Document:

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                                                                   Exhibit 10.7

                                  LEASE AGREEMENT

     THIS LEASE, made this 19th day of January, 1996 between PASTORIA LIMITED
PARTNERSHIP a California limited partnership --------------------------------
hereinafter called Landlord and OCULEX PHARMACEUTICALS, INC., a California
corporation ----------------------------------------------------, hereinafter
called Tenant.

                                   WITNESSETH:

     Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit
"A", attached hereto and incorporated herein by this reference thereto more
particularly described as follows:

All of that certain 10,856+ square foot building located at 639 Pastoria
Avenue, Sunnyvale, California 94086. Said Premises is more particularly shown
within the area outlined in Red on EXHIBIT A attached hereto. The entire
parcel, of which of the Premises is a part, and exclusive parking appurtenant
thereto, is shown within the area outlined in Green on EXHIBIT A attached.
The Premises shall be improved as shown on EXHIBIT B to be attached hereto,
and, subject to Paragraph 42, is leased an "as-is" basis, in its present
condition, and in the configuration as shown in Red on EXHIBIT B to be
attached hereto.

     The word "Premises" as used throughout this lease is hereby defined to
include the nonexclusive use of landscaped areas, sidewalks and driveways in
front of or adjacent to the Premises, and the nonexclusive use of the area
directly underneath or over such sidewalks and driveways. The gross leasable
area of the Premises shall be measured from outside of exterior walls to
outside of exterior walls, and shall include any atriums, covered entrances
or egresses and covered building loading areas.

     Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of
the consideration for this Lease to perform and observe each and all of said
terms, covenants and conditions. This lease is made upon the conditions of
such performance and observance.

1.   USE. Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of
animal studies, general office, light manufacturing, research and
development, and storage and other uses necessary for Tenant to conduct
Tenant's business, provided that such uses shall be in accordance with all
applicable governmental laws and ordinances. and for no other purpose. Tenant
shall not do or permit to be done in or about the Premises nor bring or keep
or permit to be brought or kept in or about the Premises anything which is
prohibited by or will in any way increase the existing rate of (or otherwise
affect) fire or any insurance covering the Premises or any part thereof, or
any of its contents, or will cause a cancellation of any insurance covering
the Premises or any part thereof, or any of contents. Tenant shall not do or
permit to be done anything in, on or about the Premises which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Premises or neighboring premises or injury or annoy them, or use or allow the
Premises to be used for any improper, immoral, unlawful or objectionable
purposes, nor shall Tenant cause, maintain or permit any nuisance in, on or
about the Premises. No sale by auction shall be permitted on the Premises.
Tenant shall not place any loads upon the floors, walls, or ceiling which
endanger the structure, or place any harmful fluids or other materials in the
drainage system of the building, or overload existing electrical or other
mechanical systems. No waste materials or refuse shall be dumped upon or
permitted to remain upon any part of the Premises or outside of the building
in which the Premises are a part, except in trash containers placed inside
exterior enclosures designated by Landlord for that purpose or inside of the
building proper where designated by Landlord. No materials, supplies,
equipment, finished products or semi-finished products, raw materials or
articles of any nature shall be stored upon or permitted to remain outside
the Premises. Tenant shall not place anything or allow anything to be placed
near the glass of any window, door partition or wall which may appear
unsightly from outside the Premises. No loudspeakers or other device, system
or apparatus which can be heard outside the Premises shall be used in or at
the Premises without the prior written consent of Landlord. Tenant shall not
commit or suffer to be committed any waste in or upon the Premises. Tenant
shall indemnify, defend and hold Landlord harmless against any loss, expense
damage, reasonable attorney's fees, or liability arising out of failure of
Tenant to comply with any applicable law related to Tenant's use, the
Premises, and/or the Lease. Tenant shall comply with any covenant, condition,
or restriction ("CC&R's") affecting the Premises. The provisions of this
paragraph are for the benefit of Landlord only and shall not be construed to
be for the benefit of any tenant or occupant of the Premises.

     There are no CC&R's affecting the Premises at the time of Lease
execution. In the event CC&R's are subsequently implemented, Landlord shall
provide a copy of said CC&R's to Tenant.

2.   TERM*

     A.   The term of this Lease shall be for a period of SEVEN (7) years
(unless sooner terminated as hereinafter provided) and, subject to Paragraph
2B and 3, shall commence on the 1st day of May, 1996 and end on the 30th day
of April, 2003.

     B.   Possession of the Premises shall be deemed tendered and the term of
the Lease shall commence when the first of the following occurs:

          (A)   One day after a Certificate of Occupancy is granted by the
proper governmental agency, or, if the governmental agency having
jurisdiction over the area in which the Premises are situated does not issue
certificates of occupancy, then the same number of days after certification
by Landlord's architect or contractor that Landlord's construction work has
been completed; or

          (B)   Upon the occupancy of the Premises by any of Tenant's
operating personnel for the purpose of conducting Tenant's business; or

          (C)   WHEN THE TENANT IMPROVEMENTS HAVE BEEN SUBSTANTIALLY
COMPLETED FOR TENANT'S USE AND OCCUPANCY, IN ACCORDANCE AND COMPLIANCE WITH
EXHIBIT B OF THIS LEASE AGREEMENT; OR

          (D)   As otherwise agreed in writing.

*It is agreed in the event said Lease commences on a date other than the
first day of the month the term of the Lease will be extended to account for
the number of days in the partial month. The Basic Rent during the resulting
partial month will be pro-rated (for the number of days in the partial month)
at the Basic Rent scheduled for the projected commencement date as shown in
Paragraph 39.

3.   POSSESSION If Landlord, for any reason whatsoever, cannot deliver
possession of said premises to Tenant at the commencement of the said term,
as hereinbefore specified, this Lease shall not be void or voidable; no
obligation of Tenant shall be affected thereby; nor shall Landlord or
Landlord's agents be liable to Tenant for any loss or damage resulting
therefrom; but in that event the commencement and termination dates of the
Lease, and all other dates affected thereby shall be revised to conform to
the date of Landlord's delivery of possession, as specified in Paragraph 2B ,
above. The above is, however, subject to the provision that the period of
delay of delivery of the Premises shall not exceed 90 days from the
commencement date herein (except those delays caused by Acts of God, strikes,
war, utilities, governmental bodies, weather, unavailable materials, and
delays beyond Landlord's control shall be excluded in calculating such
period) in which instance Tenant, at its option, may by written notice to
Landlord, terminate this Lease.

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4.   RENT

     A.   BASIC RENT. Tenant agrees to pay to Landlord at such place as
Landlord may designate without deduction, offset, prior notice, or demand,
and Landlord agrees to accept as Basic Rent for the leased Premises the total
sum of ONE MILLION FIVE HUNDRED FOUR THOUSAND SIX HUNDRED FORTY ONE AND
60/100 -------------------------------------------------------------- Dollars
($1,504,641.60 ---------------------------------------------------------) in
lawful money of the United States of America, payable as follows: See
------------------------------------------------------ Paragraph 39 for Basic
Rent Schedule

     B.   TIME FOR PAYMENT. Full monthly rent is due in advance on the first
day of each calendar month. In the event that the term of this Lease
commences on a date other than the first day of a calendar month, on the date
of commencement of the term hereof Tenant shall pay to Landlord as rent for
the period from such date of commencement to the first day of the next
succeeding calendar month that proportion of the monthly rent hereunder which
the number of days between such date of commencement and the first day of the
next succeeding calendar month bears to thirty (30). In the event that the
term of this Lease for any reason ends on a date other than the last day of a
calendar month, on the first day of the last calendar month of the term
hereof Tenant shall pay to Landlord as rent for the period from said first
day of said last calendar month to and including the last day of the term
hereof bears to thirty (30).

     C.   LATE CHARGE. Notwithstanding any other provision of this Lease, If
Tenant is in default in the payment of rental as set forth in this Paragraph
4 when due, or any part thereof, Tenant agrees to pay Landlord, in additional
to the delinquent rental due, a late charge for each rental payment in
default ten (10) days. Said late charge shall equal ten percent (10%) of each
rental payment so in default.

     D.   ADDITIONAL RENT. Beginning with the commencement date of the term
of this Lease, Tenant shall pay to Landlord or to Landlord's designated agent
in addition to the Basic Rent and as Additional Rent in the following:
          (A) All Taxes relating to the Premises as set forth in Paragraph 9,
and
          (B) All insurance premiums relating to the Premises, as set forth
in Paragraph 12, and
          (C) All charges, costs and expenses, which Tenant is required to
pay hereunder, together with all interest and penalties, costs and expenses
including reasonable attorneys' fees and legal expenses, that may accrue
thereto in the event of Tenant's failure to pay such amounts, and all
damages, reasonable costs and expenses which Landlord may incur by reason of
default of Tenant or failure on Tenant's part to comply with the terms of
this Lease. In the event of nonpayment by Tenant of Additional Rent, Landlord
shall have all the rights and remedies with respect thereto as Landlord has
for nonpayment of rent. The Additional Rent due hereunder shall be paid to
Landlord or Landlord's agent (i) within five days for taxes and insurance and
within thirty (3) days for all other Additional Rent items after presentation
of invoice from Landlord or Landlord's agent setting forth such Additional
Rent and/or (ii) at the option of Landlord, Tenant shall pay to Landlord
monthly, in advance, Tenant's prorata share of an amount estimated by
Landlord to be Landlord's approximate average monthly expenditure for such
Additional Rent items, which estimated amount shall be reconciled within 120
days of or more frequently if Landlord elects to do so at Landlord's sole and
absolute discretion with Tenant paying to Landlord at the end of each
calendar year as compared to Landlord's actual expenditure for said
Additional Rent Items, with Tenant paying to Landlord, upon demand, any
amount of actual expenses expended by Landlord in excess of said estimated
amount, or Landlord refunding to Tenant (providing Tenant is not in default
in the performance of any of the terms, covenants and conditions of this
Lease) any amount of estimated payments made by Tenant in excess of
Landlord's actual expenditures for said Additional Rent Items.

    The respective obligations of Landlord and Tenant under this paragraph
shall survive the expiration or other termination of the term of this Lease,
and if the term hereof shall expire or shall otherwise terminate on a day
other than the last day of a calendar year, the actual Additional Rent
incurred for the calendar year in which the term hereof expires or otherwise
terminates shall be determined and settled on the basis of the statement of
actual Additional Rent for such calendar year and shall be prorated in the
proportion which the number of days in such calendar year preceding such
expiration or termination bears to 365.

     E.   PLACE OF PAYMENT OF RENT AND ADDITIONAL RENT. All Basic Rent
hereunder and all payments hereunder for Additional Rent shall be paid to
Landlord at the office of Landlord at PASTORIAL LIMITED PARTNERSHIPS, C/O
PEERY /ARRILLAGA, 2560 MISSION COLLEGE BLVD., SUITE 101, SANTA CLARA, CA
95954 or to such other person to such other place as Landlord may from time
to time designate in writing.

