Document:

<PAGE>

                                                                   EXHIBIT 10.13

                               ADDENDUM TO LEASE

          THIS ADDENDUM TO LEASE is made to that lease dated as of July 25, 1997
(the "Lease") by and between Chamberlin Associates - Oyster Point Phase I
Limited Partnership ("Landlord") and Terrapin Technologies, Inc.
('/T/Tenant/1/'). The defined terms in the Lease shall have the same meaning in
this Addendum unless specifically provided to the contrary , and the terms
hereof shall for all purposes be deemed incorporated in the Lease, and shall
supersede any inconsistent provisions in the printed form Lease.

                                   RECITALS

     A.   Landlord's predecessor in interest, Rouse & Associates - Oyster Point
Phase I Limited Partnership, and Tenant entered into two leases respectively
dated March 12, 1992 and February 18, 1993 (the 'Existing Leases") pursuant to
which Tenant leases from Landlord premises consisting of 20,680 square feet
located at 750 Gateway Boulevard, Building B, Suites H and R, South San
Francisco (the"Premises").

     B.   This Lease of the combined Premises shall commence January 1, 1998
(the "Commencement Date"). Upon the commencement of this Lease, the Existing
Leases shall be deemed terminated and of no further force and effect.

          The Lease is amended and supplemented as follows:

     2.2  Improvements. Section 2.2 shall be deleted in its entirety and
          ------------
replaced by the following: "Tenant shall lease the Premises in its currently
existing, 'as is' condition."

     3.1  Period; Commencement. The second sentence of Section 3.1 is deleted.
          --------------------

     4.3. Restricted Activities. The first sentence of Section 4.3 is amended by
          ---------------------
adding at the end thereof "in violation of any Environmental Law."
"Environmental Law" shall mean any and all present and future federal, state and
local laws (whether under common law, statute, rule, regulation or otherwise),
requirements under permits issued pursuant to these laws, and other requirements
of governmental authorities relating to the environment, to any hazardous
substance or material or to any activity involving hazardous substances or
materials, and shall include, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9601
et seq.), the Federal Resource Conservation and Recovery Act (42 U.S.C. Section
--
6901 et seq.), and all other applicable provisions of federal, state and local
     --
laws related to the environment.
<PAGE>

5.2  Adjustments. Section 5.2 shall be deleted in its entirety and replaced by
     -----------
the following:

                  "Commencing with the Commencement Date, the
             Minimum Monthly Rent shall be paid in accordance with
          the following schedule:

<TABLE>
<CAPTION>
                    Months                    Minimum Monthly Rent
                    ------                    --------------------
       <S>                                    <C>
       Commencement Date to 3/31/98              $26,884.00
       4/1/1998 - 12/31/1998                     $31,020.00
       1/1/1999 - 12/31/1999                     $32,260.80
       1/1/2000 - 12/31/2000                     $33,551.23
       1/1/2001 - 12/31/2001                     $34,893.28
       1/1/2002 - 12/31/2002                     $36,289.01
</TABLE>

       6.1  Payment. Section 6.1 of the Lease is revised by deleting the phrase
            -------
in the first sentence "set forth in Section 1.8." The following is added at the
end of Section 6.1 of the Lease: "The parties acknowledge that the Property
and/or the area of the Property under common management may from time to time be
expanded or contracted; provided, however, that in such case Tenant's pro rata
share of common area expenses shall be proportionately adjusted."

       6.4.1  Landlord's Expense. Section 6.4.1 of the Lease is amended by
              ------------------
inserting "and bearing walls" following "columns and girders."

       6.4.3  Operating Expenses. Notwithstanding the provisions of Section 6 of
              ------------------
this Lease, Tenant shall not be required to pay increases in operating expenses
to the extent such increases exceed five percent (/50//a) in any Lease year over
the previous year's expenses; provided, however, that such limitation on
increases in operating expenses shall not apply to those operating expenses
described in Sections 6.2 and 6.3 of the Lease, or to the cost of water service
and refuse removal. The following sentence is inserted at the end of Section
6.4.3: "Landlord shall advise Tenant of the initial amount of Tenant's monthly
pro rata share prior to the commencement of the Lease." In the event that the
real property taxes on the Property are increased in any year due to a sale or
disposition of the Property, there shall be deducted from Tenant's pro rata
share of real estate taxes 50% of the amount of such increase
<PAGE>

attributable to such sale for the remainder of the lease term. In addition,
operating expenses shall not include:

          (1)  To the extent that Landlord is reimbursed by insurance or
condemnation proceeds or by tenants or other third persons, the cost of repairs
or other work occasioned by (i) fire, windstorm, or other casualty of the type
which Landlord has insured or is required to insure pursuant to the terms of
this lease, or for which Landlord is entitled to reimbursement, or (ii) the
exercise of the right of eminent domain;

          (2)  Leasing commissions, attorneys' fees, costs, and disbursements
and other expenses incurred in connection with negotiations or disputes with
tenants, other occupants, prospective tenants or other occupant, or the sale or
refinancing of the Building, or legal fees incurred in connection with this
Lease;

          (3)  Expenses, including permits, license and inspection costs,
incurred in tenant build-out, renovating or otherwise improving or decorating,
painting or redecorating space for other new tenants of the Building;

          (4)  Landlord's costs of electricity and other services sold or
provided to tenants in the Building and for which Landlord is entitled to be
reimbursed, other than through the operating expense pass-through provisions of
such tenants' leases, whether or not collected, by such tenants as a separate
additional charge or rental over and above the basic rent or escalation payment
payable under the lease with such tenant;

          (5)  Expenses in connection with non-Building standard services or
benefits of a type which are not provided to Tenant but which are provided to
other tenants or occupants of the Building;

          (6)  Costs incurred due to violation ~y Landlord or any tenant of the
terms and conditions of any lease or other rental arrangement covering space in
the Building;

          (7)  Amounts paid to subsidiaries or other affiliates of Landlord
(i.e., persons or companies controlled by, under common control with, or which
control, Landlord) for services on or to the Property, the Building or the
Premises (or any portion thereof), to the extent only that the costs of such
services exceed competitive costs of such services were they not so rendered by
a subsidiary or other affiliate of Landlord;

          (8)  Rental payments under any ground or underlying lease or leases;
<PAGE>

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

          (10) All items and services the entire cost of which Tenant is
obligated to and pays directly to third parties or for which tenants reimburse
Landlord;

          (11) Advertising and promotional expenditures, and costs of signs in
or on the Building identifying the owner of the Building or any other tenant of
the Building;

          (12) Costs for installing sculpture, paintings, or other art;

          (13) Any costs of damages and repairs necessitated by or resulting
from the negligence of Landlord, its agents, employees and/or independent
contractors;

          (14) Costs of installing, operating, and maintaining any specialty
services operated by Landlord, including, without limiting any of the foregoing,
any luncheon club, athletic facility, or retail facility, or costs of providing
off-site parking, where such services are not made available to Tenant; and

          (15) Depreciation;

          (16) Payments of principal, interest and fees on debt encumbering the
Property; and

          (17) Expenses and costs not normally included by landlords of
comparable industrial buildings in the area of the Premises.

     Section 6.4.3 of the Lease is not to be construed to permit Landlord to
make significant capital improvements to the Building or Property which are
financed by the inclusion of the cost thereof in operating expenses.

     Section 6.4.5 Changes. The second and third sentences of Section 6.4.5
     ---------------------
are deleted.

     14.1  Assignment and Subletting: Limitation. Notwithstanding anything to
           -------------------------------------
the contrary in Section 14.1, Tenant shall have the right to assign this Lease
or sublet all or part of the Premises, without Landlord's consent, but with
prior notice to Landlord, to: any parent, subsidiary or affiliate of Tenant; or
a corporation with which Tenant merges or consolidates; and/or any party which
acquires all or substantially all the assets or stock of Tenant. (Any such
permitted assignment or subletting shall be referred to herein as a "Permitted
Transfer" and any such
<PAGE>

permitted assignee or sublessee shall be referred to as a "Permitted
Transferee.") Any other assignment or subletting shall require Landlord's prior
written consent, which shall not be unreasonably withheld; provided further that
as a condition to any proposed assignment or sublease, whether to a parent,
subsidiary, affiliate, third party or other entity, Tenant shall provide
Landlord with acceptable documents and information, as requested by Landlord,
demonstrating that the proposed assignee or subtenant shall be sufficiently
financially responsible to perform its obligations in connection with the
proposed assignment or sublease of this Lease. Upon any Permitted Transfer, all
of the terms and conditions of the Lease, including those pertaining to use of
the premises, shall continue in full force and effect and shall remain binding
upon Tenant and any such Permitted Transferee.

     14.2  Offer to Landlord. The last sentence of Section 14.2 is amended by
           -----------------
deleting the words "until the term of such sublease expires or is terminated."

     14.3  Contributions. The following is added at the beginning of Section
           -------------
14.3(a): "Except as provided in Section 4.2 above,".

           The following shall be added to the end of subsection 14.3(b) of the
Lease: "Notwithstanding the above, Tenant shall be entitled to deduct from such
excess consideration its reasonable expenses associated with such sublease or
assignment (e.g., leasing commissions and cost of alterations, attorneys' fees,
architectural fees, engineering fees and all other similar costs normally
associated with subletting or assigning), together with a reasonable return on
all amounts actually contributed by Tenant to the purchase and/or installation
of tenant improvements in the Premises, whether prior to or after the date of
this Lease. Furniture and equipment paid for and installed in the Premises by
Tenant shall be subject to such reasonable return to the extent such furniture
and equipment remains with the Premises as part of such sublease or assignment.
Items of repair, replacement, or maintenance which Tenant is required to perform
by law or under the terms of this Lease and items for which Tenant is in some
other manner reimbursed or compensated, shall not be subject to such return.
Tenant's return shall be an annualized rate of return of eight percent (8%) of
all amounts so contributed by Tenant ("Tenant's Return"). Tenant's Return may be
retained by Tenant at any time amounts in excess of applicable Minimum Monthly
Rent, operating expenses and any and all other amounts payable to Landlord by
Tenant hereunder ("Excess Consideration") are paid by subtenant or assignee.
Tenant's deductions shall be supported by documentation provided to Landlord
upon Landlord's request, such as invoices, purchase orders, receipts and
construction contracts, detailing the amounts actually paid by Tenant for those
improvements as to which Tenant seeks to deduct such rate of return.
Notwithstanding anything to the contrary set forth above, (i) Tenant's Return
shall accrue continuously from the date of commencement of any permitted
sublease or assignment, (ii) Tenant shall be entitled to receive 100% of all
Excess Consideration until it is reimbursed the full

                                       4
<PAGE>

amount of its subleasing or assignment expenses as described above and has
received 100% of Tenant's Return. Thereafter, Landlord shall be entitled to 100%
of all Excess Consideration."

     22.1  Security Deposit. In lieu of the cash payment required under
           ----------------
Section 22.1 of the Lease, Tenant has delivered to Landlord an irrevocable
letter of credit in the amount specified in Section 1.9 of the Lease and shall
continue to maintain and renew such letter of credit in form and substance and
issued by a financial institution reasonably satisfactory to Landlord, which
shall be payable to Landlord on Landlord's delivery to the issuer of Landlord's
written statement that Tenant has failed to pay rent or other charges due
hereunder, or has otherwise defaulted with respect to any provision of this
Lease. The issuer of the letter of credit shall be under no obligation to
investigate Landlord's statement. Such letter of credit shall be held and
applied by Landlord as the Security Deposit, and shall be in all respects
subject to the terms and conditions of Section 22.1 of the Lease. Such letter of
credit shall be maintained in effect and irrevocable for the full term of this
Lease, and any extensions hereof, provided, however, that such letter of credit
may be for an initial term of at least twelve (12) months. If the letter of
credit is for a term less than the lease term plus extensions, it shall be
renewed annually during the term of this Lease, and any extensions thereof, at
least thirty (30) days prior to its expiration, and if Tenant fails to so renew
the letter of credit, Landlord may exercise its rights under the letter of
credit and hold the cash so received as the Security Deposit, subject to the
terms and conditions of Section 22.1 of the Lease.

     23.   Signage. Tenant may display its corporate name on the building
           -------
signage soffit and may display a logo on its front entry door to the Premises,
provided that all such signage must comply with the established sign criteria
for Gateway Business Park, and shall be subject to all governmental approvals,
which (if any are required) Tenant shall obtain at its sole cost. The cost of
the sign, its installation, maintenance and removal expense, shall be at
Tenant's sole expense.

     24.   Parking. Tenant shall be provided on a non-exclusive basis and at no
           -------
additional cost 3.33 parking spaces, in the parking facilities located on the
Property, for every 1,000 square feet rented.

     25.   Indemnity. Subject to Section 6.3.4 of the Lease, Landlord shall
           ---------
hold harmless, indemnify, protect, and defend Tenant against all claims,
actions, damages, liability and expense (including, without limitation, fees of
attorneys, investigators and experts) in connection with loss of life, personal
injury or damage to property occasioned wholly or in part by any release caused
by Landlord or any of its employees, or agents (but not Landlord's other tenants
in the project, its contractors, or invitees) whether or not negligent or
wrongful, on the Premises or any portion of the Property affecting the Premises
of any toxic or hazardous materials or substances including, without limitation,
materials or substances
<PAGE>

defined by applicable law as hazardous or toxic materials or substances, and
PCBs.

