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                                                                   EXHIBIT 10.2

                   AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION

            STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- NET

                (DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)

1.       BASIC PROVISIONS ("BASIC PROVISIONS").

         1.1      PARTIES: This Lease ("LEASE"), dated for reference purposes
only, April 23, 2002, is made by and between 6777 Nancy Ridge LLC, a California
Limited Liability Company ("LESSOR") and Anadys Pharmaceuticals ("LESSEE"),
(collectively the "PARTIES," or individually a "PARTY").

         1.2      PREMISES: That certain real property, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
and commonly known as 6777 Nancy Ridge Drive, located in the County of San
Diego, State of California, and generally described as (describe briefly the
nature of the property and, if applicable, the "PROJECT", if the property is
located within a Project) the entire building consisting of approximately 11,978
square feet ("PREMISES"). (See also Paragraph 2)

         1.3      TERM: 1 year and 6 months ("ORIGINAL TERM") commencing June 1,
2002 ("COMMENCEMENT DATE") and ending November 30, 2003 ("EXPIRATION DATE").
(See also Paragraph 3)

         1.4      EARLY POSSESSION: Upon mutual lease execution ("EARLY
POSSESSION DATE"). (See also Paragraphs 3.2 and 3.3)

         1.5      BASE RENT: $28,148.30 per month ("BASE RENT"), payable on the
1st day of each month commencing June 1, 2002. The base rent during months
thirteen (13) through eighteen (18) shall be $29,346.10. (See also Paragraph 4)

[X] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.

         1.6      BASE RENT AND OTHER MONIES PAID UPON EXECUTION:

                  (a)      BASE RENT: $28,148.30 for the period June 1, 2002
through June 30, 2002.

                  (b)      SECURITY DEPOSIT: $56,296.60 ("SECURITY DEPOSIT").
(See also Paragraph 5)

                  (c)      ASSOCIATION FEES: $N/A for the period N/A

                  (d)      OTHER:  $__________________ for _____________________
________________________________________________________.

                  (e)      TOTAL DUE UPON EXECUTION OF THIS LEASE: $84,444.90

         1.7      AGREED USE: research and development and office use; light
manufacturing and assembly. (See also Paragraph 6)

         1.8      INSURING PARTY: Lessor is the "INSURING PARTY" unless
otherwise stated herein. (See also Paragraph 8)

         1.9      REAL ESTATE BROKERS: (See also Paragraph 15)

                  (a)      REPRESENTATION: The following real estate brokers
(the "BROKERS") and brokerage relationships exist in this transaction (check
applicable boxes):

[X]  Phase 3 Properties represents Lessor exclusively ("LESSOR'S BROKER");

[X]  BRE Commercial / NAI represents Lessee exclusively ("LESSEE'S BROKER");

or [ ] _____________________________________________________________ represents
both Lessor and Lessee ("DUAL AGENCY").

                  (b)      PAYMENT TO BROKERS: Upon execution and delivery of
this Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in
their separate written agreement (or if there is no such agreement, the sum of
_____________ or 5% of the total Base Rent) for the brokerage services rendered
by the Brokers.

         1.10     GUARANTOR. The obligations of the Lessee under this Lease are
to be guaranteed by None ("GUARANTOR"). (See also Paragraph 37)

         1.11     ATTACHMENTS. Attached hereto are the following, all of which
constitute a part of this Lease:

[X]  an Addendum consisting of Paragraphs 51through 56;

[ ]  a plot plan depicting the Premises;

[ ]  a current set of the Rules and Regulations;

[ ]  a Work Letter;

[X]  other (specify): Exhibit A (Floorplan) and Exhibit B (Hazardous Materials
Warning and Disclaimer & Americans with Disabilities Act Disclosure)

                                       1.

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2.       PREMISES.

         2.1      LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all of
the terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease, or that may have
been used in calculating Rent, is an approximation which the Parties agree is
reasonable and any payments based thereon and not subject to revision whether or
not the actual size is more or less. NOTE: LESSEE IS ADVISED TO VERIFY THE
ACTUAL SIZE PRIOR TO EXECUTING THIS LEASE.

         2.2      CONDITION. Lessor shall deliver the Premises to Lessee broom
clean and free of debris on the Commencement Date or the Early Possession Date,
whichever first occurs ("START DATE"), and, so long as the required service
contracts described in Paragraph 7.1(b) below are obtained by Lessee and in
effect within thirty days following the Start Date, warrants that the existing
electrical, plumbing, fire, sprinkler, lighting, heating, ventilating and air
conditioning systems ("HVAC"), loading doors, sump pumps, if any, and all other
such elements in the Premises, other than those constructed by Lessee, shall be
in good operating condition on said date and that the structural elements of the
roof, bearing walls and foundation of any buildings on the Premises (the
"BUILDING) shall be free of material defects. If a non-compliance with said
warranty exists as of the Start Date, or if one of such systems or elements
should malfunction or fail within the appropriate warranty period, Lessor shall,
as Lessor's sole obligation with respect to such matter, except as otherwise
provided in this Lease, promptly after receipt of written notice from Lessee
setting forth with specificity the nature and extent of such non-compliance,
malfunction or failure, rectify same at Lessor's expense. The warranty periods
shall be as follows: (i) 6 months as to the HVAC systems, and (ii) 30 days as to
the remaining systems and other elements of the Building. If Lessee does not
give Lessor the required notice within the appropriate warranty period,
correction of any such non-compliance, malfunction or failure shall be the
obligation of Lessee at Lessee's sole cost and expense.

         2.3      COMPLIANCE. Lessor warrants that the improvements on the
Premises comply with the building codes, applicable laws, covenants or
restrictions of record, regulations, and ordinances ("APPLICABLE REQUIREMENTS")
that were in effect at the time that each improvement, or portion thereof, was
constructed. Said warranty does not apply to the use to which Lessee will put
the Premises, modifications which may be required by the Americans with
Disabilities Act or any similar laws as a result of Lessee's use (see Paragraph
50), or to any Alterations or Utility Installations (as defined in Paragraph
7.3(a)) made or to be made by Lessee. NOTE: LESSEE IS RESPONSIBLE FOR
DETERMINING WHETHER OR NOT THE APPLICABLE REQUIREMENTS, AND ESPECIALLY THE
ZONING, ARE APPROPRIATE FOR LESSEE'S INTENDED USE, AND ACKNOWLEDGES THAT PAST
USES OF THE PREMISES MAY NO LONGER BE ALLOWED. If the Premises do not comply
with said warranty, Lessor shall, except as otherwise provided, promptly after
receipt of written notice from Lessee setting forth with specificity the nature
and extent of such non-compliance, rectify the same at Lessor's expense. If
Lessee does not give Lessor written notice of a non-compliance with this
warranty within 6 months following the Start Date, correction of that
non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense. If the Applicable Requirements are hereafter changed so as to require
during the term of this Lease the construction of an addition to or an
alteration of the Premises and/or Building, the remediation of any Hazardous
Substance, or the reinforcement or other physical modification of the Unit,
Premises and/or Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall
allocate the cost of such work as follows:

                  (a)      Subject to Paragraph 2.3(c) below, if such Capital
Expenditures are required as a result of the specific and unique use of the
Premises by Lessee as compared with uses by tenants in general, Lessee shall be
fully responsible for the cost thereof, provided, however that if such Capital
Expenditure is required during the last 2 years of this Lease and the cost
thereof exceeds 6 months' Base Rent, Lessee may instead terminate this Lease
unless Lessor notifies Lessee, in writing, within 10 days after receipt of
Lessee's termination notice that Lessor has elected to pay the difference
between the actual cost thereof and an amount equal to 6 months' Base Rent. If
Lessee elects termination, Lessee shall immediately cease the use of the
Premises which requires such Capital Expenditure and deliver to Lessor written
notice specifying a termination date at least 90 days thereafter. Such
termination date shall, however, in no event be earlier than the last day that
Lessee could legally utilize the Premises without commencing such Capital
Expenditure.

                  (b)      If such Capital Expenditure is not the result of the
specific and unique use of the Premises by Lessee (such as, governmentally
mandated seismic modifications), then Lessor and Lessee shall allocate the
obligation to pay for such costs pursuant to the provisions of Paragraph 7.1(d);
provided, however, that if such Capital Expenditure is required during the last
2 years of this Lease or if Lessor reasonably determines that it is not
economically feasible to pay its share thereof, Lessor shall have the option to
terminate this Lease upon 90 days prior written notice to Lessee unless Lessee
notifies Lessor, in writing, within 10 days after receipt of Lessor's
termination notice that Lessee will pay for such Capital Expenditure. If Lessor
does not elect to terminate and fails to tender its share of any such Capital
Expenditure, Lessee may advance such funds and deduct same, with Interest, from
Rent until Lessor's share of such costs have been fully paid. If Lessee is
unable: to finance Lessor's share, or if the balance of the Rent due and payable
for the remainder of this Lease is not sufficient to fully reimburse Lessee on
an offset basis, Lessee shall have the right to terminate this Lease upon 30
days written notice to Lessor.

                  (c)      Notwithstanding the above, the provisions concerning
Capital Expenditures are intended to apply only to non-voluntary, unexpected,
and new Applicable Requirements. If the Capital Expenditures are instead
triggered by Lessee as a result of an actual or proposed change in use, change
in intensity of use, or modification to the Premises then, and in that event,
Lessee shall either: (i) immediately cease such changed use or intensity of use
and/or take such other steps as may be necessary to eliminate the requirement
for such Capital Expenditure, or (ii) complete such Capital Expenditure at its
own expense. Lessee shall not, however, have any right to terminate this Lease.

         2.4      ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been
advised by Lessor and/or Brokers to satisfy itself with respect to the condition
of the Premises (including but not limited to the electrical, HVAC and fire
sprinkler systems, security, environmental aspects, and compliance with
Applicable Requirements and the Americans with Disabilities Act), and their
suitability for Lessee's intended use, (b) Lessee has made such investigation as
it deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to its occupancy of the Premises, and (c) neither
Lessor, Lessor's agents, nor Brokers have made any oral or written
representations or warranties with respect to said matters other than as set
forth in this Lease. In addition, Lessor acknowledges that: (i) Brokers have
made no representations, promises or warranties concerning Lessee's ability to
honor the Lease or suitability to occupy the Premises, and (ii) it is Lessor's
sole responsibility to investigate the financial capability and/or suitability
of all proposed tenants.

3.       TERM.

         3.1      TERM. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.

         3.2      EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this Lease
(including but not limited to the obligations to pay Real Property Taxes and
insurance premiums and to

                                       2.

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maintain the Premises) shall, however, be in effect during such period. Any such
early possession shall not affect the Expiration Date.

         3.3      DELAY IN POSSESSION. Lessor agrees to use its best
commercially reasonable efforts to deliver possession of the Premises to Lessee
by the Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession by such date, Lessor shall not be subject to any liability therefor
nor shall such failure affect the validity of this Lease. Lessee shall not,
however, be obligated to pay Rent or perform its other obligations until Lessor
delivers possession of the Premises and any period of rent abatement that Lessee
would otherwise have enjoyed shall run from the date of delivery of possession
and continue for a period equal to what Lessee would otherwise have enjoyed
under the terms hereof, but minus any days of delay caused by the acts or
omissions of Lessee. If possession is not delivered within 60 days after the
Commencement Date, Lessee may, at its option, by notice in writing within 10
days after the end of such 60 day period, cancel this Lease, in which event the
Parties shall be discharged from all obligations hereunder. If such written
notice is not received by Lessor within said 10 day period, Lessee's right to
cancel shall terminate. If possession of the Premises is not delivered within
120 days after the Commencement Date, this Lease shall terminate unless other
agreements are reached between Lessor and Lessee, in writing.

         3.4      LESSEE COMPLIANCE. Lessor shall not be required to deliver
possession of the Premises to Lessee until Lessee complies with its obligation
to provide evidence of insurance (Paragraph 8.5). Pending delivery of such
evidence, Lessee shall be required to perform all of its obligations under this
Lease from and after the Start Date, including the payment of Rent,
notwithstanding Lessor's election to withhold possession pending receipt of such
evidence of insurance. Further, if Lessee is required to perform any other
conditions prior to or concurrent with the Start Date, the Start Date shall
occur but Lessor may elect to withhold possession until such conditions are
satisfied.

4.       RENT.

         4.1.     RENT DEFINED. All monetary obligations of Lessee to Lessor
under the terms of this Lease (except for the Security Deposit) are deemed to be
rent ("RENT").

         4.2      PAYMENT. Lessee shall cause payment of Rent to be received by
Lessor in lawful money of the United States on or before the day on which it is
due, without offset or deduction (except as specifically permitted in this
Lease). Rent for any period during the term hereof which is for less than one
full calendar month shall be prorated based upon the actual number of days of
said month. Payment of Rent shall be made to Lessor at its address stated herein
or to such other persons or place as Lessor may from time to time designate in
writing. Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessors rights to the balance of such Rent, regardless of
Lessor's endorsement of any check so stating. In the event that any check,
draft, or other instrument of payment given by Lessee to Lessor is dishonored
for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any
Late Charge and Lessor, at its option, may require all future payments to be
made by Lessee to be by cashier's check. Payments will be applied first to
accrued late charges and attorney's fees, second to accrued interest, then to
Base Rent and Operating Expense Increase, and any remaining amount to any other
outstanding charges or costs.

         4.3      ASSOCIATION FEES. In addition to the Base Rent, Lessee shall
pay to Lessor each month an amount equal to any owner's association or
condominium fees levied or assessed against the Premises. Said monies shall be
paid at the same time and in the same manner as the Base Rent.

5.       SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, Lessor may use, apply or retain all or any portion of said
Security Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, expense, loss or damage which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of the Security Deposit, Lessee shall within 10 days after written request
therefor deposit monies with Lessor sufficient to restore said Security Deposit
to the full amount required by this Lease. Should the Agreed Use be amended to
accommodate a material change in the business of Lessee or to accommodate a
sublessee or assignee, Lessor shall have the right to increase the Security
Deposit to the extent necessary, in Lessor's reasonable judgment, to account for
any increased wear and tear that the Premises may suffer as a result thereof.
Lessor shall not be required to keep the Security Deposit separate fro its
general accounts. Within 14 days after the expiration or termination of this
Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and
otherwise within 30 days after the Premises have been vacated pursuant to
Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit
not used or applied by Lessor. No part of the Security Deposit shall be
considered to be held in trust, to bear interest or to be prepayment for any
monies to be paid by Lessee under this Lease.

6.       USE.

         6.1      USE. Lessee shall use and occupy the Premises only for the
Agreed Use, or any other legal use which is reasonably comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs
occupants of or causes damage to neighboring premises or properties. Lessor
shall not unreasonably withhold or delay its consent to any written request for
a modification of the Agreed Use, so long as the same will not impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, and/or is not significantly more burdensome to the
Premises. If Lessor elects to withhold consent, Lessor shall within 7 days after
such request give written notification of same, which notice shall include an
explanation of Lessor's objections to the change in the Agreed Use.

         6.2      HAZARDOUS SUBSTANCES.

                  (a)      REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, or waste
whose presence, use, manufacture, disposal, transportation, or release, either
by itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substances shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, and/or crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in or on the Premises which
constitutes a Reportable Use of Hazardous Substances without the express prior
written consent of Lessor and timely compliance (at Lessee's expense) with all
Applicable Requirements. "REPORTABLE USE" shall mean (i) the installation or use
of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials

                                       3.

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reasonably required to be used in the normal course of the Agreed Use, ordinary
office supplies (copier toner, liquid paper, glue, etc.) and common household
cleaning materials, so long as such use is in compliance with all Applicable
Requirements, is not a Reportable Use, and does not expose the Premises or
neighboring property to any meaningful risk of contamination or damage or expose
Lessor to any liability therefor. In addition, Lessor may condition its consent
to any Reportable Use upon receiving such additional assurances as Lessor
reasonably deems necessary to protect itself, the public, the Premises and/or
the environment against damage, contamination, injury and/or liability,
including, but not limited to, the installation (and removal on or before Lease
expiration or termination) of protective modifications (such as concrete
encasements) and/or increasing the Security Deposit.

                  (b)      DUTY TO INFORM LESSOR. If Lessee knows, or has
reasonable cause to believe, that a Hazardous Substance has come to be located
in, on, under or about the Premises, other than as previously consented to by
Lessor, Lessee shall immediately give written notice of such fact to Lessor, and
provide Lessor with a copy of any report, notice, claim or other documentation
which it has concerning the presence of such Hazardous Substance.