     F.   SECURITY DEPOSIT. Concurrently with Tenant's execution of this
Lease, Tenant shall deposit with Landlord the sum of THIRTY NINE THOUSAND
EIGHTY ONE AND 60/100-----------------------------------Dollars
($39,081.60-----------------------------------------). Said sum shall be held
by Landlord as a Security Deposit for the faithful performance by Tenant of
all of the terms, covenants, and conditions of this Lease to be kept and
performed by Tenant during the term hereof. If Tenant defaults with respect
to any provision of this Lease, including, but not limited to, the provisions
relating to the payment of rent and any of the monetary sums due herewith,
Landlord may (but shall not be required to) use, apply or retain all or any
part of this Security Deposit for the payment of any other amount which
Landlord may spend by reason of Tenant's default or to compensate Landlord
for any other loss damage which Landlord may suffer by reason of Tenant's
default. If any portion of said Deposit is so used or applied, Tenant shall,
within ten (10) days after written demand therefor, deposit cash with
Landlord in the amount sufficient to restore the Security Deposit to its
original amount. Tenant's failure to do so shall be a material breach of this
Lease. Landlord shall not be required to keep this Security Deposit separate
from its general funds, and Tenant shall not be entitled to Interest on such
Deposit. If tenant fully and faithfully performs every provision of this
Lease to be performed by it, the Security Deposit or any balance thereof
shall be returned to Tenant (or at Landlord's option, to the last assignee of
Tenant's interest hereunder) at the expiration of the Lease term and after
Tenant has vacated the Premises. In the event of termination of Landlord's
interest in this Lease, Landlord shall transfer said Deposit to Landlord's
successor in interest whereupon Tenant agrees to release Landlord from
liability for the return of such Deposit or the accounting therefor.

5.   ACCEPTANCE AND SURRENDER OF PREMISES Subject to Paragraph 42, by entry
hereunder, Tenant accepts the Premises as being in good and sanitary order,
condition and repair and accepts the building and improvements included in
the Premises in their present condition and without representation or
warranty by Landlord as to the condition of such building or as to the use or
occupancy which may be made thereof. Any exceptions to the foregoing must be
by written agreement executed by Landlord and Tenant. Tenant agrees on the
last day of the Lease term, or on the sooner termination of this Lease, to
surrender the Premises promptly and peaceably to Landlord in good condition
and repair (damage by Acts of God, fire, normal wear and tear excepted), with
all interior walls painted, or cleaned so that they appear freshly painted,
and repaired and replaced, if damaged; all floors cleaned and waxed; all
carpets cleaned and shampooed; all broken, marred or nonconforming acoustical
ceiling tiles replaced; all windows washed; the air conditioning and heating
systems serviced by a reputable and licensed service firm and in good
operating condition and repair; the plumbing and electrical systems and
lighting in good order and repair; including replacement of any burned out or
broken light bulbs or ballasts; the lawn and shrubs in good condition
including the replacement of any dead or damaged plantings; the sidewalk,
driveways and parking areas in good order, condition and repair; together
with all alterations, additions and improvements which may have been made in,
to , or on the Premises (except moveable trade fixtures installed at the
expense of tenant subject to Paragraph 6), except that Tenant shall ascertain
from Landlord within thirty (30) days before the end of the term of this
Lease whether Landlord desires to have the Premises or any part or parts
thereof restored to their condition and configuration as when the Premises
were delivered to Tenant and if Landlord shall so desire, then Tenant shall
restore said Premises or such part or parts thereof before the end of this
Lease at Tenant's sole cost and expense. Notwithstanding the above, the
improvements provided by Landlord as shown on EXHIBIT B are not subject to
removal at Least Termination.. Tenant, on or before the end of the term or
sooner termination of this Lease, shall remove all of Tenant's personal
property and trade fixtures from the Premises, and all property not so
removed on or before the end of the term or sooner termination of this Lease
shall be deemed abandoned by Tenant and title to same shall thereupon pass to
Landlord without compensation to Tenant. Landlord may, upon termination of
this Lease, remove all moveable furniture and equipment so abandoned by
Tenant, at Tenant's sole cost, and repair any damage caused by such removal
at Tenant's sole cost. If the Premises be not surrendered at the end of the
term or sooner termination of this Lease, Tenant shall indemnify Landlord
against loss or liability resulting from the delay by

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Tenant in so surrendering the Premises including, without limitation, any
claims made by any succeeding tenant founded on such delay. Nothing contained
herein shall be construed as an extension of the term hereof or as a consent
of Landlord to any holding over by Tenant. The voluntary or other surrender
of this Lease or the Premises by Tenant or a mutual cancellation of this
Lease shall not work as a merger and, at the option of Landlord, shall either
terminate all or any existing subleases or subtenancies or operate as an
assignment to Landlord of all or any such subleases or subtenancies.

6.   ALTERATIONS AND ADDITIONS. Tenant shall not make, or suffer to be made,
any alteration or addition to the Premises, or any part thereof, without the
written consent of Landlord first had and obtained by Tenant (such consent
not be unreasonably withheld), but at the cost of Tenant, and any addition
to, or alteration of, the Premises, except moveable furniture and trade
fixtures, shall at once become a part of the Premises and belong to Landlord.
Provided Tenant requests such a pre-determination from Landlord, Landlord
agrees to notify Tenant, at the time Landlord grants its approval for
Tenant's alterations, of Landlord's desire to "have or not to have" Tenant
remove said approved alterations by the Lease Termination Date pursuant to
the provisions of Paragraph 5. Landlord reserves the right to approve all
contractors and mechanics proposed by Tenant to make such alterations and
additions. Tenant shall retain title to all moveable furniture and trade
fixtures placed in the Premises. All heating, lighting, electrical, air
conditioning, floor to ceiling partitioning, drapery, carpeting, and floor
installations made by Tenant, together with all property that has become an
integral part of the Premises, shall not be deemed trade fixtures. Tenant
agrees that it will not proceed to make such alteration or additions, without
having obtained consent from Landlord to do so, and until five (5) days from
the receipt of such consent, in order that Landlord may post appropriate
notices to avoid any liability to contractors or material suppliers for
payment for Tenant's improvements. Tenant will at all times permit such
notices to be posted and to remain posted until the completion of work.
Tenant shall, if required by Landlord, secure at Tenant's own cost and
expense, a completion and lien indemnity bond, satisfactory to Landlord, for
such work. Tenant further covenants and agrees that any mechanic's lien filed
against the Premises for work claimed to have been done for, or materials
claimed to have been furnished to Tenant, will be discharged by Tenant, by
bond or otherwise, within ten (10) days after the filing thereof, at the cost
and expense of Tenant. Any exceptions to the foregoing must be made in
writing and executed by both Landlord and Tenant.

7.   TENANT MAINTENANCE. Tenant shall, at its sole cost and expense, keep and
maintain the Premises (including appurtenances) and every part thereof in a
high standard of maintenance and repair, or replacement, and in good and
sanitary condition. Tenant's maintenance and repair responsibilities herein
referred to include, but are not limited to, janitorization, all windows
(interior and exterior), window frames, plate glass and glazing (destroyed by
accident or act of third parties), truck doors, plumbing systems (such as
water and drain lines, sinks, toilets, faucets, drains, showers and water
fountains), electrical systems (such as panels, conduits, outlets, lighting
fixtures, lamps, bulbs, tubes and ballasts), heating and air conditioning
systems (such as compressors, fans, air handlers, ducts, mixing boxes,
thermostats, time clocks, boilers, heaters, supply and return grills),
structural elements and exterior surfaces of the building, store fronts,
roofs, downspouts, all interior improvements within the premises including
but not limited to wall coverings, window coverings, carpet, floor coverings,
partitioning, ceilings, doors (both interior and exterior), including closing
mechanisms, latches, locks, skylights (if any), automatic fire extinguishing
systems, and elevators and all other interior improvements of any nature
whatsoever, and all exterior improvements including but not limited to
landscaping, sidewalks, driveways, parking lots including striping and
sealing, sprinkler systems, lighting, ponds, fountains, waterways, and
drains. Tenant agrees to provide carpet shields under all rolling chairs or
to otherwise be responsible for wear and tear of the carpet caused by such
rolling chairs if such wear and tear exceeds that caused by normal foot
traffic in surrounding areas. Areas of excessive wear shall be replaced at
Tenant's sole expense upon Lease termination. Tenant hereby waives all rights
under, and benefits of, Subsection 1 of Section 1932 and Section 1941 and
1942 of the California Civil Code and under any similar law, statute or
ordinance now or hereafter in effect. In the event any of the above
maintenance responsibilities apply to any other tenant(s) of Landlord where
there is common usage with other tenant(s), such maintenance responsibilities
and charges shall be allocated to the leased Premises by square footage or
other equitable basis as calculated and determined by Landlord. See paragraph
46.

8.   UTILITIES. Tenant shall pay promptly, as the same become due, all
charges for water, gas, electricity, telephone, telex and other electronic
communication service, sewer service, waste pick-up and any other utilities,
materials or services furnished directly to or used by Tenant on or about the
Premises during the term of this Lease, including, without limitation, any
temporary or permanent utility surcharge or other exactions whether or not
hereinafter imposed. In the event the above charges apply to any other
tenant(s) of Landlord where there is common usage with other tenant(s), such
charges shall be allocated to the leased Premises by square footage or other
equitable basis as calculated and determined by Landlord.
      Landlord shall not be liable for and Tenant shall not be entitled to
any abatement or reduction of rent by reason of any interruption or failure
of utility services to the Premises when such interruption or failure is
caused by accident, breakage, repair, strikes, lockouts, or other labor
disturbances or labor disputes of any nature, or by any other cause, similar
or dissimilar, beyond the reasonable control of Landlord.

9.   TAXES.

     A.   As additional Rent and in accordance with Paragraph 4D of this
Lease, Tenant shall pay to Landlord, or if Landlord so directs, directly to
the Tax Collector, all Real Property Taxes relating to the Premises. In the
event the Premises leased hereunder consist of only a portion of the entire
tax parcel, Tenant shall pay to Landlord Tenant's proportionate share of such
real estate taxes allocated to the leased Premises by square footage or other
reasonable basis as calculated and determined by Landlord. If the tax billing
pertains 100% to the leased Premises, and Landlord chooses to have Tenant pay
said real estate taxes directly to the Tax Collector, then in such event it
shall be the responsibility of Tenant to obtain the tax and assessment bills
and pay, prior to delinquency, the applicable real property taxes and
assessments pertaining to the leased Premises, and failure to receive a bill
for taxes and/or assessments shall not provide a basis for cancellation of or
nonresponsibility for payment of penalties for nonpayment or late payment by
Tenant. The term "Real Property Taxes", as used herein, shall mean (i) all
taxes, assessments, levies and other charges of any kind or nature
whatsoever, general and special, foreseen and unforeseen (including all
installments of principal and interest required to pay any general or special
assessments for public improvements and any increases resulting from
reassessments caused by any change in ownership of the Premises) now or
hereafter imposed by any governmental or quasi-governmental authority or
special district having the direct or indirect power to tax or levy
assessments, which are levied or assessed against, or with respect to the
value, occupancy or use of, all or any portion of the Premises (as now
constructed or as may at any time hereafter be constructed, altered, or
otherwise changed) or Landlord's interest therein; any improvements located
within the Premises (regardless of ownership); the fixtures, equipment and
other property of Landlord, real or personal, that are an integral part of
and located in the Premises; or parking areas, public utilities, or energy
within the Premises; (ii) all charges, levies or fees imposed by reason of
environmental regulation or other governmental control of the Premises; and
(iii) all costs and fees (including reasonable attorneys' fees) incurred by
Landlord in reasonably contesting any Real Property Tax and in negotiating
with public authorities as to any Real Property Tax. If at any time during
the term of this Lease the taxation or assessment of the Premises prevailing
as of the commencement date of this Lease shall be altered so that in lieu of
or in addition to any Real Property Tax described above there shall be
levied, assessed or imposed (whether by reason of a change in the method of
taxation or assessment, creation of a new tax or charge, or any other cause)
an alternate or additional tax or charge (i) on the value, use or occupancy
of the Premises or Landlord's interest therein or (ii) on or measured by the
gross receipts, income or rentals from the Premises, on Landlord's business
of leasing the Premises, or computed in any manner with respect to the
operation of the Premises, then any such tax or charge, however designated,
shall be included within the meaning of the term "Real Property Taxes" for
purposes of this Lease. If any Real Property Tax is based upon property or
rents unrelated to the Premises, then only that part of such "Real Property
Taxes" that is fairly allocable to the Premises shall be included within the
meaning of the term "Real Property Taxes". Notwithstanding the foregoing, the
term "Real Property Taxes" shall not include estate, inheritance, gift or
franchise taxes of Landlord or the federal or state net income tax imposed on
Landlord's income from all sources.

