall not be released from
     liability. Lessor's consent to a proposed assignment or subletting shall
     not be unreasonably withheld.

          If Lessor elects to relet the Premises as provided in this Paragraph,
     rent that Lessor receives from reletting shall be applied to the payment
     of: (1.) any indebtedness from Lessee to Lessor other than rent due from
     Lessee; (2.) all costs, including for maintenance, incurred by Lessor in
     reletting; (3.) rent due and unpaid under this Lease. After deducting the
     payments referred to in this Paragraph, any sum remaining from the rent
     Lessor receives from reletting shall be held by Lessor and applied in
     payment of future rent as rent becomes due under this Lease. In no event
     shall Lessee by entitled to any excess rent received by Lessor. If, on the
     date rent is due under this Lease, the rent received from reletting is less
     than the rent due on that date, Lessee shall pay to Lessor, in addition to
     the remaining rent due, all costs, including for maintenance, Lessor
     incurred in reletting that remain after applying the rent received from the
     reletting, as provided in this Paragraph.

          Lessor, at any time after Lessee commits a default, can cure the
     default at Lessee's cost. If

                                       8
<PAGE>

  Lessor, at any time after Lessee commits a default, can cure the default at
  Lessee's cost. If Lessor at any time, by reason of Lessee's default, pays any
  sum or does any act that requires the payment of any sum, the sum paid by
  Lessor shall be due immediately from Lessee to Lessor at the time the sum is
  paid, and if paid at a later date shall bear interest at the maximum rate an
  individual is permitted by law to charge from the date the sum is paid by
  Lessor until Lessor is reimbursed by Lessee. The sum, together with interest
  on it, shall be additional rent.

     Rent not paid when due shall bear interest at the maximum rate an
  individual is permitted by law to charge from the date due until paid.

15.  Destruction. In the event the Premises are destroyed in whole or in part
     -----------
  from any cause, Lessor may, at its option, (1.) rebuild or restore the
  Premises to their condition prior to the damage or destruction or (2.)
  terminate the Lease.

    If Lessor does not give Lessee notice in writing within thirty (30)
  days from the destruction of the Premises of its election either to rebuild
  and restore the Premises, or to terminate this Lease, Lessor shall be
  deemed to have elected to rebuild or restore them, in which event Lessor
  agrees, at its expense, promptly to rebuild or restore the Premises to its
  condition prior to the damage or destruction. If Lessor does not complete
  the rebuilding or restoration within one hundred eighty (180) days
  following the date of destruction (such period of time to be extended for
  delays caused by the fault or neglect of Lessee or because of acts of God,
  acts of public agencies, labor disputes, strikes, fires, freight embargoes,
  rainy or stormy weather, inability to obtain materials, supplies or fuels,
  acts of contractors or subcontractors, or delay of the contractors or
  subcontractors due to such causes or other contingencies beyond control of
  Lessor), then Lessee shall have the right to terminate this Lease by giving
  fifteen (15) days prior written notice to Lessor. Lessor's obligation to
  rebuild or restore shall not include restoration of Lessee's trade
  fixtures, equipment, merchandise, or any improvements, alterations, or
  additions made by Lessee to the Premises. If Lessor reasonably estimates
  that the restoration referenced herein will require 180 days or more, which
  estimate shall be delivered to Lessee within nor more than thirty (30) days
  after the occurrence of the casualty, Lessee shall be entitled to terminate
  this Lease effective upon written notice of such election to Lessor,
  provided Lessee is not the cause of said damage or destruction.

    Unless this Lease is terminated pursuant to the foregoing provisions,
  this Lease shall remain in full force and effect. Lessee hereby expressly
  waives the provisions of Section 1932, Subdivision 2, and Section 1933,
  Subdivision 4, of the California Civil Code.

    In the event that the building in which the Premises are situated is
  damaged or destroyed to the extent of not less than fifty (50%) of the
  replacement cost thereof, Lessor may elect to terminate this Lease, whether
  the Premises be injured or not.