     26.  Right of First Notice.
          ---------------------

          (a)  750 Gateway, Building B, Suites A and C. Upon Landlord's receipt
               ---------------------------------------
of notice of the termination or expiration of any third party lease (including
renewal options contained therein) for Suites A and C in the 750 Gateway
Boulevard Building B, as shown on Exhibit "D~ attached hereto, during the term
of this Lease, Landlord, before it offers such space for rent to anyone other
than the existing tenant of such space, shall give notice to Tenant that such
space will become available for lease. For a period of ten (10) days after
receipt of Landlord's notice, Tenant shall have, on a one-time basis, the right
to lease such space upon such terms and conditions applicable to the leasing of
such space, including the extension of this Lease described below as to the
entire Premises (including Suites A and C), that are mutually agreeable to both
Landlord and Tenant. Should Landlord and Tenant fail to reach an agreement for
the lease of such space, with neither party having the obligation to reach such
an agreement, and should Landlord and Tenant fail to enter into such an
amendment to this Lease within such ten (10) day period, Landlord shall be under
no obligation to lease the space to Tenant and may thereafter offer the space
for lease to the public. If Tenant leases Suites A and C, as provided herein,
then the amendment of this Lease shall incorporate Suites A and C into the
Premises hereunder, and the term of this Lease shall be extended for an
additional twelve (12) months.

          (b)  750 Gateway. Building B. Suites F and G. RPR Gencell has elected
               ---------------------------------------
to vacate 750 Gateway, Building B, Suites F and C, as shown on Exhibit "E"
attached hereto. Landlord has offered that space for lease to Tenant and Tenant
has declined to lease that space at this time. If, however, Landlord hereafter
enters into a lease for such space with a new tenant and that new lease
terminates or expires during the term of this Lease, Landlord, before it offers
such space to any third party other than the existing tenant of such space,
shall give notice to Tenant that such space will become available for lease. For
a period of ten (10) days after receipt of Landlord's notice, Tenant shall have,
on a one-time basis, the right to lease such space upon such terms and
conditions applicable to the leasing of such space, including the extension of
this Lease, as described below, as to the entire Premises (including Suites F
and G), that are mutually agreeable to both Landlord and Tenant. Should Landlord
and Tenant fail to reach an agreement for the lease of such space\\1\\ with
neither party having the obligation to reach such an agreement, and should
Landlord and Tenant fail to enter into such an amendment to this Lease within
such ten (10) day period, Landlord shall be under no obligation to lease the
space to Tenant and may thereafter offer the space for lease to the public. In
the event Tenant leases Suites F and C as provided herein, the amendment of this
Lease incorporating Suites F and C into the Premises hereunder shall provide
that the
<PAGE>

remaining term of this Lease shall be a minimum of 60 months and, if the then
remaining term should be less than 60 months, then the amendment shall specify
that the term is thereby extended to provide for a remaining term of 60 months
following execution of the amendment. The rights described in this Section 26
are: conditioned upon Tenant not being in default in the payment of any rent,
additional rent or other sums due under this Lease and not committing such a
default at any time from the time it purports to exercise its rights under this
paragraph through the consummation of a lease amendment as provided herein;
shall be personal to Tenant and may not be exercised or be assigned voluntarily
or involuntarily by or to any person or entity other than the original Tenant or
in connection with a Permitted Transfer under this Lease; and shall be
exercisable by Tenant only if the original Tenant under this Lease or a
Permitted Transferee is then in occupancy of the Premises described herein and
the Lease is then in full force and effect.

     27.  Renewal Option. Landlord hereby grants to Tenant one (1) option to
          --------------
renew the term of this Lease for an additional term of five (5) years, upon the
then prevailing fair market value rent terms, provided that Tenant is not in
default beyond any applicable cure period specified herein under this Lease at
the time that the option is exercised, and at any time from Tenant's exercise of
the option to the commencement date of the renewal term. This option must be
exercised by written notice to Landlord no later than two hundred seventy (270)
days prior to the expiration of the original Lease term. Landlord shall, on
written request of Tenant, advise Tenant in writing no later than 240 days prior
to expiration of the Lease term, of the then prevailing market value and the
terms and conditions operative under this paragraph. The option granted in this
paragraph shall be terminated and of no further force and effect if, at any time
provided herein for exercise of the option by Tenant, any federal, state, or
local law or regulation invalidates or modifies any provision of the option. The
renewal option described in this Section 27 is: conditioned upon Tenant not
being in default in the payment of any rent, additional rent or other sums due
under this Lease and not committing such a default which remains uncured beyond
any applicable cure period specified herein at any time from the time it
purports to exercise its right under this paragraph through the commencement of
the renewal period; shall be personal to Tenant and may not be exercised or be
assigned voluntarily or involuntarily by or to any person or entity other than
the original Tenant or in connection with a Permitted Transfer under this Lease;
and shall be exercisable by Tenant only if the original Tenant under this Lease
or a Permitted Transferee is then in occupancy of the Premises described herein
and the Lease is then in full force and effect.

     28.  Improvements. Tenant shall lease the Premises in their existing "as
          ------------
is" condition. Landlord has no obligation to provide any improvements or
alterations to or for the Premises. Tenant shall have the right, subject to the
terms hereof, to make improvements to the Premises, subject to Landlord's
consent, which shall not
<PAGE>

be unreasonably withheld; provided, however, that Landlord may withhold its
consent in its sole discretion if the proposed alterations (i) would be visible
from the exterior of the Premises or Building, or (ii) would affect any
structural component or portion of the Premises. Any alterations shall be
performed at Tenant's sole cost. Notwithstanding anything to the contrary
contained in the Lease, upon the expiration or earlier termination of the Lease
and any extension option, if exercised by Tenant, Tenant shall have the right
to, and, in any case, if required by Landlord, shall remove from the Premises
its lab benches, fume hoods, cold rooms and other equipment which shall have
been purchased and installed by Tenant, whether prior to or after the date of
this Lease; provided, however, that Tenant shall repair all damage to the
Premises resulting from such removal. Tenant shall have the right to choose the
contractor to conduct its tenant improvement work, subject to Landlord's
reasonable approval. The following additional provisions shall apply to any
tenant improvement work done by Tenant or its contractors:

          (a)  Any items or work to be performed by Tenant or for which Tenant
contracts separately (hereinafter /t/"Tenant's Work/t/"), shall be coordinated
with Landlord so as not to interfere with Landlord's work in the Premises or on
the Property. Work involving the sprinkler, plumbing, mechanical, electrical
power, lighting or fire safety systems of the Building shall be performed by
subcontractors approved by Landlord in its sole discretion.

          (b)  Tenant shall prepare and submit to Landlord final plans and
specifications showing the architectural design of the Premises, including the
basic mechanical system and electrical system within the Premises, plumbing,
partitions and doors, complete fixturing information, and material selections
and finishes, which shall be subject to Landlord's written approval. Tenant
shall also submit all proposed change orders which require an expense greater
than $5,000.00 in writing (with sufficient detail to enable Landlord to
understand the nature of the proposed change) to Landlord for Landlord's prior
written approval, which shall not be unreasonably refused or delayed.

          (c)  Tenant shall complete all work in accordance with the final plans
and specifications approved by Landlord. Tenant shall make no alterations,
additions, or reinforcements to the structure of the building except as
specifically approved by Landlord in such final plans and specifications. Tenant
agrees that all work done by Tenant and its contractors and subcontractors shall
be performed in full compliance with all laws, rules, orders, permits,
ordinances, directions, regulations and requirements of all governmental
agencies, offices, and departments having jurisdiction, including without
limitation applicable provisions pertaining to use of hazardous or toxic
materials and the Americans with Disabilities Act, and in full compliance with
rules, orders, directions, regulations and requirements of the Insurance Service
Offices (ISO) or any other organization performing a similar function.

                                       8
<PAGE>

          (d)  At least fourteen (14) days before commencement of construction,
Tenant shall submit to Landlord the names and addresses of the general,
mechanical, and electrical contractors which Tenant intends to engage for
construction of Tenant's improvements, the commencement date of construction,
and the estimated date of completion of construction. Landlord shall have the
right to enter the Premises at any time to post any notice of nonresponsibility
or other notice on the Premises during Tenant's construction. All contractors
and subcontractors retained by Tenant shall be subject to the approval of
Landlord, which shall not be unreasonably refused or delayed. All contractors
retained by Tenant shall be licensed contractors, possessing good labor
relations and capable of performing quality workmanship.

          (e)  Tenant's Work shall be completed with reasonable diligence and in
such a manner as not to unreasonably interfere with the use or enjoyment of
other portions of the building or common areas by Landlord or other tenants.
Tenant's contractors shall provide and pay for all temporary power, water, and
other utility facilities as required in connection with the construction of
Tenant's improvements. Tenant's contractors shall provide their own dumpster for
collection and disposition of construction debris, which shall be located at a
location reasonably suggested by Landlord, and all construction debris from
Tenant's construction shall be disposed of in Tenant's contractor's dumpster and
not in trash facilities for the Project. Tenant's contractor's construction
material, tools, equipment, and debris shall be stored only within the Premises,
or in areas designated for that purpose by Landlord. Work space exterior to the
Premises shall be available only in the reasonable discretion of Landlord.
Tenant's Work shall be subject to the inspection of Landlord and Landlord's
architect and/or other representative.

          (f)  Tenant shall indemnify and hold harmless Landlord for any and all
claims arising from Tenant's work as provided in Paragraph 11.1 of the Lease.
Tenant shall pay for all damage to the Building, the Project, or appurtenant
areas or equipment, as well as all damage to tenants or occupants thereof or
their property caused by Tenant, its agents, employees, contractors, licensees,
or invitees. Tenant shall comply with all of the terms of the Lease respecting
installation of improvements, including, without limitation, Article 8 thereof.

          (g)  Tenant shall be solely responsible for the adequacy in all
respects of the plans and specifications, including without limitation
compliance with all governmental requirements, compatibility with the building
shell, and any special requirements of Tenant's proposed equipment or machines
with respect to ambient temperatures, electrical use or current, or water
availability. Tenant acknowledges that in connection with obtaining Landlord's
approval of the plans and specifications, Tenant may provide Landlord with
certain information regarding its
<PAGE>

specific needs relating to the Premises and that Tenant may provide some of its
own equipment for installation in the Premises. Tenant further acknowledges that
Landlord will make no independent review of any such information and that
Landlord does not warrant, either expressly or impliedly, the adequacy of the
plans and specifications for the said improvements, the adequacy of the Tenant
Improvements or Tenant's equipment for Tenant's intended purpose.

          (h)  Not less than fifteen (15) days prior to the date Tenant desires
to commence Tenant's Work, it shall give a written notice to Landlord setting
forth or accompanied by all of the following:

               (1)  A description and schedule for the work to be performed;

               (2)  The names and addresses of all contractors and
     subcontractors who, as of the date of such notice, will perform Tenant's
     Work;

               (3)  A complete set of all plans, specifications, and
     calculations developed by or for Tenant, including all plans which are
     required by the City of South San Francisco and the County of San Mateo for
     the issuance of any permits or approvals or for the commencement of any of
     Tenant's Work;

               (4)  Tenant further agrees that it shall provide Landlord with
     copies of all licenses and permits which are required in connection with
     the performance of Tenant's Work within five (5) days of Tenant's receipt
     of such permits and licenses; and

               (5)  All of Tenant's contractors and subcontractors shall carry
     workers compensation insurance covering all of their respective workers,
     and shall also carry comprehensive general liability insurance, including
     property damage, all with limits, in form and with companies as are
     required to be carried by Tenant as set forth in Sections 6.3.2 and 6.3.3
     of the Lease. Certificates for all insurance carried pursuant to this
     paragraph shall be delivered to Landlord before the commencement of
     construction of any Tenant's Work and before any contractor's equipment is
     moved onto the Property. All policies of insurance shall name Landlord as
     an additional insured, and shall contain a provision that the insurance
     company writing said policy will give Landlord 30 days' prior written
     notice of any cancellation, modification or lapse or reduction in the
     amounts of such insurance.

          (i)  If any contractor or worker performing Tenant's Work performs any
work which does impair, or threatens to impair the quality, integrity or
performance of any portion of the Building, Landlord shall give notice to Tenant
and immediately thereafter, Tenant shall cause such contractor or worker
<PAGE>

immediately to remove all of its tools, equipment and materials and to cease
working in the Building. As additional rent under the Lease, Tenant shall
reimburse Landlord for any damages, costs and expenses, and for any repairs or
corrections of any portion of the Building caused by or resulting from the
actions or omissions of anyone performing Tenant's Work. Upon completion of
Tenant's Work, Tenant shall provide Landlord a complete set of as-built drawings
covering all of Tenant's Work.