     B.   Taxes on Tenant's Property. Tenant shall be liable for and shall
pay ten days before delinquency, taxes levied against any personal property
or trade fixtures placed by Tenant in or about the Premises. If any such
taxes on Tenant's personal property

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or trade fixtures are levied against Landlord or Landlord's property or if
the assessed value of the Premises is increased by the inclusion therein of a
value placed upon such personal property or trade fixtures of Tenant and
Landlord, after written notice to Tenant, pays the taxes based on such
increased assessment, which Landlord shall have the right to do regardless of
the validity thereof, but only under proper protest if requested by Tenant,
Tenant shall upon demand, as the case may be, repay to Landlord the taxes so
levied against Landlord, or the proportion of such taxes resulting from such
increase in the assessment; provided that in any such event Tenant shall have
the right, in the name of Landlord and with Landlord's full cooperation, to
bring suit in any court of competent jurisdiction to recover the amount of
such taxes so paid under protest, and any amount so recovered shall belong to
Tenant. See paragraph 47.

10.  LIABILITY INSURANCE. Tenant, at Tenant's expense, agrees to keep in
force during the term of this Lease a policy of commercial general insurance
with combined single limit coverage of not less than Two Million Dollars
($2,000,000) for bodily injury and property damage occurring in, on or about
the Premises, including parking and landscaped areas. Such insurance shall be
primary and noncontributory as respects any insurance carried by Landlord.
The policy or policies effecting such insurance shall name Landlord as
additional insureds, and shall insure any liability of Landlord, contingent
or otherwise, as respects acts or omissions of Tenant, its agents, employees
or invitees or otherwise by any conduct or transactions of any of said
persons in or about or concerning the Premises, including any failure of
Tenant to observe or perform any of its obligations hereunder; shall be
issued by an insurance company admitted to transact business in the State of
California; and shall provide that the insurance effected thereby shall not
be cancelled, except upon thirty (30) days' prior written notice to Landlord.
A certificate of insurance of said policy shall be delivered to Landlord. If,
during the term of this Lease, in the considered opinion of Landlord's
Lender, insurance advisor, or counsel, the amount of insurance described in
this Paragraph 10 is not adequate, Tenant agrees to increase said coverage to
such reasonable amount as Landlord's Lender, insurance advisor, or counsel
shall deem adequate.

11.  TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION
INSURANCE. Tenant shall maintain a policy or policies of fire and property
damage insurance in "all risk" form with a sprinkler leakage endorsement
insuring the personal property, inventory, trade fixtures, and leasehold
improvements within the leased Premises for the full replacement value
thereof. The proceeds from any of such policies shall be used for the repair
or replacement of such items so insured.
     Tenant shall also maintain a policy or policies of workman's
compensation insurance and any other employee benefit insurance sufficient to
comply with all laws.

12.  PROPERTY INSURANCE. Landlord shall purchase and keep in force, and as
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant
shall pay to Landlord (or Landlord's agent if so directed by Landlord)
Tenant's proportionate share (allocated to the leased Premises by square
footage or other equitable basis as calculated and determined by Landlord) of
the deductibles on insurance claims and the cost of, policy or policies of
insurance covering loss or damage to the Premises (excluding routine
maintenance and repairs and incidental damage or destruction caused by
accidents or vandalism for which Tenant is responsible under Paragraph 7) in
the amount of the full replacement value thereof, providing protection
against those perils included within the classification of "all risks"
insurance and flood and/or earthquake insurance, if available, plus a policy
of rental income insurance in the amount of one hundred (100%) percent of
twelve (12) months Basic Rent, plus sums paid as Additional Rent. If such
insurance cost is increased due to Tenant's use of the Premises, Tenant
agrees to pay to Landlord the full cost of such increase. Tenant shall have
no interest in nor any right to the proceeds of any insurance procured by
Landlord for the Premises.

     Landlord and Tenant do each hereby respectively release the other, to
the extent of insurance coverage of the releasing party, from any liability
for loss or damage caused by fire or any of the extended coverage casualties
included in the releasing party's insurance policies, irrespective of the
cause of such fire or casualty; provided, however, that if the insurance
policy of either releasing party prohibits such waiver, then this waiver
shall not take effect until consent to such waiver is obtained. If such
waiver is to prohibited, the insured party affected shall promptly notify the
other party thereof.

13.  INDEMNIFICATION. Landlord shall not be liable to Tenant and Tenant
hereby waives all claims against Landlord for any injury to or death of any
person or damage to or destruction of property in or about the Premises by or
from any cause whatsoever, including, without limitation, gas, fire, oil,
electricity or leakage of any character from the roof, walls, basement or
other portion of the Premises but excluding, however, the willful misconduct
of negligence of Landlord, its agents, servants, employees, invitees, or
contractors of which negligence Landlord has knowledge and reasonable time to
correct. Except as to injury to persons or damage to property to the extent
arising from the willful misconduct or the negligence of Landlord, its
agents, servants, employees, invitees, or contractors, Tenant shall hold
Landlord harmless from and defend Landlord against any and all expenses,
including reasonable attorneys' fees. In connection therewith, arising out of
any injury to or death of any person or damage to or destruction of property
occurring in, on or about the Premises, or any part thereof, from any cause
whatsoever.

14.  COMPLIANCE. Tenant, at its sole cost and expense, shall promptly comply
with all laws, statutes, ordinances and governmental rules, regulations or
requirements now or hereafter in effect; with the requirements of any board
of fire underwriters or other similar body now or hereafter constituted; and
with any direction or occupancy certificate issued pursuant to law by any
public officer; provided, however, that no such failure shall be deemed a
breach of the provisions if Tenant, immediately upon notification, commences
to remedy or rectify said failure. The judgement of any court of competent
jurisdiction or the admission of Tenant in any action against Tenant, whether
Landlord to be a party thereto or not, that Tenant has violated any such law,
statute, ordinance or governmental rule, regulation, direction or provision,
shall be conclusive of that fact as between Landlord and Tenant. Tenant
shall, at its sole cost and expense, comply with any and all requirements
pertaining to said Premises, of any insurance organization or company,
necessary for the maintenance of reasonable fire and public liability
insurance covering requirements pertaining to said Premises, of any insurance
organization or company, necessary for the maintenance of reasonable fire and
public liability insurance covering the Premises. See Paragraph 48.

15.  LIENS. Tenant shall keep the Premises free from any liens arising out of
any work performed, materials furnished or obligation incurred by Tenant. In
the event that Tenant shall not, within ten (10) days following the
imposition of such lien, cause the same to be released of record, Landlord
shall have, in addition to all other remedies provided herein and by law, the
right, but no obligation, to cause the same to be released by such means as
it shall deem proper, including payment of the claim giving rise to such
lien. All sums paid by Landlord for such purpose, and all expenses incurred
by it in connection therewith, shall be payable to Landlord by Tenant on
demand with interest at the prime rate of interest as quoted by the Bank of
America.

16.  ASSIGNMENT AND SUBLETTING. Tenant shall not assign, transfer or
hypothecate the leasehold estate under this Lease, or any interest therein,
and shall not sublet the Premises, or any part thereof, or any right or
privilege appurtenant thereto, or suffer any other person or entity to occupy
or use the Premises, or ant portion thereof, without, in each case, the prior
written consent of Landlord which consent will not be unreasonably withheld.
As a condition for granting this consent to any assignment, transfer, or
subletting, Landlord may require that Tenant agrees to pay to Landlord, as
additional rent, 50% of all rents or additional consideration received by
Tenant from its assignees, transferees, or subtenants in excess of the rent
payable by Tenant to Landlord hereunder, Tenant shall, by thirty (30) days
written notice, advise Landlord of its intent to assign or transfer Tenant's
interest in the Lease or sublet the Premises or any portion thereof for any
part of the term hereof. Within thirty (30) days after receipt of said
written notice, Landlord may, in its sole discretion, elect to terminate this
Lease as to the portion of the Premises described in Tenant's notice on the
date specified in Tenant's notice by giving written notice of such election
to terminate. If no such notice to terminate is given to Tenant within said
thirty (30) day period, Tenant may proceed to locate an acceptable sublessee,
assignee, or other transferee for presentment to Landlord's approval, all in
accordance with the terms, covenants, and conditions of this paragraph 16. If
Tenant intends to sublet the entire Premises and Landlord elects to terminate
this Lease, this Lease shall be terminated on the date specified in Tenant's
notice. If, however, this Lease shall terminate pursuant to the foregoing
with respect to less than all the Premises, the rent, as defined and reserved
hereinabove shall be adjusted on a pro rata basis to the number of square
feet retained by Tenant, and this Lease as so amended shall continue in full
force and effect. In the event Tenant is allowed

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to assign, transfer or sublet the whole or any part of the Premises, with the
prior written consent of Landlord, no assignee, transferee or subtenant shall
assign or transfer this Lease, either in whole or in part, or sublet the
whole or any part of the Premises, without also having obtained the prior
written consent of Landlord which consent shall not be unreasonably withheld.
A consent of Landlord to one assignment, transfer, hypothecation, subletting,
occupation or use by any other person shall not release Tenant from any of
Tenant's obligations hereunder or be deemed to be a consent to any subsequent
similar or dissimilar assignment, transfer, hypothecation, subletting,
occupation or use by any other person. Any such assignment, transfer,
hypothecation, subletting, occupation or use without such consent shall be
void and shall constitute a breach of this Lease by Tenant and shall, at the
option of Landlord exercised by written notice to Tenant, terminate this
Lease. The leasehold estate under this Lease shall not, nor shall any
interest therein, be assignable for any purpose by operation of law without
consent of Landlord which consent shall not be unreasonably withheld. As a
condition to its consent, Landlord may require Tenant to pay all expenses in
connection with the assignment, and Landlord may require Tenant's assignee or
transferee for other assignees or transferee(s) to assume in writing all of
the obligations under this Lease and for Tenant to remain liable to Landlord
under the Lease. See Paragraph 49.