                  (c)      LESSEE REMEDIATION. Lessee shall not cause or permit
any Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, comply with all Applicable Requirements and take
all investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of the Premises or neighboring
properties, that was caused or materially contributed to by Lessee, or
pertaining to or involving any Hazardous Substance brought onto the Premises
during the term of this Lease, by or for Lessee, or any third party.

                  (d)      LESSEE INDEMNIFICATION. Lessee shall indemnify,
defend and hold Lessor, its agents, employees, lenders and ground lessor, if
any, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, claims, expenses, penalties, and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee, or any third party (provided, however, that
Lessee shall have no liability under this Lease with respect to underground
migration of any Hazardous Substance under the Premises from adjacent properties
not caused or contributed to by Lessee). Lessee's obligations shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation, removal, remediation, restoration and/or abatement, and shall
survive the expiration or termination of this Lease. NO TERMINATION,
CANCELLATION OR RELEASE AGREEMENT ENTERED INTO BY LESSOR AND LESSEE SHALL
RELEASE LESSEE FROM ITS OBLIGATIONS UNDER THIS LEASE WITH RESPECT TO HAZARDOUS
SUBSTANCES, UNLESS SPECIFICALLY SO AGREED BY LESSOR IN WRITING AT THE TIME OF
SUCH AGREEMENT.

                  (e)      LESSOR INDEMNIFICATION. Lessor and its successors and
assigns shall indemnify, defend, reimburse and hold Lessee, its employees and
lenders, harmless from and against any and all environmental damages, including
the cost of remediation, which result from Hazardous Substances which existed on
the Premises prior to Lessee's occupancy or which are caused by the gross
negligence or willful misconduct of Lessor, its agents or employees. Lessor's
obligations, as and when required by the Applicable Requirements, shall include,
but not be limited to, the cost of investigation, removal, remediation,
restoration and/or abatement, and shall survive the expiration or termination of
this Lease.

                  (f)      INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain
the responsibility and pay for any investigations or remediation measures
required by governmental entities having jurisdiction with respect to the
existence of Hazardous Substances on the Premises prior to Lessee's occupancy,
unless such remediation measure is required as a result of Lessee's use
(including "Alterations", as defined in paragraph 7.3(a) below) of the Premises,
in which event Lessee shall be responsible for such payment. Lessee shall
cooperate fully in any such activities at the request of Lessor, including
allowing Lessor and Lessor's agents to have reasonable access to the Premises at
reasonable times in order to carry out Lessor's investigative and remedial
responsibilities.

         6.3      LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as
otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to the such Requirements, without regard to whether
such Requirements are now in effect or become effective after the Start Date.
Lessee shall, within 10 days after receipt of Lessor's written request, provide
Lessor with copies of all permits and other documents, and other information
evidencing Lessee's compliance with any Applicable Requirements specified by
Lessor, and shall immediately upon receipt, notify Lessor in writing (with
copies of any documents involved) of any threatened or actual claim, notice,
citation, warning, complaint or report pertaining to or involving the failure of
Lessee or the Premises to comply with any Applicable Requirements.

         6.4      INSPECTION; COMPLIANCE. Lessor and Lessor's "LENDER" (as
defined in Paragraph 30) and consultants shall have the right to enter into
Premises at any time, in the case of an emergency, and otherwise at reasonable
times after reasonable notice, for the purpose of inspecting the condition of
the Premises and for verifying compliance by Lessee with this Lease. The cost of
any such inspections shall be paid by Lessor, unless a violation of Applicable
Requirements or a Hazardous Substance Condition (see paragraph 9.1) is found to
exist or be imminent, or the inspection is requested or ordered by a
governmental authority. In such case, Lessee shall upon request reimburse Lessor
for the cost of such inspection, so long as such inspection is reasonably
related to the violation or contamination. In addition, Lessee shall provide
copies of all relevant material safety data sheets (MSDS) to Lessor within 10
days of the receipt of a written request therefor.

7.       MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.

         7.1      LESSEE'S OBLIGATIONS.

                  (a)      IN GENERAL. Subject to the provisions of Paragraph
2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises,
Utility Installations (intended for Lessee's exclusive use, no matter where
located), and Alternations in good order, condition and repair (whether or not
the portion of the Premises requiring repairs, or the means of repairing the
same, are reasonably or readily accessible to lessee, and whether or not the
need for such repairs occurs as a result of Lessee's use, any prior use, the
elements or the age of such portion of the Premises), including, but not limited
to, all equipment or facilities, such as plumbing, HVAC equipment, electrical,
lighting facilities, boilers, pressure vessels, fire protection system,
fixtures, walls (interior and exterior), foundations, ceilings, roofs, roof
drainage systems, floors, windows, doors, plate glass, skylights, landscaping,
driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways
located in, on, or adjacent to the Premises. Lessee, in keeping the Premises in
good order, condition and repair, shall exercise and perform good maintenance
practices, specifically including the procurement and maintenance of the service
contracts, required by Paragraph 7.1(b) below. Lessee's obligations shall
include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair. Lessor shall, during the term of this Lease, keep the
exterior appearance of the Building

                                       4.

<PAGE>

in a first-class condition (including, e.g. graffiti removal) consistent with
the exterior appearance of other similar facilities of comparable age and size
in the vicinity, including, when necessary, the exterior repainting of the
Building.

                  (b)      SERVICE CONTRACTS. Lessee shall, at Lessee's sole
expense, procure and maintain contracts, with copies to Lessor, in customary
form and substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements, if any, if and when
installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure
vessels, (iii) fire extinguishing systems, including fire alarm and/car smoke
detection, (iv) landscaping and irrigation systems, (v) roof covering and
drains, (vi) clarifiers (vii) basic utility feed to the perimeter of the
Building, and (viii) any other equipment, if reasonably required by Lessor.
However, Lessor reserves the right, upon notice to Lessee, to procure and
maintain any or all of such service contracts, and if Lessor so elects. Lessee
shall reimburse Lessor, upon demand, for the cost thereof.

                  (c)      FAILURE TO PERFORM. If Lessee fails to perform
Lessee's obligations under this Paragraph 7.1, Lessor may enter upon the
Premises after 10 days' prior written notice to Lessee (except in the case of an
emergency, in which case no notice shall be required), perform such obligations
on Lessee's behalf, and put the Premises in good order, condition and repair,
and Lessee shall promptly pay to Lessor a sum equal to 103% of the cost thereof.

                  (d)      REPLACEMENT. Subject to Lessee's indemnification of
Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of
liability resulting from Lessee's failure to exercise and perform good
maintenance practices, if an item described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of replacing
such item, then such item shall be replaced by Lessor, and the cost thereof
shall be prorated between the Parties and Lessee shall only be obligated to pay,
each month during the remainder of the term of this Lease, on the date on which
Base Rent is due, an amount equal to the product of multiplying the cost of such
replacement by a fraction, the numerator of which is one, and the denominator of
which is 144 (ie. 1/144th of the cost per month). Lessee shall pay interest on
the unamortized balance at a rate that is commercially reasonable in the
judgment of Lessor's accountants. Lessee may, however, prepay its obligation at
any time.

         7.2      LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs
2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14
(Condemnation), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, or
the equipment therein, all of which obligations are intended to be that of the
Lessee. It is the intention of the Parties that the terms of this Lease govern
the respective obligations of the Parties as to maintenance and repair of the
Premises, and they expressly waive the benefit of any statute now or hereafter
in effect to the extent it is inconsistent with the terms of this Lease.

         7.3      UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.

                  (a)      DEFINITIONS. The term "UTILITY INSTALLATIONS" refers
to all floor and window coverings, air and/or vacuum lines, power panels,
electrical distribution, security and fire protection systems, communication
cabling, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the
Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment
that can be removed without doing material damage to the Premises. The term
"ALTERATIONS" shall mean any modification of the improvements, other than
Utility Installations or Trade Fixtures, whether by addition or deletion.
"LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a).

                  (b)      CONSENT. Lessee shall not make any Alterations or
Utility Installations to the Premises without Lessor's prior written consent
which consent Shall not be unreasonably withheld. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof) without such consent but upon notice to Lessor, as long as they are
not visible from the outside, do not involve puncturing, relocating or removing
the roof or any existing walls, will not affect the electrical, plumbing, HVAC,
and/or life safety systems, and the cumulative cost thereof during this Lease as
extended does not exceed a sum equal to 3 month's Base Rent in the aggregate or
a sum equal to one month's Base Rent in any one year. Notwithstanding the
foregoing, Lessee shall not make or permit any roof penetrations and/or install
anything on the roof without the prior written approval of Lessor. Lessor may,
as a precondition to granting such approval, require Lessee to utilize a
contractor chosen and/or approved by Lessor. Any Alterations or Utility
Installations that Lessee shall desire to make and which require the consent of
the Lessor shall be presented to Lessor in written form with detailed plans.
Consent shall be deemed conditioned upon Lessee's: (i) acquiring all applicable
governmental permits, (ii) furnishing Lessor with copies of both the permits and
the plans and specifications prior to commencement of the work, and (iii)
compliance with all conditions of said permits and other Applicable Requirements
in a prompt and expeditious manner. Any Alterations or Utility Installations
shall be performed in a workmanlike manner with good and sufficient materials.
Lessee shall promptly upon completion furnish Lessor with as-built plans and
specifications.

                  (c)      LIENS; BONDS. Lessee shall pay, when due, all claims
for labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than 10 days notice prior to the commencement
of any work in, on or about the Premises, and Lessor shall have the right to
post notices of non-responsibility. If Lessee shall contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond
in an amount equal to 150% of the amount of such contested lien, claim or
demand, indemnifying Lessor against liability for the same. If Lessor elects to
participate in any such action, Lessee shall pay Lessor's reasonable attorneys'
fees and costs.

         7.4      OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.

                  (a)      OWNERSHIP. Subject to Lessor's right to require
removal or elect ownership as hereinafter provided, all Alterations and Utility
Installations made by Lessee shall be the property of Lessee, but considered a
part of the Premises. Lessor may, at any time, elect in writing to be the owner
of ail or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per paragraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
termination of this Lease, become the property of Lessor and be surrendered by
Lessee with the Premises.

                  (b)      REMOVAL. By delivery to Lessee of written notice from
Lessor not earlier than 90 and not later than 30 days prior to the end of the
term of this Lease, Lessor may require that any or all Lessee Owned Alterations
or Utility Installations be removed by the expiration or termination of this
Lease. Lessor may require the removal at any time of all or any part of any
Lessee Owned Alterations or Utility Installations made without the required
consent.

                  (c)      SURRENDER; RESTORATION. Lessee shall surrender the
Premises by the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom clean and free of debris, and in
good operating order, condition and stale of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any, damage or
deterioration that would have been prevented by good maintenance practice.
Notwithstanding the foregoing, if this Lease is for 12 months or less, then
Lessee shall surrender the Premises in the same condition as delivered to Lessee
on the Start Date with NO allowance for ordinary wear and tear. Lessee shall
repair any damage occasioned by the installation, maintenance or removal of
Trade Fixtures, Lessee owned

                                       5.

<PAGE>

Alterations and/or Utility Installations, furnishings, and equipment as well as
the removal of any storage tank installed by or for Lessee. Lessee shall
completely remove from the Premises any and all Hazardous Substances brought
onto the Premises by or for Lessee, or any third party (except Hazardous
Substances which were deposited via underground migration from areas outside of
the Premises, or if applicable, the Project) even if such removal would require
Lessee to perform or pay for work that exceeds statutory requirements. Trade
Fixtures shall remain the property of Lessee and shall be removed by Lessee. Any
personal property of Lessee not removed on or before the Expiration Date or any
earlier termination date shall be deemed to have been abandoned by Lessee and
may be disposed of or retained by Lessor as Lessor may desire. The failure by
Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without
the express written consent of Lessor shall constitute a holdover under the
provisions of Paragraph 26 below.

8.       INSURANCE; INDEMNITY.

         8.1      PAYMENT FOR INSURANCE. Lessee shall pay for all insurance
required under Paragraph 8 except to the extent of the cost attributable
liability insurance carried by Lessor under Paragraph 8.2(b) in excess of
$2,000,000 per occurrence. Premiums for policy periods commencing prior to or
extending beyond the Lease term shall be prorated to correspond to the Lease
term. Payment shall be made by Lessee to Lessor within 10 days following receipt
of an invoice.

         8.2      LIABILITY INSURANCE.

                  (a)      CARRIED BY LESSEE. Lessee shall obtain and keep in
force a Commercial General Liability policy of insurance protecting Lessee and
Lessor as an additional insured against claims for bodily injury, personal
injury and property damage based upon or arising out of the ownership, use,
occupancy or maintenance of the Premises and all areas appurtenant thereto. Such
insurance shall be on an occurrence basis providing single limit coverage in an
amount not less than $1,000,000 per occurrence with an annual aggregate of not
less than $2,000,000, an "Additional Insured-Managers or Lessors of Premises
Endorsement" and contained in the Amendment of the Pollution Exclusion
Endorsement" for damage caused by heat, smoke or fumes from a hostile fire. The
policy shall not contain any intra-insured exclusions as between insured persons
or organizations, but shall include coverage for liability assumed under this
Lease as an "insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance shall not, however,
limit the liability of Lessee nor relieve Lessee of any obligation hereunder.
All insurance carried by Lessee shall be primary to and not contributory with
any similar insurance carried by Lessor, whose insurance shall be considered
excess insurance only.

                  (b)      CARRIED BY LESSOR. Lessor shall maintain liability
insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of,
the insurance required to be maintained by Lessee. Lessee shall not be named as
an additional insured therein.

         8.3      PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.

                  (a)      BUILDING AND IMPROVEMENTS. The Insuring Party shall
obtain and keep in force a policy or policies in the name of Lessor, with loss
payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage
to the Premises other than for Losses to Lessee owned Alterations, utility
installations and Trade Fixtures. The amount of such insurance shall be equal to
the full replacement cost of the Premises, as the same shall exist from time to
time, or the amount required by any Lender, but in no event more than the
commercially reasonable and available insurable value thereof. If Lessor is the
Insuring Party, however, Lessee Owned Alterations and Utility Installations,
Trade Fixtures, and Lessee's personal property shall be insured by Lessee under
Paragraph 8.4 rather than by Lessor. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake,
including coverage for debris removal and the enforcement of any Applicable
Requirements requiring the upgrading, demolition, reconstruction or replacement
of any portion of the Premises as the result of a covered loss. Said policy or
policies shall also contain an agreed valuation provision in lieu of any
coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located. If
such insurance coverage has a deductible clause, the deductible amount shall not
exceed $1,000 per occurrence, and Lessee shall be liable for such deductible
amount in the event of an Insured Loss.

                  (b)      RENTAL VALUE. The Insuring Party shall obtain and
keep in force a policy or policies in the name of Lessor with loss payable to
Lessor and any Lender, insuring the loss of the full Rent for one year with an
extended period of indemnity for an additional 180 days ("Rental Value
insurance"). Said insurance shall contain an agreed valuation provision in lieu
of any coinsurance clause, and the amount of coverage shall be adjusted annually
to reflect the projected Rent otherwise payable by Lessee, for the next 12 month
period.

                  (c)      ADJACENT PREMISES. If the Premises are part of a
larger building, or of a group of buildings owned by Lessor which are adjacent
to the Premises, the Lessee shall pay for any increase in the premiums for the
property insurance of such building or buildings if said increase is caused by
Lessee's acts, omissions, use or occupancy of the Premises.

         8.4      LESSEE'S PROPERTY; BUSINESS INTERRUPTION INSURANCE.

                  (a)      PROPERTY DAMAGE. Lessee shall obtain and maintain
insurance coverage on all of Lessee's personal property. Trade Fixtures, and
Lessee Owned Alterations and Utility Installations. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property, Trade Fixtures and Lessee Owned Alterations
and Utility Installations. Lessee shall provide Lessor with written evidence
that such insurance is in force.

                  (b)      BUSINESS INTERRUPTION. Lessee shall obtain and
maintain loss of income and extra expense insurance in amounts as will reimburse
Lessee for direct or indirect loss of earnings attributable to all perils
commonly insured against by prudent lessees in the business of Lessee or
attributable to prevention of access to the Premises as a result of such perils.

                  (c)      NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes
no representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.

         8.5      INSURANCE POLICIES. Insurance required herein shall be by
companies duly licensed or admitted to transact business in the state where the
Premises are located, and maintaining during the policy term a "General
Policyholders Rating" of at least B+, V, as set forth in the most current issue
of "Best's Insurance Guide", or such other rating as may be required by a
Lender. Lessee shall not do or permit to be done anything which invalidates the
required insurance policies. Lessee shall, prior to the Start Date, deliver to
Lessor certified copies of policies of such insurance or certificates evidencing
the existence and amounts of the required insurance. No such policy shall be
cancelable or subject to modification except after 30 days prior written notice
to Lessor. Lessee shall, at least 30 days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand. Such policies shall be for a term of at least one year, or

                                       6.

