Document:

<PAGE>   1

                                                                   EXHIBIT 10.27

                                      LEASE

Landlord:  HAYWARD POINT EDEN I LIMITED PARTNERSHIP

Tenant:    ARADIGM CORPORATION

Date:      July 1, 2000

                                TABLE OF CONTENTS

<TABLE>
<S>     <C>                                                                                      <C>
1.      PREMISES............................................................................       1
        1.1.    Premises....................................................................       1
        1.2.    Landlord's Reserved Rights..................................................       2

2.      TERM................................................................................       2
        2.1.    Term........................................................................       2
        2.2.    [Omitted.]..................................................................       2
        2.3.    Delay In Possession.........................................................       2
        2.4.    Construction................................................................       2
        2.5.    Acknowledgment Of Third Commencement Date...................................       4
        2.6.    Holding Over................................................................       4

3.      RENTAL..............................................................................       4
        3.1.    Minimum Rental; Additional Rent.............................................       4
        3.2.    Late Charge.................................................................       6

4.      TAXES...............................................................................       7
        4.1.    Personal Property...........................................................       7
        4.2.    Real Property...............................................................       7

5.      OPERATING EXPENSES..................................................................       7
        5.1.    Payment Of Operating Expenses...............................................       7
        5.2.    Definition Of Operating Expenses............................................       8
        5.3.    Determination Of Operating Expenses.........................................      10
        5.4.    Final Accounting For Lease Year.............................................      10
        5.5.    Proration...................................................................      11

6.      UTILITIES...........................................................................      11
        6.1.    Payment.....................................................................      11
        6.2.    Interruption................................................................      11

7.      ALTERATIONS.........................................................................      11
        7.1.    Right To Make Alterations...................................................      11
        7.2.    Title To Alterations........................................................      11
        7.3.    Tenant Fixtures.............................................................      12
        7.4.    No Liens....................................................................      12

8.      MAINTENANCE AND REPAIRS.............................................................      12
        8.1.    Landlord's Work.............................................................      12
        8.2.    Tenant's Obligation For Maintenance.........................................      13
                (a)     Good Order, Condition And Repair....................................      13
                (b)     Landlord's Remedy...................................................      13
                (c)     Condition Upon Surrender............................................      13
</TABLE>

<PAGE>   2

<TABLE>
<S>     <C>                                                                                      <C>
9.      USE OF PREMISES.....................................................................      13
        9.1.    Permitted Use...............................................................      13
        9.2.    Requirement Of Continued Use................................................      14
        9.3.    No Nuisance.................................................................      14
        9.4.    Compliance With Laws........................................................      14
        9.5.    Liquidation Sales...........................................................      14
        9.6.    Environmental Compliance....................................................      14
        9.7.    ADA/Title 24 Compliance.....................................................      16

10.     INSURANCE AND INDEMNITY.............................................................      16
        10.1.   Liability Insurance.........................................................      16
        10.2.   Quality Of Policies And Certificates........................................      17
        10.3.   Workers' Compensation.......................................................      17
        10.4.   Waiver Of Subrogation.......................................................      17
        10.5.   Increase In Premiums........................................................      17
        10.6.   Indemnification.............................................................      17
        10.7.   Blanket Policy..............................................................      18

11.     SUBLEASE AND ASSIGNMENT.............................................................      18
        11.1.   Assignment And Sublease Of Premises.........................................      18
        11.2.   Rights Of Landlord..........................................................      19

12.     RIGHT OF ENTRY AND QUIET ENJOYMENT..................................................      19
        12.1.   Right Of Entry..............................................................      19
        12.2.   Quiet Enjoyment.............................................................      19

13.     CASUALTY AND TAKING.................................................................      19
        13.1.   Termination Or Reconstruction...............................................      19
        13.2.   Tenant's Rights.............................................................      21
        13.3.   Lease To Remain In Effect...................................................      21
        13.4.   Reservation Of Compensation.................................................      21
        13.5.   Restoration Of Fixtures.....................................................      21

14.     DEFAULT.............................................................................      22
        14.1.   Events Of Default...........................................................      22
                (a)     Abandonment.........................................................      22
                (b)     Nonpayment..........................................................      22
                (c)     Other Obligations...................................................      22
                (d)     General Assignment..................................................      22
                (e)     Bankruptcy..........................................................      22
                (f)     Receivership........................................................      22
                (g)     Attachment..........................................................      22
                (h)     Insolvency..........................................................      22
                (i)     Cross-Default.......................................................      23
        14.2.   Remedies Upon Tenant's Default..............................................      23
        14.3.   Remedies Cumulative.........................................................      24

15.     SUBORDINATION, ATTORNMENT AND SALE..................................................      24
        15.1.   Subordination To Mortgage...................................................      24
        15.2.   Sale Of Landlord's Interest.................................................      25
        15.3.   Estoppel Certificates.......................................................      25
        15.4.   Subordination to CC&R's.....................................................      25

16.     SECURITY............................................................................      25
        16.1.   Deposit.....................................................................      25
</TABLE>
<PAGE>   3

<TABLE>
<S>     <C>                                                                                      <C>
17.     MISCELLANEOUS.......................................................................      26
        17.1.   Notices.....................................................................      26
        17.2.   Successors And Assigns......................................................      27
        17.3.   No Waiver...................................................................      27
        17.4.   Severability................................................................      27
        17.5.   Litigation Between Parties..................................................      28
        17.6.   Surrender...................................................................      28
        17.7.   Interpretation..............................................................      28
        17.8.   Entire Agreement............................................................      28
        17.9.   Governing Law...............................................................      28
        17.10.  No Partnership..............................................................      28
        17.11.  Financial Information.......................................................      28
        17.12.  Costs.......................................................................      29
        17.13.  Time........................................................................      29
        17.14.  Rules And Regulations.......................................................      29
        17.15.  Brokers.....................................................................      29
        17.16.  Memorandum Of Lease.........................................................      29
        17.17.  Corporate Authority.........................................................      29
        17.18.  Execution and Delivery......................................................      29
        17.19.  Stock Warrants..............................................................      29
</TABLE>

EXHIBITS

A       Location of Premises

B       Real Property Description

C       Construction

D       Acknowledgment of Third Commencement Date

<PAGE>   4

                                      LEASE

             THIS LEASE is made and entered into as of July 1, 2000, by and
between HAYWARD POINT EDEN I LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord") and ARADIGM CORPORATION, a California corporation ("Tenant").

                          THE PARTIES AGREE AS FOLLOWS:

                                   1. PREMISES

        1.1. Premises.

             (a) Landlord leases to Tenant and Tenant hires and leases from
Landlord, on the terms, covenants and conditions hereinafter set forth, the
premises (the "Premises") designated in Exhibit A attached hereto and
incorporated herein by this reference, consisting of 40,387 square feet of space
constituting all of Building E (the "Building") in the Britannia Point Eden
Business Park (the "Center") in the City of Hayward, County of Alameda, State of
California, commonly known as 3930 Point Eden Way, Hayward, California 94545 and
located on the real property (the "Property") described in Exhibit B attached
hereto and incorporated herein by this reference, together with the nonexclusive
right to use any common areas designated from time to time in any Declaration of
Covenants, Conditions and Restrictions or similar document affecting the Center.

             (b) The Premises as designated in Exhibit A consist of the
following subspaces: (i) the "First Space," consisting of 13,564 square feet of
space heretofore occupied by Tenant pursuant to a lease dated as of February 21,
1996 between Landlord and Tenant, as amended (the "Existing Lease"), which
Existing Lease expired by its terms as to the First Space on June 30, 2000; (ii)
the "Second Space," consisting of 9,286 square feet of space heretofore and
presently occupied by Tenant pursuant to the Existing Lease, which Existing
Lease is scheduled to expire by its terms as to the Second Space on December 31,
2000; and (iii) the "Third Space," consisting of 17,537 square feet of space
presently occupied by AllAdvantage.com pursuant to an Option Agreement dated
September __, 1999 between Landlord and AllAdvantage.com, which occupancy is
scheduled to expire by the terms of such Option Agreement on December 31, 2000.
The term "Premises" as used herein shall be construed to mean the First Space
during the period from and including the First Commencement Date until the
earlier of the Second Commencement Date or the Third Commencement Date, to
include the Second Space as well from and after the Second Commencement Date,
and to include the Third Space as well from and after the Third Commencement
Date.