16. Condemnation.  If any part of the Premises shall be taken for any public
    -------------
  or quasi-public use, under any statute or by right of eminent domain, or
  private purchase in lieu thereof, and a part thereof remains, which is
  susceptible of occupation hereunder, this Lease shall, as to the part so
  taken, terminate as of the date title shall vest in the condemnor or
  purchaser, and the rent payable hereunder shall be adjusted so that the
  Lessee shall be required to pay for the remainder of the term only such
  portion of such rent as the value of the part remaining after taking such
  bears to the value of the entire Premises prior to such taking. Lessor
  shall have the option to terminate this Lease in the event that such
  taking causes a reduction in rent payable hereunder by fifty percent (50%)
  or more. If all of the Premises or such part thereof be taken so that
  there does not remain a portion susceptible for occupation hereunder, as
  reasonably necessary for Lessee's conduct of its business as contemplated
  in this Lease, this Lease shall thereupon terminate. If a part of all of
  the Premises be taken, all compensation awarded upon such taking shall go
  to the Lessor, and the Lessee shall have no claim thereto, and the Lessee
  hereby irrevocably assigns and transfers to the Lessor any right to
  compensation or damages to which the Lessee may become entitled during the
  term hereof by reason of the purchase or condemnation of all or a part of
  the Premises, except that Lessee shall have the right to recover its share
  of any award or consideration for (1.) moving expenses; (2)

                                       9
<PAGE>

  relocation costs; (3) unamortized costs of improvements installed by Lessee
  (4.) loss or damage to Lessee's trade fixtures, furnishings, equipment, and
  other personal property; and (5.) business goodwill. Each party waives the
  provisions of the Code of Civil Procedure, Section 1265.130, allowing
  either party to petition the Superior Court to terminate this Lease in the
  event of a partial taking of the Premises.

17.  Free from Liens.  Lessee shall (1.) pay for all labor and services
     ----------------
  performed for materials used by or furnished to Lessee, or any contractor
  employed by Lessee with respect to the Premises, and (2.) indemnify,
  defend, and hold Lessor and the Premises harmless and free from any liens,
  claims, demands, encumbrances, or judgments created or suffered by reason
  of any labor or services performed for materials used by or furnished to
  Lessee or any contractor employed by Lessee with respect to the Premises,
  and (3.) give notice to Lessor in writing five (5) days prior to employing
  any laborer or contractor to perform services related, or receiving
  materials for use upon the Premises, and (4.) Lessee shall be responsible
  for preparing and providing Lessor with a notice of non-responsibility
  which Lessor shall sign and return to Lessee for posting , which shall
  remain posted until completion of the alterations, additions, or
  improvements. In the event an improvements bond with a public agency in
  connection with the above is required to be posted, Lessee agrees to
  include Lessor as an additional obligee.

18.  Compliance with Laws. Lessee shall, at its own cost, comply with and
     --------------------
  observe all requirements of all municipal, county, state, and federal
  authority now in force, or which may hereafter be in force, pertaining to
  the use and occupancy of the Premises. Notwithstanding anything contained
  in Paragraphs 11, 12 and 18 of Lease, if it becomes necessary to make
  capital improvements required by laws enacted or legal requirements imposed
  by governmental agency(ies), then if such legal requirement is not imposed
  because of Lessee's specific use of the Premises and is not "triggered" by
  Lessee's alterations or Lessee's application for a building permit or any
  other governmental approval (in which instance Lessee shall be responsible
  for 100% of the cost of such improvement), Lessor shall be responsible for
  constructing such improvement and Lessee shall be responsible for its
  proportional share of the cost for said improvement, amortized over the
  useful life of such improvement that coincides with the remaining Lease
  term and any extensions thereof.

19.  Subordination.  Lessee agrees that this Lease shall, at the option of
     --------------
  Lessor, be subjected and subordinated to any mortgage, deed of trust, or
  other instrument of security, which has been or shall be placed on the land
  and building, or land or building of which the Premises form a part, and
  this subordination is hereby made effective without any further act of
  Lessee or Lessor. The Lessee shall, within five (5) business days after
  receipt of request, execute any instruments, releases, or other documents
  that may be required by any mortgagee, mortgagor, trustor, or beneficiary
  under any deed of trust, for the purpose of subjecting or subordinating
  this Lease to the lien of any such mortgage, deed of trust, or other
  instrument of security. Lessee's failure to execute and deliver any such
  documents or instruments shall be deemed a breach of Lease.