<PAGE>

the length of the remaining term of this Lease, whichever is less. If either
Party shall fail to procure and maintain the insurance required to be carried by
it, the other Party may, but shall not be required to, procure and maintain the
same.

         8.6      WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages against the other, for loss of or damage
to its property arising out of or incident to the perils required to be insured
against herein. The effect of such releases and waivers is not limited by the
amount of insurance carried or required, or by any deductibles applicable
hereto. The Parties agree to have their respective property damage insurance
carriers waive any right to subrogation that such companies may have against
Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.

         8.7      INDEMNITY. Except for Lessor's gross negligence or willful
misconduct, Lessee shall indemnify, protect, defend and hold harmless the
Premises. Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or
liabilities arising out of, involving, or in connection with, the use and/or
occupancy of the Premises by Lessee. If any action or proceeding is brought
against Lessor by reason of any of the foregoing matters, Lessee shall upon
notice defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be defended or indemnified.

         8.8      EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable
for injury or damage to the person or goods, wares, merchandise or other
property of Lessee. Lessee's employees, contractors, invitees, customers, or any
other person in or about the Premises, whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing. HVAC or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of Lessor nor from
the failure of Lessor to enforce the provisions of any other lease in the
Project. Notwithstanding Lessor's negligence or breach of this Lease, Lessor
shall under no circumstances be liable for injury to Lessee's business or for
any loss of income or profit therefrom.

         8.9      FAILURE TO PROVIDE INSURANCE. Lessee acknowledges that any
failure on its part to obtain or maintain the insurance required herein will
expose Lessor to risks and potentially cause Lessor to incur costs not
contemplated by this Lease, the extent of which will be extremely difficult to
ascertain. Accordingly, for any month or portion thereof that Lessee does not
maintain the required insurance and/or does not provide Lessor with the required
binders or certificates evidencing the existence of the required insurance, the
Base Rent shall be automatically increased, without any requirement for notice
to Lessee, by an amount equal to 10% of the then existing Base Rent or $100,
whichever is greater. The parties agree that such increase in Base Rent
represents fair and reasonable compensation for the additional risk/ costs that
Lessor will incur by reason of Lessee's failure to maintain the required
insurance. Such increase in Base Rent shall in no event constitute a waiver of
Lessee's Default or Breach with respect to the failure to maintain such
insurance, prevent the exercise of any of the other rights and remedies granted
hereunder, nor relieve Lessee of its obligation to maintain the insurance
specified in this Lease.

9.       DAMAGE OR DESTRUCTION.

                  (a)      "PREMISES PARTIAL DAMAGE" shall mean damage or
destruction to the improvements on the Premises, other than Lessee Owned
Alterations and Utility Installations, which can reasonably be repaired in 6
months or less from the date of the damage or destruction. Lessor shall notify
Lessee in writing within 30 days from the date of the damage or destruction as
to whether or not the damage is Partial or Total.

                  (b)      "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which cannot reasonably be repaired in 6
months or less from the date of the damage or destruction. Lessor shall notify
Lessee in writing within 30 days from the date of the damage or destruction as
to whether or not the damage is Partial or Total.

                  (c)      "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which was caused by an event required to be
covered by the insurance described in Paragraph 8.3(a), irrespective of any
deductible amounts or coverage limits involved.

                  (d)      "REPLACEMENT COST" shall mean the cost to repair or
rebuild the improvements owned by Lessor at the times of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of Applicable Requirements, and
without deduction for depreciation.

                  (e)      "HAZARDOUS SUBSTANCE CONDITION" SHALL mean the
occurrence or discovery of a condition involving the presence of, or a
contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on,
or under the Premises which requires repair, remediation, or restoration.

         9.2      PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect; provided, however, that Lessee shall, as
Lessor's election, make the repair of any damage or destruction the total cost
to repair of which is $10,000, or less, and, in such event, Lessor shall make
any applicable insurance proceeds available to Lessee on a reasonable basis for
that purpose. Notwithstanding the foregoing, if the required insurance was not
in force or the insurance proceeds are not sufficient to effect such repair, the
Insuring Party shall promptly contribute the shortage in proceeds as and when
required to complete said repairs. In the event, however, such shortage was due
to the fact that, by reason of the unique nature of the improvements, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within 10 days following receipt of written notice of such shortage and request
therefor. If Lessor receives said funds or adequate assurance thereof within
said 10 day period, the party responsible for making the repairs shall complete
them as soon as reasonably possible and this Lease shall remain in full force
and effect. If such funds or assurance are not received, Lessor may nevertheless
elect by written notice to Lessee within 10 days thereafter to: (i) make such
restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect, or (ii) have this Lease terminate 30 days thereafter. Lessee shall not
be entitled to reimbursement of any funds contributed by Lessee to repair any
such damage or destruction. Premises Partial Damage due to flood or earthquake
shall be subject to Paragraph 9.3, notwithstanding that there may be some
insurance coverage, but the net proceeds of any such insurance shall be made
available for the repairs if made by either Party.

         9.3      PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage
that is not an Insured Loss occurs, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at

                                       7.

<PAGE>

Lessee's expense If not covered by insurance), Lessor may either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) terminate this Lease
by giving written notice to Lessee within 30 days after receipt by Lessor of
knowledge of the occurrence of such damage. Such termination shall be effective
60 days following the date of such damage In the event Lessor elects to
terminate this Lease, Lessee shall have the right within 10 days after receipt
of the termination notice to give written notice to Lessor of Lessee's
commitment to pay for the repair of such damage without reimbursement from
Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance
thereof within 30 days after making such commitment. In such event this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
repairs as soon as reasonably possible after the required funds are available.
If Lessee does not make the required commitment, this Lease shall terminate as
of the date specified in the termination notice.

         9.4      TOTAL DESTRUCTION. Notwithstanding any other provision hereof,
if a Premises Total Destruction occurs, this Lease shall terminate on the date
of such Destruction. If the damage or destruction was caused by the gross
negligence or willful misconduct of Lessee. Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.

         9.5      DAMAGE NEAR END OF TERM. If at any time during the last 6
months of this Lease there is damage for which the cost to repair exceeds one
month's Base Rent, whether or not an Insured Loss, Lessor may terminate this
Lease effective 60 days following the date of occurrence of such damage by
giving a written termination notice to Lessee within 30 days after the date of
occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time
has an exercisable option to extend this Lease or to purchase the Premises, then
Lessee may preserve this Lease by, (a) exercising such option and (b) providing
Lessor with any shortage in insurance proceeds (or adequate assurance thereof)
needed to make the repairs on or before the earlier of (i) the date which is 10
days after Lessee's receipt of Lessor's written notice purporting to terminate
this Lease, or (ii) the day prior to the date upon which such option expires. If
Lessee duly exercises such option during such period and provides Lessor with
funds (or adequate assurance thereof) to cover any shortage in insurance
proceeds. Lessor shall, at Lessor's commercially reasonable expense, repair such
damage as soon as reasonably possible and this Lease shall continue in full
force and effect. If Lessee fails to exercise such option and provide such funds
or assurance during such period, then this Lease shall terminate on the date
specified in the termination notice and Lessee's option shall be extinguished.

         9.6      ABATEMENT OF RENT; LESSEE'S REMEDIES.

                  (a)      ABATEMENT. In the event of Premises Partial Damage or
Premises Total Destruction or a Hazardous Substance Condition for which Lessee
is not responsible under this Lease, the Rent payable by Lessee for the period
required for the repair, remediation or restoration of such damage shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired, but not to exceed the proceeds received from the Rental Value
insurance. All other obligations of Lessee hereunder shall be performed by
Lessee, and Lessor shall have no liability for any such damage, destruction,
remediation, repair or restoration except as provided herein.

                  (b)      REMEDIES. If Lessor shall be obligated to repair or
restore the Premises and does not commence, in a substantial and meaningful way,
such repair or restoration within 90 days after such obligation shall accrue,
Lessee may, at any time prior to the commencement of such repair or restoration,
give written notice to Lessor and to any Lenders of which Lessee has actual
notice, of Lessee's election to terminate this Lease on a date not less than 60
days following the giving of such notice. If Lessee gives such notice and such
repair or restoration is not commenced within 30 days thereafter, this Lease
shall terminate as of the date specified in said notice. If the repair or
restoration is commenced within such 30 days, this Lease shall continue in full
force and effect. "Commence" shall mean either the unconditional authorization
of the preparation of the required plans, or the beginning of the actual work on
the Premises, whichever first occurs.

         9.7      TERMINATION; ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by Lessee
to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by Lessor.

         9.8      WAIVE STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.

10.      REAL PROPERTY TAXES.

         10.1     DEFINITION. EAs used herein, the term "REAL PROPERTY TAXES"
shall include any form of assessment; real estate, general, special, ordinary or
extraordinary, or rental levy or tax (other than inheritance, personal income or
estate taxes); improvement bond; and/or license fee imposed upon or levied
against any legal or equitable interest of Lessor in the Premises or the
Project, Lessor's right to other income therefrom, and/or Lessor's business of
leasing, by any authority having the direct or indirect power to tax and where
the funds are generated with reference to the Building address and where the
proceeds so generated are to be applied by the city, county or other local
taxing authority of a jurisdiction within which the Premises are located. Real
Property Taxes shall also include any tax, fee, levy, assessment or charge, or
any increase therein: (i) imposed by reason of events occurring during the term
of this Lease, including but not limited to, a change in the ownership of the
Premises, and (ii) levied or assessed on machinery or equipment provided by
Lessor to Lessee pursuant to this Lease.

         10.2     PAYMENT OF TAXES. In addition to Base Rent, Lessee shall pay
to Lessor an amount equal to the Real Property Tax installment due at least 20
days prior to the applicable delinquency date. If any such installment shall
cover any period of time prior to or after the expiration or termination of this
Lease. Lessee's share of such installment shall be prorated. In the event Lessee
incurs a late charge on any Rent payment, Lessor may estimate the current Real
Property Taxes, and require that such taxes be paid in advance to Lessor by
Lessee monthly in advance with the payment of the Base Rent. Such monthly
payments shall be an amount equal to the amount of the estimated installment of
taxes divided by the number of months remaining before the month in which said
installment becomes delinquent. When the actual amount of the applicable tax
bill is known, the amount of such equal monthly advance payments shall be
adjusted as required to provide the funds needed to pay the applicable taxes. If
the amount collected by Lessor is insufficient to pay such Real Property Taxes
when due. Lessee shall pay Lessor, upon demand, such additional sum as is
necessary. Advance payments may be intermingled with other moneys of Lessor and
shall not bear interest. In the event of a Breach by Lessee in the performance
of its obligations under this Lease, then any such advance payments may be
treated by Lessor as an additional Security Deposit.

         10.3     JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be conclusively determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available.

         10.4     PERSONAL PROPERTY TAXES. Lessee shall pay, prior to
delinquency, all taxes assessed against and levied upon Lessee Owned
Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and
all personal property of Lessee. When possible, Lessee shall cause its Lessee
Owned Alterations and Utility Installations, Trade Fixtures, furnishings,
equipment and all other personal property to be assessed and billed separately
from the real

                                       8.

<PAGE>

property of Lessor. If any of Lessee's said property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee's property within 10 days after receipt of a written statement setting
forth the taxes applicable to Lessee's property.

11.      UTILITIES AND SERVICES. Lessee shall pay for all water, gas, heat,
light, power, telephone, trash disposal and other utilities and services
supplied to the Premises, together with any taxes thereon. If any such services
are not separately metered or billed to Lessee, Lessee shall pay a reasonable
proportion, to be determined by Lessor, of all charges jointly metered or
billed. There shall be no abatement of rent and Lessor shall not be liable in
any respect whatsoever for the inadequacy, stoppage, interruption or
discontinuance of any utility or service due to riot, strike, labor dispute,
breakdown, accident, repair or other cause beyond Lessor's reasonable control or
in cooperation with governmental request or directions.

12.      ASSIGNMENT AND SUBLETTING.

         12.1     LESSOR'S CONSENT REQUIRED.

                  (a)      Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent.

                  (c)      The involvement of Lessee or its assets in any
transaction, or series of transactions (by way of merger, sale, acquisition,
financing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee by an amount
greater than 25% of such Net Worth as it was represented at the time of the
execution of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, whichever was or is greater, shall be
considered an assignment of this Lease to which Lessor may withhold its consent.
"NET WORTH OF LESSEE" shall mean the net worth of Lessee (excluding any
guarantors) established under generally accepted accounting principles.

                  (d)      An assignment or subletting without consent shall, at
Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a
noncurable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unapproved assignment or subletting as a noncurable
Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days
written notice, increase the monthly Base Rent to 110% of the Base Rent then in
effect. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to 110% of the price previously in effect, and
(ii) all fixed and non-fixed rental adjustments scheduled during the remainder
of the Lease term shall be increased to 110% of the scheduled adjusted rent.

                  (e)      Lessee's remedy for any breach of Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.

         12.2     TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.

                  (a)      Regardless of Lessor's consent, no assignment or
subletting shall: (i) be effective without the express written assumption by
such assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any other
obligations to be performed by Lessee.

                  (b)      Lessor may accept Rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of Rent or performance shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for Lessee's Default or Breach.

                  (c)      Lessor's consent to any assignment or subletting
shall not constitute a consent to any subsequent assignment or subletting.

                  (d)      In the event of any Default or Breach by Lessee,
Lessor may proceed directly against Lessee, any Guarantors or anyone else
responsible for the performance of Lessee's obligations under this Lease,
including any assignee or sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.

                  (e)      Each request for consent to an assignment or
subletting shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any,
together with a fee of $500 as consideration for Lessor's considering and
processing said request. Lessee agrees to provide Lessor with such other or
additional information and/or documentation as may be reasonably requested. (See
also Paragraph 36)

                  (f)      Any assignee of, or sublessee under, this Lease
shall, by reason of accepting such assignment or entering into such sublease, be
deemed to have assumed and agreed to conform and comply with each and every
term, covenant, condition and obligation herein to be observed or performed by
Lessee during the term of said assignment or sublease, other than such
obligations as are contrary to or inconsistent with provisions of an assignment
or sublease to which Lessor has specifically consented to in writing.

                  (g)      Lessor's consent to any assignment or subletting
shall not transfer to the assignee or sublessee any Option granted to the
original Lessee by this Lease unless such transfer is specifically consented to
by Lessor in writing. (See Paragraph 39.2)

         12.3     ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:

                  (a)      Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all Rent payable on any sublease, and Lessor may collect
such Rent and apply same toward Lessee's obligations under this Lease; provided,
however, that until a Breach shall occur in the performance of Lessee's
obligations. Lessee may collect said Rent. In the event that the amount
collected by Lessor exceeds Lessee's obligations any such excess shall be
refunded to Lessee. Lessor shall not, by reason of the foregoing or any
assignment of such sublease, nor by reason of the collection of Rent, be deemed
liable to the sublessee for any failure of Lessee to perform and comply with any
of Lessee's obligations to such sublessee. Lessee hereby irrevocably authorizes
and directs any such sublessee, upon receipt of a written notice from Lessor
stating that a Breach exists in the performance of Lessee's obligations under
this Lease, to pay to Lessor all Rent due and to become due under the sublease.
Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to
Lessor without any obligation or right to inquire as to whether such Breach
exists, notwithstanding any claim from Lessee to the contrary.

                  (b)      In the event of a Breach by Lessee, Lessor may, at
its option, require sublessee to attorn to Lessor, in which event Lessor shall
undertake the obligations of the sublessor under such sublease from the time of
the exercise of said option to the expiration of such sublease; provided,
however, Lessor shall not be liable for any

                                       9.

<PAGE>

prepaid rents or security deposit paid by such sublessee to such sublessor or
for any prior Defaults or Breaches of such sublessor.

                  (c)      Any matter requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor.

                  (d)      No sublessee shall further assign or sublet all or
any part of the Premises without Lessor's prior written consent.

                  (e)      Lessor shall deliver a copy of any notice of Default
or Breach by Lessee to the sublessee, who shall have the right to cure the
Default of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.