             (c) Effective as of the First Commencement Date (as hereinafter
defined), the Existing Lease shall be terminated as to the First Space and shall
be of no further force or effect, except that the provisions thereof shall be
deemed to remain in effect as between Landlord and Tenant for the sole purpose
of establishing their respective rights and obligations with respect to matters
arising during or in connection with Tenant's occupancy of the First Space
pursuant to the Existing Lease during the period prior to the First Commencement
Date (including, but not limited to, any indemnification obligations with
respect to third party claims or other liabilities, and any necessary adjustment
between the parties, when 2000 year-end figures are available, for estimated
Operating Expense payments and actual Operating Expense obligations relating to
the First Space for the portion of calendar year 2000 prior to the First
Commencement Date).

             (d) The Existing Lease shall remain in effect, in accordance with
its terms, as to the Second Space until the Second Commencement Date (as
hereinafter defined). Effective as of the Second Commencement Date, the Existing
Lease shall be terminated as to the Second Space and shall be of no further
force or effect, except that the provisions thereof shall be deemed to remain in
effect as between Landlord and Tenant for the sole purpose of establishing their
respective rights and obligations with respect to matters arising during or in
connection with Tenant's occupancy of

                                      -1-
<PAGE>   5

the Second Space pursuant to the Existing Lease during the period prior to the
Second Commencement Date (including, but not limited to, any indemnification
obligations with respect to third party claims or other liabilities, and any
necessary adjustment between the parties, when 2000 year-end figures are
available, for estimated Operating Expense payments and actual Operating Expense
obligations relating to the Second Space for calendar year 2000).

        1.2. Landlord's Reserved Rights. Landlord reserves the right from time
to time to (i) install, use, maintain, repair and replace pipes, ducts,
conduits, wires and appurtenant meters and equipment for service to other parts
of the Building above the ceiling surfaces, below the floor surfaces, within the
walls or leading through the Premises in locations which will not materially
interfere with Tenant's use thereof, (ii) relocate any pipes, ducts, conduits,
wires and appurtenant meters and equipment included in the Premises which are so
located or located elsewhere outside the Premises, (iii) make alterations or
additions to the Building, (iv) construct, alter or add to other buildings or
improvements on the Property, (v) build adjoining to the Property, and (vi)
lease any part of the Property for the construction of improvements or
buildings. Landlord may modify or enlarge the common area, alter or relocate
accesses to the Premises, or alter or relocate any common facility. Landlord
shall not exercise rights reserved to it pursuant to this Section 1.2 in such a
manner as to materially impair Tenant's ability to conduct its activities in the
normal manner; provided, however, that the foregoing shall not limit or restrict
Landlord's right to undertake reasonable construction activity and Tenant's use
of the Premises shall be subject to reasonable temporary disruption incidental
to such activity diligently prosecuted.

                                     2. TERM

        2.1. Term. The term of this Lease shall commence as to the First Space
on July 1, 2000 (the "First Commencement Date"), shall commence as to the Second
Space on January 1, 2001 (the "Second Commencement Date"), shall commence as to
the Third Space on the date Landlord tenders possession of the Third Space to
Tenant (which Landlord shall do as soon as the Third Space is vacated by the
existing tenant, presently expected by the parties to occur no later than
December 31, 2000, and possibly as early as September 30, 2000) (the "Third
Commencement Date"), and shall end as to the entire Premises on May 1, 2014,
unless sooner terminated as hereinafter provided.

        2.2. [Omitted.]

        2.3. Delay In Possession. As noted above, Tenant is already in
possession of the First Space and the Second Space. Landlord agrees to use its
best reasonable efforts to deliver possession of the Third Space to Tenant on or
before January 1, 2001, subject to the effects of any circumstances beyond
Landlord's reasonable control (such as, but not limited to, any delays by the
existing tenant and subtenant in vacating the Third Space); provided, however,
Landlord shall not be liable for any damages caused by any delay in the
availability of the Third Space, nor shall any such delay affect the validity of
this Lease or the obligations of Tenant hereunder, except that notwithstanding
any other provisions of this Lease, Tenant's obligations with respect to the
Third Space shall not commence until the Third Commencement Date.

        2.4. Construction.

                                      -2-
<PAGE>   6

             (a) Except as set forth in this Section 2.4 (including paragraph
(b) below) and in Exhibit C, Landlord shall have no responsibilities or
obligations with respect to preparation of the Premises for Tenant's occupancy.
It is generally the intention of the parties that Tenant shall continue to
occupy the First Space and the Second Space on an "as is" basis and shall accept
possession of the Third Space on an "as is" basis, subject to Landlord's
warranties in Section 2.4(b) below with respect to the Third Space and subject
to the provisions of this Section 2.4 and of Exhibit C regarding the
construction of tenant improvements by Landlord or Tenant, as applicable, and
regarding the provision of a Tenant Improvement Allowance by Landlord with
respect to such tenant improvements. Acceptance by Tenant of possession of the
respective portions of the Premises on their respective Commencement Dates shall
constitute acceptance by Tenant of such portions of the Premises in their then
existing condition, as applicable, subject to the terms of this Section 2.4
(including paragraph (b) below) and Exhibit C, and Landlord shall have no
further responsibility of any kind or character for improvement of such
respective portions of the Premises, except as expressly set forth in this
Section 2.4 and in Exhibit C; provided, however, that to the extent Landlord
constructs any tenant improvements in any phase of the Premises pursuant to this
Lease, within fifteen (15) days after Landlord tenders to Tenant possession of
such tenant improvements constructed by Landlord pursuant to this Lease, Tenant
may furnish to Landlord a "punch list" identifying any items or matters in such
tenant improvements which are not constructed in accordance with the plans and
specifications approved under Exhibit C hereto and Landlord shall promptly and
diligently correct all such matters within thirty (30) days after receipt of
such punch list at its sole cost and expense.

             (b) Notwithstanding the provisions of paragraph (a) above, Landlord
warrants to Tenant that on the date the Third Space is tendered to Tenant for
Tenant's possession and commencement of business therein, the Building systems
serving the Third Space shall be in good operating order, and the Building shell
(as it relates to the Third Space) and the tenant improvements previously
constructed by Landlord in the Third Space (i) shall be free from material
structural defects and (ii) shall comply with all applicable covenants and
restrictions of record, statutes, ordinances, codes, rules, regulations, orders
and requirements in effect on the date of such tender, including Title 24 of the
California Administrative Code and the Americans with Disabilities Act;
provided, however, that the foregoing warranty shall not be construed to apply
to any particular use which Tenant will make of the Third Space. If it is
determined that the foregoing warranty has been violated in any respect, then it
shall be the obligation of Landlord, after receipt of written notice from Tenant
setting forth with specificity the nature of the violation, to promptly, at
Landlord's sole cost and expense, correct the condition(s) constituting such
violation. Landlord shall also protect, indemnify, defend and hold Tenant
harmless from and against any and all liability, loss, suits, claims, actions,
costs and expenses (including, but not limited to, reasonable attorneys' fees)
arising from any breach of the foregoing warranty. The provisions of this
Section 2.4(b) shall survive the termination of this Lease. With respect to the
foregoing warranty regarding systems being in good operating order, Tenant's
failure to give such written notice to Landlord within ninety (90) days after
tender of possession of the Third Space to Tenant shall give rise to a
conclusive presumption that Landlord has complied with such warranty as to the
Third Space. Tenant acknowledges that neither Landlord nor any agent of Landlord
has made any representation or warranty as to the present or future suitability
of the Third Space (or any other portion of the Premises) for the conduct of
Tenant's business or proposed business therein, except as expressly set forth in
this Lease.

             (c) Notwithstanding any other provisions of this Section 2.4 or of
Exhibit C to the contrary, to the extent Tenant, by mutual agreement of Landlord
and Tenant as contemplated in Exhibit C, enters into contracts directly with the
architect and/or contractor(s) for any of the tenant improvement work in the
Premises, Landlord's sole obligation with respect to such work contracted for by
Tenant shall be to make payments with respect thereto when and as required under
Exhibit C and to cooperate with Tenant with respect to any approvals or other
actions required of Landlord under Exhibit C in connection with such work;
Landlord's warranties under Section 2.4(b) and Landlord's obligations to make
improvements and correct "punch list" items under Section 2.4(a) and Exhibit C
shall not apply to any improvement work designed and/or constructed under direct
contract with Tenant, it being the intention of the parties that Tenant's sole
recourse with respect to any such work designed and/or constructed under direct
contracts with Tenant shall be solely against the applicable contracting parties
and not against Landlord.