17.  SUBORDINATION AND MORTGAGES. In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest
of Landlord in the land and buildings in which the demised Premises are
located, to secure a loan from a lender (hereinafter referred to as "Lender")
to Landlord, Tenant shall, at the request of Landlord or Lender, execute in
writing an agreement subordinating its rights under this Lease to the lien of
such deed of trust, or, if so requested, agreeing that the lien of Lender's
deed of trust shall be or remain subject and subordinate to the rights of
Tenant under this Lease. Notwithstanding any such subordination, Tenant's
possession under this Lease shall not be disturbed if Tenant is not in
default and so long as Tenant shall pay all rent and observe and perform all
of the provisions set forth in this Lease. See Paragraph 50.

18.  ENTRY BY LANDLORD. Landlord reserves, and shall at reasonable times
after at least 24 hours notice (except in emergencies) have, the right to
enter the Premises to inspect them; to perform any services to be provided by
Landlord hereunder; to make repairs or provide any services to a contiguous
tenant(s); to submit the Premises to prospective purchasers, mortgagers or
tenants; to post notices of nonresponsibility; and to alter, improve or
repair the Premises or other parts of the building, all without abatement of
rent, and may erect scaffolding and other necessary structures in or through
the Premises where reasonably required by the character of the work to be
performed; provided, however, that the business of Tenant shall be interfered
with to the least extent that is reasonably practical. Any entry to the
Premises by Landlord for the purposes provided for herein shall not under any
circumstances be construed or deemed to be forcible or unlawful entry into or
a detainer of the Premises or an eviction, actual or constructive, of Tenant
from the Premises or any portion thereof. See Paragraph 51.

19.  BANKRUPTCY AND DEFAULT. The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar
action undertaken by Tenant, or the insolvency of Tenant, shall, at
Landlord's option, constitute a breach of this Lease by Tenant. If the
trustee or receiver appointed to serve during a bankruptcy, liquidation,
reorganization, insolvency or similar action elects to reject Tenant's
unexpired Lease, the trustee or receiver shall notify Landlord in writing of
its election within thirty (30) days after an order for relief in a
liquidation action or within thirty (30) days after commencement of any
action.
     Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to
the reasonable satisfaction of Landlord that the trustee or receiver shall
cure) any and all previous defaults under the unexpired Lease and shall
compensate Landlord for all actual pecuniary loss and shall provide adequate
assurance of future performance under said Lease to the reasonable
satisfaction of Landlord. Adequate assurance of future performance, as used
herein, includes, but shall not be limited to: (i) assurance of source and
payment of rent, and other consideration due under this Lease; (ii) assurance
that the assumption or assignment of this Lease will not breach substantially
any provision, such as radius, location, use or exclusivity provision, in any
agreement relating to the above described Premises.
     Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in
connection with a bankruptcy, liquidation, reorganization or insolvency
action or an assignment of Tenant for the benefit of creditors or other
similar act. Nothing contained in this Lease shall be construed as giving or
granting or creating an equity in the demised Premises to Tenant. In no event
shall the leasehold estate under this Lease, or any interest therein, be
assigned by voluntary or involuntary bankruptcy proceeding without the prior
written consent of Landlord. In no event shall this Lease or any rights or
privileges hereunder be an asset of Tenant under any bankruptcy, insolvency
or reorganization proceedings.
     The failure to perform or honor any covenant, condition or
representation made under this Lease shall constitute a default hereunder by
Tenant upon expiration of the appropriate grace period hereinafter provided.
Tenant shall have a period of five (5) days from the date of written notice
from Landlord within which to cure any default in the payment of rental or
adjustment thereto. Tenant shall have a period of thirty (30) days from the
date of written notice from Landlord within which to cure any other default
under this Lease; provided, however, that if the nature of Tenant's failure
is such that more than thirty (30) days is reasonably required to cure the
same, Tenant shall not be in default so long as Tenant commences performance
within such thirty (30) day period and thereafter prosecutes the same to
completion. - TO THE EXTENT PERMITTED BY LAW. Upon an uncured default of this
Lease by Tenant, Landlord shall have the following rights and remedies in
addition to any other rights or remedies available to Landlord at law or in
equity:
         (a) The rights and remedies provided for by California Civil Code
Section 1951.2, including but not limited to, recovery of 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 rental loss for the same
period that Tenant proves could be reasonably avoided, as computed pursuant
to subsection (b) of said Section 1951.2. Any proof by Tenant under
subparagraphs (2) and (3) of Section 1951.2 of the California Civil Code of
the amount of rental loss that could be reasonably avoided shall be made in
the following manner: Landlord and Tenant shall each select a licensed real
estate broker in the business of renting property of the same type and use as
the Premises and in the same geographic vicinity. Such two real estate
brokers shall select a third licensed real estate broker, and the three
licensed real estate brokers so selected shall determine the amount of the
rental loss that could be reasonably avoided from the balance of the term of
this Lease after the time of award. The decision of the majority of said
licensed real estate brokers shall be final and binding upon the parties
hereto.
         (b) The rights and remedies provided by California Civil Code
Section which allows Landlord to continue the Lease in effect and to enforce
all of its rights and remedies under this Lease, including the right to
recover rent as it becomes due, for so long as Landlord does not terminate
Tenant's right to possession; acts of maintenance or preservation, efforts to
relet the Premises, or the appointment of a receiver upon Landlord's
initiative to protect its interest under this Lease shall not constitute a
termination of Tenant's right to possession.
         (c) The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.
         (d) The right and power to enter the Premises and remove therefrom
all persons and property, to store such property in a public warehouse or
elsewhere at the cost of and for the account of Tenant, and to sell such
property and apply such proceeds therefrom pursuant to applicable California
law. Landlord may from time to time sublet the Premises or any part thereof
for such term or terms (which may extend beyond the term of this Lease) and
at such rent and such other terms as Landlord in its reasonable sole
discretion may deem advisable, with the right to make alterations and repairs
to the Premises. Upon each subletting, (i) Tenant shall be immediately liable
to pay Landlord, in addition to indebtedness other than rent due hereunder,
the reasonable cost of such subletting, including, but not limited to,
reasonable attorneys' fees and any real estate commissions actually paid, and
the cost of such reasonable alterations and repairs incurred by Landlord and
the amount, if any, by which the rent hereunder for the period of such
subletting (to the extent such period does not exceed the term hereof)
exceeds the amount to be paid as rent for the Premises for such period or
(ii) at the option of Landlord, rents received form such subletting shall be
applied first to payment of indebtedness other than rent due hereunder from
Tenant to Landlord; second, to the payment of any costs of such subletting
and of such alterations and repairs; third to payment of rent due and unpaid
hereunder; and the residue, if any, shall be held by Landlord and applied in
payment of future rent as the same becomes due hereunder. If Tenant has been
credited with any rent to be received by such subletting under option (i) and
such rent shall not be promptly paid to Landlord by the subtenant(s), or if
such rentals received from such subletting under option (ii) during any moth
be less than that to be paid during that month by Tenant hereunder, Tenant
shall pay any such deficiency to Landlord. Such deficiency shall be
calculated and paid monthly. No taking possession of the Premises by Landlord
shall be construed as an election on its part to terminate this Lease unless
a written notice

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of such intention be given to Tenant. Notwithstanding any such subletting
without termination, Landlord may at any time hereafter elect to terminate
this Lease for such previous breach.

         (e) The right to have a receiver appointed for Tenant upon
application by Landlord, to take possession of the Premises and to apply any
rental collected from the Premises and to exercise all other rights and
remedies granted to Landlord pursuant to subparagraph d. above.

20.  ABANDONMENT. Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease (except that Tenant may vacate so long as it
pays rent, provides an on-site security guard during normal business hours
from Monday through Friday, and otherwise performs its obligations hereunder)
and if Tenant shall abandon, vacate or surrender said Premises, or be
dispossessed by the process of law, or otherwise, any personal property
belonging to Tenant and left on the Premises shall be deemed to be abandoned,
at the option of landlord, except such property as may be mortgaged to
Landlord.

21.  DESTRUCTION. In the event the Premises are destroyed in whole or in part
from any cause, except for routine maintenance and repairs and incidental
damage and destruction caused from vandalism and accidents for which Tenant
is responsible under Paragraph 7, Landlord may, at its option:
         (a)  Rebuild or restore the Premises to their condition prior to the
damage or destruction, or
         (b) Terminate this Lease (providing that the Premises is damaged to
the extent of 33-1/3% of the replacement cost).
         If Landlord does not give Tenant notice in writing within thirty
(300 days from the destruction of the Premises of its election to either
rebuild or restore them, or to terminate this Lease, Landlord shall be deemed
to have elected to rebuild or restore them, in which event Landlord agrees,
at its expense, promptly to rebuild or restore the Premises to their
condition prior to the damage or destruction. Tenant shall be entitled to a
reduction in rent while such repair is being made in the proportion that the
area of the Premises rendered untenantable by such damage bears to the total
area of the Premises. If Landlord initially estimates that the rebuilding or
restoration will exceed 180 days or if Landlord does not complete the
rebuilding or restoration with 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 Tenant 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 the control of Landlord),
then Tenant shall have the right to terminate this Lease by giving fifteen
(15) days prior written notice to Landlord. Notwithstanding anything herein
to the contrary, Landlord's obligation to rebuild or restore shall be limited
to the building and interior improvements constructed by Landlord as they
existed as of the commencement date of the Lease and shall not include
restoration of Tenant's trade fixtures, equipment, merchandise, or any
improvements, alterations or additions made by Tenant to the Premises, which
Tenant shall forthwith replace or fully repair at Tenant's sole cost and
expense provided this Lease is not cancelled according to the provisions
above.
     Unless this Lease is terminated pursuant to the foregoing provisions,
this Lease shall remain in full force and effect. Tenant hereby expressly
waives the provisions of Section 1932, Subdivision 2, in 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 33-1/3% of the
replacement cost thereof, Landlord may elect to terminate this Lease, whether
the Premises be injured or not. SEE PARAGRAPH 52.

22.  EMINENT DOMAIN. If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or
conveyance in lieu thereof, this Lease shall terminate as to any portion of
the Premises so taken or conveyed on the date when title vests in the
condemnor, and Landlord shall be entitled to any and all payment, income,
rent, award, or any interest therein whatsoever which may be paid or made in
connection with such taking or conveyance, and Tenant shall have o claim
against Landlord or otherwise for the value of any unexpired term of this
Lease. Notwithstanding the foregoing paragraph, any compensation specifically
awarded Tenant for loss of business, Tenant's personal property, moving cost
or loss of goodwill, shall be and remain the property of Tenant.
         If any action or proceeding is commenced for such taking of the
Premises or any part thereof, or if Landlord is advise din writing by any
entity or body having the right or power of condemnation of its intention to
condemn the premises or any portion thereof, then Landlord shall have the
right to terminate this Lease by giving Tenant written notice thereof within
sixty (60) days of the date of receipt of said written advice, or
commencement of said action or proceeding, or taking conveyance, which
termination shall take place as of the first to occur of the last day of the
calendar month next following the month in which such notice is given or the
date on which title to the Premises shall vest in the condemnor.
         In the event of such a partial taking or conveyance of the Premises,
if the portion of the Premises taken or conveyed is so substantial that the
Tenant can no longer reasonably conduct its business. Tenant shall have the
privilege of terminating this Lease within sixty (60) days from the date of
such taking or conveyance, upon written notice to Landlord of its intention
so to do, and upon giving of such notice this Lease shall terminate on the
last day of the calendar month next following the month in which such notice
is given, upon payment by Tenant of the rent from the date of such taking or
conveyance to the date of termination.
         If a portion of the Premises be taken by condemnation or conveyance
in lieu thereof and neither Landlord nor Tenant shall terminate this Lease as
provided herein, this Lease shall continue in full force and effect as to the
part of the Premises not so taken or conveyed, and the rent herein shall be
apportioned as of the date of such taking or conveyance so that thereafter
the rent to be paid by Tenant shall be in the ration that the area of the
portion of the Premises not so taken or conveyed bears to the total area of
the Premises prior to such taking.