13.      DEFAULT; BREACH; REMEDIES.

         13.1     DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the
Lessee to comply with or perform any of the terms, covenants, conditions or
Rules and Regulations under this Lease. A "BREACH" is defined as the occurrence
of one or more of the following Defaults, and the failure of Lessee to cure such
Default within any applicable grace period:

                  (a)      The abandonment of the Premises; or the vacating of
the Premises without providing a commercially reasonable level of security, or
where the coverage of the property insurance described in Paragraph 8.3 is
jeopardized as a result thereof, or without providing reasonable assurances to
minimize potential vandalism.

                  (b)      The failure of Lessee to make any payment of Rent or
any Security Deposit required to be made by Lessee hereunder, whether to Lessor
or to a third party, when due, to provide reasonable evidence of insurance or
surety bond, or to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of 3
business days following written notice to Lessee.

                  (c)      The failure by Lessee to provide (i) reasonable
written evidence of compliance with Applicable Requirements, (ii) the service
contracts, (iii) the rescission of an unauthorized assignment or subletting,
(iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence
concerning any guaranty and/or Guarantor, (vii) any document requested under
Paragraph 42, (viii) material safety data sheets (MSDS), or (ix) any other
documentation or information which Lessor may reasonably require of Lessee under
the terms of this Lease, where any such failure continues for a period of 10
days following written notice to Lessee.

                  (d)      A Default by Lessee as to the terms, covenants,
conditions or provisions of this Lease, or of the rules adopted under Paragraph
40 hereof, other than those described in subparagraphs 13.1(a), (b) or (c),
above, where such Default continues for a period of 30 days after written
notice; provided, however, that if the nature of Lessee's Default is such that
more than 30 days are reasonably required for its cure, then it shall not be
deemed to be a Breach if Lessee commences such cure within said 30 day period
and thereafter diligently prosecutes such cure to completion.

                  (e)      The occurrence of any of the following events: (i)
the making of any general arrangement or assignment for the benefit of
creditors; (ii) becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within 60 days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within 30 days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within 30 days; provided, however, in the event that any provision of
this subparagraph (e) is contrary to any applicable law, such provision shall be
of no force or effect, and not affect the validity of the remaining provisions.

                  (f)      The discovery that any financial statement of Lessee
or of any Guarantor given to Lessor was materially false.

                  (g)      If the performance of Lessee's obligations under this
Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory basis. And Lessee's failure, within 60 days following written
notice of any such event, to provide written alternative assurance or security,
which, when coupled with the then existing resources of Lessee, equals or
exceeds the combined financial resources of Lessee and the Guarantors that
existed at the time of execution of this Lease.

         13.2     REMEDIES. If Lessee fails to perform any of its affirmative
duties or obligations, within 10 days after written notice (or in case of an
emergency, without notice), Lessor may, at its option, perform such duty or
obligation on Lessee's behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental licenses, permits
or approvals. Lessee shall pay to Lessor an amount equal to 115% of the costs
and expenses incurred by Lessor in such performance upon receipt of an invoice
therefore. In the event of a Breach, Lessor may, with or without further notice
or demand, and without limiting Lessor in the exercise of any right or remedy
which Lessor may have by reason of such Breach:

                  (a)      Terminate Lessee's right to possession of the
Premises by any lawful means, in which case this Lease shall terminate and
Lessee shall immediately surrender possession to Lessor. In such event Lessor
shall be entitled to recover from Lessee: (i) the unpaid Rent which had been
earned at the time of termination; (ii) the worth at the time of award of the
amount by which the unpaid rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss that the Lessee
proves could have been reasonably avoided; (iii) the worth at the time of award
of the amount by which the unpaid rent for the balance of the term after the
time of award exceeds the amount of such rental loss that the Lessee proves
could be reasonably avoided; and (iv) any other amount necessary to compensate
Lessor for all the detriment proximately caused by the Lessee's failure to
perform its obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom, including but not limited to the
cost of recovering possession of the Premises, expenses of reletting including
necessary renovation and alternation of the Premises, reasonable attorneys'
fees, and that portion of any leasing commission paid by Lessor in connection
with this Lease applicable to the unexpired term of this Lease. The worth at the
time of award of the amount referred to in provision (iii) of the immediately
preceding sentence shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank f the District within which the Premises are
located at the time of award plus one percent. Efforts by Lessor to mitigate
damages caused by Lessee's Breach of this Lease shall not waive Lessor's right
to recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding any unpaid Rent and damages as are recoverable
therein or Lessor may reserve the right to recover all or any part thereof in a
separate suit. If a notice and grace period required under Paragraph 13.1 was
not previously given, a notice to pay rent or quit, or to perform or quit given
to Lessee under the unlawful detainer statute shall also constitute the notice
required by Paragraph 13.1. In such case, the applicable grace period required
by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and
the failure of Lessee to cure the Default

                                      10.

<PAGE>

within the greater of the two such grace periods shall constitute both an
unlawful detainer and a Breach of this Lease entitling Lessor to the remedies
provided for in this Lease and/or by said statute.

                  (b)      Continue the Lease and Lessee's right to possession
and recover the Rent as it becomes due, in which event Lessee may sublet or
assign, subject only to reasonable limitations. Acts of maintenance, efforts to
relet, and/or the appointment of a receiver to protect the Lessor's interests,
shall not constitute a termination of the Lessee's right to possession.

                  (c)      Pursue any other remedy now or hereafter available
under the laws or judicial decisions of the state wherein the Premises are
located. The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee's occupancy of the Premises.

         13.3     INDUCEMENT RECAPTURE. Any agreement for free or abated rent or
other charges, or for the giving or paying by Lessor to or for Lessee of any
cash or other bonus, inducement or consideration for Lessee's entering into this
Lease, all of which concessions are hereinafter referred to as "INDUCEMENT
PROVISIONS," shall be deemed conditioned upon Lessee's full and faithful
performance of all of the terms, covenants and conditions of this Lease. Upon
Breach of this Lease by Lessee, any such Inducement Provision shall
automatically be deemed deleted from this Lease and of no further force or
effect, and any rent, other charge, bonus, inducement or consideration
theretofore abated, given or paid by Lessor under such an inducement Provision
shall be immediately due and payable by Lessee to Lessor, notwithstanding any
subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or
the cure of the Breach which initiated the operation of this paragraph shall not
be deemed a waiver by Lessor of the provisions of this paragraph unless
specifically so stated in writing by Lessor at the time of such acceptance.

         13.4     LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent
shall not be received by Lessor within 5 days after notice from Lessor such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall immediately pay to Lessor a one-time late charge equal to 3% of each such
overdue amount or $100, whichever is greater. The Parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Lessor will
incur by reason of such late payment. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's Default or Breach with respect
to such overdue amount, nor prevent the exercise of any of the other rights and
remedies granted hereunder. In the event that a late charge is payable
hereunder, whether or not collected, for 3 consecutive installments of Base
Rent, then notwithstanding any provision of this Lease to the contrary, Base
Rent shall, at Lessor's option, become due and payable quarterly in advance.

         13.5     INTEREST. Any monetary payment due Lessor hereunder, other
than late charges, not received by Lessor, when due as to scheduled payments
(such as Base Rent) or within 30 days following the date on which it was due for
non-scheduled payment, shall bear interest from the date when due, as to
scheduled payments, or the 31st day after it was due as to non-scheduled
payments. The interest ("INTEREST") charged shall be computed at the rate of 10%
per annum but shall not exceed the maximum rate allowed by law. Interest is
payable in addition to the potential late charge provided for in Paragraph 13.4.

         13.6     BREACH BY LESSOR.

                  (a)      NOTICE OF BREACH. Lessor shall not be deemed in
breach of this Lease unless Lessor fails within a reasonable time to perform an
obligation required to be performed by Lessor. For purposes of this Paragraph, a
reasonable time shall in no event be less than 30 days after receipt by Lessor,
and any Lender whose name and address shall have been furnished Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than 30 days are reasonably required for
its performance, then Lessor shall not be in breach if performance is commenced
within such 30 day period and thereafter diligently pursued to completion.

                  (b)      PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the
event that neither Lessor nor Lender cures said breach within 30 days after
receipt of said notice, or if having commenced said cure they do not diligently
pursue it to completion, then Lessee may elect to cure said breach at Lessee's
expense and offset from Rent the actual and reasonable cost to perform such
cure, provided however, that such offset shall not exceed an amount equal to the
greater of one month's Base Rent or the Security Deposit, reserving Lessee's
right to seek reimbursement from Lessor. Lessee shall document the cost of said
cure and supply said documentation to Lessor.

14.      CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (collectively "CONDEMNATION"), this Lease shall terminate as to the part
taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than 10% of the Building, or more than 25% of
that portion of the Premises not occupied by any building, is taken by
Condemnation, Lessee may, at Lessee's option, to be exercised in writing within
10 days after Lessor shall have given Lessee written notice of such taking (or
in the absence of such notice, within 10 days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in proportion to the reduction in utility of the Premises caused by such
Condemnation. Condemnation awards and/or payments shall be the property of
Lessor, whether such award shall be made as compensation for diminution in value
of the leasehold, the value of the part taken, or for severance damages;
provided, however, that Lessee shall be entitled to any compensation for
Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures,
without regard to whether or not this Lease is terminated pursuant to the
provisions of this Paragraph. All Alterations and Utility Installations made to
the Premises by Lessee, for purposes of Condemnation only, shall be considered
the property of the Lessee and Lessee shall be entitled to any and all
compensation which is payable therefor. In the event that this Lease is not
terminated by reason of the Condemnation, Lessor shall repair any damage to the
Premises caused by such Condemnation.

15.      BROKERAGE FEES.

         15.3     REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS.
Lessee and Lessor each represent and warrant to the other that it has had no
dealings with any person, firm, broker or finder (other than the Brokers, if
any) in connection with this Lease, and that no one other than said named
Brokers is entitled to any commission or finder's fee in connection herewith.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions of the indemnifying Party, including any
costs, expenses, attorneys' fees reasonably incurred with respect thereto.

                                      11.

<PAGE>

16.      ESTOPPEL CERTIFICATES.

                  (a)      Each Party (as "RESPONDING PARTY") shall within 10
days after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "ESTOPPEL CERTIFICATE" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.

                  (b)      If the Responding Party shall fail to execute or
deliver the Estoppel Certificate within such 10 days period, the Requesting
Party may execute an Estoppel Certificate stating that: (i) the Lease is in full
force and effect without modification except as may be represented by the
Requesting Party, (ii) there are no uncured defaults in the Requesting Party's
performance, and (iii) if Lessor is the Requesting Party, not more than one
month's rent has been paid in advance. Prospective purchasers and encumbrancers
may rely upon the Requesting Party's Estoppel Certificate, and the Responding
Party shall be estopped from denying the truth of the facts contained in said
Certificate.

                  (c)      If Lessor desires to finance, refinance, or sell the
Premises, or any part thereof, Lessee and all Guarantors shall deliver to any
potential lender or purchaser designated by Lessor such financial statements as
may be reasonably required by such lender or purchaser, including but not
limited to Lessee's financial statements for the past 3 years. All such
financial statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.

17.      DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the lessee's interest in the prior lease. In the event of
a transfer of Lessor's title or interest in the Premises or this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined.

18.      SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.

19.      DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.

20.      LIMITATION ON LIABILITY. The obligations of Lessor under this Lease
shall not constitute personal obligations of Lessor or its partners, members,
directors, officers or shareholders, and Lessee shall look to the Premises, and
to no other assets of Lessor, for the satisfaction of any liability of Lessor
with respect to this Lease, and shall not seek recourse against Lessor's
partners, members, directors, officers or shareholders, or any of their personal
assets for such satisfaction.

21.      TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.

22.      NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains
all agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that it
has made, and is relying solely upon, its own investigation as to the nature,
quality, character and financial responsibility of the other Party to this Lease
and as to the use, nature, quality and character of the Premises. Brokers have
no responsibility with respect thereto or with respect to any default or breach
hereof by either Party. The liability (including court costs and attorneys'
fees), of any Broker with respect to negotiation, execution, delivery or
performance by either Lessor or Lessee under this Lease or any amendment or
modification hereto shall be limited to an amount up to the fee received by such
Broker pursuant to this Lease; provided, however, that the foregoing limitation
on each Broker's liability shall not be applicable to any gross negligence or
willful misconduct of such Broker.

23.      NOTICES.

         23.1     NOTICE REQUIREMENTS. All notices required or permitted by this
Lease or applicable law shall be in writing and may be delivered in person (by
hand or by courier) or may be sent by regular, certified or registered mail or
U.S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission, and shall be deemed sufficiently given if served in a manner
specified in this Paragraph 23. The addresses noted adjacent to a Party's
signature on this Lease shall be that Party's address for delivery or mailing of
notices. Either Party may by written notice to the other specify a different
address for notice, except that upon Lessee's taking possession of the Premises,
the Premises shall constitute Lessee's address for notice. A copy of all notices
to Lessor shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate in writing.

         23.2     DATE OF NOTICE. Any notice sent by registered or certified
mail, return receipt requested, shall be deemed given on the date of delivery
shown on the receipt card, or if no delivery date is shown, the postmark
thereon. If sent by regular mail the notice shall be deemed given 48 hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantee next day delivery shall be deemed given 24 hours after delivery of the
same to the Postal Service or courier. Notices transmitted by facsimile
transmission or similar means shall be deemed delivered upon telephone
confirmation of receipt (confirmation report from fax machine is sufficient),
provided a copy is also delivered via delivery or mail. If notice is received on
a Saturday, Sunday or legal holiday, it shall be deemed received on the next
business day.

24.      WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. The acceptance of
Rent by Lessor shall not be a waiver of any (Default or Breach by Lessee. Any
payment by Lessee may be accepted by Lessor on account of moneys or damages due
Lessor, notwithstanding any qualifying statements or conditions made by Lessee
in connection

                                      12.

<PAGE>

therewith, which such statements and/or conditions shall be of no force or
effect whatsoever unless specifically agreed to in writing by Lessor at or
before the time of deposit of such payment.

25.      DISCLOSURES REGARDING THE NATURE OF A REAL ESTATE AGENCY RELATIONSHIP.

                  (a)      When entering into a discussion with a real estate
agent regarding a real estate transaction, a Lessor or Lessee should from the
outset understand what type of agency relationship or representation it has with
the agent or agents in the transaction. Lessor and Lessee acknowledge being
advised by the Brokers in this transaction, as follows:

                           (i)      Lessor's Agent. A Lessor's agent under a
listing agreement with the Lessor acts as the agent for the Lessor only. A
Lessor's agent or subagent has the following affirmative obligations: To the
Lessor: A fiduciary duty of utmost care, integrity, honesty, and loyalty in
dealings with the Lessor. To the Lessee and the Lessor: a. Diligent exercise of
reasonable skills and care in performance of the agent's duties. b. A duty of
honest and fair dealing and good faith. c. A duty to disclose all facts known to
the agent materially affecting the value or desirability of the property that
are not known to, or within the diligent attention and observation of, the
Parties. An agent is not obligated to reveal to either Party any confidential
information obtained from the other Party which does not involve the affirmative
duties set forth above.

                           (ii)     Lessee's Agent. An agent can agree to act as
agent for the Lessee only. In these situations, the agent is not the Lessor's
agent, even if by agreement the agent may receive compensation for services
rendered, either in full or in part from the Lessor. An agent acting only for a
Lessee has the following affirmative obligations. To the Lessee: A fiduciary
duty of utmost care, integrity, honesty, and loyalty in dealings with the
Lessee. To the Lessee and the Lessor: a. Diligent exercise of reasonable skills
and care in performance of the agent's duties. b. A duty of honest and fair
dealing and good faith. c. A duty to disclose all facts known to the agent
materially affecting the value or desirability of the property that are not
known to, or within the diligent attention and observation of, the Parties. An
agent is not obligated to reveal to either Party any confidential information
obtained from the other Party which does not involve the affirmative duties set
forth above.

                           (iii)    Agent Representing Both Lessor and Lessee. A
real estate agent, either acting directly or through one or more associate
licenses, can legally be the agent of both the Lessor and the Lessee in a
transaction, but only with the knowledge and consent of both the Lessor and the
Lessee. In a dual agency situation, the agent has the following affirmative
obligations to both the Lessor and the Lessee: a. A fiduciary duty of utmost
care, integrity, honesty and loyalty in the dealings with either Lessor or the
Lessee. b. Other duties to the Lessor and the Lessee as stated above in
subparagraphs (i) or (ii). In representing both Lessor and Lessee, the agent may
not without the express permission of the respective Party, disclose to the
other Party that the Lessor will accept rent in an amount less than that
indicated in the listing or that the Lessee is willing to pay a higher rent than
that offered. The above duties of the agent in a real estate transaction do not
relieve a Lessor or Lessee from the responsibility to protect their own
interests. Lessor and Lessee should carefully read all agreements to assure that
they adequately express their understanding of the transaction. A real estate
agent is a person qualified to advise about real estate. If legal or tax advice
is desired, consult a competent professional.