20.  Abandonment. Lessee shall not vacate or abandon the Premises at any time
     -----------
  during the term; and if Lessee shall abandon, vacate, or surrender said
  Premises, or be dispossessed by process of law, or otherwise, any personal
  property belonging to Lessee and left on the Premises shall be deemed to be
  abandoned, at the option of Lessor, except such property as may be
  mortgaged to Lessor; provided, however, that Lessee shall not be deemed to
  have abandoned or vacated the Premises so long as Lessee continues to pay
  all rents as and when due, and otherwise performs pursuant to the terms and
  conditions of this Lease.

21.  Assignment and Subletting.
     --------------------------

                                      10
<PAGE>

  A.    Definitions. For purposes of this Paragraph 21, the following terms
        -----------
  shall be defined as follows:

  (i)   Sublet. The term "Sublet" shall mean any transfer, sublet, assignment,
        ------
        license or concession agreement, change of ownership, mortgage, or
        hypothecation of this Lease or the Lessee's interest in the Lease or in
        and to all or a portion of the Premises.

  (ii)  Subrent. The term "Subrent" shall mean any consideration of any kind
        -------
        received, or to be received, by Lessee from a Sublessee if such sums are
        related to Lessee's interest in this Lease or in the Premises,
        including, but not limited to, bonus money and payments (in excess of
        fair market value) for Lessee's assets including its trade fixtures,
        equipment and other personal property remaining in the Premises but
        excluding, without limitation, goodwill, general intangibles, and any
        capital stock or other equity ownership of Lessee.

  (iii) Sublessee. The term "Sublessee" shall mean the person or entity with
        ---------
        whom a Sublet agreement is proposed to be or is made.

  B.    Lessor's  Consent.  Lessee shall not enter into a Sublet without
        -----------------
  Lessor's prior written consent, which consent shall not be unreasonably
  withheld or delayed. Any attempted or purported Sublet without Lessor's prior
  written consent shall be void and confer no rights upon any third person and,
  at Lessor's election, shall terminate this Lease. In determining whether or
  not to consent to a proposed Sublet, Lessor may consider the following
  factors, among others, all of which shall be deemed reasonable; (i) whether
  the proposed Sublessee has a net worth equal to or greater than the net worth
  of Lessee at the time Lessee executed this Lease; (ii) whether the proposed
  use of the Premises by the proposed Sublessee is consistent with the permitted
  use for the Premises set forth in Paragraph 6 of this Lease; (iii) whether the
  experience and business reputation of the proposed Sublessee is equal to or
  greater than that of Lessee; (iv) whether the rent payable by the Sublessee
  under the proposed Sublet reflects the current fair market rent for the
  subleased Premises as reasonably determined by Lessee; and (v) whether
  Lessor's consent will result in a breach of any other lease or agreement to
  which Lessor is a party affecting the Building. Each Sublessee shall agree in
  writing, for the benefit of Lessor, to assume, to be bound by, and to perform
  the terms and conditions and covenants of this Lease to be performed by
  Lessee. Notwithstanding anything contained herein, Lessee shall not be
  released from liability for the performance of each term, condition and
  covenant of this Lease by reason of Lessor's consent to a Sublet unless Lessor
  specifically grants such release in writing. Consent by Lessor to any Sublet
  unless Lessor specifically grants such release in writing. Consent by Lessor
  to any Sublet shall not be deemed a consent to any subsequent Sublet. Lessee
  shall reimburse Lessor for all reasonable and customary costs and attorneys'
  fees incurred by Lessor in connection with the evaluation, processing and/or
  documentation of any requested Sublet, whether or not Lessor's consent is
  granted.

  C.   Information to be Furnished. If Lessee desires at any time to Sublet
  the Premises or any portion thereof, it shall first notify Lessor of its
  desire to do so and shall submit in writing to Lessor: (i) the name and
  legal composition of the proposed Sublessee, (ii) the nature of the
  proposed Sublessee's business to be carried on in the Premises; (iii) the
  terms and provisions of the proposed Sublet and a copy of the proposed
  Sublet form containing a description of the subject premises; (iv) a
  statement of all consideration to be paid by the Sublessee in connection
  with the Sublet; (v) a current financial statement of Lessee; and (vi) such
  financial information, including financial statements, as Lessor may
  reasonably request concerning the proposed Sublessee.