                                      -3-
<PAGE>   7

             (d) TENANT ACKNOWLEDGES THAT THE FOREGOING WARRANTIES ARE IN LIEU
OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE PHYSICAL
CONDITION OF THE BUILDING AND IMPROVEMENTS CONSTRUCTED OR TO BE CONSTRUCTED BY
LANDLORD AND THAT LANDLORD MAKES NO OTHER WARRANTIES EXCEPT AS EXPRESSLY SET
FORTH IN THIS LEASE.

        2.5. Acknowledgment Of Third Commencement Date. Promptly following the
Third Commencement Date, Landlord and Tenant shall execute a written
acknowledgment of the Third Commencement Date, date of termination and related
matters, substantially in the form attached hereto as Exhibit D (with
appropriate insertions), which acknowledgment shall be deemed to be incorporated
herein by this reference. Notwithstanding the foregoing requirements, the
failure of one or both parties to execute any such written acknowledgment shall
not affect the determination of the Third Commencement Date, date of
termination, square footage of the Premises and related matters in accordance
with the provisions of this Lease.

        2.6. Holding Over. If Tenant holds possession of the Premises after the
term of this Lease with Landlord's written consent, then except as otherwise
specified in such consent, Tenant shall become a tenant from month to month at
one hundred percent (100%) for the first thirty (30) days of such holding over,
and at one hundred twenty-five percent (125%) thereafter, of the rental in
effect for the period immediately prior to such holding over and otherwise upon
the terms herein specified for the period immediately prior to such holding
over, and shall continue in such status until the tenancy is terminated by
either party upon not less than thirty (30) days prior written notice. If Tenant
holds possession of the Premises after the term of this Lease without Landlord's
written consent, then Landlord in its sole discretion may elect (by written
notice to Tenant) to have Tenant become a tenant either from month to month or
at will, at one hundred fifty percent (150%) of the rental (prorated on a daily
basis for an at-will tenancy, if applicable) and otherwise upon the terms herein
specified for the period immediately prior to such holding over, or may elect to
pursue any and all legal remedies available to Landlord under applicable law
with respect to such unconsented holding over by Tenant. Tenant shall indemnify
and hold Landlord harmless from any loss, damage, claim, liability, cost or
expense (including reasonable attorneys' fees) resulting from any delay by
Tenant in surrendering the Premises (except with Landlord's prior written
consent), including but not limited to any claims made by a succeeding tenant by
reason of such delay. Acceptance of rent by Landlord following expiration or
termination of this Lease shall not constitute a renewal of this Lease.

                                    3. RENTAL

        3.1. Minimum Rental; Additional Rent.

             (a) Tenant shall pay to Landlord as minimum rental for the
Premises, in advance, without deduction, offset, notice or demand, on or before
the First Commencement Date and on or before the first day of each subsequent
calendar month of the term of this Lease, the following amounts per month (which
amounts assume occurrence of both the Second Commencement Date and the Third
Commencement Date on January 1, 2001, and shall be adjusted appropriately in
proportion to the square footage of the Third Space if the Third Commencement
Date occurs before or after January 1, 2001):

                     [rest of page intentionally left blank]

                                      -4-
<PAGE>   8

<TABLE>
<CAPTION>
                Months After First
                 Commencement Date                      Minimum Monthly Rental
                 -----------------                  -------------------------------
<S>                                                 <C>
                     001 - 006                      $ 16,955.00/mo  ($1.2500/sq ft)
                     007 - 012                        50,483.76/mo  ($1.2500/sq ft)
                     013 - 024                        52,503.10/mo  ($1.3000/sq ft)
                     025 - 036                        54,603.22/mo  ($1.3520/sq ft)
                     037 - 048                        56,787.35/mo  ($1.4061/sq ft)
                     049 - 060                        59,058.85/mo  ($1.4623/sq ft)
                     061 - 072                        61,421.20/mo  ($1.5208/sq ft)
                     073 - 084                        63,878.05/mo  ($1.5816/sq ft)
                     085 - 096                        66,433.17/mo  ($1.6449/sq ft)
                     097 - 108                        69,090.50/mo  ($1.7107/sq ft)
                     109 - 120                        71,854.12/mo  ($1.7791/sq ft)
                     121 - 132                        74,728.28/mo  ($1.8503/sq ft)
                     133 - 144                        77,717.41/mo  ($1.9243/sq ft)
                     145 - 156                        80,826.11/mo  ($2.0013/sq ft)
                     157 - 166                        84,059.15/mo  ($2.0813/sq ft)
</TABLE>

If the obligation to pay minimum rental hereunder commences on other than the
first day of a calendar month or if the term of this Lease terminates on other
than the last day of a calendar month, the minimum rental for such first or last
month of the term of this Lease, as the case may be, shall be prorated based on
the number of days the term of this Lease is in effect during such month. If an
increase in minimum rental becomes effective on a day other than the first day
of a calendar month, the minimum rental for that month shall be the sum of the
two applicable rates, each prorated for the portion of the month during which
such rate is in effect.

             (b) In determining the square footage of the Premises or of
relevant portions thereof for purposes of applying the rates per square foot set
forth in Section 3.1(a) or for any other purpose under this Lease, square
footages shall be as determined in good faith by Landlord's architect on a basis
consistent with that used in measuring other leased premises within the Center,
which basis consists of measuring from the exterior faces of exterior walls,
from the dripline of overhangs and recessed areas, and from the centerline of
interior demising walls.

             (c) The minimum rental amounts specified in this Section 3.1 are
based upon Tenant's taking the entire Premises "as is," without any tenant
improvements. As set forth in Exhibit C, however, Landlord has agreed to make
available to Tenant a maximum tenant improvement allowance of Seventy and No/100
Dollars ($70.00) per square foot, or an estimated total of Two Million Eight
Hundred Twenty-Seven Thousand Ninety and No/100 Dollars ($2,827,090.00) (the
"Tenant Improvement Allowance"), for the work to be performed by Landlord and/or
Tenant, as applicable, on the Premises under Section 2.4 and Exhibit C.
Beginning on the first day of the first calendar month after the date on which
Landlord first expends any portion of the Tenant Improvement Allowance, Tenant
shall pay additional monthly rent to Landlord for the Premises ("Additional
Rent") as follows:

                    (i) Starting on the first day of the first calendar month
        following the first expenditure of any portion of the Tenant Improvement
        Allowance by Landlord until the Additional Rent Amortization Date (as
        hereinafter defined), Tenant shall pay Additional Rent to Landlord on
        the first day of each calendar month in an amount equal to the sum of
        (A) one and eight hundredths percent (1.08%) of the aggregate amount of
        the Tenant Improvement Allowance expended by Landlord prior to the first
        day of the immediately preceding calendar month plus (B) one and eight
        hundredths percent (1.08%) of the aggregate amount of the Tenant
        Improvement Allowance expended by Landlord during the immediately
        preceding calendar month times a fraction, the numerator of which is the
        number of days from (and including) the date of such expenditure by
        Landlord through the last day of the immediately preceding calendar
        month and the denominator of which is the total number of days in the
        immediately preceding calendar month. If Landlord makes expenditures of
        the Tenant Improvement Allowance on more than one day in a calendar

                                      -5-
<PAGE>   9

        month, then the calculation of the amounts due under clause (B) of the
        preceding sentence for the immediately following calendar month shall be
        performed separately for each such expenditure and the total of such
        separate calculations shall be the total amount due under such clause
        (B) for such immediately following calendar month. The term "Additional
        Rent Amortization Date" shall mean the earliest to occur of (x) the
        first day of the first calendar month after the date on which the entire
        Tenant Improvement Allowance has been fully expended by Landlord, or (y)
        the first day of the first calendar month after construction of all
        tenant improvements to be constructed in the Premises pursuant to
        Section 2.4 and Exhibit C has been completed (except for correction of
        punch list items that do not, in the aggregate, materially affect
        Tenant's ability to use the tenant improvements in the Premises for
        their intended purposes), or (z) July 1, 2001.