                  (b)      Brokers have no responsibility with respect to any
default or breach hereof by either Party. The liability (including court costs
and attorneys' fees), of any Broker with respect to any breach of duty, error or
omission relating to this Lease shall not exceed the fee received by such Broker
pursuant to this Lease; provided, however, that the foregoing limitation on each
Broker's liability shall not be applicable to any gross negligence or willful
misconduct of such Broker.

                  (c)      Lessor and Lessee agree to identify to Brokers as
"Confidential" any communication or information given Brokers that is considered
by such Party to be confidential.

26.      NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increased to
150% of the Base Rent applicable immediately preceding the expiration or
termination. Nothing contained herein shall be construed as consent by Lessor to
any holding over by Lessee.

27.      CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.

28.      COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the Parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. This Lease shall not be construed as if prepared by one of the
parties, but rather according to its fair meaning as a whole, as if both Parties
had prepared it.

29.      BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.

30.      SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.

         30.1     SUBORDINATION. This Lease and any Option granted hereby shall
be subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed upon the Premises, to any and all advances made on the security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices (in this Lease together
referred to as "LENDER") shall have no liability or obligation to perform any of
the obligations of Lessor under this Lease. Any Lender may elect to have this
Lease and/or any Option granted hereby superior to the lien of its Security
Device by giving written notice thereof to Lessee, whereupon this Lease and such
Options shall be deemed prior to such Security Device, notwithstanding the
relative dates of the documentation or recordation thereof.

         30.2     ATTORNMENT. In the event that Lessor transfers title to the
Premises, or the Premises are acquired by another upon the foreclosure or
termination of a Security Device to which this Lease is subordinated (i) Lessee
shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to
such new owner, and upon request, enter into a new lease, containing all of the
terms and provisions of this Lease, with such new owner for the remainder of the
term hereof, or, at the election of such new owner, this Lease shall
automatically become a new Lease between Lessee and such new owner, upon all of
the terms and conditions hereof, for the remainder of the term hereof, and (ii)
Lessor shall thereafter be relieved of any further obligations hereunder and
such new owner shall assume all of Lessor's obligations hereunder, except that
such new owner shall not: (a) be liable for any act or omission of any

                                      13.

<PAGE>

prior lessor or with respect to events occurring prior to acquisition of
ownership; (b) be subject to any offsets or defenses which Lessee might have
against any prior lessor, (c) be bound by prepayment of more than one month's
rent, or (d) be liable for the return of any security deposit paid to any prior
lessor.

         30.3     NON-DISTURBANCE. With respect to Security Devices entered into
by Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
including any options to extend the term hereof, will not be disturbed so long
as Lessee is not in Breach hereof and attorns to the record owner of the
Premises. Further, within 60 days after the execution of this Lease, Lessor
shall use its commercially reasonable efforts to obtain a Non-Disturbance
Agreement from the holder of any pre-existing Security Device which is secured
by the Premises. In the event that Lessor is unable to provide the
Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee's
option, directly contact Lender and attempt to negotiate for the execution and
delivery of a Non-Disturbance Agreement.

         30.4     SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of the Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document any
subordination, attornment and/or Non-Disturbance Agreement provided for herein.

31.      ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
involving the Premises whether founded in tort, contract or equity, or to
declare rights hereunder, the Prevailing Party (as hereafter defined) in any
such proceeding, action, or appeal thereon, shall be entitled to reasonable
attorneys' fees. Such fees may be awarded in the same suit or recovered in a
separate suit, whether or not such action or proceeding is pursued to decision
or judgment. The term, "PREVAILING PARTY" shall include, without limitation, a
Party or Broker who substantially obtains or defeats the relief sought, as the
case may be, whether by compromise, settlement, judgment, or the abandonment by
the other Party or Broker of its claim or defense. The attorneys' fees award
shall not be computed in accordance with any court fee schedule, but shall be
such as to fully reimburse all attorneys' fees reasonably incurred. In addition,
Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in connection
with such Default or resulting Breach ($200 is a reasonable minimum per
occurrence for such services and consultation).

32.      LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times after reasonable prior notice for
the purpose of showing the same to prospective purchasers, lenders, or tenants,
and making such alterations, repairs, improvements or additions to the Premises
as Lessor may deem necessary or desirable and the erecting, using and
maintaining of utilities, services, pipes and conduits through the Premises
and/or other premises as long as there is no material adverse effect to Lessee's
use of the Premises. All such activities shall be without abatement of rent or
liability to Lessee.

33.      AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.

34.      SIGNS. Lessor may place on the Premises ordinary "For Sale" signs at
any time and ordinary "For Lease" signs during the last 6 months of the term
hereof. Except for ordinary "for sublease" signs, Lessee shall not place any
sign upon the Premises without Lessor's prior written consent. All signs must
comply with all Applicable Requirements.

35.      TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within 10 days following any such event
to elect to the contrary by written notice to the holder of any such lesser
interest, shall constitute Lessor's election to have such event constitute the
termination of such interest.

36.      CONSENTS. Except as otherwise provided herein, wherever in this Lease
the consent of a Party is required to an act by or for the other Party, such
consent shall not be unreasonably withheld or delayed. Lessor's actual
reasonable costs and expenses (including but not limited to architects',
attorneys', engineers' and other consultants' fees) incurred in the
consideration of, or response to, a request by Lessee for any Lessor consent,
including but not limited to consents to an assignment, a subletting or the
presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt
of an invoice and supporting documentation therefor. Lessor's consent to any
act, assignment or subletting shall not constitute an acknowledgment that no
Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
The failure to specify herein any particular condition to Lessor's consent shall
not preclude the imposition by Lessor at the time of consent of such further or
other conditions as are then reasonable with reference to the particular matter
for which consent is being given. In the event that either Party disagrees with
any determination made by the other hereunder and reasonably requests the
reasons for such determination, the determining party shall furnish its reasons
in writing and in reasonable detail within 10 business days following such
request.

37.      GUARANTOR.

         37.1     EXECUTION. The Guarantors, if any, shall each execute a
guaranty in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this Lease.

         37.2     DEFAULT. It shall constitute a Default of the Lessee if any
Guarantor fails or refuses, upon request to provide: (a) evidence of the
execution of the guaranty, including the authority of the party signing on
Guarantor's behalf to obligate Guarantor, and in the case of a corporate
Guarantor, a certified copy of a resolution of its board of directors
authorizing the making of such guaranty, (b) current financial statements, (c)
an Estoppel Certificate, or (d) written confirmation that the guaranty is still
in effect.

                                      14.

<PAGE>

38.      QUIET POSSESSION. Subject to payment by Lessee of the Rent and
performance of all of the covenants, conditions and provisions on Lessee's part
to be observed and performed under this Lease, Lessee shall have quiet
possession and quiet enjoyment of the Premises during the term hereof.

39.      OPTIONS. If Lessee is granted an Option, as defined below, then the
following provisions shall apply:

         39.1     DEFINITION. "OPTION" shall mean: (a) the right to extend the
term of or renew this Lease or to extend or renew any lease that Lessee has on
other property of Lessor; (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.

         39.2     OPTIONS PERSONAL TO ORIGINAL LESSEE. Any Option granted to
Lessee in this Lease is personal to the original Lessee, and cannot be assigned
or exercised by anyone other than said original Lessee and only while the
original Lessee is in full possession of the Premises and, if requested by
Lessor, with Lessee certifying that Lessee has no intention of thereafter
assigning or subletting.

         39.3     MULTIPLE OPTIONS. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later Option cannot be exercised unless
the prior Options have been validly exercised.

         39.4     EFFECT OF DEFAULT ON OPTIONS.

                  (a)      Lessee shall have no right to exercise an Option: (i)
during the period commencing with the giving of any notice of Default and
continuing until said Default is cured, (ii) during the period of time any Rent
is unpaid (without regard to whether notice thereof is given Lessee), (iii)
during the time Lessee is in Breach of this Lease, or (iv) in the event that
Lessee has been given 3 or more notices of separate Default, whether or not the
Defaults are cured, during the 12 month period immediately preceding the
exercise of the Option.

                  (b)      The period of time within which an Option may be
exercised shall not be extended or enlarged by reason of Lessee's inability to
exercise an Option because of the Provisions of Paragraph 39.4(a).

                  (c)      An Option shall terminate and be of no further force
or effect, notwithstanding Lessee's due and timely exercise of the Option, if,
after such exercise and prior to the commencement of the extended term or
completion of the purchase, (i) Lessee fails to pay Rent for a period of 30 days
after such Rent becomes due (without any necessity of Lessor to give notice
thereof), or (ii) if Lessee commits a Breach of this Lease.

40.      MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by and conform to all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, and care of said properties, including the care and
cleanliness of the grounds and including the parking, loading and unloading of
vehicles, and to cause its employees, suppliers, shippers, customers,
contractors and invitees to so abide and conform. Lessee also agrees to pay its
fair share of common expenses incurred in connection with such rules and
regulations.

41.      SECURITY MEASURES. Lessee hereby acknowledges that the Rent payable to
Lessor hereunder does not include the cost of guard service: or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.

42.      RESERVATIONS. Lessor reserves to itself the right, from time to time,
to grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.

43.      PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay.

44.      AUTHORITY; MULTIPLE PARTIES; EXECUTION.

                  (a)      If either Party hereto is a corporation, trust,
limited liability company, partnership, or similar entity, each individual
executing this Lease on behalf of such entity represents and warrants that he or
she is duly authorized to execute and deliver this Lease on its behalf. Each
party shall, within 30 days after request, deliver to the other party
satisfactory evidence of such authority.

                  (b)      If this Lease is executed by more than one person or
entity as "Lessee", each such person or entity shall be jointly and severally
liable hereunder. It is agreed that any one of the named Lessees shall be
empowered to execute any amendment to this Lease, or other document ancillary
thereto and bind all of the named Lessees, and Lessor may rely on the same as if
all of the named Lessees had executed such document.

                  (c)      This Lease may be executed by the Parties in
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.

45.      CONFLICT. Any conflict between the printed provisions of this Lease and
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.

46.      OFFER. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.

47.      AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.

48.      WAIVER OF JURY TRIAL. THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS
TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING
OUT OF THIS AGREEMENT.

                                      15.

<PAGE>

49.      MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the
Mediation and/or the Arbitration of all disputes between the Parties and/or
Brokers arising out of this Lease [_] IS [X] IS NOT attached to this Lease.

50.      AMERICANS WITH DISABILITIES ACT. Since compliance with the Americans
with Disabilities Act (ADA) is dependent upon Lessee's specific use of the
Premises, Lessor makes no warranty or representation as to whether or not the
Premises comply with ADA or any similar legislation. In the event that Lessee's
use of the Premises requires modifications or additions to the Premises in order
to be in ADA compliance, Lessee agrees to make any such necessary modifications
and/or additions at Lessee's expense.

                                      16.

<PAGE>

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.

ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:

1.       SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE.

2.       RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION
OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.

WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.

                                      17.

<PAGE>

The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.

Executed at ____________________  Executed at __________________________________

on: ____________________________  on: April 30, 2002

By LESSOR:                        By LESSEE:

6777 Nancy Ridge LLC              Anadys Pharmaceuticals Inc.
a California Limited Liability
Company

By: /s/ David Odmark              By: /s/ Kleanthis G. Xanthopoulos
    ----------------------------     -------------------------------------------
Name Printed: David Odmark        Name Printed: Kleanthis G. Xanthopoulos, Ph.D.
Title: Manager                    Title: President and CEO

By: ____________________________  By: __________________________________________
Name Printed: __________________  Name Printed: ________________________________
Title: _________________________  Title: _______________________________________
Address: 7979 Ivanhoe #550        Address: 9050 Camino Santa Fe
La Jolla, CA 92037                San Diego, CA 92121
Telephone/Facsimile: ___________  Telephone/Facsimile: (858) 530-3600
Federal ID No. _________________  Federal ID No. 22-3193172

BROKER:                           BROKER:
________________________________  Phase 3 Properties
________________________________  ______________________________________________

Attn: __________________________  Attn: Neil Fox
Title: _________________________  Title: CEO
Address: _______________________  Address: 8910 University Center Lane, #265
________________________________  San Diego, CA 92122
Telephone Facsimile: ___________  Telephone Facsimile: (858) 546-0888
Federal ID No. _________________  Federal ID No. _______________________________

NOTE:    These forms are often modified to meet the changing requirements of law
         and industry needs. Always write or call to make sure you are utilizing
         the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700
         So. Flower Street, Suite 600, Los Angeles, California 90017. (213)
         687-8777. Fax No. (213) 687-8616

 (C)COPYRIGHT 1997 - BY AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION. ALL RIGHTS
     RESERVED. NO PART OF THESE WORKS MAY BE REPRODUCED IN ANY FORM WITHOUT
                             PERMISSION IN WRITING.

                                      18.

<PAGE>

ADDENDUM TO LEASE DATED APRIL 23 , 2002 BY AND BETWEEN 6777 NANCY RIDGE LLC AS
LANDLORD AND ANADYS PHARMACEUTICALS AS TENANT FOR THE PROPERTY LOCATED AT 6777
NANCY RIDGE DRIVE, SAN DIEGO, CA 92121

This Addendum is attached to and made a part of the above-referenced Lease. In
the event of any conflict between the Lease and this Addendum, the terms and
provisions of this Addendum shall govern. If any addenda or amendments are also
attached to the Lease, this Addendum shall govern to the extent of any conflict
between the terms and provisions of this Addendum and such addenda or
amendments.

51.      TENANT IMPROVEMENTS: Lessee accepts the premises in "as-is" condition,
subject to the terms of Article 2 of the Lease.

52.      RENT SCHEDULE:

<TABLE>
<CAPTION>
             MONTH                       BASE RENT PER MONTH
--------------------------------         -------------------
<S>                                      <C>
June 1, 2002 - May 31, 2003                    $28,148.30
June 1, 2003 - November 30, 2003               $29,346.10
</TABLE>

53.      PARKING: Lessee shall be entitled to all parking spaces on the
Property. The parking shall be free of charge during the initial term of the
Lease. Lessor, at its sole cost and expense, shall cause the parking areas to be
restriped according to a configuration reasonably approved by Lessee.

54.      SIGNAGE: Lessor will allow Lessee to install building and monument
signage at Lessee's sole cost and expense, subject to Lessor's reasonable
approval. All signage shall conform with city codes and the CC & R's of the
Project. Lessee shall remove such signage upon Lease termination.

55.      OPTIONS: Provided Lessee is not then in default under the Lease, Lessee
shall have two (2) six month options to extend the term of the Lease at a rate
of $2.55 NNN. Lessee must give Lessor two (2) months prior written notice to
exercise each Option. Other than the Base Rent (which shall be modified in
accordance with this Section 56) and further options to renew, all other terms
of the Lease shall apply to any extension term.

56.      EARLY OCCUPANCY: Lessee may occupy the Premises prior to the
Commencement Date for installation of furniture, fixtures equipment and for
making improvements or other alterations to the Premises commencing on the date
of mutual execution of this Lease provided that Lessee shall complies all
provisions of this Lease (other than the payment of Rent).

57.      PROPERTY MANAGEMENT FEE: In addition to Base Rent, Lessee shall pay to
Lessor a property management fee equal to three percent (3.0%) per annum of Base
Rent, payable monthly as and when Base Rent is paid by Lessee under this Lease.

All references in the following paragraphs are to corresponding sections of the
typeset portion of the Lease and any addenda or amendments, except as otherwise
expressly provided herein.

SECTION 2.2: CONDITION.

Notwithstanding the foregoing, if such non-compliance is of a latent nature,
such six (6) month and thirty (30) day time frames following the Start Date
shall be modified to begin when Lessee discovers such condition.

SECTION 2.3: COMPLIANCE.

Notwithstanding the foregoing, if such non-compliance is of a latent nature,
such sic (6) month time frame following the Start Date shall be modified to
begin when Lessee discovers such condition. Lessor hereby represents and
warrants that the Agreed Use is permitted pursuant to Applicable Requirements
including zoning regulations.

SECTION 2.3(b) COMPLIANCE.

In the event any Capital Expenditure is not the result of the specific and
unique use of the Premises by Lessee (such as, governmentally mandated seismic
modifications) then

                                      19.