  D.  Lessor's  Alternatives.  At any time within fifteen (15) days after the
      ----------------------
  Lessor's receipt of the information specified in Paragraph 21.C., Lessor may,
  by written notice to Lessee, elect: (i) to

                                      11
<PAGE>

  consent to the Sublet by Lessee; (ii) to refuse its consent to the Sublet, or
  (iii) elect to terminate this Lease, or in the case of a partial Sublet,
  terminate this Lease as to the portion of the Premises proposed to be Sublet.
  If Lessor consents to the Sublet, Lessee may thereafter enter into a valid
  Sublet of the Premises or portion thereof, upon the terms and conditions and
  with the proposed Sublessee set forth in the information furnished by Lessee
  to Lessor pursuant to Paragraph 21.B., subject, however, at Lessor's election,
  to the condition that seventy-five percent (75%) of any excess of the Subrent
  over the Rent required to be paid by less this Lease, after Lessee has
  deducted therefrom its reasonable and customary costs to effect the Sublet,
  including with limitation, brokerage commissions, legal fees, and tenant
  improvement costs not to exceed $4.00 per square foot, shall be paid to
  Lessor.

  E.   Proration. If a portion of the Premises is Sublet, the pro rata share
       ---------
  of the Rent attributable to such partial area of the Premises shall be
  determined by Lessor by dividing the Rent payable by Lessee hereunder by the
  total square footage of the Premises and multiplying the resulting quotient
  (the per square foot rent) by the number of square foot rent of the Premises
  which are Sublet.

  F.   Exempt Sublets. Notwithstanding the above, Lessor's prior written
       --------------
  consent shall not be required for an assignment of this Lease or the sublet
  of the Premises to an entity which controls, is controlled by or under
  common control with, Lessee, or a corporation into which Lessee merges or
  consolidates, provided that (i) Lessee gives Lessor prior written notice of
  the name any such assignee, (ii) at the time of such assignment, the assignee
  has net worth that is equal to or greater than the net worth of Lessee
  immediately prior to such assignment; and (iii) the assignee assumes, in
  writing, for the benefit of Lessor, all of Lessee's obligations under the
  Lease. An assignment or other transfer of this Lease to a purchaser of all or
  substantially all of the assets of Lessee shall be deemed a Sublet requiring
  Lessor's prior written consent. Lessor's right to excess subrent shall not
  apply to a sublet described in this Section F. In addition, the sale of
  Lessee's shares over a public exchange shall not be deemed a sublet requiring
  Lessor's consent.

22.  Parking Charges. Lessee agrees to pay upon demand, based on its percent of
  occupancy of the entire Premises, its pro-rata share of any parking charges,
  surcharges, or any other cost hereafter levied or assessed by local, state, or
  federal governmental agencies in connection with the use of the parking
  facilities serving the Premises, including, without limitation, parking
  surcharge imposed by or under the authority of the Federal Environmental
  Protection Agency.

23.  Insolvency or Bankruptcy. Either (1.) the appointment of a receiver to take
  possession of all or substantially all of the assets of Lessee, or (2.) a
  general assignment by Lessee for the benefit of creditors, or (3.) any action
  taken or suffered by Lessee under any insolvency or bankruptcy act shall
  constitute a breach of this Lease by Lessee. Upon the happening of any such
  event, this Lease shall terminate ten (10) days after written notice of
  termination from Lessor to Lessee. This section is to be applied consistent
  with the applicable state and federal law in effect at the time such event
  occurs.

24.  Lessor Loan or Sale.  Lessee agrees promptly following request by Lessor
     -------------------
  to (1.) execute and deliver to Lessor any documents, including estoppel
  certificates presented to Lessee by Lessor, (a.) certifying that this Lease is
  unmodified and in full force and effect, or, if modified, stating the nature
  of such modification and certifying that this Lease, as so modified, is in
  full force and effect and the date to which the rent and other charges are
  paid in advance, if any, and (b.) acknowledging that there are not, to
  Lessee's knowledge, any uncured defaults on the part of Lessor hereunder, and
  (c.) evidencing the status of the Lease as may be required either by a lender
  making a loan to Lessor, to be secured by deed of trust or mortgage covering
  the Premises, or a purchaser of the Premises from Lessor, and (2.) to deliver
  to Lessor the current financial statements of Lessee with an opinion of a

                                      12
<PAGE>

  certified public accountant, including a balance sheet and profit and loss
  statement, for the current fiscal year and the two immediately prior fiscal
  years, all prepared in accordance with Generally Accepted Accounting
  Principles consistently applied, or if Lessee does not prepare financial
  statements in the manner specified above, Lessee shall provide Lessor with the
  financial statements which most accurately reflect the financial condition of
  Lessee. Lessee's failure to deliver an estoppel certificate within five (5)
  business days following such request shall constitute a default under this
  Lease and shall be conclusive upon Lessee that this Lease is in full force and
  effect and has not been modified except as may be represented by Lessor.
  Lessee's failure to deliver estoppel certificates within the five (5) business
  days shall be deemed a breach of Lease.