                    (ii) Beginning on the Additional Rent Amortization Date and
        continuing on the first day of each of the next eighty-three (83)
        calendar months after the calendar month in which the Additional Rent
        Amortization Date occurs (for a total of eighty-four (84) monthly
        payments under this subparagraph (ii)), Tenant shall pay Additional Rent
        to Landlord on the first day of each calendar month in an amount equal
        to the sum necessary to fully amortize the total amount of the Tenant
        Improvement Allowance expended by Landlord as of the Additional Rent
        Amortization Date on a level-payment basis over eighty-four (84) months
        with an imputed rate of return of thirteen percent (13%) per annum. If
        and to the extent that Landlord has not fully expended the Tenant
        Improvement Allowance as of the Additional Rent Amortization Date and
        thereafter expends additional portions of the Tenant Improvement
        Allowance after the Additional Rent Amortization Date (each such
        subsequent additional expenditure, if any, of part of the Tenant
        Improvement Allowance being hereinafter referred to as a "Supplemental
        TI Expenditure"), then beginning on the first day of the first calendar
        month following the date on which such Supplemental TI Expenditure is
        made and continuing throughout the remaining balance of the original 84-
        month amortization period which began on the Additional Rent
        Amortization Date, the Additional Rent due from Tenant each month shall
        be increased by an amount equal to the sum necessary to fully amortize
        the Supplemental TI Expenditure on a level-payment basis over the number
        of months remaining in such original 84-month amortization period with
        an imputed rate of return of thirteen percent (13%) per annum.

        3.2. Late Charge. If Tenant fails to pay when due rental or other
amounts due Landlord hereunder on or before the fifth (5th) day after such
rental or other amount is due, such unpaid amounts shall bear interest for the
benefit of Landlord at a rate equal to the lesser of fifteen percent (15%) per
annum or the maximum rate permitted by law, from the date due to the date of
payment. In addition to such interest, Tenant shall pay to Landlord a late
charge in an amount equal to ten percent (10%) of any installment of rental and
any other amounts due Landlord if not paid in full on or before the fifth (5th)
day after such rental or other amount is due. Tenant acknowledges that late
payment by Tenant to Landlord of rental or other amounts due hereunder will
cause Landlord to incur costs not contemplated by this Lease, including, without
limitation, processing and accounting charges and late charges which may be
imposed on Landlord by the terms of any loan relating to the Property. Tenant
further acknowledges that it is extremely difficult and impractical to fix the
exact amount of such costs and that the late charge set forth in this Section
3.2 represents a fair and reasonable estimate thereof. Acceptance of any late
charge by Landlord shall not constitute a waiver of Tenant's default with
respect to overdue rental or other amounts, nor shall such acceptance prevent
Landlord from exercising any other rights and remedies available to it.
Acceptance of rent or other payments by Landlord shall not constitute a waiver
of late charges or interest accrued with respect to such rent or other payments
or any prior installments thereof, nor of any other defaults by Tenant, whether
monetary or non-monetary in nature, remaining uncured at the time of such
acceptance of rent or other payments.

                                      -6-
<PAGE>   10

                                    4. TAXES

        4.1. Personal Property. Tenant shall be responsible for and shall pay
prior to delinquency all taxes and assessments levied against or by reason of
all alterations and additions and all other items installed or paid for by
Tenant under this Lease, and the personal property, trade fixtures and other
property placed by Tenant in or about the Premises. Upon request by Landlord,
Tenant shall furnish Landlord with satisfactory evidence of payment thereof. If
at any time during the term of this Lease any of said alterations, additions or
personal property, whether or not belonging to Tenant, shall be taxed or
assessed as part of the Property, then such tax or assessment shall be paid by
Tenant to Landlord immediately upon presentation by Landlord of copies of the
tax bills in which such taxes and assessments are included and shall, for the
purposes of this Lease, be deemed to be personal property taxes or assessments
under this Section 4.1.

        4.2. Real Property. To the extent that real property taxes and
assessments on the Premises are assessed separately from the remainder of the
Property, Tenant shall be responsible for and shall pay prior to delinquency all
such taxes and assessments levied against the Premises. Upon request by
Landlord, Tenant shall furnish Landlord with satisfactory evidence of payment
thereof. To the extent the Premises are taxed or assessed as part of the
Property, such real property taxes and assessments shall constitute Operating
Expenses (as that term is defined in Section 5.2 of this Lease) and shall be
paid in accordance with the provisions of Article 5 of this Lease. In no event,
however, shall Tenant be required to pay, under this Article 4 or under Article
5, any income, franchise or inheritance taxes of Landlord.

                              5. OPERATING EXPENSES

        5.1. Payment Of Operating Expenses.

             (a) Tenant shall pay to Landlord, at the time and in the manner
hereinafter set forth, beginning on the First Commencement Date and continuing
throughout the term of this Lease, as additional rental, a share of the
Operating Expenses defined in Section 5.2 ("Tenant's Operating Cost Share")
equal to (i) four and sixty-two hundredths percent (4.62%) for the period from
and including the First Commencement Date until the Second Commencement Date and
(ii) thirteen and seventy-five hundredths percent (13.75%) for the period from
and including the Second Commencement Date throughout the remaining term of this
Lease.

             (b) Tenant's Operating Cost Share as specified in paragraph (a) of
this Section is based upon an area of 13,564 square feet for the First Space,
9,286 square feet for the Second Space, 17,537 square feet for the Third Space,
and an aggregate area of 293,722 square feet for the buildings owned by Landlord
on the Property and operated, for common area and Operating Expense purposes, on
an integrated basis with the Building, and upon the assumption that the Second
Commencement Date and Third Commencement Date will occur on the same date. If
the Second Commencement Date and the Third Commencement Date do not occur on the
same date, then Tenant's Operating Cost Share shall be adjusted separately on
the Second Commencement Date and the Third Commencement Date in proportion to
the respective areas of the Second Space and the Third Space as set forth above.
If and when the actual area of the Premises or of the buildings owned by
Landlord on the Property and operated, for common area and Operating Expense
purposes, on an integrated basis with the Building, as such areas are determined
in good faith by Landlord's architect on a basis consistent with that used in
measuring other leased premises within the Center, differs from the numbers set
forth above, then Tenant's Operating Cost Share shall be adjusted to reflect the
actual areas so determined.

             (c) If Landlord constructs additional buildings on the Property (or
on any adjacent property owned by Landlord and operated, for common area and
Operating Expense purposes, on an integrated basis with the Property) from time
to time, Tenant's Operating Cost Share shall be adjusted to be equal to the
percentage determined by dividing the gross square footage of the Premises as
they then exist by the gross square footage of all buildings located on portions
of the Property owned by Landlord (or on any applicable adjacent property owned
by Landlord as

                                      -7-
<PAGE>   11

described above). In determining said percentage, a new building shall be taken
into account from and after the date on which costs and expenses attributable to
such building are first included in Operating Expenses under Section 5.2 hereof,
and the good faith determination of the gross square footage of any such
building by Landlord's architects shall be final and binding upon the parties,
absent manifest error.

        5.2. Definition Of Operating Expenses. Subject to the exclusions and
provisions hereinafter contained, the term "Operating Expenses" shall mean the
total costs and expenses incurred by or allocable to Landlord for management,
operation and maintenance of the Building and the Property (and any applicable
adjacent property owned by Landlord and operated, for common area and Operating
Expense purposes, on an integrated basis with the Property as described above),
including, without limitation, costs and expenses of (i) insurance, property
management, landscaping, and operation, repair and maintenance of buildings and
common areas; (ii) all utilities and services; (iii) real and personal property
taxes and assessments or substitutes therefor, including (but not limited to)
any possessory interest, use, business, license or other taxes or fees, any
taxes imposed directly on rents or services, any assessments or charges for
police or fire protection, housing, transit, open space, street or sidewalk
construction or maintenance or other similar services from time to time by any
governmental or quasi-governmental entity, and any other new taxes on landlords
in addition to taxes now in effect (but excluding corporate income, franchise
and inheritance taxes); (iv) supplies, equipment, utilities and tools used in
management, operation and maintenance of the Property; (v) capital improvements
to the Property or the Building, amortized over the useful life of such capital
improvements, (aa) which reduce or will cause future reduction of other items of
Operating Expenses for which Tenant is otherwise required to contribute or (bb)
which are required by law, ordinance, regulation or order of any governmental
authority or (cc) which constitute repairs or replacements of existing
improvements in the Premises or common areas of the Property with items of
similar quality and function, as a result of obsolescence or ordinary wear and
tear, in order to maintain and preserve the quality, safety and usefulness of
the Property, to the extent such repairs or replacements are treated as capital
items under generally accepted accounting principles; and (vi) any other costs
(including, but not limited to, any parking or utilities fees or surcharges)
allocable to or paid by Landlord, as owner of the Property or Building, pursuant
to any applicable laws, ordinances, regulations or orders of any governmental or
quasi-governmental authority or pursuant to the terms of any declarations of
covenants, conditions and restrictions now or hereafter affecting the Property
(or any applicable adjacent property owned by Landlord as described above).
Operating Expenses shall not include any costs attributable to increasing the
size of or otherwise expanding the Building or the costs of the work for which
Landlord is required to pay under Section 2.4 or Exhibit C. The distinction
between items of ordinary operating maintenance and repair and items of a
capital nature shall be made in accordance with generally accepted accounting
principles applied on a consistent basis. Notwithstanding anything to the
contrary contained in this Section 5.2, the following shall not be included in
Operating Expenses under this Lease:

             (A) Leasing commissions, attorneys' fees, costs, disbursements and
        other expenses incurred in connection with negotiations or disputes with
        tenants, or in connection with leasing, renovating or improving space
        for tenants or other occupants or prospective tenants or other occupants
        of the Building or of the land on which the Premises are located;

             (B) The cost of any service sold to any tenant (including Tenant)
        or other occupant for which Landlord is entitled to be reimbursed as an
        additional charge or rental over and above the basic rent and
        escalations payable under Landlord's lease with that tenant;

             (C) Any depreciation on the Building;

             (D) Costs of a capital nature, including but not limited to capital
        improvements and alterations, capital repairs, capital equipment and
        capital tools, as determined in accordance with generally accepted
        accounting principles consistently applied, except to the extent
        expressly provided in clause (v) above;

                                      -8-
<PAGE>   12

             (E) Expenses in connection with services or other benefits of a
        type that are not offered to Tenant but that are provided to another
        tenant or occupant of the Building or land upon which the Premises are
        located;

             (F) Overhead profit increments paid to Landlord's subsidiaries or
        affiliates for management or other services relating to the Building or
        the Property, or for supplies or other materials, to the extent the cost
        of such services, supplies or materials exceeds a reasonable market rate
        for obtaining such services, supplies or materials from unaffiliated
        parties;

             (G) All interest, loan fees and other carrying costs related to any
        mortgage or deed of trust or related to any capital item, and all rental
        and other payments due under any ground or underlying lease, or any
        lease for any equipment ordinarily considered to be of a capital nature
        (except janitorial equipment which is not affixed to the Building);

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

             (I) Advertising and promotional expenditures;

             (J) Costs of repairs and other work occasioned by fire, windstorm
        or other casualty of an insurable nature;

             (K) Any costs, fines or penalties incurred due to violations by
        Landlord of any governmental rule or authority, this Lease or any other
        lease affecting the Building or the land on which the Premises are
        located, or due to Landlord's negligence or willful misconduct;

             (L) Management costs, to the extent they exceed a reasonable market
        rate for management services provided to comparable projects in Hayward,
        California and surrounding areas;

             (M) Costs for sculpture, paintings or other objects of art,
        including (but not limited to) any costs for insurance thereon or
        extraordinary security in connection therewith;

             (N) Wages, salaries or other compensation paid to any executive
        employee above the grade of building manager;

             (O) The cost of correcting any building code or other violations of
        applicable law which, on the First Commencement Date, were existing
        violations of laws or codes then in effect;

             (P) The cost of containing, removing or otherwise remediating any
        contamination of the Building or Property (including the underlying land
        and groundwater) by any toxic or hazardous materials (including, without
        limitation, asbestos and PCB's);

             (Q) Any increase in real property taxes or assessments on the
        Property as a result of a change in ownership of the Property; provided,
        however, that the exclusion contained in this clause (Q) shall apply
        only in the determination of Operating Expenses with respect to periods
        prior to the third (3rd) anniversary of the First Commencement Date, and
        shall not apply in the determination of Operating Expenses with respect
        to any subsequent periods during the term of this Lease; and

             (R) Any other expense not specifically included or excluded above
        which, under generally accepted accounting principles and practices
        consistently applied, would not be considered a normal maintenance or
        operating expense.

                                      -9-
<PAGE>   13

        5.3. Determination Of Operating Expenses. On or before the First
Commencement Date and during the last month of each calendar year of the term of
this Lease ("Lease Year"), or as soon thereafter as practical, Landlord shall
provide Tenant notice of Landlord's estimate of the Operating Expenses for the
ensuing Lease Year or applicable portion thereof. On or before the first day of
each month during the ensuing Lease Year or applicable portion thereof,
beginning on the First Commencement Date, Tenant shall pay to Landlord Tenant's
Operating Cost Share of the portion of such estimated Operating Expenses
allocable (on a prorata basis) to such month; provided, however, that if such
notice is not given in the last month of a Lease Year, Tenant shall continue to
pay on the basis of the prior year's estimate, if any, until the month after
such notice is given. If at any time or times it appears to Landlord that the
actual Operating Expenses will vary from Landlord's estimate by more than five
percent (5%), Landlord may, by notice to Tenant, revise its estimate for such
year and subsequent payments by Tenant for such year shall be based upon such
revised estimate. In no event shall Landlord collect more than one hundred
percent (100%) of actual Operating Expenses from Tenant and all other tenants
and occupants of the buildings located on the Property, collectively.

        5.4. Final Accounting For Lease Year.

             (a) Within ninety (90) days after the close of each Lease Year, or
as soon after such 90-day period as practicable, Landlord shall deliver to
Tenant a statement of Tenant's Operating Cost Share of the Operating Expenses
for such Lease Year prepared by Landlord from Landlord's books and records,
which statement shall be final and binding on Landlord and Tenant, subject to
Tenant's audit right set forth below. If on the basis of such statement Tenant
owes an amount that is more or less than the estimated payments for such
calendar year previously made by Tenant, Tenant or Landlord, as the case may be,
shall pay the deficiency to the other party within thirty (30) days after
delivery of the statement. Failure or inability of Landlord to deliver the
annual statement within such ninety (90) day period shall not impair or
constitute a waiver of Tenant's obligation to pay Operating Expenses, or cause
Landlord to incur any liability for damages.

             (b) Notwithstanding any other provisions of this Section 5.4,
within one (1) year after receipt of a final statement from Landlord setting
forth actual Operating Expenses and Tenant's Operating Cost Share for any period
(a "Statement"), Tenant shall have the right to audit or inspect Landlord's
books and records relating to Operating Expenses (and to any other additional
rent payable by Tenant under this Lease) for the period covered by the
Statement, provided that such audit shall be conducted only during normal
business hours, on not less than ten (10) days prior written notice to Landlord,
at a location reasonably specified by Landlord, and at Tenant's sole cost and
expense, except as hereinafter provided. Landlord shall cooperate with Tenant in
all reasonable respects in the course of such audit, and Tenant and its
employees and agents shall be permitted to make photocopies (at Tenant's
expense) of any pertinent portions of Landlord's books and records. Landlord
shall retain its books and records for each Lease Year for a period of at least
one (1) year after delivery to Tenant of Landlord's Statement for the applicable
Lease Year. To the extent that Tenant, on the basis of such audit, disputes any
item in the applicable Statement or in the calculation of Tenant's obligations
thereunder, Tenant shall give Landlord written notice of the disputed items, in
reasonable detail and with reasonable supporting information, within thirty (30)
days after the earlier to occur of the completion of Tenant's audit or the
expiration of Tenant's 1-year audit period. If Landlord and Tenant are not able
to resolve such dispute by good faith negotiations within thirty (30) days after
Tenant notifies Landlord in writing of the disputed items, then Tenant may, by
written notice to Landlord, request an independent audit of such books and
records. The independent audit of the books and records shall be conducted by a
certified public accountant acceptable to both Landlord and Tenant or, if the
parties are unable to agree, by a "Big Five" accounting firm designated by
Landlord and not then employed by Landlord or Tenant. The audit shall be limited
to the determination of the amount of Operating Expenses and of Tenant's share
thereof for the Lease Year covered by the Statement, and shall be based on
generally accepted accounting principles and tax accounting principles,
consistently applied, subject to any modifications or limitations expressly set
forth in Section 5.2 hereof. If it is determined, by mutual agreement of
Landlord and Tenant or by independent audit, that the amount paid by Tenant for
Operating Expenses for the period covered by the Statement was incorrect, then
the appropriate party shall pay to the other party the deficiency or
overpayment, as applicable, within thirty (30) days after the final
determination of

                                      -10-
<PAGE>   14

such deficiency or overpayment. All costs and expenses of the audit shall be
paid by Tenant unless the audit shows that Landlord overstated Operating
Expenses for the period covered by the Statement by more than four percent (4%),
in which event Landlord shall pay all costs and expenses of the audit. Each
party agrees to maintain the confidentiality of the findings of any audit in
accordance with the provisions of this Section 5.4. The provisions of this
Section 5.4 shall survive the expiration or sooner termination of this Lease.