<PAGE>

notwithstanding anything in the Lease to the contrary, Lessee shall have no
liability therefore and the same shall be performed by Lessor at its sole cost
and expense.

SECTION 2.5: LESSEE AS PRIOR OCCUPANT.

This section is hereby deleted in its entirety.

SECTION 3.3: DELAY IN POSSESSION.

Upon any termination hereunder, Lessor, shall promptly return all sums
theretofore deposited or paid by Lessee to Lessor.

SECTION 6.2(a): REPORTABLE USES REQUIRE CONSENT.

Notwithstanding anything to the contrary contained in the Lease (including,
without limitation the provisions of this Section 6.2(a), Lessor recognizes that
Lessee will have Reportable Uses of Hazardous Substances as described on
Addendum 2 [TO BE PROVIDED] and hereby consents thereto without the requirement
of additional assurances (as provided in the last sentence of Section 6.2(a). In
the event Lessee significantly increases the amount of Reportable Uses or amount
of Hazardous Substances from that set forth on Addendum 2, Lessor reserves the
right to require additional assurances in accordance with the last sentence of
Section 6.2(a).

SECTION 6.2(c): LESSEE REMEDIATION.

Notwithstanding anything to the contrary contained in the Lease (including,
without limitation the provisions of this Section 6.2(c), Lessee shall have no
obligation to remediate, clean up, monitor, e abate, or to comply with any law
regarding, or to reimburse, release, indemnify, or defend Lessor with respect to
any Hazardous Substance which now or hereafter become regulated by any
governmental authority or agency thereof and which Lessee did not store, dispose
of, or transport in, use, or cause to be on the Premises in violation of any
Applicable Requirements. If any Hazardous Substance are present in the Premises
(or the underlying soil or groundwater) and such presence was not caused by
Lessee, Lessor shall protect, indemnify, defend, and hold Lessee harmless from
and against any and all claims, liability, loss, proceedings, damages, causes of
action, cost, or expense (including attorneys' fees) arising therefrom.

SECTION 6.3: LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS.

Notwithstanding the foregoing or anything to the contrary contained in this
Lease, Lessee shall not be responsible for compliance with any Applicable
Requirements where such compliance is not related specifically to Lessee's
specific and unique use and occupancy of the Premises.

SECTION 6.4: INSPECTION; COMPLIANCE.

Notwithstanding the foregoing or anything to the contrary contained in this
Lease, Lessor, Lessor's Lender or any consultants shall provide Lessee with at
least 48 hours' prior actual notice before entering the Premises. In the event
of an emergency, the determination of which shall require Lessor to be
reasonable, Lessor shall use its best efforts to provide Lessee with notice
reasonable in such situation. In the event of any entry by Lessor onto the
Premises, Lessor shall use its best efforts not to interfere with the conduct of
Lessee's business and such entry shall be subject to Lessee's reasonable
security requirements.

SECTION 7.1(a): REPLACEMENT.

During the Lease Term (including any renewal period) Lessee's obligation to
repair or maintain shall not include the making of any capital repairs or
replacements unless, and to the extent, required due to Lessee's negligence or
willful misconduct.

SECTION 7.2: LESSOR'S OBLIGATIONS.

Notwithstanding anything to the contrary contained in this Lease, Lessor shall
be responsible at its sole cost and expense to repair, maintain and replace as
necessary the building structure, support structure, foundation, roof (structure
and membrane), load bearing walls, and building exterior.

SECTION 7.3(b): CONSENT.

The fourth sentence of section 7.3(b) is hereby deleted and replaced with the
following "Any contractor used by Lessee shall be subject to the approval of
Lessor, which approval shall not be unreasonably withheld."

                                      20.

<PAGE>

SECTION 7.4: OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.

Notwithstanding the provisions of Section 7:

         (a)      Except as set forth in (b) below, Lessee shall not be required
or allowed to remove any repairs, alterations, or improvements installed by
Lessee in, on or about the Premises pursuant to Lessee's repair obligation under
this Lease and Lessee shall not be required or allowed to remove any
alterations, improvements, additions, or Utility Installations for which Lessee
has obtained Lessor's consent, unless Lessor has indicated, at the time of
granting such consent, that such removal will be required.

         (b)      In addition to its furniture, equipment, trade fixtures, and
other personal property, Lessee shall be entitled to remove any laboratory
improvements such as fume hoods or portable cold rooms at the expiration of the
term, provided Lessee repairs all damage caused by such removal.

SECTION 8.8: EXEMPTION OF LESSOR FROM LIABILITY.

The foregoing provisions of this Section 8.8 shall in no event be interpreted to
release Lessor from any liability that arises due to Lessor's gross negligence,
willful misconduct, or a breach of this Lease.

INSET 9.6(c): ABATEMENT OF RENT; LESSEE'S REMEDIES.

Notwithstanding anything to the contrary contained herein, if Lessee's use of
the Premises is substantially impaired for a period of more than 150 days after
the date of a casualty, then Lessee shall have the right to terminate this Lease
by written notice to Lessor.

SECTION 10.5: LESSEE'S RIGHT TO CONTEST TAXES

Lessee, at its cost, shall have the right at any time to seek a reduction in or
otherwise contest any Real Property Taxes for which it is obligated to reimburse
Lessor pursuant to this Article, by action or proceeding against the entity with
authority to assess or impose the same. Lessor shall not be required to join in
any proceeding or action brought by Lessee unless the provisions of applicable
regulations require that such proceeding or action be brought by or in the name
of Lessor, in which event Lessor shall join in such proceeding or action or
permit it to be brought in Lessor's name, provided that Lessee protect,
indemnify, and hold Lessor free and harmless from and against any liability,
cost or expense in connection with such proceeding or contest. Lessee shall
continue, during the pendency of such proceeding or action, to pay the Real
Property Taxes due as determined by Lessor pursuant to this Article 10. If
Lessee is successful in such action or proceeding, Lessor shall reimburse to
Lessee Lessee's Share of the reduction in Real Property Taxes realized by Lessee
in such contest or proceeding within ten (10) days after the amount of such
reduction has been determined.

SECTION 12.1(a): LESSOR'S CONSENT REQUIRED.

Notwithstanding anything to the contrary contained in this Lease, Lessee may
assign this Lease or sublet the Premises, or any portion thereof, without
Lessor's consent, to any entity which controls, is controlled by, or is under
common control with Lessee; to any entity which results from a merger of,
reorganization of, or consolidation with Lessee; or to any entity which acquires
substantially all of the stock or assets of Lessee, as a going concern, with
respect to the business that is being conducted in the Premises (hereinafter
each a "Permitted Transfer"). In addition, a sale or transfer of the capital
stock of Lessee shall be deemed a Permitted Transfer if (1) such sale or
transfer occurs in connection with any bona fide financing or capitalization for
the benefit of Lessee, or (2) Lessee is or becomes a publicly traded
corporation.

SECTION 12.1(b): LESSOR'S CONSENT REQUIRED.

Section 12.1(b) is hereby deleted in its entirety.

SECTION 12.2(a)(i): TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND
SUBLETTING.

References to subletting or sublessee contained in or relating to Section
12.2(a)(i) are hereby deleted. Any sublease shall reference and incorporate
Lessor's rights under Section 12.3 of the Lease.

SECTION 13.4: LATE CHARGES.

References to 10% in Section 13.4 are hereby changed to 3%.

SECTION 32: LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS.

Notwithstanding the provisions of Section 32, Lessor shall provide Lessee with
at least 48 hours' prior actual notice before entering the Premises. In the
event of an emergency, the determination

                                      21.

<PAGE>

of which shall require Lessor to be reasonable, Lessor shall use its best
efforts to provide Lessee with notice reasonable in such situation. In the event
of any entry by Lessor onto the Premises, Lessor shall use its best efforts not
to interfere with the conduct of Lessee's business.

SECTION 42: RESERVATIONS.

Lessor's rights pursuant to this Section 42 shall be subject to the condition
that exercise of any of such rights shall not reduce Lessee's number of parking
spaces or otherwise unreasonably interfere with Lessee's use of the Premises.

LESSOR:                             LESSEE:

6777 NANCY RIDGE LLC                ANADYS PHARMACEUTICALS INC.

BY: /S/ DAVID ODMARK                BY: /S/ KLEANTHIS G. XANTHOPOULOS
    ---------------------------         -----------------------------
NAME:  DAVID ODMARK                 NAME:  KLEANTHIS G. XANTHOPOULOS, PH.D.
TITLE: MANAGER                      TITLE: PRESIDENT AND CHIEF EXECUTIVE
                                           OFFICER

                                      22.

<PAGE>

ADDENDUM TO LEASE DATED MARCH 5, 2002 BY AND BETWEEN 6777 NANCY RIDGE LLC AS
LANDLORD AND ANADYS PHARMACEUTICALS AS TENANT FOR THE PROPERTY LOCATED AT 6777
NANCY RIDGE DRIVE, SAN DIEGO, CA 92121

51.      TENANT IMPROVEMENTS: Lessee accepts the premises in "as-is" condition.

52.      RENT SCHEDULE:

<TABLE>
<CAPTION>
             MONTH                               RENT PER MONTH
--------------------------------    ------------------------------------
<S>                                 <C>
April 1, 2002 - January 31, 2003    $27,779.35 (plus operating expenses)
February 1, 2003 - July 31, 2003    $28,961.45 (plus operating expenses)
</TABLE>

53.      OPERATING EXPENSE: Lessee shall pay all Operating Expenses for the
building.

54.      PARKING: Lessee shall be entitled to all parking spaces on the site.
The parking shall be free of charge during the initial term of the lease.

55.      SIGNAGE: Lessor will allow Lessee to install building and monument
signage subject to Lessor's reasonable approval at its sole cost. All signage
shall conform with city codes and the CC & R's of the Project.

56.      OPTION: Tenant shall have two (2) six month options to extend the term
of the said lease at a rate of $2.55 NNN. Tenant must give Landlord four (4)
months prior written notice to exercise each Option.

Sublessor and Lessee hereby agree that, notwithstanding anything contained in
the Sublease to the contrary, the provisions set forth below shall be deemed to
be a part of the Sublease and shall supersede any contrary provisions in the
main body of the Sublease. All references in the Sublease and in this Addendum
to "Sublease" shall be construed to mean the Sublease, as modified and
supplemented by this Addendum. To the extent of any conflict or inconsistency
between this Addendum and the remainder of the Sublease, the provisions of this
Addendum shall govern and control. All capitalized terms used in this Addendum,
unless specifically defined in this Addendum, shall have the same meaning as the
terms used in the main body of the Sublease.

                                      23.

<PAGE>

                 [LOGO?] BUSINESS REAL ESTATE BROKERAGE COMPANY

                   HAZARDOUS MATERIALS WARNING AND DISCLAIMER
                         (SALE AND/OR LEASE OF PROPERTY)

RE:  6777 NANCY RIDGE DRIVE

Various materials utilized in the construction of any improvements to the
Property may contain materials that have been or may in the future be determined
to be toxic, hazardous or undesirable and may need to be specially treated,
specially handled and/or removed from the Property. For example, some electrical
transformers and other electrical components can contain PCBs, and asbestos has
been used in a wide variety of building components such as fire-proofing, air
duct insulation, acoustical tiles, spray-on acoustical materials, linoleum,
floor tiles and plaster. Due to current or prior uses, the Property or
improvements may contain materials such as metals, minerals, chemicals,
hydrocarbons, biological or radioactive materials and other substances which are
considered, or in the future may be determined to be, toxic wastes, hazardous
materials or undesirable substances. Such substances may be in above- and
below-ground containers on the Property or may be present on or in soils, water,
building components or other portions of the Property in areas that may or may
not be accessible or noticeable.

Current and future federal, state and local laws and regulations may require the
clean-up of such toxic, hazardous or undesirable materials at the expense of
those persons who in the past, present or future have had any interest in the
Property including, but not limited to, current, past and future owners and
users of the Property. Owners and Buyers/Lessees are advised to consult with
independent legal counsel or experts of their choice to determine their
potential liability with respect to toxic, hazardous, or undesirable materials.
Owners and Buyers/Lessees should also consult with such legal counsel or experts
to determine what provisions regarding toxic, hazardous or undesirable materials
they may wish to include in purchase and sale agreements, leases, options and
other legal documentation related to transactions they contemplate entering into
with respect to the Property.

The real estate salespersons and brokers in this transaction have no expertise
with respect to toxic wastes, hazardous materials or undesirable substances.
Proper inspections of the Property by qualified experts are an absolute
necessity to determine whether or not there are any current or potential toxic
wastes, hazardous materials or undesirable substances in or on the Property. The
real estate salespersons and brokers in this transaction have not made, nor will
they make, any representations, either express or implied, regarding the
existence or nonexistence of toxic wastes, hazardous materials, or undesirable
substances in or on the Property. Problems involving toxic wastes, hazardous
materials or undesirable substances can be extremely costly to correct. It is
the responsibility of the Owners and Buyers/Lessees to retain qualified experts
to deal with the detection and correction of such matters.

                   AMERICANS WITH DISABILITIES ACT DISCLOSURE

The United States Congress has enacted the Americans With Disabilities Act (the
"ADA"), a federal law codified at 42 USC Section 12101 et seq., which became
effective January 26, 1992. Owners and lessees are subject to this law which,
among other things, is intended to make business establishments equally
accessible to persons with a variety of disabilities. Under this law,
modifications to real property improvements may be required by owners and
lessees. Owners and lessees may delegate between themselves costs and
responsibilities for meeting the requirements of the law but the fact that
responsibilities have been allocated does not reduce or negate liability to an
individual with a disability who files and wins a lawsuit. Broker strongly
recommends that owners and lessees consult design professionals, architects or
attorneys to advise them with respect to the law's applicability and to prepare,
if necessary, any language in leases or other contracts. The undersigned
acknowledge that Broker is not qualified as an expert in this matter.

   LESSOR: 6777 Nancy Ridge LLC       LESSEE: Anadys Pharmaceuticals, Inc.<PAGE>

                                                                   EXHIBIT 10.3

                          ANADYS PHARMACEUTICALS, INC.

                           2002 EQUITY INCENTIVE PLAN

                           ADOPTED: FEBRUARY 28, 2002
                              AMENDED: JUNE 7, 2002
                     APPROVED BY STOCKHOLDERS: JUNE 17, 2002
                       TERMINATION DATE: FEBRUARY 27, 2012

1.       PURPOSES.

         (a)      AMENDMENT AND RESTATEMENT. The Plan amends and restates the
Anadys Pharmaceuticals, Inc. 1994 Stock Option Plan and the Anadys
Pharmaceuticals, Inc. 1998 Equity Incentive Plan (collectively, the "Prior
Plans"). A Participant's outstanding options granted under the Prior Plans shall
be governed by this Plan, unless otherwise specified.

         (b)      ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to
receive Stock Awards are the Employees, Directors and Consultants of the Company
and its Affiliates.

         (c)      AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide
a means by which eligible recipients of Stock Awards may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of
the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock.

         (d)      GENERAL PURPOSE. The Company, by means of the Plan, seeks to
retain the services of the group of persons eligible to receive Stock Awards, to
secure and retain the services of new members of this group and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.

2.       DEFINITIONS.

         (a)      "AFFILIATE" means any parent corporation or subsidiary
corporation of the Company, whether now or hereafter existing, as those terms
are defined in Sections 424(e) and (f), respectively, of the Code.

         (b)      "BOARD" means the Board of Directors of the Company.

         (c)      "CAUSE" means, with respect to a Participant, (i) such
Participant's conviction for the commission of a felony, (ii) such Participant's
excessive absence from work for reasons other than illness, (iii) such
Participant's use of alcohol, illegal drugs or any other illegal substance in
such a manner as to interfere with the performance of such Participant's duties,
(iv) such Participant's refusal to follow reasonable directives from such
Participant's superior, or (v) such Participant's failure to perform any
material duty where such failure has continued for 30 days after such
Participant has been notified in writing by the Company of the specific nature
of such Participant's failure to perform. Any determination by the Board that
the Continuous Service of a Participant was terminated by reason of dismissal
without Cause for the purposes of

                                       1
<PAGE>

outstanding Stock Awards held by such Participant shall have no effect upon any
determination of the rights or obligations of the Company or such Participant
for any other purpose.

         (d)      "CAPITALIZATION ADJUSTMENT" has the meaning ascribed to that
term in Section 11(a).