23.  SALE OR CONVEYANCE BY LANDLORD. In the event of a sale or conveyance of
the Premises or any interest therein, by any owner of the reversion then
constituting Landlord, the transferor shall thereby be released from any
further liability upon any of the terms, covenants or conditions (express or
implied) herein contained in favor of Tenant, and in such event, insofar as
such transfer is concerned, Tenant agrees to look solely to the
responsibility of the successor in interest of such transferor in and to the
Premises and this Lease. This Lease shall not be affected by any such sale or
conveyance, and Tenant agrees to attorn to the successor in interest of such
transferor.

24.  ATTORNMENT TO LENDER OR THIRD PARTY. In the event the interest of
Landlord in the land and buildings in which the leased Premises are located
(whether such interest of Landlord is a fee title interest or a leasehold
interest) is encumbered by deed of trust, and such interest is acquired by
the lender or any third party through judicial foreclosure or by exercise of
a power of sale at private trustee's foreclosure sale, Tenant hereby agrees
to attorn to the purchaser at any such foreclosure sale and to recognize such
purchaser as the Landlord under this Lease. In the event the lien of the deed
of trust securing the loan from a Lender to Landlord is prior and paramount
to the Lease, this Lease shall nonetheless continue in full force and effect
for the remainder of the unexpired term hereof, at the same rental herein
reserved and upon all the other terms, conditions and covenants herein
contained.

25.  HOLDING OVER. Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease
or give Tenant any rights in or to the leased Premises except as expressly
provided in this Lease. Any holding over after the expiration or other
termination of the term of this Lease, with the consent of Landlord, shall be
construed to be a tenancy from month to month, on the same terms and
conditions herein specified insofar as applicable except that the monthly
Basic Rent shall be increased to an amount equal to one hundred fifty (150%)
percent of the monthly Basic Rent required during the last month of the Lease
Term.

26.  CERTIFICATE OF ESTOPPEL. Tenant shall at any time upon not less than ten
(10) days prior written notice to Landlord execute, acknowledge and deliver
to Landlord a statement in writing (i) 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 (ii) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of Landlord hereunder,
or specifying such defaults, if any, are claimed. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises. Tenant" failure to

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deliver such statement within such time shall be conclusive upon Tenant that
this Lease is in full force and effect, without modification except as may be
represented by Landlord; that there are no uncured defaults in Landlord's
performance, and that not more than one month's rent has been paid in advance.

27.  CONSTRUCTION CHANGES. It is understood that the description of the
Premises and the location of ductwork, plumbing and other facilities therein
are subject to such minor changes as Landlord or Landlord's architect
determines to be desirable in the course of construction of the Premises, and
no such changes shall affect this Lease or entitle Tenant to any reduction of
rent hereunder or result in any liability of Landlord to Tenant. Landlord
does not guarantee the accuracy of any drawings supplied to Tenant and
verification of the accuracy of such drawings rests with Tenant.

28.  RIGHT OF LANDLORD TO PERFORM. All terns, covenants and conditions of
this Lease to be performed or observed by Tenant shall be performed or
observed by Tenant at Tenant's sole cost and expense and without any
reduction of rent. If Tenant shall fail to pay any sum of money, or other
rent, required to be paid by it hereunder or shall fail to perform any other
term or covenant hereunder on its part to be performed, and such failure
shall continue for five (5) days after written notice thereof by Landlord,
Landlord, without waiving or releasing Tenant from any obligation of Tenant
hereunder, may, but shall not be obliged to, make any such payment or perform
any such other item or covenant on Tenant's part to be performed. All sums so
paid by Landlord and all necessary costs of such performance by Landlord
together with interest thereon at the rate of the prime rate of interest per
annum as quoted by the Bank of America from the date of such payment on
performance by Landlord, shall be paid (and Tenant covenants to make such
payment) to Landlord within five (5) days after receipt of an invoice
therefor, and Landlord shall have (in addition to any other right or remedy
of Landlord) the same rights and remedies in the event of nonpayment by
Tenant as in the case of failure by Tenant in the payment of rent hereunder.

29.  ATTORNEY'S FEES.
     A. In the event that either Landlord or Tenant should bring suit for the
possession of the Premises, for the recovery of any sum due under this Lease,
or because of the breach of any provision of this Lease, or for any relief
against the other party hereunder, then all costs and expenses, including
reasonable attorneys' fees incurred by the prevailing party therein shall be
paid by the other party, which obligation on the part of the other party
shall be deemed to have accrued on the date of the commencement of such
action and shall be enforceable whether or not the action is prosecuted to
judgment.

     B. Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder,
Tenant shall pay to Landlord its costs and expenses incurred in such suit,
including a reasonable attorney's fee.

30.  WAIVER. The waiver by either party of the other party's failure to
perform or observe any term, covenant or condition herein contained to be
performed or observed by such waiving party shall not be deemed to be a
waiver of such term, covenant or condition or of any subsequent failure of
the party failing to perform or observe the same or any other such term,
covenant or condition therein contained, and no custom or practice which may
develop between the parties hereto during the term hereof shall be deemed a
waiver of, or in any way affect, the right of either party to insist upon
performance and observance by the other party in strict accordance with the
terms hereof.

31.  NOTICES. All notices, demands, requests, advices or designations which
may be or are required to be given by either party to the other hereunder
shall be in writing. All notices, demands, requests, advices or designations
by Landlord to Tenant shall be sufficiently given, made or delivered if
personally served on Tenant by leaving the same at the Premises of (OR?) if
sent by United States certified or registered mail, postage prepaid,
addressed to Tenant at the Premises. All notices, demands, requests, advices
or designations by Tenant to Landlord shall be sent by United States
certified or registered mail, postage prepaid, addressed to Landlord at its
offices at PASTORIA LIMITED PARTNERSHIP, C/O PEERY/ARRILAGA, 2560 MISSION
COLLEGE BLVD., SUITE 101, SANTA CLARA, CA 95054. Each notice, request,
demand, advice or designation referred to in this paragraph shall be deemed
received on the date of the personal service or mailing thereof in the manner
herein provided, as the case may be.

32.  EXAMINATION OF LEASE. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a
lease, and this instrument is not effective as a lease or otherwise until its
execution and delivery by both Landlord and Tenant.

33.  DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord
fails to perform obligations required of Landlord within a reasonable time,
but in no event earlier than (30) days after written notice by Tenant to
Landlord and to the holder of any first mortgage or deed of trust covering
the Premises whose name and address shall have heretofore been furnished to
Tenant in writing, specifying wherein Landlord has failed to perform such
obligations; provided, however, that if the nature of Landlord's obligations
is such that more than thirty (30) days are required for performance, then
Landlord shall not be in default if Landlord commences performance within
such thirty (30) day period and thereafter diligently prosecutes the same to
completion.

34.  CORPORATE AUTHORITY. If Tenant is a corporation (or a partnership), each
individual executing this Lease on behalf of said corporation (or
partnership) represents and warrants that he is duly authorized to execute
and deliver this Lease on behalf of said corporation (or partnership) in
accordance with the by-laws of said corporation (or partnership in accordance
with the partnership agreement) and that this Lease is binding upon said
corporation (or partnership) in accordance with its terms. If Tenant is a
corporation, Tenant shall, within thirty (30) days after execution of this
Lease, deliver to Landlord a certified copy of the resolution of the Board of
Directors of said corporation authorizing or ratifying the execution of this
Lease.

35. [DELETED]

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                                   Page 8 of 13
<PAGE>

36.  LIMITATION OF LIABILITY. In consideration of the benefits accruing
hereunder, Tenant and all successors and assigns covenant and agree that, in
the event of any actual or alleged failure, breach or default hereunder by
Landlord:

         (a)  The sole and exclusive remedy shall be against Landlord and
Landlord's assets;
         (b) No partner of Landlord shall be sued or named as a party in any
suit or action (except as may be necessary to secure jurisdiction of the
partnership;
         (c) No service of process shall be made against any partner of
Landlord (except as may be necessary to secure jurisdiction of the
partnership);
         (d) No partner of Landlord shall be required to answer or otherwise
plead to any service of process;
         (e) No judgment will be taken against any partner of Landlord;
         (f) Any judgment taken against any partner of Landlord may be
vacated and set aside at any time without hearing;
         (g) No writ of execution will ever be levied against the assets of
any partner of Landlord;
         (h) These covenants and agreements are enforceable both by Landlord
and also by any partner of Landlord.
         Tenant agrees that each of the foregoing covenants and agreements
shall be applicable to any covenant or agreement either expressly contained
in this Lease or imposed by statute or at common law.

37.  SIGNS. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside
of the Premises or any exterior windows of the Premises without the written
consent of Landlord first had and obtained which consent shall not be
unreasonably withheld and Landlord shall have the right to remove any such
sign, placard, picture, advertisement, name or notice without notice to and
at the expense of Tenant. If Tenant is allowed to print or affix or in any
way place a sign in, on or about the Premises, upon expiration or other
sooner termination of this Lease, Tenant at Tenant's sole cost and expense
shall bot remove such sign and repair all damage in such a manner as to
restore all aspects of the appearance of the Premises to the condition prior
to the placement of said sign.
         All approved signs or lettering on outside doors shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person approved
of by Landlord.
         Tenant shall not place anything or allow anything to be placed near
the glass of any window, door partition or wall which may appear unsightly
from outside the Premises.

38.  MISCELLANEOUS AND GENERAL PROVISIONS

     A.   USE OF BUILDING NAME. Tenant shall not, without the written consent
of Landlord, use the name of the building for any purpose other than as the
address of the business conducted by Tenant in the Premises.

     B.   CHOICE OF LAW; SEVERABILITY. This Lease shall in all respects be
governed by and construed in accordance with the laws of the State of
California. If any provision of this Lease shall be invalid, unenforceable or
ineffective for any reason whatsoever, all other provisions hereof shall be
and remain in full force and effect.