     29.  Rules and Regulations. The first sentence of Rule 5 is amended by
          ---------------------
deleting the phrase "the maintenance of office equipment" and inserting in lieu
thereof: "the operation of Tenant's business at the Premises, as permitted by
this Lease, strictly in accordance with this Lease, including, without
limitation, Article 4 hereof." The second sentence of Rule 5 is amended by
inserting after the word "substance" the phrase "except as permitted by this
Lease, strictly in accordance with this Lease, including, without limitation,
Article 4 hereof."

Initialed for                        Initialed for
Landlord:  ___                       Tenant: __

                                      11
<PAGE>

<TABLE>
<S>                                                  <C>
1.0      SUMMARY OF TERMS

1.1      DATE                                        This lease is dated for reference purposes only:   July 25, 1997
                                                     7/25/1997

1.2      PARTIES AND NOTICE                          LANDLORD:         Chamberlin Associates-Oyster Point Phase I L.P.
         ADDRESSES                                                     5880 West Las Positas Boulevard, Suite 51
         (Section 2.1)                                                 Pleasanton, CA 94588-8552

                                                     TENANT:           Terrapin Technologies, Inc.

                                                     d.b.a.:
                                                     ADDRESS:          750-R Gateway Boulevard

                                                     CITY:             South San Francisco       STATE:   CA       ZIP:

                                                     After the Commencement Date, Tenant's address shall be the Premises.

1.3      PREMISES                                    APPROXIMATE RENTABLE SQUARE FEET:                      20,680
         (Section 2.1)                               SUITE:   H & R

1.4      BUILDING                                    B
         (Section 2.1)                               750 Gateway Blvd., South San Francisco, CA 94080

1.5      (a)  COMMENCEMENT DATE                      January 1, 1998
              (Section 3.1)                          1/1/1998

         (b)  EXPIRATION DATE                        December 31, 2002
                                                     12/31/2002

1.6      TERM      (Section 3.1)                     60              Months:    Sixty

1.7      RENT
         (a)  MINIMUM MONTHLY                        $26,884.00
              RENT    (Section 5.1)                  Twenty Six Thousand Eight Hundred Eighty Four and 00/100 Dollars

         (b)  RENT ADJUSTMENT                        Each anniversary date of              lease commencement
              DATES     (Section 5.2)

         (c)  ADJUSTMENT BASIS                       see addendum to lease

         (d)  ADVANCE RENT                           None

1.8      OPERATING EXPENSE                           $7,248.34
         PAYMENT / MONTH                             Seven Thousand Two Hundred Forty Eight and 34/100 Dollars
         (Section 6.1)

1.9      SECURITY DEPOSIT                            $56,622.40
         (Section 22)                                Fifty Six Thousand Six Hundred Twenty Two and 40/100 Dollars

1.10     USE                                         Premises used solely for:   Office, Lab R&D, Process R&D
         (Section 4.1)                               and Production

1.11     TENANT'S PRO RATA %                         9.0500%       (Ratio of rentable square footage in the Premises to
rentable area
         (Section 6.1)                                             in the property)

         PRO RATA BASIS                              Based upon rentable area of     228,627 square feet.

1.12     CONTENTS                                    This lease consists of pages 1 through:    12
                                                     Sections 1 through:  22
                                                     Addendum:     One, Sections 5.2 - 28
                                                     Exhibits:  A thru E

LANDLORD:                                                              TENANT:
Chamberlin Associates-Oyster Point Phase I L.P.                            Terrapin Technologies, Inc.
By: Chamberlin Associates, Inc., its General Partner                       750-R Gateway Boulevard
5880 West Las Positas Boulevard, Suite 51                                  South San Francisco, CA 94080
Pleasanton, CA 94588-8552

BY:                                                                        BY:
      Scott W. Graeser

                                                                                (Print Name)
</TABLE>
<PAGE>

2.0  PREMISES

     2.1  Description. Landlord hereby leases to Tenant, and Tenant hereby
leases from Landlord, the Premises (the agreed Premises are defined in Section
1.3 and Exhibit A), together with the right, in common with other occupants of
the Building (Section 1.4), to use the common areas (Section 6.4.3). The
Premises and the Building are located on the Property (Exhibit A).

     2.2  Improvements. The Premises shall be completed in a good and
workmanlike manner in accordance with the Plans (Exhibit B).

3.0  TERM

     3.1  Period; Commencement. The Term of this Lease shall commence on the
date specified in Section 1.5, and shall be for the Term specified in Section
1.6, plus any partial month at the commencement of the term. If the date of
substantial completion of the Premises is delayed as a result of changes
requested by Tenant, the Term of the Lease shall commence as if the Premises
were substantially complete on the originally scheduled date. If the Premises
are not delivered to Tenant by the Commencement Date due to a delay caused by
Landlord or its contractor, this Lease shall not be void or voidable, nor shall
Landlord be liable for any loss or damage resulting therefrom, and the
Commencement Date shall be delayed until Landlord can deliver possession.

4.0  USE

     4.1  Authorized. The Premises may be used and occupied only for the
purposes specified in Section 1.10 hereof. and for no other purpose or purposes.

     4.2  Compliance. Tenant accepts the Premises by its occupancy and subject
to all applicable laws, ordinances, rules, regulations, orders, restrictions of
record, and requirements in effect during the Term regulating the Premises, with
which Tenant shall comply at its sole cost as they relate to Tenant's use of the
Premises or to improvements, alterations or installations made to the Premises
by or for Tenant, or to the operation of Tenant's business. Landlord makes no
warranty that Tenant's use of the Premises complies with the zoning applicable
to the Premises.

     4.3  Restricted Activities. Tenant shall not cause or permit the escape,
disposal or release of any biologically or chemically active or other hazardous
substances or materials. Tenant shall not allow the storage or use of such
substances or materials in any manner not sanctioned by law or by the highest
standards prevailing in the industry for the storage and use of such substances.
The term "hazardous substances and materials" shall include, without limitation,
those described in or regulated by any federal, state or local laws, regulations
or authorities. If any lender or governmental agency shall ever require testing
to ascertain whether or not there has been any release of hazardous substances
or materials, then the reasonable costs thereof shall be reimbursed by Tenant to
Landlord upon demand as additional rent if such requirement applies to the
Premises and/or the Property and such release was caused or permitted by Tenant.
In addition, Tenant shall execute affidavits, certificates and the like from
time to time at Landlord's request concerning Tenant's best knowledge and belief
regarding the presence of hazardous substances or materials on the Premises. In
all events, Tenant shall indemnify Landlord in the manner provided in Section
11.1 of this Lease from any release of hazardous substances and/or materials on
the Premises occurring while Tenant is in possession, or occurring upon the
common areas or elsewhere, if caused by Tenant or persons acting under Tenant.
If at any time during or after the Term of this Lease, as it may be extended,
Tenant becomes aware of any inquiry, investigation, or proceeding by any
governmental agency related to hazardous materials on or about the Premises or
the Property, Tenant shall within five (5) days after first learning of such
inquiry, investigation or proceeding give Landlord written notice of same. This
section shall survive the expiration or earlier termination of the Lease.

5.0  RENTS

     5.1  Amount; Payment. Tenant shall pay to Landlord at the place designated
in Section 1.2, or at such place as Landlord may otherwise designate, without
deduction, offset, counterclaim, prior notice or demand, as Minimum Monthly Rent
for the Premises, the amount specified in Section 1.7. All such Rent payments
shall be payable in advance on the first day of each month during the Lease
Term.

     5.2  Adjustment. The Minimum Monthly Rent in effect immediately prior to
the Adjustment Date(s) specified in Section 1.7 shall be adjusted at each
Adjustment Date as provided in Section 1.7. If Section 1.7 specifies adjustments
with reference to the CPI, then the Minimum Monthly Rent shall be adjusted at
each Adjustment Date specified in Section 1.7 in the same percentage proportion
that the United States Bureau of Labor Statistics Consumer Price Index (All
Urban Consumers, All Items, San Francisco Bay Area) last published sixty days
prior to each such Adjustment Date has increased over the Index last published
sixty days prior to the later of the commencement of the Lease Term or the last
Adjustment Date. In no event shall the rent be less than that in effect prior to
any such adjustment. If the Index is discontinued or revised, such other
government index will be substituted in order to obtain substantially the same
result as would be obtained using the original index.

6.0  OPERATING EXPENSES

     6.1  Payment. Tenant shall pay as additional rent the amount set forth in
Section 1.8 (which may be revised from time to time) which is Tenant's monthly
pro rata share of the estimated operating expenses (Sections 6.2 - 6.5) for the
Property from the date of occupancy or from the commencement of this Lease,
whichever date shall first occur. Landlord shall provide Tenant with a statement
of the actual amount of such expenses within 120 days following the end of each
calendar year. Tenant shall pay to Landlord the amount by which Tenant's share
of the actual expenses exceeds Tenant's operating expense payments for such year
and any excess amounts paid by Tenant shall be credited to reduce Tenant's
payments for the next ensuing period, or paid to Tenant if the Lease Term has
expired.
<PAGE>

     6.2  Taxes. Tenant shall pay its pro rata share of all taxes, which shall
include any form of assessment, license, fee, commercial rental tax, levy,
penalty or tax (other than net income, franchise, inheritance or estate taxes)
imposed by any authority having the power to tax or levy assessments on the
Property and the reasonable cost of contesting any tax assessment, whether such
tax is (i) upon any legal or equitable interest of Landlord in the Building or
Property; (ii) upon this Lease, the rent payable hereunder or the value thereof;
(iii) with respect to any right to occupancy, use, leasing, operation,
management, maintenance, alteration, or repair of the Premises, the Building, or
the Property; or (iv) imposed in substitution for, or in addition to, existing
or additional taxes against any part of the Property whether or not now
customary or within the contemplation of the patties. If it shall not be lawful
for Tenant to reimburse Landlord for any of the taxes covered by this Article,
the Minimum Monthly Rent payable to Landlord under the terms of this Lease shall
be increased by the amount of the portion allocable to Tenant so as to net to
Landlord the amount which would have been received by Landlord if such tax had
not been imposed. Tenant shall pay prior to delinquency all taxes assessed
against and levied upon its trade fixtures, furnishings, equipment, and other
personal property, and any increase in real property taxes resulting from any
alterations or tenant improvements placed in the Premises.

     6.3  Insurance

          6.3.1  Property. Tenant shall pay its pro rata share of the cost of
"all risk" property insurance (including, at Landlord's option, earthquake and
Hood coverage, inflation endorsement, and sprinkler leakage endorsement)
covering the full replacement cost of the Building and the Premises, excluding
coverage of all Tenant's personal property on or in the Premises, but including
any tenant improvements. Such insurance shall include a lender's loss payable
endorsement in favor of Landlord's lender. Tenant agrees not to do anything or
fail to do anything which will increase the cost of such insurance or which will
prevent Landlord from procuring policies satisfactory to Landlord. Tenant shall
pay any increases in insurance premiums resulting from the nature of Tenant's
occupancy or any act or omission of Tenant.

          6.3.2  Tenant's Obligation. Tenant shall maintain in full force and
effect at all times during the term of the Lease, at its own expense, for the
protection of Tenant and Landlord, as their interests may appear, "all risk"
property insurance on Tenant's personal property located in, and any alterations
to, the Premises in the amount of the replacement Cost thereof, and
comprehensive general liability insurance in an amount not less than $1,000,000
combined single limit for both bodily injury and property damage, insuring
Landlord and Tenant against any liability arising out of the ownership, use,
occupancy or maintenance of the Premises and all areas appurtenant thereto. The
limits of said insurance shall not, however, limit the liability of Tenant
hereunder.

          6.3.3  Terms. All insurance policies required to be carried by Tenant
hereunder shall conform to the following requirements: (a) each policy, at
Landlord's request, shall carry a lender's loss payee endorsement in favor of
Landlord's lender; (b) an executed copy of each insurance policy, including
renewals. or a certificate thereof, shall be delivered to Landlord; (c) each
policy shall require that Landlord be notified in writing by the insurer at
least thirty (30) days prior to any cancellation or expiration of such policy,
or any reduction in the amounts of insurance carried;  (d) each policy shall be
primary, not contributing with any insurance which Landlord may carry; (e) all
liability insurance shall state that Landlord is entitled to recovery for the
negligence of Tenant even though Landlord is an additional insured.

          6.3.4  Waiver. Each of the parties hereto hereby releases the other,
to the extent of the releasing party's insurance coverage, from any and all
liability for any loss or damage covered by such insurance which may be
inflicted upon the property of such party even if such loss or damage shall be
brought about by the fault or negligence of the other party, its agents or
employees; provided, however, that this release shall be effective only with
respect to loss or damage occurring during such time as the appropriate policy
of insurance shall contain a clause to the effect that this release shall not
affect said policy or the right of the insured to recover thereunder. If any
policy does not permit such a waiver, and if the party to benefit therefrom
requests that such a waiver be obtained, the other party agrees to obtain an
endorsement to its insurance policies permitting such waiver of subrogation if
it is available. If an additional premium is charged for such waiver, the party
benefiting therefrom agrees to pay the amount of such additional premium
promptly upon being billed therefor.