        5.5. Proration. If the First Commencement Date falls on a day other than
the first day of a Lease Year or if this Lease terminates on a day other than
the last day of a Lease Year, the amount of Tenant's Operating Cost Share
payable by Tenant applicable to such first and last partial Lease Year shall be
prorated on the basis which the number of days during such Lease Year in which
this Lease is in effect bears to 365. The termination of this Lease shall not
affect the obligations of Landlord and Tenant pursuant to Section 5.4 to be
performed after such termination.

                                  6. UTILITIES

        6.1. Payment. Commencing with the First Commencement Date and thereafter
throughout the term of this Lease, Tenant shall pay, before delinquency, all
charges for water, gas, heat, light, electricity, power, sewer, telephone, alarm
system, janitorial and other services or utilities supplied to or consumed in or
upon the Premises, including any taxes on such services and utilities. It is the
intention of the parties that all such services shall be separately metered to
the Premises. In the event that any of such services supplied to the Premises
are not separately metered, then the amount thereof shall be an item of
Operating Expenses and shall be paid as provided in Article 5.

        6.2. Interruption. There shall be no abatement of rent or other charges
required to be paid hereunder and Landlord shall not be liable in damages or
otherwise for interruption or failure of any service or utility furnished to or
used in the Premises because of accident, making of repairs, alterations or
improvements, severe weather, difficulty or inability in obtaining services or
supplies, labor difficulties or any other cause, excluding the negligence and
willful misconduct and omissions of Landlord and its agents.

                                 7. ALTERATIONS

        7.1. Right To Make Alterations. Tenant shall make no alterations,
additions or improvements to the Premises, other than interior non-structural
alterations costing less than Fifteen Thousand Dollars ($15,000.00) in each
instance, without the prior written consent of Landlord. All such alterations,
additions and improvements shall be completed with due diligence in a
first-class workmanlike manner and in compliance with plans and specifications
approved in writing by Landlord and all applicable laws, ordinances, rules and
regulations.

        7.2. Title To Alterations. All alterations, additions and improvements
installed pursuant to this Lease shall be part of the Building and the property
of Landlord, unless Landlord elects to require Tenant to remove the same upon
the termination of this Lease; provided, however, that the foregoing shall not
apply to Tenant's movable furniture and trade fixtures not affixed to the
Property. Under no circumstances, however, shall Tenant be required to remove
any alterations, additions or improvements installed by Landlord as part of
Landlord's work under Section 2.4 and Exhibit C. Moreover, if Tenant, in
connection with requesting Landlord's approval for any alteration, addition or
improvement, requests in writing that Landlord specify whether Landlord will
require Tenant to remove such alteration, addition or improvement upon
termination of this Lease, then Landlord shall not be entitled to require such
removal unless Landlord states its intention to do so in writing to Tenant
concurrently with or prior to Landlord's approval of the requested alteration,
addition or improvement.

        7.3. Tenant Fixtures. Notwithstanding the provisions of Sections 7.1 and
7.2, Tenant may install, remove and reinstall trade fixtures without Landlord's
prior written consent, except that any fixtures which are affixed to the
Premises or which affect the exterior or structural portions of

                                      -11-
<PAGE>   15

the Building shall require Landlord's written approval. The foregoing shall
apply to Tenant's signs, logos and insignia, all of which Tenant shall have the
right to place and remove and replace solely with Landlord's prior written
consent as to location, size and composition. Tenant shall immediately repair
any damage caused by installation and removal of fixtures under this Section
7.3.

        7.4. No Liens. Tenant shall at all times keep the Premises free from all
liens and claims of any contractors, subcontractors, materialmen, suppliers or
any other parties employed either directly or indirectly by Tenant in
construction work on the Premises. Tenant may contest any claim of lien, but
only if, prior to such contest, Tenant either (i) posts security in the amount
of the claim, plus estimated costs and interest, or (ii) records a bond of a
responsible corporate surety in such amount as may be required to release the
lien from the Premises. Tenant shall indemnify, defend and hold Landlord
harmless against any and all liability, loss, damage, cost and other expenses,
including, without limitation, reasonable attorneys' fees, arising out of claims
of any lien for work performed or materials or supplies furnished at the request
of Tenant or persons claiming under Tenant. Nothing in this Section 7.4 shall be
construed to prevent Tenant from obtaining financing on Tenant's movable
furniture, equipment and trade fixtures or from granting a security interest in
such items to one or more lenders, provided that Tenant shall not be entitled,
pursuant to this sentence or otherwise, to encumber any alterations, additions
or improvements that are the property of Landlord and that must remain with the
Premises upon termination of this Lease, as provided in Sections 7.2 and 7.3
hereof. Without limiting the generality of the preceding sentence, Landlord
acknowledges that it has been advised by Tenant that Tenant is presently a party
to agreements creating liens on some or all of Tenant's existing and/or
after-acquired equipment, furniture, trade fixtures and other personal property
in favor of (a) Transamerica Business Credit, (b) Comdisco and (c) GE Capital -
Life Science and Technology Finance; nothing in this sentence shall be
construed, however, as a waiver or release by Landlord with respect to the
proviso set forth in the preceding sentence regarding limitations on the
property that Tenant is entitled to encumber.

                           8. MAINTENANCE AND REPAIRS

        8.1. Landlord's Work.

             (a) Landlord shall repair and maintain or cause to be repaired and
maintained in a prompt and expeditious manner those portions of the Building
outside of the Premises, the common areas of the Property, and the roof,
foundation, exterior walls and other structural portions of the Building. The
cost of all work performed by Landlord under this Section 8.1 shall be an
Operating Expense hereunder, except to the extent such work (i) is required due
to the negligence of Landlord or any other tenant of the Building, (ii) is a
service to a specific tenant or tenants, other than Tenant, for which Landlord
has received or has the right to receive full reimbursement, (iii) is a capital
expense not includible as an Operating Expense under Section 5.2 hereof, or (iv)
is required due to the negligence or willful misconduct of Tenant or its agents,
employees or invitees (in which event Tenant shall bear the full cost of such
work pursuant to the indemnification provided in Section 10.6 hereof). Tenant
knowingly and voluntarily waives the right to make repairs at Landlord's
expense, or to offset the cost thereof against rent, under any law, statute,
regulation or ordinance now or hereafter in effect.

             (b) If Landlord fails to perform, within fifteen (15) days after
written request from Tenant (except in the case of conditions which cannot
reasonably be repaired within fifteen (15) days, in which event this paragraph
(b) shall apply only to the extent Landlord fails to commence the applicable
maintenance or repair within such 15-day period or thereafter fails to proceed
diligently to complete the applicable maintenance or repair), any maintenance or
repair obligation under Section 8.1(a) which relates specifically to the
Premises or the common areas immediately adjacent to the Premises and such
failure creates (or permits to exist) a risk of material harm to persons or
property, then Tenant shall have the right to perform such maintenance or repair
and Landlord shall be obligated to reimburse Tenant for the reasonable cost
thereof, together with interest at the rate specified in the first sentence of
Section 3.2 hereof from the date of payment by Tenant to the date of
reimbursement by Landlord, within fifteen (15) days after written notice from
Tenant of the completion and cost of such work, accompanied by copies of
invoices or other

                                      -12-
<PAGE>   16

appropriate supporting documentation. Under no circumstances, however, shall
this paragraph (b) be construed to create any contractual right of Tenant to
offset the cost of any such work against rent or other charges falling due from
time to time under this Lease.