25.  Surrender of Lease. The voluntary or other surrender of this Lease by
     ------------------
  Lessee, or a mutual cancellation thereof, shall not work a merger nor relieve
  Lessee of any of Lessee's obligations under this Lease, and shall, at the
  option of Lessor, terminate all or any existing Subleases or Subtenancies, or
  may, at the option of Lessor, operate as an assignment to him of any or all
  such Subleases or Subtenancies.

26.  Attorneys' Fees. If, for any reason, any suit be initiated to enforce any
     ---------------
  provision of this Lease, the prevailing party shall be entitled to legal
  costs, expert witness expenses, and reasonable attorneys' fees, as fixed by
  the court.

27.  Notices. All notices to be given to Lessee may be given in writing,
     -------
  personally, or by depositing the same in the United States mail, postage
  prepaid, and addressed to Lessee at the said Premises, whether or not Lessee
  has departed from, abandoned, or vacated the Premises. Any notice or document
  required or permitted by this Lease to be given Lessor shall be addressed to
  Lessor at the address set forth below, or at such other address as it may have
  theretofore specified by notice delivered in accordance herewith:

         LESSOR: White Properties Joint Venture
              900 Welch Road, Suite 10
              Palo Alto, California 94304

         LESSEE: Oratec Interventions, Inc.
              3700 Haven Court
              Menlo Park, CA 94025

28.  Transfer of Security. If any security be given by Lessee to secure the
     --------------------
  faithful performance of all or any of the covenants of this Lease on the part
  of Lessee, Lessor may transfer and/or deliver the security, as such, to the
  purchaser of the reversion, in the event that the reversion be sold, and
  thereupon Lessor shall be discharged from any further liability in reference
  thereto, upon the assumption by such transferee of Lessor's obligations under
  this Lease.

29.  Waiver. The waiver by Lessor or Lessee of any breach of any term, covenant,
     ------
  or condition, herein contained shall not be deemed to be a waiver of such
  term, covenant, or condition, or any subsequent breach of the same or any
  other term, covenant, or condition herein contained. The subsequent acceptance
  of rent hereunder by Lessor shall not be deemed to be a waiver of any
  preceding breach by Lessee of any term, covenant, or condition of this Lease,
  other than the failure of Lessee to pay the particular rental so accepted,
  regardless of Lessor's knowledge of such preceding breach at the time of
  acceptance of such rent.

30.  Holding Over. Any holding over after the expiration of the term or any
  extension thereof, with the consent of Lessor, shall be construed to be a
  tenancy from month-to-month, at a rental of one and

                                      13
<PAGE>

  one-half (1 1/2) times the previous month's rental rate per month, and shall
  otherwise be on the terms and conditions herein specified, so far as
  applicable.

31. Covenants, Conditions, and Restrictions. Not applicable.
    ---------------------------------------

32. Limitation on Lessor's Liability. If Lessor is in default of this Lease,
    --------------------------------
  and, as a consequence, Lessee recovers a money judgment against Lessor, the
  judgment shall be satisfied only out of the proceeds of sale received on
  execution of the judgment and levy against the right, title, and interest
  of Lessor in the Premises, or in the building, other improvements, and land
  of which the Premises are part, and out of rent or other income from such
  real property receivable by Lessor or out of the consideration received by
  Lessor from the sale or other disposition of all or any part of Lessor's
  right, title, and interest in the Premises or in the building, other
  improvements, and land of which the Premises are part. Neither Lessor nor
  any of the partners comprising the partnership designated as Lessor shall
  be personally liable for any deficiency.

33. Miscellaneous.
    -------------

  A.   Time is of the essence of this Lease, and of each and all of its
    provisions.

  B.   The term "building" shall mean the building in which the Premises are
    situated.

  C.   If the building is leased to more than one tenant, then each such tenant,
    its agents, officers, employees, and invitees, shall have the non-exclusive
    right (in conjunction with the use of the part of the building leased to
    such Tenant) to make reasonable use of any driveways, sidewalks, and parking
    areas located on the parcel of land on which the building is situated,
    except such parking areas as may from time to time be leased for exclusive
    use by other Tenant(s).