     6.4  Repairs and Maintenance; Common Areas; Building Management.

          6.4.1  Landlord's Expense. Landlord, at its sole expense, shall make
all necessary repairs to the footings, foundations, structural steel columns and
girders forming a part of the Premises upon receipt of written notice of the
need for such repair.

          6.4.2  Tenant's Expense. Landlord, at Tenant's sole expense, shall
maintain the HVAC systems appurtenant to the Premises, which maintenance shall
be performed in accordance with manufacturer's recommendations.

          6.4.3  Operating Expense. Landlord, as an operating expense of which
Tenant shall pay its pro rata share, shall make all necessary repairs to the
roof, walls, exterior portions of the Premises and the Building, utility lines,
equipment and other facilities in the Building which serve more than one tenant,
and to any common areas upon receipt of written notice of the need for such
repair. "Common areas" means all areas and facilities outside the Premises,
within the Property, that are provided by Landlord for the use of tenants in the
Property, including, without limitation, driveways, parking areas, sidewalks,
and landscaped areas. Landlord shall keep and maintain all common areas of the
Property and any paved areas adjoining the Property in a clean and orderly
condition. Landlord reserves the right to make alterations thereto from time to
time. Operating expenses shall include (i) all sums expended by Landlord for the
supervision, maintenance, repair, replacement and operation of the common areas,
and a reasonable management and administrative fee, and (ii) any costs of
capital improvements made by Landlord to the Building for the purpose of
reducing operating expenses or that are required by any governmental authority
after the original construction of the Building. The portion of such capital
costs to be included each year as an operating expense ',;hall be that fraction
allocable to the year in question calculated by amortizing over the reasonable
useful life of such improvement, as determined by Landlord, with interest on the
unamortized balance at the rate paid by Landlord for funds borrowed for the
purpose of constructing such improvements, but in no event to exceed the highest
rate permissible by law. Operating expenses for any year during which the
Building is not substantially fully occupied shall be calculated by projection
as if the Building were so occupied during the entire year.
<PAGE>

          6.4.4  Tenant's Obligation. Tenant. at its sole expense, shall
maintain the Premises in good order and condition, promptly make all repairs
necessary to maintain such condition, and repair any damage to the Premises and
the Property caused by Tenant or its Agents, except as specifically otherwise
provided above. All repairs made by Tenant shall utilize materials and equipment
which are comparable to those originally used in constructing the Premises.
Because this Lease contains the entire agreement of the parties for maintenance
of the Premises, the parties agree that statutory provisions pertaining to
maintenance of leased property shall not be applicable to this Lease, and
Landlord and Tenant waive their rights under such provisions. Tenant accepts all
existing phone and communications cable in its existing, 'as is" condition, and
Tenant shall be responsible at its sole cost for the installation, maintenance
and repair of any phone, data or other communications cable from the Building
phone room (or, for multiple Building properties, from the demarcation point
supplied by the local regulated public utility) to and within the Premises. Any
alterations, installations or modifications of such cable shall be subject to
the provisions of this Lease, including Articles 7 and 8.

          6.4.5  Changes. Landlord shall have the right to close temporarily,
and make changes to, any of the common areas. If Landlord determines that the
efficient leasing or operation of the Building or the Property requires
relocation of Tenant's premises to another part of the Building or Property,
Landlord shall have the right upon no less than sixty days notice to Tenant, to
so relocate Tenant, provided that such substitute premises shall be
substantially comparable to the Premises. Landlord shall pay Tenant's reasonable
relocation expenses, and the terms of this Lease shall otherwise remain
unchanged.

     6.5  Utilities. Tenant shall pay for water, gas, heat, sewer, power,
telephone services and any other utility supplied to or consumed in or on the
Premises. If any utility services are not separately metered, Tenant shall pay
its pro rata share of the cost of such service. Landlord shall not be
responsible or liable for any interruption in utility service, nor shall such
interruption affect the continuation or validity of this Lease.

7.0  ALTERATIONS, ADDITIONS AND FIXTURES

     7.1  Installation and Removal. Subject to Article 8, Tenant shall have the
right to install its trade fixtures in the Premises during the term of this
Lease; provided, however, that no such installation or removal thereof shall
affect the structural portion of the Premises and that Tenant shall repair any
damage to the Premises or the Property caused by the installation, use or
removal of any of Tenant's furniture, fixtures, equipment or other property.

     7.2  Tenant's Rights. Except for nonstructural changes which do not exceed
$5,000, Tenant shall not make or permit to be made any alterations or
improvements to the Premises without Landlord's prior written consent. In making
any alterations or improvements of any magnitude or cost whatsoever, Tenant
shall comply with Article S and shall not disturb other occupants of the
Building or the Property. Further, Tenant at its sole cost shall comply with all
laws, codes and regulations (including the Americans with Disabilities Act and
all other accessibility laws and regulations) relating to any alterations or
improvements, including obtaining any necessary permits, and, upon completion,
shall provide Landlord with as-built plans detailing such alterations and
improvements, together with a certificate of occupancy or the comparable
municipal approval (such as a signed-off building permit) issued upon completion
and approval of alterations and improvements in the municipality. All
alterations and improvements to the Premises which are made by Tenant shall be
the property of Tenant until the expiration or earlier termination of this
Lease; at that time all such alterations and improvements shall remain on the
Premises and become the property of Landlord without payment therefor, unless
Landlord gives written notice to Tenant to remove the same, in which event
Tenant shall remove such alterations and improvements and repair any damage
resulting therefrom. Tenant's removable trade fixtures shall be and remain
Tenant's property, and shall be removed by Tenant from the Premises, at Tenant's
sole cost, on or before the expiration or earlier termination of this Lease.

8.0  MECHANIC'S LIENS

     8.1  Tenants Obligations. Tenant shall give Landlord ten (10) days written
notice prior to the commencement of work in the Premises so that Landlord may
post notices of non-responsibility. Such notice shall include a copy of Tenant's
plans and specifications and any necessary permits for the work. Tenant shall
keep the Premises and the Property free and clear of any liens arising out of
work done by or for Tenant. Should any such lien or notice of lien be filed,
Tenant shall bond against or discharge the same within fifteen (15) days after
such filing.

9.0  ENTRY BY LANDLORD

     9.1  Landlord's Rights. Tenant shall permit Landlord, its lenders, and
their Agents to enter the Premises at all reasonable times for the purpose of
inspection, maintenance, making repairs, alterations or additions to any portion
of the Building, conducting environmental audits (including review of Tenant's
records relating to hazardous materials), serving or posting notices as well as
to exhibit the Premises for sale, mortgage or lease, and, during the last one
hundred eighty (180) days prior to the expiration of this Lease, placing "For
Lease" signs, without any rebate of Rent and without any liability to Tenant for
any loss of occupation or quiet enjoyment thereby occasioned.  Landlord shall
make reasonable efforts to minimize any inconvenience to Tenant in exercising
the foregoing rights. This Section in no way affects the patties' maintenance
obligations.

10.0 DAMAGE BY FIRE OR OTHER CASUALTY

     10.1  Repair; Landlord's Right to Terminate. If the Premises or Building
shall be damaged or destroyed by fire or other casualty, Tenant shall promptly
notify Landlord, and Landlord, subject to any mortgagee's consent and to the
conditions set forth in this Article 10, shall repair such damage and restore
the Premises to substantially the same condition in which they were immediately
prior to such damage or destruction. Landlord's restoration shall not include
the repair, restoration or replacement of Tenant's fixtures, improvements,
alterations, furniture or any other of its property. All statutory or common law
rights of termination with respect to the destruction of leased premises shall
not be applicable to this Lease. If a casualty occurs during the last 12 months
of the Term or any extension thereof, Landlord may cancel this Lease unless
Tenant has the right to extend the term for at least three more years and does
so within 30 days after the date of the casualty. If in Landlord's opinion the
net insurance proceeds will not be adequate to complete such restoration.
Landlord may terminate this Lease by giving Tenant written notice which
specifies a termination date no less than ten (10) days after its transmission.
<PAGE>

     10.2  Tenant's Right to Terminate. Landlord within thirty (30) days after
the date of destruction shall notify Tenant if the Premises cannot be fully
repaired within one hundred fifty (150) days after the date of destruction. In
such event Tenant may terminate this Lease as of the 40th day after the date of
destruction by giving Landlord written notice within ten (10) days after
Tenant's receipt of Landlord's notice.

     10.3  Rent Abatement. The Minimum Monthly Rent shall abate during any
period when there is substantial interference with Tenant's use of the Premises
(in proportion to the unusable area), commencing with the damage or destruction
and ending upon substantial completion by Landlord of the repair or
reconstruction of the Premises. Tenant shall not be entitled to any compensation
or damages from Landlord for loss of use of the Premises, damage to Tenant's
personal property or any inconvenience occasioned by such damage, repair or
restoration.

11.0 INDEMNIFICATION OF LANDLORD

     11.1  Tenant's Obligations. Subject to Paragraph 6.3.4 above, Tenant shall
hold harmless, indemnify, and defend Landlord against all claims, actions,
damages, liability and expense (including, without limitation, fees of
attorneys, investigators and experts) in connection with loss of life, personal
injury or damage to property in or about the Premises or arising out of the
occupancy or use by Tenant of the Premises or occasioned wholly or in part by
any act or omission of Tenant or its employees, agents, contractors, licensees,
or invitees ("Agents"), unless such loss, injury or damage was caused by the
negligence of Landlord or its agents. Without limiting the foregoing, Tenant
will forever release and hold Landlord and its Agents harmless from all claims
arising out of damage to Tenant's property unless such damage occurs as a result
of Landlord's failure to make repairs after having received written notice of
the need for such repair. In no event shall Landlord be liable to Tenant for any
indirect or consequential damages, including without limitation any claims for
lost profits or business opportunities, arising from any cause whatsoever,
including without limitation any negligence of Landlord.

12.0 CONDEMNATION

     12.1  Permanent Taking. If (I) all of the Premises are covered by a
condemnation, (ii) any pant of the Premises is covered by a condemnation and the
remainder thereof is insufficient for the reasonable operation therein of
Tenant's business, or (iii) any of the Property is covered by a condemnation
and, in Landlord's opinion, it would be impractical to restore the remainder
thereof, then this Lease shall terminate and all obligations hereunder shall
cease as of the date upon which possession is taken by the condemnor. If there
is a condemnation and this Lease has not been terminated pursuant to this
Section, the obligations of Landlord and Tenant shall be unaffected by such
condemnation except that Rent shall abate in proportion to the area, if any, of
the Premises covered by such condemnation. Statutory provisions with respect to
termination upon a partial taking of leased premises shall not be applicable to
this Lease.

     12.2  Award. In the event of a condemnation affecting Tenant, Tenant shall
have the right to make a separate claim against the condemnor to the extent that
such claim does not reduce the sums otherwise payable by the condemnor to
Landlord. Except as aforesaid, Tenant hereby assigns to Landlord all other
claims against the condemnor.

     12.3  Temporary Taking. No temporary taking of the Premises shall terminate
this Lease or give Tenant any right to any abatement of Rent. Any award made to
Tenant by reason of such temporary taking shall belong entirely to Tenant and
the Landlord shall not be entitled to share therein.

13.0 QUIET ENJOYMENT

     13.1  Tenant's Rights. Landlord covenants that Tenant, upon performing the
terms, conditions and covenants of this Lease shall have quiet and peaceful
possession of the Premises as against any person claiming the same by, through
or under Landlord, subject, however, to the exceptions, reservations and
conditions of this Lease.

14.0 ASSIGNMENT AND SUBLETTING

     14.1  Limitation. Tenant shall not transfer this Lease, voluntarily or by
operation of law, without the prior written consent of Landlord, which consent
shall not be unreasonably withheld. "Transfer" shall include any sublease,
assignment, license or concession agreement, change in ownership of Tenant,
mortgage or hypothecation of this Lease or Tenant's interest therein or in all
or a portion of the Premises. Notwithstanding the above, Landlord shall not
consent to any transfer which provides for a rental or other payment based in
whole or in part on the net income or profits derived by the user or occupant of
the Premises from its use or occupancy of the Premises (other than an amount
based on a fixed percentage or percentages of receipts or sales). A consent to
one transfer shall not be deemed to be a consent to any subsequent transfer. Any
transfer without Landlord's consent shall be void at the option of Landlord, and
Landlord may exercise any or all of its rights under Article 17 hereof.

     14.2  Offer to Landlord. Tenant acknowledges that the terms of this Lease,
including Rent, have been based on the understanding that Tenant shall
physically occupy the Premises for the entire Term. Therefore, upon Tenant's
request to transfer all or a portion of the Premises, Landlord shall be entitled
to sublease from Tenant for Landlord's own account the portion of the Premises
proposed to be transferred by Tenant, upon the same terms as those proposed but
otherwise upon the form of this Lease. If Landlord so subleases for its own
account, Landlord shall have the further right to transfer the Premises to any
person, including without limitation other tenants in the Building, and Tenant
shall be relieved of any liability with respect to such portion of the Premises
so subleased by Landlord until the term of such sublease expires or is
terminated.