     C.   DEFINITION OF TERMS.. The term "Premises" includes the space leased
hereby and any improvements now or hereafter installed therein or attached
thereto. The term "Landlord" or any term use din place thereof includes the
plural as well as the singular and the successors and assigns of Landlord.
The term "Tenant" or any pronoun used in place thereof includes the plural as
well as the singular and individuals, firms, associations, partnerships and
corporations, and their and each of their respective heirs, executors,
administrators, successors and permitted assigns, according to the context
hereof, and the provisions of this Lease shall inure to the benefit of and
bind such heirs, executors, administrators, successors and permitted assigns.
         The term "person" includes the plural as well as the singular and
individuals, firms, associations, partnerships and corporations. Words used
in any gender include other genders. If there be more than one Tenant the
obligations of Tenant hereunder are joint and several. The paragraph headings
of this Lease are for convenience of reference only and shall have no effect
upon the construction or interpretation of any provision hereof.

     D.   TIME OF ESSENCE. Time is of the essence of this Lease and each and
all of its provisions.

     E.   QUITCLAIM. At the expiration or earlier termination of this Lease,
Tenant shall execute, acknowledge and deliver to Landlord, within ten (10)
days after written demand from Landlord to Tenant, any quitclaim deed or
other document required by any reputable title company, licensed to operate
in the State of California, to remove the cloud or encumbrance created by
this Lease from the real property of which Tenant's Premises are a part.

     F.   INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This instrument
along with any exhibits and attachments hereto constitutes the entire
agreement between Landlord and Tenant relative to the Premises and this
agreement and the exhibits and attachments may be altered, amended or revoked
only by an instrument in writing signed by both Landlord and Tenant. Landlord
and Tenant agree hereby that all prior or contemporaneous oral agreements
between and among themselves and their agents or representatives relative to
the leasing of the Premises are merged in or revoked by this agreement.

     G.   RECORDING. Neither Landlord nor Tenant shall record this Lease or a
short form memorandum hereof without the consent of the other.

     H.   AMENDMENTS FOR FINANCING. Tenant further agrees to execute any
amendments required by a lender to enable Landlord to obtain financing, so
long as Tenant's rights hereunder are not substantially affected.

     I.   ADDITIONAL PARAGRAPHS. Paragraphs 39 through 54 are added hereto
and are included as a part of this lease.

     J.   CLAUSES, PLATS AND RIDERS. Clauses, plats and riders, if any,
signed by Landlord and Tenant and endorsed on or affixed to this Lease are a
part hereof.

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                                   Page 8 of 13

<PAGE>

     K.   DIMINUTION OF LIGHT, AIR OR VIEW. Tenant covenants and agrees that
no diminution or shutting off of light, air or view by any structure which
may be hereafter erected (whether or not by Landlord) shall in any way affect
his (THIS?) Lease, entitle Tenant to any reduction of rent hereunder or
result in any liability of Landlord to Tenant.

          IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered
this Lease as of the day and year last written below.

LANDLORD:                                  TENANT:

PASTORIA LIMITED PARTNERSHIP               OCULEX PHARMACEUTICALS, INC.,
                                           a California corporation

By:                                        By:
   -------------------------------------      --------------------------------
      John Arrillaga,
      Trustee of the Arrillaga Family

Dated:                                     Title:
      ----------------------------------         -----------------------------

                                           Type of Print Name:
                                                              ----------------

                                           Dated:
                                                 -----------------------------

                                                        Initials:    JG
                                                        Initials:    JG

                                   Page 9 of 13.

<PAGE>

Paragraphs 39 through 54 to Lease Agreement Dated January 19, 1996. By and
Between Pastoria Limited Partnership, as Landlord, and OCULEX
Pharmaceuticals, Inc., a California coq)oration, as Tenant for 10.856-+
Square Feet of Space Located at 639 Pastoria Avenue, Sunnyvale, California.

39.  BASIC RENT: in accordance with Paragraph 4A herein, the total aggregate
sum of ONE MILLION FIVE HUNDRED FOUR TI1OUSAND SIX HUNDRED FORTY ONE AND
60/100 DOLLARS ($1,504.641.60). shall be payable as follows:

     On May I. 1996, the sum of SIXTEEN THOUSAND TWO HUNDRED EIGHTY FOUR AND
NO/lilt} DOLLARS ($16,284.00) shall be due, and a like sum due on the first
day of each month thereafter, through and including April I, 1997.

     On May 1, 1997, the sum of S1XTEEN THOUSAND EIGHT HUNDRED TWENTY SIX AND
80/100 DOLLARS ($16,826.80) shall be due, and a like sum due on the first day
of each month thereafter, through and including April 1, 1998.

     On May 1, 1998, the sum of SEVENTEEN THOUSAND THREE HUNDRED SIXTY NINE
AND 60/100 DOLLARS ($17,369.60) shall be due, and a like sum due on the first
day of each month thereafter, through and including April 1, 1999.

     On May 1, 1999, the sum of SEVENTEEN THOUSAND NINE HUNDRED TWELVE AND
40/100 DOLLARS ($17,912.40) shall be due, and a like sum due on the first day
of each month thereafter, through and including April i, 2000.

     On May 1, 2000, the sum of EIGHTEEN THOUSAND FOUR HUNDRED FIFTY FIVE AND
20/100 DOLLARS ($18.455.20) shall be due, mid a like sum due on the first day
of each month thereafter, through and including April I, 2001.

     On May 1, 2001. the sum of EIGHTEEN THOUSAND NINE HUNDRED NINETY EIGHT
AND NO/100 DOLLARS ($18,998.00) shall be due, and a like sum due on the first
day of each month thereafter, through mid including April I, 2002.

     On May 1. 2002. the sum of NINETEEN THOUSAND FIVE HUNDRED FORTY AND
80/100 DOLLARS ($19,540.80) shall be due, and a like sum due on the first day
of each month thereafter, through and including April I, 20(13; or until the
entire aggregate sum of ONE MILLION FIVE HUNDRED FOUR THOUSAND SIX HUNDRED
FORTY ONE AND 60/100 DOLLARS ($1,540,641.60) has been paid.

40.  EARLY ENTRY: Subject to the provisions of Paragraph 42, ("Tenant
Interior Improvements") Tenant and its agents and contractors shall be
permitted to enter the Premises prior to the Commencement Date for the
purpose of installing at Tenant's sole cost and expense, Tenant's trade
fixtures and equipment, telephone equipment, security systems and cabling for
computers. Such entry shall be subject to all of the terms and conditions of
this Lease, except that Tenant shall not be required to pay any Rent on
account thereof. Any entry or installation work by Tenant and its agents in
the Premises pursuant to this Paragraph 40 shall (i) be undertaken at
Tenant's SOLE RISK, (ii) not interfere with or delay Landlord's work in the
Premises (if any), and (iii) not be deemed occupancy or possession of the
Premises for purposes of the Lease. Tenant shall indemnify, defend, and hold
Landlord harmless form any and all loss, damage, liability, expense
(including reasonable attorney's fees), claim or demand of whatsoever
character, direct or consequential, including, but without limiting thereby
the generality of the foregoing, injury to or death of persons and damage to
or loss of property arising out of the exercise by Tenant of any early entry
right granted hereunder. In the event Tenant's work in said Premises delays
the completion of the interior improvements to be provided by Landlord, if
rely, or in the event Tenant has not completed construction of it's interior
improvements by the scheduled Commencement Date, it is agreed between the
parties that this Lease will commence on the scheduled Commencement Date of'
April I, 1996 regardless of the construction status of said interior
improvements completed or to be completed by Tenant or Landlord. It is the
intent of the parties hereto that the commencement of Tenant's obligation to
pay Rent under the Lease not be delayed by any of such causes or by any other
act of Tenant (except as expressly provided herein) and, in the event it is
so delayed, Tenant's obligation to pay Rent under the Lease shall commence as
of the date it would otherwise have commenced absent delay caused by Tenant.

41.  "AS-IS" BASIS: Subject only to Paragraph 42 and to Landlord making the
improvements shown on Exhibit B to be attached hereto, it is hereby agreed
that the Premises leased hereunder is leased strictly on an "as-is" basis and
in its present condition, mid in the configuration as shown on Exhibit B to
be attached hereto, and by reference made a part hereof. Except as noted
herein, it is specifically agreed between the parties that after Landlord
makes tile interior improvements as shown on Exhibit B. Landlord shall not be
required to make. nor be responsible for any cost, in connection with may
repair, restoration, and/or improvement to the Premises in order for this
Lease to commence, or thereafter, throughout the Term of this Lease. Landlord
makes no warranty or representation of any kind or nature whatsoever as to
the condition or repair of the Premises, nor as to the use or occupancy which
may be made thereof.

42.  TENANT INTERIOR IMPROVEMENTS: Landlord shall, at its sole cost and
expense, construct certain interior improvements {the "Tenant Improvements")
in the Premises, as shown on EXHIBIT B to be attached to thc Lease and
Landlord agrees to deliver the Premises leased hereunder to Tenant, at
Landlord's expense, in the configuration shown in Red on EXHIBIT B to be
attached hereto. Notwithstanding anything to the contrary above, it is
specifically understood and agreed that Landlord shall be required to furnish
only a standard air conditioning/beating system, normal electrical outlets,
standard fire sprinkler systems, standard bathroom, standard lobby, 2' x 4'
suspended acoustical tile drop ceiling throughout the entire space leased,
carpeting and/or vinyl-coated floor tile, and standard office partitions and
doors, as shown on EXHIBIT B to be attached hereto; provided however, that
any special HVAC and/or plumbing and/or electrical requirements over and
above that normally supplied by Landlord shall be 100 percent the
responsibility of and be paid for 100 percent by Tenant.

Notwithstanding anything to the contrary, it is agreed that in the event
Tenant makes changes, additions, or modifications to the plans and
specifications to be constructed by Landlord as set forth herein, or
improvements are installed for Tenant, at Tenant's request, in excess of
those to be provided Tenant by Landlord as set forth on EXHIBIT B, any
increased cost(s) resulting from said changes, additions, and/or
modifications and/or improvements in excess of those to be provided Tenant
shall be contracted for with Landlord and paid for one hundred percent (100%)
by Tenant.

The interior shall be constructed substantially in accordance with EXHIBIT B
of the Lease, it being agreed, however, that if the interior improvements
constructed by Landlord relating thereto, do not conform exactly to the plans
and specifications as set forth in the Lease, and the general appearance,
structural integrity, mid Tenant's uses mid occupancy of the Premises mid
interior improvements relating thereto are not materially or unreasonably
affected by such deviation, it is agreed that the commencement date of the
Lease, and Tenant's obligation to pay rental, shall not be affected, mid
Tenant hereby agrees, in such event, to accept the Premises mid interior
improvements as constructed by Landlord. Notwithstanding the above, the
construction of the clean mom (if constructed and paid for by Landlord) shall
not materially differ from the plans and specifications provided to Landlord
by Tenant.

Tenant shall have thirty (30) days after the Commencement Date to provide
Landlord with a "punch list" pertaining to Landlord's work with respect to
Tenant's interior improvements. As soon as reasonably possible thereafter,
Landlord, or one of Landlord's representatives (if so approved by Landlord),
and Tenant shall conduct a joint walk-through of the Premises (if Landlord so
requires), and inspect such Tenant Improvements, using their best efforts to
agree on the incomplete or defective construction related to the Tenant
Improvements installed by Landlord. After such inspection has been completed,
Landlord shall prepare, mid both parties shall sign, a list of all "punch
list" items which the parties reasonably agree are to be corrected by
Landlord (but which shall exclude any damage or defects caused by Tenant, its
employees, agents or parties Tenant has contracted with to work on the
Premises). Landlord shall have thirty (30) days thereafter (or longer if
necessary, provided Landlord is diligently pursuing the

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                                  Page 10 of 13.