         (e)      "CHANGE IN CONTROL" means the occurrence, in a single
transaction or in a series of related transactions, of any one or more of the
following events:

                  (i)      any Exchange Act Person becomes the Owner, directly
or indirectly, of securities of the Company representing more than fifty percent
(50%) of the combined voting power of the Company's then outstanding securities
other than by virtue of a merger, consolidation or similar transaction.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because the level of Ownership held by any Exchange Act Person (the
"Subject Person") exceeds the designated percentage threshold of the outstanding
voting securities as a result of a repurchase or other acquisition of voting
securities by the Company reducing the number of shares outstanding, provided
that if a Change in Control would occur (but for the operation of this sentence)
as a result of the acquisition of voting securities by the Company, and after
such share acquisition, the Subject Person becomes the Owner of any additional
voting securities that, assuming the repurchase or other acquisition had not
occurred, increases the percentage of the then outstanding voting securities
Owned by the Subject Person over the designated percentage threshold, then a
Change in Control shall be deemed to occur;

                  (ii)     there is consummated a merger, consolidation or
similar transaction involving (directly or indirectly) the Company and,
immediately after the consummation of such merger, consolidation or similar
transaction, the stockholders of the Company immediately prior thereto do not
Own, directly or indirectly, outstanding voting securities representing more
than fifty percent (50%) of the combined outstanding voting power of the
surviving Entity in such merger, consolidation or similar transaction or more
than fifty percent (50%) of the combined outstanding voting power of the parent
of the surviving Entity in such merger, consolidation or similar transaction;

                  (iii)    the stockholders of the Company approve or the Board
approves a plan of complete dissolution or liquidation of the Company, or a
complete dissolution or liquidation of the Company shall otherwise occur; or

                  (iv)     there is consummated a sale, lease, license or other
disposition of all or substantially all of the consolidated assets of the
Company and its Subsidiaries, other than a sale, lease, license or other
disposition of all or substantially all of the consolidated assets of the
Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the
combined voting power of the voting securities of which are Owned by
stockholders of the Company in substantially the same proportions as their
Ownership of the Company immediately prior to such sale, lease, license or other
disposition.

         Notwithstanding the foregoing or any other provision of this Plan, the
definition of Change in Control (or any analogous term) in an individual written
agreement between the Company or any Affiliate and the Participant shall
supersede the foregoing definition with

                                       2
<PAGE>

respect to Stock Awards subject to such agreement (it being understood, however,
that if no definition of Change in Control or any analogous term is set forth in
such an individual written agreement, the foregoing definition shall apply).

         (f)      "CODE" means the Internal Revenue Code of 1986, as amended.

         (g)      "COMMITTEE" means a committee of one or more members of the
Board appointed by the Board in accordance with Section 3(c).

         (h)      "COMMON STOCK" means the common stock of the Company.

         (i)      "COMPANY" means Anadys Pharmaceuticals, Inc., a Delaware
corporation.

         (j)      "CONSULTANT" means any person, including an advisor, (i)
engaged by the Company or an Affiliate to render consulting or advisory services
and who is compensated for such services or (ii) serving as a member of the
Board of Directors of an Affiliate and who is compensated for such services.
However, the term "Consultant" shall not include Directors who are not
compensated by the Company for their services as Directors, and the payment of a
director's fee by the Company for services as a Director shall not cause a
Director to be considered a "Consultant" for purposes of the Plan.

         (k)      "CONTINUOUS SERVICE" means that the Participant's service with
the Company or an Affiliate, whether as an Employee, Director or Consultant, is
not interrupted or terminated. A change in the capacity in which the Participant
renders service to the Company or an Affiliate as an Employee, Consultant or
Director or a change in the entity for which the Participant renders such
service, provided that there is no interruption or termination of the
Participant's service with the Company or an Affiliate, shall not terminate a
Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director shall not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave. Notwithstanding the foregoing, a leave of absence
shall be treated as Continuous Service for purposes of vesting in a Stock Award
only to such extent as may be provided in the Company's leave of absence policy
or in the written terms of the Participant's leave of absence.

         (l)      "CORPORATE TRANSACTION" means the occurrence, in a single
transaction or in a series of related transactions, of any one or more of the
following events:

                  (i)      a sale or other disposition of all or substantially
all, as determined by the Board in its discretion, of the consolidated assets of
the Company and its Subsidiaries;

                  (ii)     a sale or other disposition of at least ninety
percent (90%) of the outstanding securities of the Company;

                  (iii)    a merger, consolidation or similar transaction
following which the Company is not the surviving corporation; or

                                       3
<PAGE>

                  (iv)     a merger, consolidation or similar transaction
following which the Company is the surviving corporation but the shares of
Common Stock outstanding immediately preceding the merger, consolidation or
similar transaction are converted or exchanged by virtue of the merger,
consolidation or similar transaction into other property, whether in the form of
securities, cash or otherwise.

         (m)      "DIRECTOR" means a member of the Board of Directors of the
Company.

         (n)      "DISABILITY" means the inability of a person, in the opinion
of a qualified physician acceptable to the Company, to perform the major duties
of that person's position with the Company or an Affiliate because of the
sickness or injury of the person.

         (o)      "EMPLOYEE" means any person employed by the Company or an
Affiliate. Service as a Director or payment of a director's fee by the Company
or an Affiliate shall not be sufficient to constitute "employment" by the
Company or an Affiliate.

         (p)      "ENTITY" means a corporation, partnership or other entity.

         (q)      "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

         (r)      "EXCHANGE ACT PERSON" means any natural person, Entity or
"group" (within the meaning of Section 13(d) or 14(d) of the Exchange Act),
except that "Exchange Act Person" shall not include (A) the Company or any
Subsidiary of the Company, (B) any employee benefit plan of the Company or any
Subsidiary of the Company or any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any Subsidiary of the Company,
(C) an underwriter temporarily holding securities pursuant to an offering of
such securities, or (D) an Entity Owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
Ownership of stock of the Company.

         (s)      "FAIR MARKET VALUE" means, as of any date, the value of the
Common Stock determined in good faith by the Board, and in a manner consistent
with Section 260.140.50 of Title 10 of the California Code of Regulations.

         (t)      "INCENTIVE STOCK OPTION" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.

         (u)      "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.

         (v)      "OFFICER" means any person designated by the Company as an
officer.

         (w)      "OPTION" means an Incentive Stock Option or a Nonstatutory
Stock Option granted pursuant to the Plan.

         (x)      "OPTION AGREEMENT" means a written agreement between the
Company and an Optionholder evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and conditions
of the Plan.

                                       4
<PAGE>

         (y)      "OPTIONHOLDER" means a person to whom an Option is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Option.

         (z)      "OWN," "OWNED," "OWNER," "OWNERSHIP" A person or Entity shall
be deemed to "Own," to have "Owned," to be the "Owner" of, or to have acquired
"Ownership" of securities if such person or Entity, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, has
or shares voting power, which includes the power to vote or to direct the
voting, with respect to such securities.

         (aa)     "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.

         (bb)     "PLAN" means this Anadys Pharmaceuticals, Inc. 2002 Equity
Incentive Plan.

         (cc)     "SECURITIES ACT" means the Securities Act of 1933, as amended.

         (dd)     "STOCK AWARD" means any right granted under the Plan,
including an Option, a stock bonus and a right to acquire restricted stock.

         (ee)     "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.

         (ff)     "SUBSIDIARY" means, with respect to the Company, (i) any
corporation of which more than fifty percent (50%) of the outstanding capital
stock having ordinary voting power to elect a majority of the board of directors
of such corporation (irrespective of whether, at the time, stock of any other
class or classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time, directly or
indirectly, Owned by the Company, and (ii) any partnership in which the Company
has a direct or indirect interest (whether in the form of voting or
participation in profits or capital contribution) of more than fifty percent
(50%).

         (gg)     "TEN PERCENT STOCKHOLDER" means a person who Owns (or is
deemed to Own pursuant to Section 424(d) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates.

3.       ADMINISTRATION.

         (a)      ADMINISTRATION BY BOARD. The Board shall administer the Plan
unless and until the Board delegates administration to a Committee, as provided
in Section 3(c).

         (b)      POWERS OF BOARD. The Board shall have the power, subject to,
and within the limitations of, the express provisions of the Plan:

                  (i)      To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; what type or combination of types of Stock Award shall
be granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be

                                       5
<PAGE>

permitted to receive Common Stock pursuant to a Stock Award; and the number of
shares of Common Stock with respect to which a Stock Award shall be granted to
each such person.

                  (ii)     To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.

                  (iii)    To amend the Plan or a Stock Award as provided in
Section 12.

                  (iv)     To terminate or suspend the Plan as provided in
Section 13.

                  (v)      Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company and that are not in conflict with the provisions of the
Plan.

         (c)      DELEGATION TO COMMITTEE. The Board may delegate administration
of the Plan to a Committee or Committees of one (1) or more members of the
Board, and the term "Committee" shall apply to any person or persons to whom
such authority has been delegated. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee any of the administrative powers the Committee is
authorized to exercise (and references in this Plan to the Board shall
thereafter be to the Committee or subcommittee), subject, however, to such
resolutions, not inconsistent with the provisions of the Plan, as may be adopted
from time to time by the Board. The Board may abolish the Committee at any time
and revest in the Board the administration of the Plan.

         (d)      DELEGATION TO AN OFFICER. The Board may delegate to one or
more Officers of the Company the authority to do one or both of the following:
(i) designate Officers and Employees of the Company or any of its Subsidiaries
to be recipients of Stock Awards and (ii) determine the number of shares of
Common Stock to be subject to such Stock Awards granted to such Officers and
Employees of the Company; provided, however, that the Board resolutions
regarding such delegation shall specify the total number of shares of Common
Stock that may be subject to the Stock Awards granted by such Officer and that
such Officer may not grant a Stock Award to himself or herself. Notwithstanding
the foregoing, the Board may not delegate authority to an Officer to determine
the Fair Market Value of the Common Stock.

         (e)      EFFECT OF BOARD'S DECISION. All determinations,
interpretations and constructions made by the Board in good faith shall not be
subject to review by any person and shall be final, binding and conclusive on
all persons.

4.       SHARES SUBJECT TO THE PLAN.

         (a)      SHARE RESERVE. Subject to the provisions of Section 11(a)
relating to Capitalization Adjustments, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate six million nine
hundred fifty-one thousand four hundred sixty-five (6,951,465) shares of Common
Stock.

                                       6
<PAGE>

         (b)      REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award
shall for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the shares of Common Stock not acquired under
such Stock Award shall revert to and again become available for issuance under
the Plan.

         (c)      SOURCE OF SHARES. The shares of Common Stock subject to the
Plan may be unissued shares or reacquired shares, bought on the market or
otherwise.

         (d)      SHARE RESERVE LIMITATION. To the extent required by Section
260.140.45 of Title 10 of the California Code of Regulations, the total number
of shares of Common Stock issuable upon exercise of all outstanding Options and
the total number of shares of Common Stock provided for under any stock bonus or
similar plan of the Company shall not exceed the applicable percentage as
calculated in accordance with the conditions and exclusions of Section
260.140.45 of Title 10 of the California Code of Regulations, based on the
shares of Common Stock of the Company that are outstanding at the time the
calculation is made.

5.       ELIGIBILITY.

         (a)      ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options
may be granted only to Employees. Stock Awards other than Incentive Stock
Options may be granted to Employees, Directors and Consultants.

         (b)      TEN PERCENT STOCKHOLDERS.

                  (i)      A Ten Percent Stockholder shall not be granted an
Incentive Stock Option unless the exercise price of such Option is at least one
hundred ten percent (110%) of the Fair Market Value of the Common Stock on the
date of grant and the Option is not exercisable after the expiration of five (5)
years from the date of grant.

                  (ii)     A Ten Percent Stockholder shall not be granted a
Nonstatutory Stock Option unless the exercise price of such Option is at least
(i) one hundred ten percent (110%) of the Fair Market Value of the Common Stock
on the date of grant or (ii) such lower percentage of the Fair Market Value of
the Common Stock on the date of grant as is permitted by Section 260.140.41 of
Title 10 of the California Code of Regulations at the time of the grant of the
Option.

                  (iii)    A Ten Percent Stockholder shall not be granted a
restricted stock award unless the purchase price of the restricted stock is at
least (i) one hundred percent (100%) of the Fair Market Value of the Common
Stock on the date of grant or (ii) such lower percentage of the Fair Market
Value of the Common Stock on the date of grant as is permitted by Section
260.140.42 of Title 10 of the California Code of Regulations at the time of the
grant of the restricted stock award.

         (c)      CONSULTANTS. A Consultant shall not be eligible for the grant
of a Stock Award if, at the time of grant, either the offer or the sale of the
Company's securities to such Consultant is not exempt under Rule 701 of the
Securities Act ("Rule 701") because of the nature of the services that the
Consultant is providing to the Company, because the Consultant is not a natural
person, or because of some other provision of Rule 701, unless the Company
determines that

                                       7
<PAGE>

such grant need not comply with the requirements of Rule 701 and will satisfy
another exemption under the Securities Act as well as comply with the securities
laws of all other relevant jurisdictions.

6.       OPTION PROVISIONS.

         Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
shall be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:

         (a)      TERM. Subject to the provisions of Section 5(b) regarding Ten
Percent Stockholders, no Option shall be exercisable after the expiration of ten
(10) years from the date it was granted; provided, however, that Nonstatutory
Stock Options granted under the Anadys Pharmaceuticals, Inc. 1994 Stock Option
Plan may provide for a term of up to fifteen (15) years.

         (b)      EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of Section 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the Common Stock subject to the Option on the
date the Option is granted. Notwithstanding the foregoing, an Incentive Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

         (c)      EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. Subject to the
provisions of Section 5(b) regarding Ten Percent Stockholders, the exercise
price of each Nonstatutory Stock Option shall be not less than eighty-five
percent (85%) of the Fair Market Value of the Common Stock subject to the Option
on the date the Option is granted. Notwithstanding the foregoing, a Nonstatutory
Stock Option may be granted with an exercise price lower than that set forth in
the preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

         (d)      CONSIDERATION. The purchase price of Common Stock acquired
pursuant to an Option shall be paid, to the extent permitted by applicable
statutes and regulations, either (i) in cash at the time the Option is exercised
or (ii) at the discretion of the Board at the time of the grant of the Option
(or subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to
the Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board. Unless otherwise specifically
provided in the Option, the purchase price of Common Stock acquired pursuant to
an Option that is paid by delivery to the Company of other Common Stock
acquired, directly or indirectly from the Company, shall be paid only by shares
of the Common Stock of the Company that have been held for more than six (6)
months (or such longer or shorter period of time required to avoid a charge to
earnings for financial

                                       8
<PAGE>

accounting purposes). At any time that the Company is incorporated in Delaware,
payment of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall not be made by deferred payment.

         In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid (1) the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement and (2) the treatment of the Option as a
variable award for financial accounting purposes.

         (e)      TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive
Stock Option shall not be transferable except by will or by the laws of descent
and distribution and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.

         (f)      TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory
Stock Option shall not be transferable except by will or by the laws of descent
and distribution and, to the extent provided in the Option Agreement, to such
further extent as permitted by Section 260.140.41(d) of Title 10 of the
California Code of Regulations at the time of the grant of the Option, and shall
be exercisable during the lifetime of the Optionholder only by the Optionholder.
If the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the Optionholder only by the Optionholder. Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.

         (g)      VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this Section 6(g) are subject to any Option provisions governing
the minimum number of shares of Common Stock as to which an Option may be
exercised.

         (h)      MINIMUM VESTING. Notwithstanding the foregoing Section 6(g),
to the extent that the following restrictions on vesting are required by Section
260.140.41(f) of Title 10 of the California Code of Regulations at the time of
the grant of the Option, then:

                  (i)      Options granted to an Employee who is not an Officer,
Director or Consultant shall provide for vesting of the total number of shares
of Common Stock at a rate of at least twenty percent (20%) per year over five
(5) years from the date the Option was granted, subject to reasonable conditions
such as continued employment; and

                                       9
<PAGE>

                  (ii)     Options granted to Officers, Directors or Consultants
may be made fully exercisable, subject to reasonable conditions such as
continued employment, at any time or during any period established by the
Company.

         (i)      TERMINATION OF CONTINUOUS SERVICE. In the event that an
Optionholder's Continuous Service terminates (for reasons other than Cause or
upon the Optionholder's death or Disability), the Optionholder may exercise his
or her Option (to the extent that the Optionholder was entitled to exercise such
Option as of the date of termination) but only within such period of time ending
on the earlier of (i) the date thirty (30) days following the termination of the
Optionholder's Continuous Service (or such longer period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his
or her Option within the time specified in the Option Agreement, the Option
shall terminate.