     14.3  Conditions. Notwithstanding the above, the following shall apply to
any proposed transfer:

           (a) No transfer shall relieve Tenant of its obligation to pay Rent
and to perform all other obligations to be performed by Tenant hereunder. The
acceptance of rent by Landlord from any person shall not be deemed to be a
waiver by Landlord of any provision of this Lease or to be a consent to any
transfer.
<PAGE>

           (b) Any consideration received by Tenant as a result of a sublease or
assignment which exceeds the total sums which Tenant is obligated to pay
Landlord under this Lease, or the prorated portion thereof if only a portion of
the Premises is transferred, shall be payable to Landlord as additional rent
under this Lease without affecting or reducing any other obligation of the
Tenant hereunder.

           (c) Each transfer to which Landlord has consented shall be by an
instrument in writing in a form satisfactory to Landlord, and shall be executed
by Tenant and the transferee. Tenant shall reimburse Landlord for Landlord's
reasonable costs and attorneys' fees incurred in conjunction with the processing
and documentation of any such requested transfer.

15.0 SUBORDINATION; ESTOPPEL CERTIFICATES

     15.1  Subordination. This Lease shall, unless otherwise elected by
Landlord's first mortgagee, lender, or ground lessor, be subordinate to any
ground lease, mortgage, deed of trust, or any other hypothecation for security
(collectively, a 'Security Instrument") now or hereafter placed upon the
Property and to any and all advances made on the security thereof and to all
modifications, replacements and extensions thereof. Notwithstanding any such
subordination, Landlord shall exercise reasonable efforts to preserve Tenant's
right to quiet possession of the Premises so long as Tenant is not in default
under this Lease, unless this Lease is otherwise terminated pursuant to its
terms. This Lease shall, at the election of Landlord's first mortgagee, lender
or ground lessor, be superior to any such Security Instrument. In any event,
Tenant shall execute any documents required to effectuate the subordination of
this Lease or any Security Instrument within ten (10) days after written
request. Tenant shall attorn to any purchaser at any foreclosure sale, or to any
grantee or transferee designated in any deed given in lieu of foreclosure.

     15.2  Condition of Lease. Within ten (10) days after request therefor by
Landlord, Tenant shall provide a written statement acknowledging the
commencement and termination dates of this Lease, that it is in full force and
effect, has not been modified (or if it has, stating such modifications), and
providing any other pertinent information as Landlord reasonably requests.

     15.3  Tenant's Failure. If Tenant fails to execute any of the above
referenced documents within the time required, then Tenant hereby irrevocably
appoints Landlord as Tenant's attorney in fact to execute such documents on
Tenant's behalf, and all statements made in such documents shall be deemed true
and binding upon Tenant. Tenant understands that its failure to execute such
documents may cause Landlord serious financial damage by causing the failure of
a financing or sale transaction. Failure to comply with this Article shall be a
material breach of this Lease by Tenant, giving Landlord the right to recover
damages in addition to the remedies set forth in Article 17.

     15.4  Financial Statements. If Landlord desires to finance, refinance or
sell the Premises, or any part thereof, or the Building. Tenant hereby agrees to
deliver to the person designated by Landlord such financial statements of Tenant
as may be reasonably required by such person.

16.0 SURRENDER AND HOLDOVER

     16.1  Condition at End of Term. Subject to the terms of Articles 7 and 10,
at the expiration or earlier termination of the Term, Tenant shall promptly
yield up, in the same condition, order and repair in which they are required to
be kept during the Term, the Premises and all alterations thereto, and all
fixtures and equipment servicing the Building, ordinary wear and tear excepted.

     16.2  Holdover Terms. If Tenant, or any person claiming through Tenant,
shall continue to occupy the Premises after the expiration or earlier
termination of the Term or any renewal thereof, such occupancy shall be deemed
to be under a month-to-month tenancy under the same terms set forth in this
Lease; except that the Minimum Monthly Rent during such continued occupancy
shall be any amount which Landlord may specify in a written notice to Tenant.
Notwithstanding the above, any holding over by Tenant without Landlord's prior
written consent shall constitute a default hereunder and shall be subject to all
the remedies set forth in Article 17.

17.0 DEFAULT AND REMEDIES UPON DEFAULT

     17.1  Events. The occurrence of any of the following shall constitute a
material default and breach of this lease by Tenant:

           (a) Any failure by Tenant to pay Rent or to make any other payment
required to be made by Tenant hereunder when due; provided, however, that
Landlord shall exercise no remedies provided in Sections 17.2 and 17.3 unless
Tenant falls to cure such default within three days after Landlord gives Tenant
written notice of such default;

           (b) The abandonment of the Premises by Tenant, which shall be
conclusively presumed if the Premises remain unoccupied for more than ten (10)
consecutive days, or the removal of Tenant's property therefrom other than in
the ordinary course of business;

           (c) A failure by Tenant to observe and perform any other provision of
this Lease, where such failure continues for ten (10) days after written notice
thereof by Landlord to Tenant; provided, however, that if the default cannot
reasonably be cured within ten (10) days, Tenant shall not be deemed to be in
default if Tenant shall, within such ten (10) day period, commence to cure and
thereafter diligently prosecute the same to completion;

           (d) Either (1) the appointment of a receiver (except a receiver
appointed at Landlord's request) to take possession of all or substantially all
of the assets of Tenant, or (2) a general assignment by Tenant for the benefit
of creditors, or (3) any action taken by Tenant or by any other person against
Tenant under any insolvency or bankruptcy act. In such event, Landlord may, at
its option, declare this Lease terminated and forfeited by Tenant in a written
notice to Tenant, and Landlord shall be entitled to immediate possession of the
Premises.
<PAGE>

Tenant agrees that any notice given by Landlord pursuant to this Section which
is served in compliance with Article 21 of this Lease shall be adequate notice
for the purpose of Landlord's exercise of the remedies specified in Section 17.2
or any other remedies provided by law. Therefore, any statutory provision
relating to the manner of giving notice shall not be applicable to this Lease

     17.2  Landlord's Rights. In the event of any default by Tenant, Landlord.
in addition to all other remedies provided by law or in equity, shall have the
immediate option to terminate this Lease and all rights of Tenant hereunder by
giving written notice of such intention to terminate. If Landlord shall elect to
so terminate this Lease, Landlord may recover from Tenant all damages suffered
by Landlord as a result of Tenant's default, including, but not limited to, the
worth at the time of award (computed in accordance with paragraph (3) of
Subdivision (a) of Section 1951.2 of the California Civil Code) of the amount by
which the unpaid Rent for the balance of the Term after the time of award
exceeds the amount of such Rent loss that Tenant proves could be reasonably
avoided. If Landlord does not elect to terminate this Lease, Landlord may from
time to time, without terminating this Lease, either recover all Rent as it
becomes due or rent the Premises or any part thereof for such term and at such
rent and upon such other terms and conditions as Landlord in its sole discretion
may deem advisable with the right to make alterations and repairs to the
Premises. Any rent received by Landlord from a reletting shall be applied to the
payment of (a) any indebtedness other than Rent due hereunder (b) the cost of
such reletting; (c) the cost of any alterations and repairs to the Premises; (d)
Rent due and unpaid hereunder; and (e) the residue, if any, shall be held by
Landlord and applied in payment of future Rent as the same may become due and
payable hereunder. If the rent received from such reletting is less than the
Rent payable by Tenant, then Tenant shall pay such deficiency to Landlord
immediately upon demand therefore by Landlord. Such delinquency shall be
calculated and paid monthly. Tenant shall also pay to Landlord as soon as
ascertained, any expenses incurred by Landlord which are not covered by the rent
received from such reletting.

     17.3  Late Charge. Tenant shall pay a late payment penalty equal to the
greater of $100 or five percent (5%) of any amount owed to Landlord pursuant to
this Lease which is not paid within five days after the date when due. After the
second late payment by Tenant, Landlord may require Tenant to make advance
payments of Rent on a quarterly basis or by certified check.

     17.4  Termination. No re-entry or taking possession of the Premises or any
other action under this Section shall be construed as an election to terminate
this Lease unless a written notice of such intention be given to Tenant or
unless the termination thereof be decreed by a Court of competent jurisdiction.
Notwithstanding any reletting without termination by Landlord because of any
default by Tenant, Landlord may at any time after such reletting elect to
terminate this Lease for any such default.

     17.5  No Waiver. No waiver by Landlord of any breach by Tenant shall be a
waiver of any subsequent breach, nor shall any forbearance by Landlord to seek a
remedy for any breach by Tenant be a waiver by Landlord of any rights and
remedies with respect to such or any subsequent breach. Efforts by Landlord to
mitigate the damages caused by Tenant's default in this Lease shall not
constitute a waiver of Landlord's right to recover damages hereunder.

     17.6  Landlord's Cure of Tenant's Default. Should Tenant fail to perform
any obligation imposed by this Lease, Landlord may perform or contract for the
performance of Tenant's obligation after having given Tenant reasonable notice
of the failure(s) and a reasonable opportunity which in no case shall exceed ten
(10) days to remedy the failure, and Tenant shall pay Landlord for all costs
incurred in connection therewith. The exercise of one right or remedy by
Landlord shall not in any way impair its right to any other right or remedy.
Should Tenant consist of more than one person or entity, they shall be jointly
and severally liable on this Lease.

     17.7  Waiver.  Tenant waives (for itself and all persons claiming under
Tenant) any right of redemption or reinstatement of Tenant under any present or
future case law or statutory provision (including Code of Civil Procedure
Sections 473 and 1179 and Civil Code Section 3275) in the event Tenant is
dispossessed from the Premises for any reason.

18.0 LIABILITY OF LANDLORD

     18.1  Landlord/1/s Right to Cure; Limitations on Liability. In the event of
any actual or alleged failure, breach or default by Landlord hereunder
pertaining to the Premises, the Building or the Property, Tenant shall give
Landlord written notice thereof and Landlord shall not be deemed in default
unless it fails to diligently commence to cure such default within 15 days after
its receipt of such notice. Landlord's (which term includes Landlord's partners,
co-venturers, co-tenants, officers, directors, employees, agents (including any
property manager for the Property), or representatives, all of whom have the
authority to act on Landlord's behalf) liability to Tenant for any such default
shall be limited to its ownership interest in the Premises (or the Building, if
applicable) or the proceeds of a public sale of such interest pursuant to
foreclosure of a judgment against Landlord, plus any insurance proceeds actually
received by Landlord with reference to the Property and not expended on the
Property or to pay claims covered by such proceeds. Landlord shall not be liable
for any deficiency beyond its interest in the Property and the amount of such
insurance proceeds.

     18.2  Release or Transfer; Successor Liability. If Landlord shall transfer
its interest in the Building or the Premises, then from and after the effective
date of the transfer, Landlord shall be released from all obligations under this
Lease, except those already accrued. If Landlord transfers the Security Deposit
to the transferee, Landlord shall be discharged from any further liability in
reference thereto. Tenant acknowledges that any successor to Landlord's interest
in the Property pursuant to sale or foreclosure under any deed of trust or
mortgage shall not be bound by any agreement between Landlord and Tenant which
has not been approved by the holder of such instrument, including without
limitation any advance rents or security deposits paid by Tenant in excess of an
amount equal to two month's Rent.

19.0 ATTORNEYS' FEES; JURY TRIAL

     19.1  Right to Recover. If either party commences an action against the
other party for a breach of this Lease, the prevailing party shall be entitled
to recover from the losing party, costs of suit and reasonable attorneys' fees.
<PAGE>

     19.2  Waiver of Jury Trial. Landlord and Tenant hereby waive their
respective right to trial by jury of any cause of action. claim, counterclaim or
cross-complaint in any action, proceeding and/or hearing brought by either party
on any matter arising out of, or connected with, this Lease, the relationship of
Landlord and Tenant, Tenant's use or occupancy of the Premises, or any claim of
injury or damage, or the enforcement of any remedy under any law, statute, or
regulation now or hereafter in effect.

20.0 INTERPRETATION

     20.1  Captions. The captions in this Lease are for convenience only and are
not a part of this Lease and do not in any way define, limit, describe or
amplify the terms and provisions of this Lease or the scope or intent thereof.

     20.2  Entire Agreement. This Lease represents the entire agreement between
the panties hereto and there are no collateral or oral agreements or
understandings between Landlord and Tenant with respect to the Premises or the
Property. No right. casements or licenses are acquired in the Property or any
land adjacent to the Property by Tenant by implication or otherwise except as
expressly set forth in the provisions of this Lease. Tenant agrees to make such
changes to this Lease as are required by any mortgagee, provided such changes do
not substantially affect Tenant's rights and obligations hereunder. This Lease
shall not be modified in any manner except by an instrument in writing executed
by the panties. The masculine (or neuter) pronoun, singular number, shall
include the masculine, feminine and neuter genders and the singular and plural
number.