        8.2. Tenant's Obligation For Maintenance.

             (a) Good Order, Condition And Repair. By accepting possession of
the Premises, and subject to Section 2.4, Tenant acknowledges that the Premises
are in good and sanitary order, condition and repair. Except as provided in
Section 8.1 hereof, Tenant at its sole cost and expense shall keep and maintain
in good and sanitary order, condition and repair the interior non-structural
portions of the Premises, including but not limited to the signs, interior, the
face of the ceiling over Tenant's floor space, HVAC equipment and related
mechanical systems exclusively serving the Premises (for which equipment and
systems Tenant shall enter into a service contract with a person or entity
designated or approved by Landlord, such approval not to be unreasonably
withheld or delayed), all doors, door checks, windows, plate glass, door fronts,
exposed plumbing and sewage and other utility facilities, fixtures, lighting,
wall surfaces, floor surfaces and ceiling surfaces and all other interior
repairs, foreseen and unforeseen, as required.

             (b) Landlord's Remedy. If Tenant, after notice from Landlord, fails
to make or perform promptly any repairs or maintenance which are the obligation
of Tenant hereunder, Landlord shall have the right, but shall not be required,
to enter the Premises and make the repairs or perform the maintenance necessary
to restore the Premises to good and sanitary order, condition and repair.
Immediately on demand from Landlord, the cost of such repairs shall be due and
payable by Tenant to Landlord.

             (c) Condition Upon Surrender. At the expiration or sooner
termination of this Lease, Tenant shall surrender the Premises, including any
additions, alterations and improvements thereto not removed in accordance with
the terms of this Lease, broom clean, in good and sanitary order, condition and
repair, ordinary wear and tear and damage by casualty or condemnation (the
latter of which shall be governed by Article 13 hereof) excepted, first,
however, removing all goods and effects of Tenant and any and all fixtures and
items required to be removed or specified to be removed at Landlord's election
pursuant to this Lease, and repairing any damage caused by such removal. Tenant
expressly waives any and all interest in any personal property and trade
fixtures not removed from the Premises by Tenant at the expiration or
termination of this Lease, agrees that any such personal property and trade
fixtures may, at Landlord's election, be deemed to have been abandoned by
Tenant, and authorizes Landlord (at its election and without prejudice to any
other remedies under this Lease or under applicable law) to remove and either
retain, store or dispose of such property at Tenant's cost and expense (provided
that before incurring any such charges for Tenant's account, Landlord shall
first give Tenant ten (10) days prior written notice of Landlord's intention to
do so, so that Tenant may have an opportunity first to correct the situation on
its own behalf), and Tenant waives all claims against Landlord for any damages
resulting from any such removal, storage, retention or disposal, except to the
extent (if any) that such damages result from the negligence or willful
misconduct or omission of Landlord or its agents.

                               9. USE OF PREMISES

        9.1. Permitted Use. Tenant shall use the Premises solely for general
office, sales, administrative marketing and the design, development, testing and
manufacturing of medical equipment and pharmaceutical products, and for no other
purpose.

        9.2. Requirement Of Continued Use. Tenant shall not at any time abandon
the Premises and shall continuously during the term of this Lease (except during
any period when improvements are being constructed by Landlord under Section 2.4
and Exhibit C and/or when the Premises are unusable by reason of events
described in Article 13 hereof) conduct and carry on in the Premises the use
permitted hereunder.

        9.3. No Nuisance. Tenant shall not use the Premises for or carry on or
permit upon the Premises or any part thereof any offensive, noisy or dangerous
trade, business, manufacture,

                                      -13-
<PAGE>   17

occupation, odor or fumes, or any nuisance or anything against public policy,
nor interfere with the rights or business of any other tenants or of Landlord in
the Building or the Property, nor commit or allow to be committed any waste in,
on or about the Premises, nor make any other unreasonable use of the Premises.
Tenant shall not do or permit anything to be done in or about the Premises, nor
bring nor keep anything therein, which will in any way cause the Premises to be
uninsurable with respect to the insurance required by this Lease or with respect
to standard fire and extended coverage insurance with vandalism, malicious
mischief and riot endorsements.

        9.4. Compliance With Laws. Tenant shall not use the Premises or permit
the Premises to be used in whole or in part for any purpose or use that is in
violation of any applicable laws, ordinances, regulations or rules of any
governmental agency or public authority. Tenant shall keep the Premises equipped
with all safety appliances required by law, ordinance or insurance on the
Premises or any order or regulation of any public authority because of Tenant's
particular use of the Premises. Tenant shall procure all licenses and permits
required for use of the Premises, excluding building permits and an initial
certificate of occupancy or reasonable local equivalent thereof for Landlord's
work (if any) under Section 2.4 and Exhibit C, both of which it shall be
Landlord's responsibility to procure (if applicable) with respect to any such
work by Landlord. Tenant shall use the Premises in strict accordance with all
applicable ordinances, rules, laws and regulations and shall comply with all
requirements of all governmental authorities now in force or which may hereafter
be in force pertaining to the use of the Premises by Tenant, including, without
limitation, regulations applicable to noise, water, soil and air pollution, and
making such nonstructural alterations and additions thereto as may be required
from time to time by such laws, ordinances, rules, regulations and requirements
of governmental authorities or insurers of the Premises (collectively,
"Requirements") because of Tenant's construction of improvements in or other
particular use of the Premises. Any structural alterations or additions required
from time to time by applicable Requirements because of Tenant's construction of
improvements in or other particular use of the Premises shall, at Landlord's
election, either (i) be made by Tenant, at Tenant's sole cost and expense, in
accordance with the procedures and standards set forth in Section 7.1 for
alterations by Tenant, or (ii) be made by Landlord at Tenant's sole cost and
expense, in which event Tenant shall pay to Landlord as additional rent, within
thirty (30) days after demand by Landlord, an amount equal to all reasonable
costs incurred by Landlord in connection with such alterations or additions. Any
structural alterations or additions required from time to time by applicable
Requirements for any other reason shall be Landlord's sole obligation and
expense, subject to the possible characterization of such expenses as Operating
Expenses in accordance with Section 5.2 hereof (if applicable). The judgment of
any court, or the admission by Tenant in any proceeding against Tenant, that
Tenant has violated any law, statute, ordinance or governmental rule, regulation
or requirement shall be conclusive of such violation as between Landlord and
Tenant.

        9.5. Liquidation Sales. Tenant shall not conduct or permit to be
conducted any auction, bankruptcy sale, liquidation sale, or going out of
business sale, in, upon or about the Premises or the Property, whether said
auction or sale be voluntary, involuntary or pursuant to any assignment for the
benefit of creditors, or pursuant to any bankruptcy or other insolvency
proceeding.

        9.6. Environmental Compliance.

             (a) Landlord warrants and represents to Tenant that the Premises,
the Building and the Property presently comply with all environmental laws and
Landlord will use its best efforts to ensure that the Premises, the Building and
the Property remain in compliance with all environmental laws during the term
hereof, including without limitation reasonably monitoring the condition of the
Property, the Building and the Premises and the activities of other tenants.
Landlord's obligations under this Section 9.6(a) are not intended to impose a
greater burden on Landlord than that set forth in Section 9.6(d) herein or as
otherwise required by law, regulation or statute, nor to relieve Tenant of any
of its express obligations under this Section 9.6.

             (b) Without limiting the generality of Tenant's obligations set
forth in Section 9.4 of this Lease:

                                      -14-
<PAGE>   18

                    (i) Tenant shall not cause or permit any hazardous or toxic
substance or hazardous waste (as defined in any federal, state or local law,
ordinance or regulation applicable to such substances or wastes) to be brought
upon, kept, stored or used on or about the Property without the prior written
consent of Landlord, which consent shall not be unreasonably withheld, except
that Tenant, in connection with its permitted use of the Property as provided in
Section 9.1, may keep, store and use materials that constitute hazardous
materials which are customary for such permitted use, provided such hazardous
materials are kept, stored and used in quantities which are customary for such
permitted use and are kept, stored and used in full compliance with clauses (ii)
and (iii) immediately below;

                    (ii) Tenant shall comply with all applicable laws, rules,
regulations, orders, permits, licenses and operating plans of any governmental
authority with respect to the receipt, use, handling, generation,
transportation, storage, treatment, release and/or disposal of hazardous or
toxic substances or wastes in the course of or in connection with the conduct of
Tenant's business on the Property, and shall provide Landlord with copies of any
and all permits, licenses, registrations and other similar documents that
authorize Tenant to conduct any such activities in connection with Tenant's use
of the Property from time to time;