  D.   Lessee's reasonable use of parking areas shall not exceed that percent
    of the total parking areas which is equal to the ratio which floor space of
    the Premises bears to floor space of the building.

  E.   The term "assign" shall include the term "transfer."

  F.   The invalidity or unenforceability of any provision of this Lease
    shall not affect the validity or enforceability of the remainder of
    this Lease.

  G.   All parties hereto have equally participated in the preparation of
    this Lease.

  H.   The headings and titles to the Paragraphs of this Lease are not a part
    of this Lease and shall have no effect upon the construction or
    interpretation of any part thereof.

  I.   Lessor has made no representation(s) whatsoever to Lessee (express or
    implied) except as may be expressly stated in writing in this Lease
    instrument.

  J.   This instrument contains all of the agreements and conditions made
    between the parties hereto, and may not be modified orally or in any
    other manner than by agreement in writing, signed by all of the
    parties hereto or their respective successors in interest.

  K.   It is understood and agreed that the remedies herein given to Lessor
    shall be cumulative,

                                      14
<PAGE>

    and the exercise of any one remedy by Lessor shall not be to the exclusion
    of any other remedy.

  L.   The covenants and conditions herein contained shall, subject to the
    provisions as to assignment, apply to and bind the heirs, successors,
    executors, and administrators, and assigns of all the parties hereto; and
    all of the parties hereto shall jointly and severally be liable hereunder.

  M.   This Lease has been negotiated by the parties hereto and the language
    hereof shall not be construed for or against either party.

  N.   All exhibits to which reference is made are deemed incorporated into
    this Lease, whether covenants or conditions, on the part of Lessee shall be
    deemed to be both covenants and conditions.

  O.   Where receipt of notice, demand or invoice is not specified, Lessee's
    time for response or remittance commences three (3) business days from the
    date of such notice, demand or invoice.

IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease on the date first
above-written.

LESSOR:                                     LESSEE:

BY: /s/ Howard White                    BY: /s/ Hugh Sharkey
   ----------------------                  ----------------------

ITS: General Partner                    ITS:
    ---------------------                   ---------------------

DATE: 8/13/96                           DATE:
     --------------------                    --------------------

                                      15
<PAGE>

                                  ADDENDUM I

TO THAT CERTAIN LEASE DATED MAY 7, 1998, BY AND BETWEEN WHITE PROPERTIES JOINT
VENTURE, LESSOR AND ORATEC INTERVENTIONS, 3696-A HAVEN AVENUE, LESSEE.

To that certain Lease the following wording is added:

1. EXPANSION
   ---------

Effective December 15, 1999, Lessor and Lessee hereby agree to expand the
Premises to include approximately 5,770 square feet known as 3698-B Haven Avenue
(as shown on Exhibit A attached hereto). Lessee's Premises shall therefore
consist of:

<TABLE>
<CAPTION>

Unit       Square Feet                           Pro-Rata Share
----       -----------                           --------------
<S>        <C>                                   <C>
3696-A     (plus or minus) 9,993 square feet     (plus or minus) 43.37% of 3696 Haven Avenue
3698-B     (plus or minus) 5,770 square feet     (plus or minus) 25.00% of 3698 Haven Avenue
</TABLE>

Rent for the expanded Premises shall be as follows:

Period                              Monthly Rent/NNN
------                              ----------------
12/15/99 - 12/14/00                 $10,675.00
12/15/00 - 12/14/01                 $11,102.00
12/15/01 - 12/14/02                 $11,546.00
12/15/02 - 07/12/03                 $12,008.00

Lessor shall provide a Tenant Improvement Allowance of $28,850.00 for mutually
agreed upon Tenant Improvements.

All other terms and conditions of the base Lease remain in full force and
effect.

AGREED AND ACCEPTED:

LESSOR                                     LESSEE
WHITE PROPERTIES JOINT VENTURE             ORATEC INTERVENTIONS

/S/ HOWARD J. WHITE, III                   /S/ NANCY V. WESTCOTT
----------------------------               --------------------------------
Howard J. White, III                       Authorized Representative
General Partner

Date:  5/10/99                             Date:  5/4/99
      ----------------------                     --------------------------

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