     20.3  Exhibits. Each writing or plan referred to herein as being attached
hereto as an Exhibit or otherwise designated herein as an Exhibit hereto is
hereby made a part hereof.

     20.4  Severability; Governing Law. If any provision of this Lease shall be
declared unenforceable in any respect, such unenforceability shall not affect
any other provision of this Lease, and each such provision shall be deemed to be
modified, if possible, in such a manner as to render it enforceable and to
preserve to the extent possible the intent of the patties as set forth herein.
This Lease shall be construed and enforced in accordance with the laws of the
State of California.

     20.5  Authority. If Tenant is a corporation, partnership or any other form
of business association or entity, each individual executing this Lease on
behalf of Tenant represents and warrants that he is duly authorized to execute
and deliver this Lease on behalf of said entity in accordance with its corporate
bylaws, statement of partnership, certificate of limited partnership or other
appropriate organizational documents, as the case may be, and that this Lease is
binding upon said entity in accordance with its terms. At the time of execution
of this Lease, Tenant shall provide Landlord with corporate resolutions or other
appropriate written authorization, in a form acceptable to Landlord, authorizing
the execution, delivery and performance of this Lease. The failure of Tenant to
deliver the same to Landlord within five (5) days of Landlord's request therefor
shall be deemed a default under this Lease. (If more than one party comprises
Tenant, then the obligations of such parties hereunder shall be joint and
several.)

21.0 NOTICES

     21.1  Methods. Any notice or other communication under this Lease by either
party to the other shall be in writing and shall be deemed received if delivered
personally or by private messenger service or if sent by certified mail, return
receipt requested, postage prepaid, and addressed to the panties at the
addresses specified in Section 1.2 hereof, or to such other places as Landlord
and Tenant may from time to time designate by written notice to the other party.

22.0 SECURITY DEPOSIT

     22.1  Terms. Tenant shall pay Landlord a Security Deposit in the amount
specified in Section 1.9, which shall remain the sole and separate property of
Landlord until actually repaid to Tenant (or at Landlord's option the last
assignee, if any, of Tenant's interest), said amount not being earned by Tenant
until all conditions precedent for its payment to Tenant have been fulfilled.
Landlord shall not be required to keep said deposit separate from its general
accounts, or pay interest, or other increment for its use. If Tenant fails to
pay Rent or other charges when due hereunder, or otherwise defaults with respect
to any provision of this Lease, Tenant shall not have earned the right to
repayment of the Security Deposit to the extent Landlord has used all or a
portion thereof for the payment of any amount in default or to compensate
Landlord for any loss or damage which it may suffer by reason of Tenant's
default. If Landlord uses all or any portion of the Security Deposit as provided
above, Tenant shall within ten (10) days after written demand therefor pay
Landlord an amount equal to that portion of the Security Deposit used by
Landlord. This Security Deposit is not to be characterized as Rent until so
applied in respect of a default by Tenant.

     IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the

22nd day of October, 1997.
----        -------

LANDLORD:    Chamberlin Assoc.    _____  TENANT:  Terrapin Technologies, Inc.
             -----------------                    ---------------------------
            Oyster Point Phase I
            --------------------

     By:  /s/ Stephen W. Chamberlin      By:  /s/ Clifford Orent
              Stephen W. Chamberlin               Clifford Orent<PAGE>

                                                                   EXHIBIT 10.17

                            DISTRIBUTION AGREEMENT

                                BY AND BETWEEN

                              DEPUY ACROMED, INC.

                                      AND

                          ORATEC INTERVENTIONS, INC.
<PAGE>

                             DISTRIBUTION AGREEMENT

THIS AGREEMENT is between Oratec Interventions, Inc., a California corporation,
with its principal place of business at 3700 Haven Court, Menlo Park, California
94025, hereinafter referred to a "Oratec" and DePuy AcroMed, Inc., an Ohio
corporation with offices at 3303 Carnegie Ave., Cleveland, Ohio 44115
hereinafter referred to as "DePuy," effective as of the 30 day of March, 1999
(the "Effective Date").

WHEREAS, Oratec has developed, prototyped, and/or manufactured and verified
clinically products used to apply heat to the spine to denervate and shrink
spinal disc tissue, as further described herein; and

WHEREAS, DePuy has developed an extensive worldwide distribution capability and
desires to distribute the Products to surgeons worldwide, with the exception of
the United States; and

WHEREAS, Oratec desires to contract with DePuy to assist Oratec in conducting
selected clinical evaluations with surgeons outside the United States and in
obtaining regulatory approval for the Products outside the United States, and to
exclusively market, distribute and sell the Products, as further described
herein; and

WHEREAS, DePuy is willing to contract with Oratec to assist Oratec in conducting
such selected clinical evaluations, obtaining regulatory approval outside the
United States and to exclusively market, distribute and sell the Products;

NOW, THEREFORE, in consideration of the mutual covenants set forth below, the
parties agree as follows:

1.  DEFINITIONS

    1.1  "Products" shall mean all Oratec products developed, designed, intended
         or sold for the spine or neurosurgery markets for use by any medical
         practitioner, including any improvements or variations thereto. The
         SpineCATH Intradiscal Catheter Product including any modification
         thereto, may not be sold into any other medical or surgical specialty
         without the prior written consent of DePuy. All such Products currently
         in existence are listed on Appendix A. Appendix A shall be modified in
         writing as additional Products, including improvements and variations
         thereto, become available.

    1.2 "New Products" means those Oratec products developed, designed, intended
         or sold for the spine or neurosurgery markets for use by any medical
         practitioner which perform a significantly different function or
         perform in a significantly different manner from Products.

    *** Certain information in this document has been omitted and filed
    separately with the Securities and Exchange Commission. Confidential
    treatment has been requested with respect to the omitted portions.
<PAGE>

    1.3  "Specifications" shall mean the detailed written specifications for a
         Product in such form as Oratec shall provide and DePuy shall accept.

    1.4  "Territory" shall mean the entire world, excluding the United States.

2.  APPOINTMENT OF DEPUY AS EXCLUSIVE DISTRIBUTOR

    2.1  Oratec hereby grants DePuy the exclusive right to market, sell and
         distribute the Products in the Territory.

    2.2  Provided Oratec has first offered the New Products to DePuy and DePuy
         has declined the opportunity to market the New Products, Oratec may
         freely negotiate with other parties to market the New Products. DePuy
         shall have ninety (90) days within which to accept or reject any such
         opportunity to market New Products. In the case in which Oratec had
         first offered the New Products to DePuy and the parties were unable to
         negotiate mutually acceptable terms, Oratec is free to contact with
         other parties provided Oratec does not accept terms inferior to DePuy's
         last offer. In the case in which the third party's offered terms are
         equal to or inferior to DePuy's last offer, Oratec will contract with
         DePuy under the terms of DePuy's last offer.

    2.3  If a third party appointed by Oratec to sell Oratec products for non-
         spine applications sells such products for spine applications within
         the Territory, Oratec shall take all reasonable steps to prevent such
         occurrences by said third party. Sales by third parties resulting form
         such occurrences shall be applied toward DePuy's minimum purchase
         requirements. DePuy shall not sell the Products for non-spine
         applications. If a Distributor appointed by DePuy to sell the Products
         sells such Products for non-spine applications within the Territory,
         DePuy shall take all reasonable steps to prevent such occurrences by
         said Distributor.

3.  MUTUAL COOPERATION

    3.1  It is the parties intention to cooperate and communicate regarding the
         development and marketing of the Products. The parties agree to make
         reasonable efforts to share general information received by either
         party on the Products and competitive activities.

4.  INTELLECTUAL PROPERTY

    4.1  Any and all technology and intellectual property developed by Oratec
         used in development or manufacture of a Product shall be the property
         of Oratec. Oratec shall have sole responsibility for filing and
         maintaining any and all patents and patent applications which address
         or cover its Products.
<PAGE>

5.  ORATEC'S COVENANTS

    5.1  Oratec hereby agrees to supply the Products to DePuy in accordance with
         the terms set forth in this Agreement.

    5.2  Oratec will work actively to make available in sufficient quantities
         Products that meet mutually agreed upon specifications to meet DePuy's
         requirements; provided that, shipment of all orders by Oratec shall be
         on a "first in, first out" inventory basis, and may be subject to
         delays due to transportation difficulties, government regulations,
         inability to obtain new materials, and other circumstances beyond
         Oratec's control.

    5.3  Oratec will extend technical assistance to DePuy as DesPuy may
         reasonably request to assist in the marketing and sale of the Products
         at periodic intervals to be agreed upon by Oratec and DePuy. The
         parties will agree upon a mutually acceptable technical training
         program.

    5.4  Oratec will provide training to the DePuy sales force on the proper use
         of the Products at times and places mutually agreed upon by the parties
         throughout the duration of this Agreement.

    5.5  Oratec will use commercially reasonable efforts to obtain FDA approval,
         including 510(k) approval, ISO 9000 Certification and obtain CE
         marking(s) for each Product prior to the sale to DePuy of such Product.

    5.6  Oratec agrees to cooperate with DePuy and supply DePuy with any
         information required by DePuy to allow DePuy to respond to or comply
         with any inquiry or regulation from any foreign government agency
         regarding the use, marketing, sales or distribution of Products.

    5.7  Oratec will as soon as possible after receipt of notice advise DePuy of
         any claim, complaint, suit or action involving any Product sold by
         DePuy or involving DePuy's marketing, sale or distribution of the
         Products if such claim, complaint, suit or action relates to a Product
         performance issue or could have a potential adverse impact on DePuy.

    5.8  Oratec shall sell DePuy a reasonable number of demonstration samples of
         Products at the cost specified in Appendix B, for use by the DePuy
         sales force for customer presentations, for presentations at seminars,
         meetings, conventions and the like. The samples will be marked "For
         demonstration only, not for human use."

6.  ORATEC'S REPRESENTATIONS AND WARRANTIES

    6.1  Oratec shall have full title and full right to manufacture all Products
         sold to DePuy hereunder.
<PAGE>

    6.2  Oratec represents and warrants that to the best of Oratec's knowledge,
         as of the date of this Agreement, the distribution, marketing,
         promotion and sale of Products by DePuy will not infringe any patents
         held by persons who are not parties to this Agreement.

    6.3  To Oratec's knowledge, there are no licenses or other agreements
         relating to the Products that would affect Oratec's ability to
         manufacture and deliver the Products or substantially equivalent
         products and none are contemplated or anticipated by Oratec, except for
         an agreement now in place with Oratec's vendor for generators.

    6.4  All necessary governmental approvals required by the federal, state
         and/or local governments of the United States for the Products will
         have been obtained by Oratec prior to the sale of the Products to or by
         DePuy, and will be obtained by Oratec should the need arise in the
         future.

    6.5  To Oratec's knowledge, all Products comprising each shipment or other
         delivery made to DePuy are and, at all times, will be as of the date of
         such shipment or delivery, in compliance with all applicable United
         States laws, as well as all regulations, rules, declarations,
         interpretations and orders issued thereunder.

    6.6  To Oratec's knowledge, no Product is in violation of any United States
         law, statute, executive order or regulation regarding packaging,
         labeling, manufacturing, distribution, or sale. Oratec shall use
         commercially reasonable efforts to comply with any applicable foreign
         law, statute, executive order or regulation regarding, packaging,
         labeling, manufacturing, distribution, or sale made known to Oratec.

    6.7  Oratec has no pre-existing distribution or other arrangements
         concerning the Products in any country located within the Territory
         that would affect DePuy's ability to sell the Products in the Territory
         or DePuy's right to select and appoint Distributors or affiliates to
         sell the Products in the Territory.

7.  PACKAGING AND LABELING

    7.1  DePuy will use the Oratec trademark in marketing the Products unless
         prohibited by law or regulation. DePuy will acknowledge Oratec and its
         patent pending or patented technology in Product promotional materials.
         DePuy shall not modify any Oratec trademark in any way without Oratec's
         prior written approval or use any Oratec trademark with any goods or
         services other than the Products.

    7.2  During the term of this Agreement, the parties may, at their option,
         indicate on signs, advertising, publicity, or other sales, marketing,
         or promotional media or materials that DePuy is the authorized dealer
         or distributor of the Products for spine applications. Neither party
         shall otherwise use the other party's name,
<PAGE>

         trademarks, service marks, trade names, commercial symbols or logos
         without having received the other party's prior written approval.

    7.3  Upon termination of this Agreement, each party's license in or right to
         use the other party's name, trademarks, services marks, trade names,
         commercial symbols or logos shall terminate, except that DePuy shall
         have the right to continue such use with respect to any inventory of
         Products not purchased by Oratec as provided by Section 20.1.

    7.4  Oratec will provide the Products to DePuy sterile and in standard
         packaging. In the event that Oratec's sterilization processes or
         standard product packaging is unacceptable to any regulatory or
         government agency, Oratec shall modify its sterilization processes
         and/or standard product packaging to comply with the requirements of
         such regulatory or government agency. The parties shall evaluate the
         costs associated with any such required modifications by country,
         comparing the country sales forecast with extraordinary costs that
         Oratec would have to incur.