         (j)      EXTENSION OF TERMINATION DATE. An Optionholder's Option
Agreement may also provide that if the exercise of the Option following the
termination of the Optionholder's Continuous Service (for reasons other than
Cause or upon the Optionholder's death or Disability) would be prohibited at any
time solely because the issuance of shares of Common Stock would violate the
registration requirements under the Securities Act, then the Option shall
terminate on the earlier of (i) the expiration of the term of the Option set
forth in Section 6(a) or (ii) the expiration of a period of thirty (30) days
after the termination of the Optionholder's Continuous Service during which the
exercise of the Option would not be in violation of such registration
requirements.

         (k)      DISABILITY OF OPTIONHOLDER. In the event that an
Optionholder's Continuous Service terminates as a result of the Optionholder's
Disability, the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination), but only within such period of time ending on the earlier of (i)
the date six (6) months following such termination (or such longer period
specified in the Option Agreement) or (ii) the expiration of the term of the
Option as set forth in the Option Agreement provided, however, that options
granted under the Prior Plans may provide in the Option Agreement for a shorter
period than provided in (i) herein. If, after termination, the Optionholder does
not exercise his or her Option within the time specified herein, the Option
shall terminate.

         (l)      DEATH OF OPTIONHOLDER. In the event that (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder's Continuous Service for a
reason other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder's death pursuant to Section 6(e) or 6(f), but only
within the period ending on the earlier of (1) the date twelve (12) months
following the date of death (or such longer or shorter period specified in the
Option Agreement, which period shall not be less than six (6) months) or (2) the
expiration of the term of such Option as set forth in the Option Agreement. If,
after death, the Option is not exercised within the time specified herein, the
Option shall terminate.

                                       10
<PAGE>

         (m)      TERMINATION FOR CAUSE. In the event an Optionholder's
Continuous Service is terminated for Cause, the Option shall terminate upon the
termination date of such Optionholder's Continuous Service and the Optionholder
is prohibited from exercising his or her Option as of the time of such
termination.

         (n)      RIGHT OF REPURCHASE. Subject to the "Repurchase Limitation" in
Section 10(h), the Option may, but need not, include a provision whereby the
Company may elect to repurchase all or any part of the vested shares of Common
Stock acquired by the Optionholder pursuant to the exercise of the Option.
Provided that the "Repurchase Limitation" in Section 10(h) is not violated, the
Company will not exercise its repurchase option until at least six (6) months
(or such longer or shorter period of time required to avoid a charge to earnings
for financial accounting purposes) have elapsed following exercise of the Option
unless the Board otherwise specifically provides in the Option.

         (o)      RIGHT OF FIRST REFUSAL. The Option may, but need not, include
a provision whereby the Company may elect to exercise a right of first refusal
following receipt of notice from the Optionholder of the intent to transfer all
or any part of the shares of Common Stock received upon the exercise of the
Option. Except as expressly provided in this Section 6(o), such right of first
refusal shall otherwise comply with any applicable provisions of the Bylaws of
the Company.

7.       PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

         (a)      STOCK BONUS AWARDS. Each stock bonus agreement shall be in
such form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of stock bonus agreements may change from
time to time, and the terms and conditions of separate stock bonus agreements
need not be identical, but each stock bonus agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:

                  (i)      CONSIDERATION. A stock bonus may be awarded in
consideration for past services actually rendered to the Company or an Affiliate
for its benefit.

                  (ii)     VESTING. Subject to the "Repurchase Limitation" in
Section 10(h), shares of Common Stock awarded under the stock bonus agreement
may, but need not, be subject to a share repurchase option in favor of the
Company in accordance with a vesting schedule to be determined by the Board.

                  (iii)    TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE.
Subject to the "Repurchase Limitation" in Section 10(h), in the event that a
Participant's Continuous Service terminates, the Company may reacquire any or
all of the shares of Common Stock held by the Participant that have not vested
as of the date of termination under the terms of the stock bonus agreement.

                  (iv)     TRANSFERABILITY. Rights to acquire shares of Common
Stock under the stock bonus agreement shall not be transferable except by will
or by the laws of descent and distribution and shall be exercisable during the
lifetime of the Participant only by the Participant.

                                       11
<PAGE>

         (b)      RESTRICTED STOCK AWARDS. Each restricted stock purchase
agreement shall be in such form and shall contain such terms and conditions as
the Board shall deem appropriate. The terms and conditions of the restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate restricted stock purchase agreements need not be
identical, but each restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:

                  (i)      PURCHASE PRICE. Subject to the provisions of Section
5(b) regarding Ten Percent Stockholders, the purchase price of restricted stock
awards shall not be less than eighty-five percent (85%) of the Common Stock's
Fair Market Value on the date such award is made or at the time the purchase is
consummated.

                  (ii)     CONSIDERATION. The purchase price of Common Stock
acquired pursuant to the restricted stock purchase agreement shall be paid
either: (i) in cash at the time of purchase; (ii) at the discretion of the
Board, according to a deferred payment or other similar arrangement with the
Participant; or (iii) in any other form of legal consideration that may be
acceptable to the Board in its discretion; provided, however, that at any time
that the Company is incorporated in Delaware, then payment of the Common Stock's
"par value," as defined in the Delaware General Corporation Law, shall not be
made by deferred payment.

                  (iii)    VESTING. Subject to the "Repurchase Limitation" in
Section 10(h), shares of Common Stock acquired under the restricted stock
purchase agreement may, but need not, be subject to a share repurchase option in
favor of the Company in accordance with a vesting schedule to be determined by
the Board.

                  (iv)     TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE.
Subject to the "Repurchase Limitation" in Section 10(h), in the event that a
Participant's Continuous Service terminates, the Company may repurchase or
otherwise reacquire any or all of the shares of Common Stock held by the
Participant that have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.

                  (v)      TRANSFERABILITY. Rights to acquire shares of Common
Stock under the restricted stock purchase agreement shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Participant only by the Participant.

8.       COVENANTS OF THE COMPANY.

         (a)      AVAILABILITY OF SHARES. During the terms of the Stock Awards,
the Company shall keep available at all times the number of shares of Common
Stock required to satisfy such Stock Awards.

         (b)      SECURITIES LAW COMPLIANCE. The Company shall seek to obtain
from each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or

                                       12
<PAGE>

issuable pursuant to any such Stock Award. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of Common Stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell Common Stock upon exercise of such Stock
Awards unless and until such authority is obtained.

9.       USE OF PROCEEDS FROM STOCK.

         Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.

10.      MISCELLANEOUS.

         (a)      ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall
have the power to accelerate the time at which a Stock Award may first be
exercised or the time during which a Stock Award or any part thereof will vest
in accordance with the Plan, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.

         (b)      STOCKHOLDER RIGHTS. No Participant shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any shares
of Common Stock subject to such Stock Award unless and until such Participant
has satisfied all requirements for exercise of the Stock Award pursuant to its
terms.

         (c)      NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or
any instrument executed or Stock Award granted pursuant thereto shall confer
upon any Participant any right to continue to serve the Company or an Affiliate
in the capacity in effect at the time the Stock Award was granted or shall
affect the right of the Company or an Affiliate to terminate (i) the employment
of an Employee with or without notice and with or without Cause, (ii) the
service of a Consultant pursuant to the terms of such Consultant's agreement
with the Company or an Affiliate or (iii) the service of a Director pursuant to
the Bylaws of the Company or an Affiliate, and any applicable provisions of the
corporate law of the state in which the Company or the Affiliate is
incorporated, as the case may be.

         (d)      INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that
the aggregate Fair Market Value (determined at the time of grant) of Common
Stock with respect to which Incentive Stock Options are exercisable for the
first time by any Optionholder during any calendar year (under all plans of the
Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the
Options or portions thereof that exceed such limit (according to the order in
which they were granted) shall be treated as Nonstatutory Stock Options,
notwithstanding any contrary provision of an Stock Award Agreement.

         (e)      INVESTMENT ASSURANCES. The Company may require a Participant,
as a condition of exercising or acquiring Common Stock under any Stock Award,
(i) to give written assurances satisfactory to the Company as to the
Participant's knowledge and experience in financial and business matters and/or
to employ a purchaser representative reasonably satisfactory to the Company who
is knowledgeable and experienced in financial and business matters and that he
or she is capable of evaluating, alone or together with the purchaser
representative, the merits and

                                       13
<PAGE>

risks of exercising the Stock Award; and (ii) to give written assurances
satisfactory to the Company stating that the Participant is acquiring Common
Stock subject to the Stock Award for the Participant's own account and not with
any present intention of selling or otherwise distributing the Common Stock. The
foregoing requirements, and any assurances given pursuant to such requirements,
shall be inoperative if (1) the issuance of the shares of Common Stock upon the
exercise or acquisition of Common Stock under the Stock Award has been
registered under a then currently effective registration statement under the
Securities Act or (2) as to any particular requirement, a determination is made
by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may, upon
advice of counsel to the Company, place legends on stock certificates issued
under the Plan as such counsel deems necessary or appropriate in order to comply
with applicable securities laws, including, but not limited to, legends
restricting the transfer of the Common Stock.

         (f)      WITHHOLDING OBLIGATIONS. To the extent provided by the terms
of a Stock Award Agreement, the Participant may satisfy any federal, state or
local tax withholding obligation relating to the exercise or acquisition of
Common Stock under a Stock Award by any of the following means (in addition to
the Company's right to withhold from any compensation paid to the Participant by
the Company) or by a combination of such means: (i) tendering a cash payment;
(ii) authorizing the Company to withhold shares of Common Stock from the shares
of Common Stock otherwise issuable to the Participant as a result of the
exercise or acquisition of Common Stock under the Stock Award; provided,
however, that no shares of Common Stock are withheld with a value exceeding the
minimum amount of tax required to be withheld by law (or such lower amount as
may be necessary to avoid variable award accounting); or (iii) delivering to the
Company owned and unencumbered shares of Common Stock.

         (g)      INFORMATION OBLIGATION. To the extent required by Section
260.140.46 of Title 10 of the California Code of Regulations, the Company shall
deliver financial statements to Participants at least annually. This Section
10(g) shall not apply to key Employees whose duties in connection with the
Company assure them access to equivalent information.

         (h)      REPURCHASE LIMITATION. The terms of any repurchase option
shall be specified in the Stock Award and may be either at Fair Market Value at
the time of repurchase or at not less than the original purchase price. To the
extent required by Section 260.140.41 and Section 260.140.42 of Title 10 of the
California Code of Regulations at the time a Stock Award is made, any repurchase
option contained in a Stock Award granted to a person who is not an Officer,
Director or Consultant shall be upon the terms described below:

                  (i)      FAIR MARKET VALUE. If the repurchase option gives the
Company the right to repurchase the shares of Common Stock upon termination of
employment at not less than the Fair Market Value of the shares of Common Stock
to be purchased on the date of termination of Continuous Service, then (i) the
right to repurchase shall be exercised for cash or cancellation of purchase
money indebtedness for the shares of Common Stock within ninety (90) days of
termination of Continuous Service (or in the case of shares of Common Stock
issued upon exercise of Stock Awards after such date of termination, within
ninety (90) days after the date of the exercise) or such longer period as may be
agreed to by the Company and the Participant (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code regarding

                                       14
<PAGE>

"qualified small business stock") and (ii) the right terminates when the shares
of Common Stock become publicly traded.

                  (ii)     ORIGINAL PURCHASE PRICE. If the repurchase option
gives the Company the right to repurchase the shares of Common Stock upon
termination of Continuous Service at the original purchase price, then (i) the
right to repurchase at the original purchase price shall lapse at the rate of at
least twenty percent (20%) of the shares of Common Stock per year over five (5)
years from the date the Stock Award is granted (without respect to the date the
Stock Award was exercised or became exercisable) and (ii) the right to
repurchase shall be exercised for cash or cancellation of purchase money
indebtedness for the shares of Common Stock within ninety (90) days of
termination of Continuous Service (or in the case of shares of Common Stock
issued upon exercise of Options after such date of termination, within ninety
(90) days after the date of the exercise) or such longer period as may be agreed
to by the Company and the Participant (for example, for purposes of satisfying
the requirements of Section 1202(c)(3) of the Code regarding "qualified small
business stock").

11.      ADJUSTMENTS UPON CHANGES IN STOCK.

         (a)      CAPITALIZATION ADJUSTMENTS. If any change is made in, or other
event occurs with respect to, the Common Stock subject to the Plan or subject to
any Stock Award without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company (each a "Capitalization Adjustment"), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to Sections 4(a) and 4(b) and the maximum number of securities subject
to award to any person pursuant to Section 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of Common Stock subject to such outstanding Stock Awards.
The Board shall make such adjustments, and its determination shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)

         (b)      DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then all outstanding Stock Awards shall terminate
immediately prior to the completion of such dissolution or liquidation.

         (c)      CORPORATE TRANSACTION. In the event of a Corporate
Transaction, any surviving corporation or acquiring corporation may assume any
or all Stock Awards outstanding under the Plan or may substitute similar stock
awards for Stock Awards outstanding under the Plan (it being understood that
similar stock awards include, but are not limited to, awards to acquire the same
consideration paid to the stockholders or the Company, as the case may be,
pursuant to the Corporate Transaction). In the event that any surviving
corporation or acquiring corporation does not assume any or all such outstanding
Stock Awards or substitute similar stock awards for such outstanding Stock
Awards, then with respect to Stock Awards that have been neither assumed nor
substituted and that are held by Participants whose Continuous Service has not
terminated prior to the effective time of the Corporate Transaction, the vesting
of such Stock

                                       15
<PAGE>

Awards (and, if applicable, the time at which such Stock Awards may be
exercised) shall (contingent upon the effectiveness of the Corporate
Transaction) be accelerated in full to a date prior to the effective time of
such Corporate Transaction as the Board shall determine (or, if the Board shall
not determine such a date, to the date that is five (5) days prior to the
effective time of the Corporate Transaction), and the Stock Awards shall
terminate if not exercised (if applicable) at or prior to such effective time.
With respect to any other Stock Awards outstanding under the Plan that have been
neither assumed nor substituted, the vesting of such Stock Awards (and, if
applicable, the time at which such Stock Award may be exercised) shall not be
accelerated unless otherwise provided in a written agreement between the Company
or any Affiliate and the holder of such Stock Award, and such Stock Awards shall
terminate if not exercised (if applicable) prior to the effective time of the
Corporate Transaction.

         (d)      CHANGE IN CONTROL. A Stock Award held by any Participant whose
Continuous Service has not terminated prior to the effective time of a Change in
Control may be subject to additional acceleration of vesting and exercisability
upon or after such event as may be provided in the Stock Award Agreement for
such Stock Award or as may be provided in any other written agreement between
the Company or any Affiliate and the Participant, but in the absence of such
provision, no such acceleration shall occur.

12.      AMENDMENT OF THE PLAN AND STOCK AWARDS.

         (a)      AMENDMENT OF PLAN. The Board at any time, and from time to
time, may amend the Plan. However, except as provided in Section 11(a) relating
to Capitalization Adjustments, no amendment shall be effective unless approved
by the stockholders of the Company to the extent stockholder approval is
necessary to satisfy the requirements of Section 422 of the Code.

         (b)      STOCKHOLDER APPROVAL. The Board, in its sole discretion, may
submit any other amendment to the Plan for stockholder approval.

         (c)      CONTEMPLATED AMENDMENTS. It is expressly contemplated that the
Board may amend the Plan in any respect the Board deems necessary or advisable
to provide eligible Employees with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.

         (d)      NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted
before amendment of the Plan shall not be impaired by any amendment of the Plan
unless (i) the Company requests the consent of the Participant and (ii) the
Participant consents in writing.

         (e)      AMENDMENT OF STOCK AWARDS. The Board at any time, and from
time to time, may amend the terms of any one or more Stock Awards; provided,
however, that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.

13.      TERMINATION OR SUSPENSION OF THE PLAN.

         (a)      PLAN TERM. The Board may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate on the day before the
tenth (10th) anniversary of the

                                       16
<PAGE>

date the Plan is adopted by the Board or approved by the stockholders of the
Company, whichever is earlier. No Stock Awards may be granted under the Plan
while the Plan is suspended or after it is terminated.

         (b)      NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan
shall not impair rights and obligations under any Stock Award granted while the
Plan is in effect except with the written consent of the Participant.

14.      EFFECTIVE DATE OF PLAN.

         The Plan shall become effective as determined by the Board, but no
Stock Award shall be exercised (or, in the case of a stock bonus, shall be
granted) unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.

15.      CHOICE OF LAW.

         The law of the State of California shall govern all questions
concerning the construction, validity and interpretation of this Plan, without
regard to such state's conflict of laws rules.

                                       17

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