<PAGE>

completion of the same) to complete, at Landlord's expense, the repairs on
the "punch list" without the Commencement Date of the Lease and Tenant's
obligation to pay Rental thereunder being affected. This Paragraph shall be
of no force and effect if Tenant shall fail to give any such notice to
Landlord within thirty (30) days after the Commencement Date of this Lease.

43.  EARLY OCCUPANCY: In the event the Premises leased hereunder become
available for Tenant's use and occupancy prior to the scheduled Commencement
Date hereof, Tenant shall have the right to occupy the Premises as of the
date Landlord so completes said Premises for Tenant's use and occupancy. This
Lease shall commence and Tenant shall pay to Landlord, effective as of tile
date Premises are delivered to Tenant, all Additional Rent expenses which are
Tenant's responsibility hereunder (however, Tenant shall not be responsible
for paying Basic Rent during the early occupancy period), and Tenant shall be
obligated to perform, and be bound by, each and every term, covenant, and
condition of this Lease. In the event Tenant occupies the Premises prior to
April I. 1996, the Term of this Lease will be extended to include the early
occupancy period (i.e. If Tenant occupies said space on March I, 1996. the
Lease Ten}] will be extended for one (I) month flora a seven (7) year Term to
a seven (7) year one (I) month Term).

44.  CONSENT: Whenever the consent of one party to the other is required
here]ruder, such consent shall ]lot be unreasonably withheld.

45.  HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect
to the existence or use of "Hazardous Materials" (as defined herein) on, in,
under or about the Premises and real property located beneath said Premises
{hereinafter collectively referred to as the "Property"):

As used herein, the term "Hazardous Materials" shall mean any hazardous or
toxic substance, material or waste which is or becomes subject to or
regulated by any local governmental authority, the State of California, or
the United States Government. The term "Hazardous Materials" includes,
without limitation any material or hazardous subs]mine which is (i) listed
under Article 9 or defined as "hazardous" or "extremely hazardous" pursuant
to Article II of Title 22 of the California Administrative Code, Division 4,
Chapter 30, (ii) listed or defined as a "hazardous waste" pursuant to the
Federal Resource Conservation and Recovery Act, Section 42 U.S.C. Section
6901 et. seq., (iii) listed or defined as a "hazardous substance" pursuant to
tile Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601 et. seq. (42 U.S.C. Section 9601), (iv) petroleum or any
derivative of petroleum, or (v) asbestos.

Subject to the terms of this Paragraph 45, Tenant shall have no obligation to
"clean up", reimburse, release, indemnify, or defend Landlord with respect to
any Hazardous Materials or wastes which Tenant (prior to and during the term
of the Lease) or other parties on the Property, (during the term of this
Lease) did not store, dispose, or transport in, use, or cause to be on the
Property in violation of applicable law.

Landlord hereby acknowledges that Hazardous Material contamination
(hereinafter referred to as "Preexisting Contamination") has been found on
the Premises pursuant to Leaven & Frock's report entitled Combined Annual
Status Report January 1, 1995 through December 31, 1995 and Quarterly
Extraction and Treatment System Monitoring Report and Quarterly Report of
Hydrogeologic Investigations October I, 1995 through December 31, 1995 dated
January 31, 1996, a copy of which has previously been provided to Tenant
(hereinafter referred to as the "Levine & Fricke Report"). Notwithstanding
the above and provided Tenant has not caused or contributed to said
Preexisting Contamination, Tenant shall not be responsible for the clean-up
of the Preexisting Contamination on the Premises.

"Preexisting Conditions" shall mean the presence of any Hazardous Materials
in, on, or under the Premises as of the date of this Lease (excluding any
such Hazardous Materials which are present on the Premises as of the date of
this Lease or thereafter as a result of any activities of Tenant, its
employees, agents, representatives, subtenants, assignees, or contractors).

Tenant shall be 100 percent liable and responsible for: (i) any and all
"investigation and cleanup" of said Hazardous Materials contamination which
Tenant, its agents, employees, contractors, vendors, invitees, visitors or
its future subtenants and/or assignees (if any), or other parties on the
Property, does store, dispose, or transport in, use or cause to be on the
Property, and (ii) any claims, inch]ding third party claims, resulting from
such Hazardous Materials contamination. Tenant shall indemnify Landlord and
hold Landlord harmless from any liabilities, demands, costs, expenses and
damages, including, without limitation, reasonable attorney fees incurred as
a result of any claims resulting from such Hazardous Materials contamination.

Tenant also agrees not to use or dispose of ally Hazardous Materials on the
Property without first obtaining Landlord's written consent. Tenant agrees to
complete compliance with governmental regulations regarding the use or
removal or remediation of Hazardous Materials used, stored, disposed of,
transported or caused to be on the Property as stated above, and prior to the
termination of said Lease Tenant agrees to follow tile proper closure
procedures and will obtain a clearance from the local fire department and/or
the appropriate governing agency. If Tenant uses Hazardous Materials, Tenant
also agrees to install, at Tenant's expense, such Hazardous Materials
monitoring devices as Landlord deems reasonably necessary, it is agreed that
the `Tenant's responsibilities related to Hazardous Materials will survive
the termination date of the Lease and that Landlord may obtain specific
performance of Tenant's responsibilities under this Paragraph 45.

46.  MAINTENANCE OF THE PREMISES: In addition to, mid notwithstanding anything
to the contrary in Paragraph 7, Landlord shall maintain the structural shell,
foundation, and roof structure (but not the interior improvements, roof
membrane, or glazing) of the building leased hereunder at Landlord's cost and
expense provided Tenant has not caused such damage, in which event Tenant
shall be responsible for 100 percent of any such costs for repair or damage
so caused by the Tenant. Notwithstanding the foregoing, a crack in the
foundation, or exterior walls that does not endanger the structural integrity
of the building, or which is not life-threatening, shall not be considered
material, nor shall Landlord be responsible for repair of same.

47.  TENANT'S RIGHT TO CONTEST REAL ESTATE TAX ASSESSMENTS: in addition to
and notwithstanding anything to the contrary contained in Paragraph 9, it is
agreed that Tenant shall have the right to contest the real estate taxes
and/or assessments levied against the Premises leased hereunder with the
specific understanding and agreement that any such contest shall in no way
and in no event relieve Tenant from Tenant's responsibility to pay all real
estate taxes and assessments as they appear on the tax bill as they become
due. In the event any such contest by Tenant is successful, the proportionate
portion of the refund relating to real estate taxes and assessments actually
paid by Tenant shall be refunded to Tenant. It is further understood and
agreed that Landlord shall in no event be responsible for any liability or
for any cost or expense incurred by Tenant by reason of Tenant's contest of
such taxes and/or assessments.

48.  COMPLIANCE CONTINUED: Any non-conformance of the improvements installed
and paid for by Landlord as set forth on Exhibit B, required to be corrected
by the governing agency, shall be corrected at the cost and expense or
Landlord if such non-conformance exists as of the Commencement Date of the
Lease and further provided that such governing agency's requirement to
correct the non-conformance is not initiated as a result of.' (i) any future
improvements made by or for Tenant; or (ii) any permit request made to a
governing agency by or for Tenant. Any non-conformance of the Premises
occurring after the Commencement Date of this Lease Agreement shall be the
responsibility of Tenant to correct at Tenant's cost and expense.

49.  ASSIGNMENT AND SUBLETTING {CONTINUED): In addition to and
notwithstanding anything to the contrary in Paragraph 16 of this Lease,
Landlord hereby agrees to consent to Tenant's assigning or subletting said
Lease to: (i) any parent or ,subsidiary corporation, or corporation with
which Tenant merges or consolidates provided that the net worth of said
parent or subsidiary

                                                        Initials:    JG
                                                        Initials:    JG

                                  Page 11 of 13.

<PAGE>

corporation, or said corporation has a net worth equal to or greater than the
net worth of Tenant at the time of such assignment, merger, or consolidation;
or (ii) any third party or entity to whom Tenant sells all or substantially
all of its assets; provided, that the net worth of thc resulting or acquiring
corporation has a net worth after the merger, consolidation or acquisition
equal to or greater than the net worth of Tenant at the time of such merger,
consolidation or acquisition. No such assignment or subletting will release
the Tenant from its liability and responsibility under this Lease to the
extent Tenant continues in existence following such transaction.
Notwithstanding the above, Tenant shall be required to (a) give Landlord
written notice prior to such assignment or subletting to any party as
described in (i) and (ii) above, and (b) execute Landlord's consent document
prepared by Landlord reflecting the assignment or subletting.

50.  SUBORDINATION AND MORTGAGES: Paragraph17 is modified to provide that
this Lease shall not be subordinate to a mortgage or deed of trust unless the
Lender holding such mortgage or deed of trust enters into a written
subordination, non-disturbance and attornment agreement in which the Lender
agrees that notwithstanding any subordination of this Lease to such Lender's
mortgage or deed of trust, (i) such Lender shall recognize all of Tenant's
rights under this Lease, and (ii) in the event of a foreclosure, this Lease
shall not be terminated so long as Tenant is not in default of its
obligations under this Lease, but shall continue in effect and Tenant and
such Lender (or any party acquiring the Premises through such foreclosure)
shall each be bound to perform the respective obligations of Tenant and
Landlord with respect to thc Premises arising after such foreclosure.

51.  LANDLORD'S RIGHT TO ENTER: Notwithstanding the provisions of Paragraph
18, (i) except in the event of an emergency, Landlord shall give Tenant
twenty-four (24) hours notice prior to entering Premises, agrees to comply
with any reasonable safety and/or security regulations imposed by Tenant with
respect to such entry, and shall only enter the Premises when accompanied by
Tenant or its agent (so long as Tenant makes itself reasonably available for
this purpose), and (ii) Landlord may install "for lease" signs relating to
tile Premises (rely during the last 180 days of the Lease term. Landlord
agrees to use its reasonable, good faith efforts such that any entry by
Landlord, and Landlord's agents, employees, contractors and invitees shall be
performed in a manner with as minimal interference as possible with Tenant's
business at thc Premises. Subject to the foregoing, Tenant agrees to
cooperate with Landlord and Landlord's agents, employees and contractors so
that responsibilities of Landlord under the Lease can be fulfilled in a
reasonable manner during normal business hours so that no extraordinary costs
are incurred by Landlord.

52.  DESTRUCTION (CONTINUED): Notwithstanding the above, Tenant shall have
the right to terminate this Lease if any damage to the Premises occurs
(luring the last twelve (12) months of the Lease Term and said be cannot be
repaired within forty five (45) days. In tile event Tenant elects to
terminate this Lease, Tenant shall notify Landlord in writing of such
election to terminate this Lease within five (5) days of Tenant's receipt of
notice from Landlord identifying that the projected time required to make the
necessary repairs of said damage is more than forty five (45) days, in which
event this Lease would terminate thirty (30) days after Landlord receives
written notice from Tenant of Tenant's election to terminate. Tenant shall
remain responsible for tile full performance of all terms, covenants and
conditions herein contained through tile effective date of Termination.