8.  DEPUY'S COVENANTS

    8.1  DePuy hereby agrees to sell the Products through its marketing and
         sales distribution network comprised of independent sales
         representatives (the "Distributors"), through employees who specialize
         in geographical regions or in designated professional fields, or
         through affiliated companies, provided that any such affiliated company
         is not a competitor of Oratec. DePuy shall have the right to select and
         appoint all Distributors and affiliates to market and sell the Products
         in the Territory. While DePuy has exclusive distribution rights in the
         Territory under this Agreement, DePuy will obtain the Products for sale
         in the Territory only from Oratec.

    8.2  Depuy will actively promote the Products and will provide its
         Distributors and employees with the following:

         1.  Product samples
         2.  Appropriate training related to Products
         3.  Exposure of Products at appropriate training courses and
             conventions

    8.3  Provided the Products are available in adequate quantities, DePuy will
         work to market the Products by including them as important promotional
         Products for its Distributors in 1999 and 2000. For purposes of this
         Section 8.3, adequate quantities shall mean Product quantities
         necessary to support DePuy's sales forecasts for the Products. DePuy
         will provide to Oratec an initial forecast of sales for a one year
         period for such Products. When the parties agree to develop and market
         a Product not included in the original list of Products in Appendix A,
         DePuy will provide Oratec with a sales forecast for that Product within
         30 days of the date a Product is available for sale and marketing. All
         such forecasts will be
<PAGE>

         updated on a quarterly basis. Thereafter, DePuy will provide Oratec on
         the last day of October of each year during the duration of this
         Agreement, with a forecast for each forthcoming contract year for all
         Products sold by DePuy at that time in order to properly provide for
         all accounts, insure prompt service to customers and avoid out-of-stock
         conditions. Forecasts shall be provided on a country basis when it may
         be necessary to reduce minimums due to late regulatory approvals and/or
         mutual decisions not to market in a particular country.

    8.4  DePuy will show the Products at major meetings in 1999 and 2000 and
         will be responsible for all costs of exhibiting at such major meetings
         as well as local conventions and trade shows unless otherwise agreed by
         Oratec prior to such meeting, convention or trade show.

    8.5  DePuy will take reasonable and necessary steps to provide that DePuy's
         marketing, sale and distribution of the Products complies with
         applicable government regulations throughout the Territory and will
         provide reasonable assistance to Oratec as Oratec may reasonably
         request to allow Oratec to comply with regulatory requirements of
         government agencies throughout the Territory regarding the use, sale
         and distribution of the Products.

    8.6  DePuy shall, as soon as possible after receipt of notice, advise Oratec
         of any claim, suit, or other action regarding any of the Products sold
         by DePuy.

    8.7  DePuy will prepare and submit import licenses, registrations or other
         listings and regulatory approvals for the sale and import of the
         Products in countries within the Territory. DePuy may use its system of
         independent companies and Distributors throughout the Territory to
         assist in obtaining import licenses and/or approvals. DePuy will obtain
         necessary certifications for the Products where required. Upon any
         termination of this Agreement other than for a material breach by
         Oratec which remains uncured by Oratec for more than forty-five (45)
         days after receipt of written notice from DePuy, DePuy shall transfer
         all import licenses, registrations, listings and regulatory approvals
         for the sale and import of the Products to Oratec, provided that Oratec
         reimburses DePuy at the time of transfer for the cost to DePuy to
         obtain and maintain all such import licenses, registrations, listings
         and regulatory approvals. Any such transfer shall take place
         immediately upon receipt of the foregoing payment and Oratec's
         contractual commitment to buy back all inventory of Products maintained
         by DePuy, its affiliates or its Distributors. DePuy makes no
         representation or warranty regarding the transferability of any of the
         foregoing licenses, registrations, listings, and approvals.

    8.8  DePuy will provide proposed Product literature to Oratec for approval
         of the content of Product marketing claims. Oratec will respond to
         DePuy's request for Product literature approval within ten (10) working
         days.
<PAGE>

    8.9  DePuy will provide required multilingual labeling to Oratec for
         placement on the Product packaging during manufacture.

9.  PRICES

    9.1  Initial Prices for the Products shall be as set forth on Appendix B.
         Prices for all Products will be based on a transfer price (as
         hereinafter defined) that allows DePuy, for the duration of this
         Agreement and any extension thereof, to receive a gross margin of at
         least ***, as exemplified in Appendix B. Transfer price shall mean
         the price charged to DePuy by Oratec for the Products. Oratec shall
         give DePuy at least six (6) months prior written notice of any price
         increase. During the first nine (9) months that this Agreement is in
         effect, Oratec shall provide probes to DePuy at *** for each probe
         and catheters to DePuy at *** for each catheter. The transfer price
         will then be revised to reflect a *** gross margin if the average end
         user selling price equals or exceeds *** per probe and *** per spine
         catheter. The limit on the probe and spine catheter transfer prices
         will be set at *** and ***, respectively.

    9.2  DePuy retains the right to select its customers and to sell the
         Products at such prices and on such terms and conditions as it may
         elect. DePuy intends to market the Products at competitive pricing that
         produces maximum revenues, but DePuy shall retain the right to sell the
         Products at a discount where DePuy, in its sole discretion, deems it
         necessary.

10. CLINICAL TRIALS

    10.1  In the event that a limited clinical trial or similar testing of any
          Product is required to obtain governmental approval outside the Untied
          States before sale and use of the Product, the parties will conduct
          such trial(s) jointly.  DePuy will coordinate the trials through
          surgeons and other medical personnel and health care providers.
          Oratec will provide reusable and disposable products for such trials
          at no costs to DePuy.  However, any reuseable and disposable products
          such as generators, needle benders, cables, etc. will remain the
          property of Oratec and will be returned to Oratec when the need for
          the products has ended.  Should extensive clinical trials be required
          for a Product outside the United States, the parties will determine a
          mutually acceptable plan which will include financial incentives to
          DePuy regarding such extensive clinical trials.

11. ORDERING

    11.1  All forecasts shall be non-binding.  Notwithstanding any forecast
          made by DePuy, DePuy shall place firm written purchase orders
          identifying the Products ordered and requested delivery date(s) with
          Oratec on DePuy purchase order forms with at least 90 days lead time
          to allow Oratec to optimize inventory and production

   ***    Confidential treatment requested.
<PAGE>

          patterns.  Oratec will ship Product pursuant to such purchase orders
          within ninety (90) days of the receipt by Oratec of such purchase
          order.

    11.2  DePuy will have *** purchase requirements in 1999 ***.  Oratec and
          DePuy will agree upon minimum purchase requirements for the year 2000
          by October 31, 1999.  If annual minimum purchase requirements for the
          year 2000 are not agreed to by October 31, 1999, the parties shall
          engage a mutually acceptable third party to consult with them to
          develop an acceptable compromise.  Should the parties be unable to
          select a mutually acceptable third party to develop an acceptable
          compromise, the parties shall engage in arbitration as provided in
          Section 11.4.  Minimum purchase requirements for subsequent years that
          the Agreement is in effect will be established in the same manner.
          DePuy shall have no obligation to purchase the minimum purchase
          requirements, provided that  failure to do so shall trigger the rights
          provided to Oratec in Section 11.3.  DePuy will generate a purchase
          order for samples and demo equipment within 30 days of the effective
          date of this Agreement.  In the event that regulatory approvals
          required to market and sell the Products in any country located within
          the Territory are not secured or are delayed, minimum purchase
          requirements for the Products shall be appropriately reduced.

    11.3  Beginning with the year 2000 and for any subsequent year this
          Agreement is in effect, provided that Oratec has supplied adequate
          quantities of Products that meet Specifications, if less than *** of
          the mutually agreed upon annual minimum purchase requirement for all
          Products is not achieved by DePuy by the end of any applicable year,
          DePuy's exclusive distribution rights under this Agreement may become
          non-exclusive at Oratec's option, written notice of which must be
          received by DePuy prior to November 1st of such year. Upon receipt of
          such written notice, DePuy may make up any shortfall in the minimum
          purchase requirement through a purchase of Products (the "Shortfall
          Purchase") by issuing a purchase order by December 1st of such year,
          specifying delivery by December 31st or as soon as possible
          thereafter. If DePuy makes this Shortfall Purchase, DePuy shall retain
          its exclusive distribution rights. If DePuy does not make the
          Shortfall Purchase, DePuy's exclusive distribution rights, may, at
          Oratec's option, become non-exclusive. If the Shortfall Purchase is
          not made, and if at least *** of the mutually agreed upon annual
          minimum purchase requirement for all Products is not achieved by DePuy
          in the next consecutive year this Agreement is in effect, and DePuy
          does not make a Shortfall Purchase in that next consecutive year,
          Oratec may, upon written notice to DePuy received within sixty (60)
          days after the end of such year, terminate this Agreement. In any
          event, the mutually agreed upon annual minimum purchase requirement
          for any year this Agreement is in effect will be considered to be met
          if at least *** of such minimum purchase requirement has been met by
          DePuy.

   ***    Confidential treatment requested.
<PAGE>

    11.4  All disputes, controversies, or differences arising between the
          parties hereto, out of, or in relation to, or in connection with,
          minimum purchase requirements which cannot be settled amicably by the
          parties shall be resolved by arbitration under the Rules of Procedure
          of the American Arbitration Association (the "Rules") then prevailing
          arbitration shall be by a single arbitrator chosen by the parties,
          provided that if the parties fail to agree and to appoint such single
          arbitrator within thirty (30) days after demand for arbitration, the
          arbitrator shall be chosen in accordance with the Rules. The decision
          of the arbitrator shall be final and binding on the parties with
          respect to minimum purchase requirements.

12. PAYMENT

    12.1  Depuy shall be responsible for the collection of all amounts due
          from customers for the Products. DePuy shall pay for its purchases
          of Products (except for those Products returned pursuant to Section
          15) within *** days of its receipt of the specific Products. A
          late penalty of *** or the maximum rate permitted by law shall be
          levied on outstanding balances for every month extending beyond the
          *** day payment period beginning with the *** day. DePuy shall
          be responsible for the payment of all taxes arising from the
          purchase and sale of the Products by DePuy except for taxes on the
          income of Oratec. These taxes include import duties, forwarding
          taxes, value added taxes and any similar taxes imposed by the
          jurisdictions in which the Products are sold.

13. SHIPPING

    13.1  Oratec shall deliver Products directly to DePuy via common or contract
          carrier. All costs of transportation and shipping to DePuy's
          facilities in Cleveland, Ohio, Warsaw, Indiana, Raynham,
          Massachusetts, or Leeds, England will be paid by DePuy. Title to shall
          transfer and risk of loss of the Products shall pass to DePuy upon
          DePuy's receipt of the Products. Notwithstanding the foregoing, any
          fees to expedite shipments to DePuy at DePuy's request will be borne
          by DePuy, unless the need for expedited shipment was due to Oratec's
          failure to deliver promised quantities on time.

14. WARRANTY

    14.1  Oratec represents and warrants to DePuy that all Products supplied in
          connection with this Agreement shall be of merchantable quality, free
          from defects in material and workmanship and shall be manufactured and
          provided in accordance and conformity with the Specifications and in
          compliance with this Agreement.

    14.2  DePuy may return non-conforming and/or defective Products, including
          Products which malfunction or fail to operate, or bear a sterilization
          date at the time of

   ***    Confidential treatment requested.
<PAGE>

          receipt by DePuy that is more than sixty (60) days old, to Oratec.
          Oratec shall replace or repair such nonconforming and/or defective
          Products at no cost to DePuy or the customer.  Replacement of such
          non-conforming and/or defective Products includes payment of DePuy's
          reasonable shipping costs, both from and to Oratec.  Oratec shall
          replace or repair such non-conforming and/or defective Products
          promptly provided that the non-conformance or defect was caused by
          Oratec.  Oratec shall have no obligation to replace or repair Product
          adulterated, misused or repackaged by another party without the
          previous written approval of Oratec.

    14.3  NEITHER PARTY SHALL HAVE ANY LIABILITY TO EACH OTHER OR TO ANY THIRD
          PARTY FOR ANY PUNITIVE, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES
          ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, OR THE
          MANUFACTURE, SALE SUPPLY, DISTRIBUTION, MARKETING, ORDERING OR
          DELIVERY OF THE PRODUCTS, INCLUDING BY WAY OF EXAMPLE AND NOT BY WAY
          OF LIMITATION, ANY DAMAGES, EXPENSES OR LOSSES INCURRED BY REASON OF
          LOST REVENUES, LOST PROFITS, COSTS OF SUBSTITUTE PRODUCTS, AND ANY
          SIMILAR AND DISSIMILAR DAMAGES, EXPENSES OR LOSSES EVEN IF THAT PARTY
          HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, EXPENSES OR
          LOSSES.  NOTWITHSTANDING THE ABOVE, NOTHING IN THIS AGREEMENT SHALL BE
          CONSTRUED TO LIMIT EITHER OF THE PARTIES' LIABILITY FOR DAMAGES OR
          PERSONAL INJURIES, INCLUDING PROPERTY DAMAGE AND DEATH, SUFFERED BY
          ANY THIRD PARTY AS A RESULT OF ACTIONS OR OMISSIONS OF SUCH PARTY.

LEGAL RELATIONSHIP AND INDEMNIFICATION

    15.1  DePuy is an independent contractor and the relationship between Oratec
          and DePuy is that of Vendor and Vendee. Nothing herein is intended or
          shall be construed, either express or implied, to authorize either
          party to create or assume any liability or obligation of any kind for
          or on behalf of the other party. Neither party will be considered or
          will represent itself as the agent or legal representative of the
          other party for any purpose whatsoever.

    15.2  The parties hereto are each responsible for their own acts, alleged
          acts or omissions and respectively agree to protect, indemnify, defend
          and hold harmless each other and any affiliate from and against any
          and all claims, losses, demands and liabilities, including attorneys'
          fees and court costs, which may arise therefrom.

    15.3  Notwithstanding anything in this Agreement to the contrary, Oratec
          agrees to indemnify and hold harmless DePuy from any loss, claim or
          judgment, including reasonable costs and expenses of defending same,
          arising out of bodily injury,
<PAGE>

          property damage or any other damage or injury which is caused by any
          defect in the design, material, or manufacture of a Product, but
          excluding any oral or written statements or representations by DePuy
          or its distributors or employees concerning the Products inconsistent
          with Oratec's training or literature. Oratec shall have control of the
          defense of any litigation arising out of alleged defect in the design,
          material or manufacture of a Product and DePuy agrees to cooperate
          with Oratec in such defense.

    15.4  DePuy agrees to indemnify and hold harmless Oratec from any loss,
          claim or judgment, including reasonable costs and expenses of
          defending same, arising out of any bodily injury caused by any
          negligent or intentional misrepresentation concerning the Products by
          DePuy or its sales employees inconsistent with Oratec's training or
          literature, to the extent that Oratec is damaged due to such negligent
          or intentional misrepresentation.

    15.5  Should any person assert a claim against DePuy based on the alleged
          infringement of a patent or other protected intellectual property
          right related to a Product, Oratec agrees to indemnify and hold
          harmless DePuy from and against any and all losses, claims, or
          judgments, including reasonable costs and expenses of defending same,
          arising directly or indirectly from any such claims of infringement of
          patents or other protected intellectual property rights.

    15.6  Oratec has or will have prior to the sale of the Products by DePuy
          and will maintain at all times while this Agreement is in effect, a
          product liability insurance policy providing at least *** dollars
          (***) coverage per occurrence and *** dollars (***) aggregate
          coverage per policy year, which policy shall either name DePuy as
          insured or shall, by endorsement or otherwise, provide such coverage
          to DePuy for any claim arising out of the sale of any Product by
          DePuy. Oratec shall furnish DePuy with acceptable certificates
          evidencing such insurance coverage prior to the release of any
          Products for clinical studies or evaluation. Such insurance
          certificates shall contain a provision that a thirty (30) day
          advance written notice will be given to DePuy prior to any material
          change or cancellation of such insurance.

16. ASSIGNMENT AND SALE OF INTERESTS

    16.1  Neither party shall have the right to assign this Agreement without
          the other's prior written consent, except that either party may assign
          its obligations hereunder to an entity under common control with,
          controlled by or which controls the assigning party. Notwithstanding
          the foregoing, DePuy agrees that it will not assign its obligations
          hereunder to any such entity that competes with Oratec.

    16.2  In the event that Oratec should desire to sell all or any part of its
          interests

   ***    Confidential treatment requested.
<PAGE>

          in the Products or any one of them or a majority of or all of the
          stock and/or assets of Oratec, Oratec shall notify DePuy in writing of
          such desire.  DePuy will have thirty (30) days after receipt of such
          written notice to make an offer for such interests, stock or assets or
          any part thereof.  During such thirty (30) day period, Oratec will not
          sell any interests, stock or assets without seriously considering an
          offer from DePuy.  This thirty (30) day period does not constitute a
          right of first refusal but rather an equal opportunity to purchase
          such interests in the Products, a majority of Oratec's stock and/or
          assets.  The foregoing provision shall not apply if, at the time of
          such sale, Oratec's securities are publicly traded.

    16.3  If the sale of Oratec's interests in any Products and/or a majority
          of it stock and/or assets would result in this Agreement being
          assigned to a competitor of DePuy, DePuy may, at its sole option,
          continue under the terms of this Agreement for a period of *** after
          such assignment or sale.  If the sale of Oratec's interests in any
          Products and/or a majority of its stock and/or assets would result in
          this Agreement being assigned to a third party other than a competitor
          of DePuy, DePuy may, at its sole option, continue under the terms of
          this Agreement for a period of *** after such assignment or sale.
          Following the expiration of such *** or *** month period, the
          Agreement shall terminate.

17. CONFIDENTIALITY

    17.1  Each party will keep confidential and not disclose to any third party,
          without the prior written consent of the disclosing party, any
          information received from the other party, including, without
          limitation, the technology, capabilities, business plans, operations,
          and personnel of the other party (the "Confidential Information").
          Confidential Information shall not include: (a) information which is
          or later becomes generally available to the public by use, publication
          or the like, by a party other than the party receiving the
          Confidential Information pursuant to the Agreement; (b) is obtained by
          a party on a non-confidential basis from a third party; (c) is in the
          possession of the receiving party prior to its disclosure, as is
          evidenced by written record; or (d) is required by law to be
          disclosed. The obligation of this Section 17 shall continue for a
          period of three (3) years from the date of termination of this
          Agreement.

18. APPLICABLE LAW

    18.1  Any controversy or claim relating to this Agreement, or its breach, or
          to the relationship created by this Agreement, shall be resolved
          through legal proceedings initiated in the United States District
          Court for the Northern District of California. The laws of the State
          of California shall control as to all such matters. The parties waive
          the right to trial by jury, the right to seek or collect

   ***    Confidential treatment requested.
<PAGE>

          punitive or exemplary damages, and any claim of consequential damages.
          If any portion of this Agreement itself is contrary to law, or
          declared invalid or unenforceable by a court of competent
          jurisdiction, the remaining provisions shall remain valid and
          enforceable.  The parties shall consult and use reasonable efforts to
          agree upon a valid and enforceable provision as a reasonable
          substitute for such provision in the light of the intent of this
          Agreement.

19. TERMINATION OF AGREEMENT

    19.1  The initial term of this Agreement shall be five years from the date
          first written above.  Thereafter, this Agreement will renew for
          successive periods of one (1) year each.  This Agreement may be
          terminated during either the initial term or the renewal term in
          accord with the provisions of Sections 19.2, 19.3, 19.4 or 19.5.

    19.2  This Agreement will be automatically terminated if a party files a
          voluntary petition for bankruptcy or reorganization, is the subject of
          an involuntary petition for bankruptcy, has its affairs placed in the
          hands of a receiver, enters into a composition for the benefit of
          creditors, or is deemed insolvent by a court of competent
          jurisdiction.

    19.3  This Agreement may also be terminated if a party is in material breach
          of this Agreement provided the non-breaching party has provided at
          least forty-five (45) days prior written notice and such breach has
          not been cured within said forty-five (45) days.

    19.4  This Agreement may be terminated by DePuy upon 180 days' prior written
          notice to Oratec. Should DePuy provide such written notice of
          termination to Oratec, DePuy's distribution rights hereunder shall
          become non-exclusive during such 180 day period.

    19.5  This Agreement may also be terminated in accordance with the
          provisions of Article 11.3.

    19.6  This Agreement may be terminated by Oratec at the end of the initial
          term upon 180 days' prior written notice to DePuy, which termination
          shall take effect at the end of such 180 day period.

20  OBLIGATIONS UPON TERMINATION

    20.1  Upon termination or non-renewal of this Agreement by Oratec, DePuy
          will return all unsold saleable Products in its possession and will
          use commercially reasonable efforts to retrieve unsold saleable
          Products from its distributors. DePuy agrees not to market Oratec
          Products beyond *** days following

   ***    Confidential treatment requested.
<PAGE>

          termination of this Agreement.  Oratec will reimburse DePuy for such
          inventory in the following manner:

               Sealed, sterile disposable Product:  DePuy cost
               Unused generators and equipment:     DePuy cost
               Demo generators and equipment:       Not reimbursable

          Oratec will pay inventory-shipping costs unless DePuy
          initiates Agreement termination.

    20.2  In the event of termination, DePuy may, at its sole option, decide to
          make its customer listing available to Oratec.

21. COMPLETE AGREEMENT

    21.1  This Agreement constitutes the entire agreement between DePuy and
          Oratec. No modifications of this Agreement shall be binding on either
          party unless made in writing and signed by both parties, and this
          Agreement supersedes and cancels any and all previous contracts,
          arrangements or understandings that may have existed or may exist
          between the parties, whether written or verbal. There are no
          understandings, representations or warranties of any such kind,
          expressed or implied, that are not expressly set forth herein. The
          language of this Agreement shall for all purposes be construed as a
          whole, according to its fair meaning, not strictly for or against
          either party, and without regard to identity or status of any person
          who drafted all or any part of it.

22. NOTICES

    22.1  All notices required under this Agreement shall be sent registered
          mail, return receipt requested, or by other means of verified
          delivery, or by personal delivery, as follows:

          If to Oratec:          Oratec Interventions, Inc.
                                 3700 Haven Court
                                 Menlo Park, CA  94025
                                 Attn:  President

          If to DePuy:           DePuy AcroMed, Inc.
                                 3303 Carnegie Ave.
                                 Cleveland, OH  44115
                                 Attn:  President

          With a copy to:        DePuy AcroMed, Inc.
                                 325 Paramount Drive
                                 Raynham, MA  02767
                                 Attn:  President
<PAGE>

          Either party may change its address for notice purposes by notifying
          the other party of such change of address, such notice to be as
          required herein. Notice is effective when actually received by the
          addressee or when the addressee refuses delivery, or is sent by
          Registered Mail, Return Receipt Requested, on the fifteen (15th) day
          following deposit. If sent by facsimile, notice shall be deemed
          effective when sender receives confirmation of receipt.

23. MISCELLANEOUS

    23.1  Notwithstanding any other provision in this Agreement, the parties
          agree that Sections 4.1, 5.6, 5.7, 7.3, 8.6, 12, 14, 15, 16, 17, 18,
          19, and 20 shall survive the termination of this Agreement.

    23.2  DePuy may not customize, modify or have customized or modified any
          Product.  In the event that DePuy should receive a request from a
          customer or other party for a customized or modified Product, such
          request shall be forwarded to Oratec who will solely be responsible
          for response and/or customization or modification of the Product.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as
of the date and year first written.

Oratec Interventions, Inc.          DePuy AcroMed, Inc.

Date: March 30, 1999                Date:  April 1, 1999
     ------------------------             -----------------------
<PAGE>

Appendix A.

<TABLE>
<CAPTION>
Item Number                                                    Name / Description
----------------------------------------------   -----------------------------------------------

<S>                                              <C>
902002                                           SpineCATH Intradiscal Catheter
                                                 Flexible Intradiscal Catheter specifically
                                                 designed to provide precise hearing over a
                                                 broad intradiscal surface.  (IDET Procedure)

902003                                           ORAflex ElectroThermal Probe
                                                 Unique RF probe featuring a deflectable rip
                                                 for improved posterior access in thermal
                                                 endoscopic herniated disk treatment.

805017                                           ORA 50 S ElectroThermal Spine System Generator
                                                 Designed specifically for spinal procedures,
                                                 the ORA 50 S provides the needed RF output for
                                                 the SpineCATH and ORAflex products.  Includes
                                                 foot pedal and power cord.

902004                                           Needle Introducer (Box of 5)
                                                 For use with the SpineCATH Intradiscal
                                                 Catheter, the 17 gauge needle provides
                                                 minimally invasive access to the internal disc.

802004                                           Needle Bender
                                                 Instrument designed for contouring of the
                                                 Introducer Needle.

805016                                           ElectroThermal System Extension Cable
                                                 Featuring a universal 4 pin connector, the
                                                 Extension cable links either the ORAflex probe
                                                 or the Intradiscal Catheter to the generator.

805012/19                                        Indifferent Electrode Pad
                                                 Grounding pad for monopolar applications
                                                 (ORAflex).

805011/13                                        Indifferent Electrode Adapter
                                                 Plug adapter to facilitate attachment of
                                                 various indifferent electrodes.
</TABLE>
<PAGE>

DePuy Transfer Spine Products Pricing Schedule

<TABLE>
<CAPTION>
Initial Pricing                                        Transfer Price   Demo Price
----------------------------------------------------   --------------   ----------
<S>                                                    <C>              <C>

                  SpineCATH(TM)                         ***              ***

                    ORAflex(TM)                         ***              ***

             SpineCATH Needles                          ***              ***

                     (box of 5)

         Electro Thermal Spine                          ***              ***

                     Generator

                   Probe Cable                          ***              ***
</TABLE>

***  Confidential treatment requested.

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