53.  WAIVERS: Provided Tenant is not in default of said Lease, Landlord shall
within ten (10) business days of receipt of Tenant's written request to
Landlord to provide a waiver agreement for Tenant's leased and/or financed
equipment (which request shall include a detailed itemization of said leased
and/or financed equipment to be referenced under said waiver), Landlord
shall, after its review and approval of said list, submit Landlord's standard
form waiver agreement ("Waiver Agreement") to Tenant and the respective third
party for their execution; upon receipt of the filly executed Waiver
Agreement, Landlord shall execute and return Landlord's Waiver Agreement to
Tenant within ten (10) business days thereafter.

54.  ASSIGNMENT OF WARRANTIES: During the Term of the Lease, Landlord hereby
assigns to Tenant all of Landlord's Contractor's warranties and shall
cooperate with Tenant in enforcing any such warranties except that Landlord
shall not be required to pay any legal fees or incur any expenses in this
regard.

                                                        Initials:    JG
                                                        Initials:    JG

                                  Page 12 of 13.

<PAGE>

     IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year last written below.

LANDLORD:                                    TENANT:

PASTORIA LIMITED PARTNERSHIP                 OCULEX PHARMACEUTICALS, INC.,
                                             a California corporation

By:                                          By:
   ---------------------------------------      ------------------------------
      John Arrillaga,
      Trustee of the Arrillaga Family

Dated:                                       Title:
      ------------------------------------         ---------------------------

                                             Type of Print Name:
                                                                --------------

                                             Dated:
                                                   ---------------------------

                                                        Initials:___________
                                                        Initials:___________

                                  Page 13 of 13.<PAGE>

                                                                   Exhibit 10.9

                          OCULEX PHARMACEUTICALS, INC.

                             KEY EMPLOYEE AGREEMENT
                                       FOR
                                 DONALD J. EATON

     Oculex Pharmaceuticals, Inc., a California corporation (the "Company")
agrees with you as follows:

     1.   POSITION AND RESPONSIBILITIES.

          1.1 The Company will employ you and you shall serve in an executive
capacity as Chief Executive Officer and perform the duties customarily
associated with such capacity from time to time and at such place or places as
the Company shall reasonably designate or as shall be reasonably appropriate and
necessary in connection with such employment.

          1.2 Subject to Section 4 below, you will, to the best of your ability,
devote your full time and best efforts to the performance of your duties
hereunder and the business and affairs of the Company. You agree to serve as a
director and/or officer of the Company if elected by the shareholders and the
Board, as the case may be, and to perform such executive duties as may be
assigned to you by the Company's Board of Directors from time to time. The
Company shall use its best efforts to elect you to the Company's Board of
Directors for so long as you hold the position of Chief Executive Officer. You
will be assigned such facilities and support staff as are customarily associated
with the position of Chief Executive Officer. You will report to the Company's
Board of Directors and all of the employees of the Company will report to you.

          1.3 You will duly, punctually and faithfully perform and observe any
and all rules and regulations which the Company may now or shall hereafter
establish governing the conduct of its business, except to the extent that such
rules and regulations may be inconsistent with your executive position.

     2.   TERM OF EMPLOYMENT; TERMINATION.

          2.1 The effective date of this Agreement is March 8, 2000.

          2.2 Unless otherwise mutually agreed in writing, this Agreement and
your employment by the Company pursuant to this Agreement shall be terminated on
the earliest of:

              (a) your death, or any illness, disability or other incapacity
in such a manner that you are physically rendered unable regularly to perform
your duties

                                      1.
<PAGE>

hereunder for a period in excess of one hundred twenty (120) consecutive days
or more than one hundred eighty (180) days in any consecutive twelve (12)
month period;

              (b) thirty (30) days after you, for any reason, give written
notice to the Company of your termination;

              (c) thirty (30) days after the Company, with or without cause,
gives written notice to you of your termination; and

              (d) five (5) years from the date hereof.

          2.3 The determination regarding whether you are physically unable
regularly to perform your duties under (a) above shall be made by the Board
of Directors. Your inability to be physically present on the Company's
premises shall not constitute a presumption that you are unable to perform
such duties.

          2.4 Any notice required to be given pursuant to this Section 2
shall be given in accordance with the provisions of Section 10 hereof. The
exercise of either party's right to terminate this Agreement pursuant to
subsections (b) or (c) above shall not abrogate the rights and remedies of
the terminating party regarding the breach, if any, giving rise to such
termination.

          2.5 You may be terminated for cause if, in the reasonable
determination of the Company's Board of Directors, you are convicted of any
felony or of any crime involving moral turpitude, or participate in any fraud
against the Company, or willfully breach your duties to the Company, or
wrongfully disclose any trade secrets or other confidential information of
the Company, or materially breach Section 4 of this Agreement or any material
provision of the Employee Proprietary Information Agreement, between you and
the Company (the "Proprietary Information Agreement").

     3.   COMPENSATION:

          3.1 The Company shall pay to you for the services to be rendered
hereunder a basic salary at an annual rate of one hundred eighty-five
thousand dollars ($185,000) prior to the effective date of the Company's
first firm commitment underwritten public offering of its common stock
registered under the Securities Act of 1933, as amended (the "Initial
Offering"), and one hundred ninety-five thousand dollars ($195,000) effective
as of the Initial Offering, subject to increase in accordance with the
policies of the Company, as determined by its Board of Directors, in force
from time to time, payable in installments in accordance with Company policy.
You shall also be entitled to all rights and benefits for which you shall be
eligible under bonus, pension, group insurance, long-term disability, life
insurance, profit-sharing or other Company benefits which may be in force
from time to time and provided to you or for the Company's employees
generally. Without limiting the foregoing, you will be eligible for an annual
bonus as determined in the sole discretion of the Company's Board of
Directors of up to thirty percent (30%) of your base salary.

                                      2.
<PAGE>

          3.2 You shall be entitled to three (3) weeks annual paid vacation.
You shall be entitled to illness days during the term of this Agreement
consistent with the Company's standard practice for its employees generally.

          3.3 In the event you are terminated without cause pursuant to
Section 2.2(c) hereof, (i) the Company shall continue to pay your salary as
provided in 3.1 above then in effect for a period of nine (9) months
following any such termination.

     4.   OTHER ACTIVITIES DURING EMPLOYMENT.

          4.1 Except with the prior written consent of the Company's Board of
Directors, you will not during the term of this Agreement undertake or engage
in any other employment, occupation or business enterprise, other than ones
in which you are a passive investor. The Company and you agree that you may
devote up to ten percent (10%) of your time to family business matters, so
long as such activities are not adverse to the best interests of the Company.
You may engage in civic and not-for-profit activities so long as such
activities do not materially interfere with the performance of your duties
hereunder.

          4.2 Except as permitted by Section 4.3, you will not acquire,
assume or participate in, directly or indirectly, any position, investment or
interest known by you to be adverse or antagonistic to the Company, its
business or prospects, financial or otherwise.

          4.3 During the term of your employment by the Company except on
behalf of the Company, you will not directly or indirectly, whether as an
officer, director, stockholder, partner, proprietor, associate,
representative, consultant, or in any capacity whatsoever engage in, become
financially interested in, be employed by or have any business connection
with any other person, corporation, firm, partnership or other entity
whatsoever which were known by you to directly compete with the Company,
throughout the world, in any line of business engaged in (or planned to be
engaged in) by the Company; provided, however, that anything above to the
contrary notwithstanding, you may own, as a passive investor, securities of
any competitor corporation, so long as your direct holdings in any one such
corporation shall not in the aggregate constitute more than 1% of the voting
stock of such corporation.

     5.   FORMER EMPLOYMENT.

          5.1 You represent and warrant that your employment by the Company
will not conflict with and will not be constrained by any prior employment or
consulting agreement or relationship. You represent and warrant that you do
not possess confidential information arising out of prior employment which,
in your best judgment, would be utilized in connection with your employment
by the Company, except in accordance with agreements between your former
employer and the Company.

          5.2 If, in spite of the second sentence of Section 5.1, you should
find that confidential information belonging to any former employer might be
usable in connection with the Company's business, you will not intentionally
disclose to the Company or use on behalf of the Company any confidential
information belonging to any

                                      3.
<PAGE>

of your former employers (except in accordance with agreements between the
Company and any such former employer); but during your employment by the
Company you will use in the performance of your duties all information which
is generally known and used by persons with training and experience
comparable to your own and all information which is common knowledge in the
industry or otherwise legally in the public domain.

     6.   PROPRIETARY INFORMATION AND INVENTIONS. You agree to be bound by
the provisions of the Proprietary Information Agreement.

     7.   REMEDIES. Your duties under the Proprietary Information Agreement
shall survive termination of your employment with the Company. You
acknowledge that a remedy at law for any breach or threatened breach by you
of the provisions of the Proprietary Information Agreement would be
inadequate and you therefore agree that the Company shall be entitled to
injunctive relief in case of any such breach or threatened breach.

     8.   ASSIGNMENT. Neither this Agreement nor any rights or obligations
hereunder may be assigned by the Company or by you.

     9.   SEVERABILITY. In case any one or more of the provisions contained
in this Agreement shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein. If moreover, any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively
broad as to duration, geographical scope, activity or subject, it shall be
construed by limiting and reducing it, so as to be enforceable to the extent
compatible with the applicable law as it shall then appear.

     10.  NOTICES. Any notice which the Company is required or may desire to
give you shall be given by personal delivery or registered or certified mail,
return receipt requested, addressed to you at the address of record with the
Company, or at such other place as you may from time to time designate in
writing. Any notice which you are required or may desire to give to the
Company hereunder shall be given by personal delivery or by registered or
certified mail, return receipt requested, addressed to the Company at its
principal office, or at such other office as the Company may from time to
time designate in writing. The date of personal delivery or the date of
mailing any such notice shall be deemed to be the date of delivery thereof.

     11.  WAIVER. If either party should waive any breach of any provisions
of this Agreement, he or it shall not thereby be deemed to have waived any
preceding or succeeding breach of the same or any other provision of this
Agreement.

     12.  COMPLETE AGREEMENT; AMENDMENTS. The foregoing, together with the
Proprietary Information Agreement, is the entire agreement of the parties
with respect to the subject matter hereof and thereof and may not be amended,
supplemented, canceled or discharged except by written instrument executed by
both parties hereto.

                                      4.
<PAGE>

     13.  HEADINGS. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.

     14. ATTORNEY FEES. If either party hereto brings any action to enforce
its rights hereunder, the prevailing party in any such action shall be
entitled to recover his or its reasonable attorneys' fees and costs incurred
in connection with such action.

                                              OCULEX PHARMACEUTICALS, INC.
                                              A CALIFORNIA CORPORATION

                                              By:    /s/ Jerry B. Gin
                                                 -----------------------------
                                                     Dr. Jerry B. Gin

                                              Date:  March 8, 2000

Accepted and agreed this
8th day of March, 2000.

   /s/ Donald J. Eaton
--------------------------------
Donald J. Eaton

                                      5.

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