                    (iii) Tenant shall not (A) operate on or about the Property
any facility required to be permitted or licensed as a hazardous waste facility
or for which interim status as such is required, nor (B) store any hazardous
wastes on or about the Property for ninety (90) days or more, nor (C) conduct
any other activities on or about the Property that could result in the property
being deemed to be a "hazardous waste facility" (including, but not limited to,
any storage or treatment of hazardous substances or hazardous wastes which could
have such a result); and

                    (iv) Tenant shall provide to Landlord from time to time,
upon written request by Landlord, (A) a list of all hazardous substances and/or
wastes that Tenant receives, uses, handles, generates, transports, stores,
treats or disposes of from time to time in connection with its operations on the
Property, and (B) copies of any Material Safety Data Sheets, hazardous waste
manifests, Hazardous Materials Management Plans, Contingency Plans and Emergency
Procedures, hazardous substance reports to the California Department of Health
Services, industrial wastewater discharge permits, and any other lists or
inventories of hazardous substances and/or wastes on or about the Property that
Tenant is otherwise required to prepare and file from time to time with any
governmental or regulatory authority; provided, however, that nothing in this
clause (iv) is intended to require Tenant to prepare specially for Landlord any
lists or other documents that Tenant does not otherwise prepare or have
available in the course of Tenant's business; and provided further, however,
that if Tenant reasonably determines that the volume of any such materials
requested by Landlord is so substantial as to make the furnishing of such
materials to Landlord unreasonably burdensome, Tenant may instead, by written
notice to Landlord, elect simply to maintain copies of such materials to such
extent and for such periods as may be required by applicable law and to permit
Landlord or its representatives to inspect and copy (at Landlord's expense) such
materials during normal business hours at any time and from time to time upon
reasonable notice to Tenant.

             (c) Tenant shall fully indemnify and hold harmless Landlord, its
successors and assigns against (i) any damages, claims, liabilities, demands,
losses, costs or expenses (including reasonable attorneys' fees) arising from
(A) any violation of Section 9.6(b) herein, or (B) any release of hazardous or
toxic substances, or any other violation of environmental law with respect to
the Premises or Property, to the extent any such release or violation described
in this clause (B) is caused by Tenant or its employees, agents, contractors or
assigns, and (ii) any fines, penalty payments, reasonable attorneys' fees, sums
paid in connection with any judicial or administrative investigation or
proceedings, costs of cleanup assessed by a governmental or quasi-governmental
agency, and similar expenditures, incurred by Landlord that relate in any way to
a release of hazardous or toxic substances, or to any other violation of
environmental law with respect to the Premises or Property, to the extent any
such release or violation described in this clause (ii) is caused by Tenant or
its agents, employees, contractors or assigns.

             (d) Landlord shall fully indemnify and hold harmless Tenant, its
successors and assigns against (i) any damages, claims, liabilities, demands,
losses, costs or expenses (including

                                      -15-
<PAGE>   19

reasonable attorneys' fees) arising from any violation of Section 9.6(a) herein,
including without limitation any condition of the Premises, the Building and/or
the Property existing at the First Commencement Date (except to the extent any
applicable condition of the Premises, the Building and/or the Property existing
at the First Commencement Date is attributable or caused by Tenant or its
employees, agents, contractors or assigns, in connection with Tenant's occupancy
of the First Space and/or Second Space under the Existing Lease or otherwise);
(ii) any damages, claims, liabilities, demands, losses, costs or expenses
(including reasonable attorneys' fees) arising from any release of hazardous or
toxic substances, or from any other violation of environmental law with respect
to the Property, the Building or the Premises, to the extent the same is not
caused by Tenant or its employees, agents, contractors or assigns; and (iii) any
fines, penalty payments, reasonable attorneys' fees, sums paid in connection
with any judicial or administrative investigation or proceedings, costs of
cleanup assessed by a governmental or quasi-governmental agency, and similar
expenditures, incurred by Tenant that relate in any way to a breach by Landlord
of Section 9.6(a), to any condition of the Property, the Building or the
Premises existing on the First Commencement Date (except to the extent any
applicable condition of the Premises, the Building and/or the Property existing
on the First Commencement Date is attributable or caused by Tenant or its
employees, agents, contractors or assigns, in connection with Tenant's occupancy
of the First Space and/or Second Space under the Existing Lease or otherwise),
or to any release of hazardous or toxic substances or other violation of
environmental law caused by Landlord or its employees, agents, contractors or
assigns.

             (e) The provisions of this Section 9.6 shall survive the
termination of this Lease.

        9.7. ADA/Title 24 Compliance. Landlord shall deliver and maintain the
Premises at its expense in compliance, as and when required by law, with the
Americans with Disabilities Act, California Title 24 and any and all other
related governmental requirements.

                           10. INSURANCE AND INDEMNITY

        10.1. Liability Insurance.

             (a) Tenant shall procure and maintain in full force and effect at
all times during the term of this Lease, at Tenant's cost and expense,
comprehensive public liability and property damage insurance to protect against
any liability to the public, or to any invitee of Tenant or Landlord, arising
out of or related to the use of or resulting from any accident occurring in,
upon or about the Premises, with limits of liability of not less than (i) One
Million Dollars ($1,000,000.00) for injury to or death of one person, (ii) Three
Million Dollars ($3,000,000.00) for personal injury or death, per occurrence,
and (iii) Five Hundred Thousand Dollars ($500,000.00) for property damage, or a
combined single limit of public liability and property damage insurance of not
less than Five Million Dollars ($5,000,000.00). Such insurance shall name
Landlord and its general partners and Property Manager as additional insureds
thereunder. The amount of such insurance shall not be construed to limit any
liability or obligation of Tenant under this Lease.

             (b) Landlord shall procure and maintain in full force and effect at
all times during the term of this Lease, at Landlord's cost and expense (but
reimbursable as an Operating Expense under Section 5.2 hereof), fire and "all
risk" extended coverage property damage insurance for the Building and interior
improvements that are the property of Landlord and for the improvements in the
common areas of the Property, on a full replacement cost basis, with rental loss
insurance. Such insurance may include earthquake and/or flood coverage to the
extent Landlord in its discretion elects to carry such coverage, and shall have
such commercially reasonable deductibles and other terms as Landlord in its
discretion determines to be appropriate. Landlord shall have no obligation to
carry property damage insurance for any alterations, additions, improvements,
trade fixtures or personal property installed or maintained by Tenant on or
about the Premises.

        10.2. Quality Of Policies And Certificates. All policies of insurance
required hereunder shall be issued by responsible insurers and shall be written
as primary policies not contributing with

                                      -16-
<PAGE>   20

and not in excess of any coverage that Landlord may carry. Tenant shall deliver
to Landlord copies of policies or certificates of insurance showing that said
policies are in effect. The coverage provided by such policies shall include the
clause or endorsement referred to in Section 10.4. If Tenant fails to acquire,
maintain or renew any insurance required to be maintained by it under this
Article 10 or to pay the premium therefor, then Landlord, at its option and in
addition to its other remedies, but without obligation so to do, may procure
such insurance, and any sums expended by it to procure any such insurance shall
be repaid upon demand, with interest as provided in Section 3.2 hereof. Tenant
shall obtain written undertakings from each insurer under policies required to
be maintained by it to notify all insureds thereunder at least thirty (30) days
prior to cancellation, amendment or revision of coverage.

        10.3. Workers' Compensation. Tenant shall maintain in full force and
effect during the term of this Lease workers' compensation insurance covering
all of Tenant's employees working on the Premises.

        10.4. Waiver Of Subrogation. To the extent permitted by law and without
affecting the coverage provided by insurance required to be maintained
hereunder, Landlord and Tenant each waive any right to recover against the other
(i) damages for injury to or death of persons, (ii) damage to property, (iii)
damage to the Premises or any part thereof, or (iv) claims arising by reason of
any of the foregoing, but only to the extent that any of the foregoing damages
and claims under subparts (i)-(iv) hereof are covered, and only to the extent of
such coverage, by casualty insurance actually carried or required to be carried
hereunder by either Landlord or Tenant. This provision is intended to waive
fully, and for the benefit of each party, any rights and claims which might give
rise to a right of subrogation in any casualty insurance carrier. Each party
shall procure a clause or endorsement on any casualty insurance policy required
under this Article 10 denying to the insurer rights of subrogation against the
other party to the extent rights have been waived by the insured prior to the
occurrence of injury or loss. Coverage provided by insurance maintained by
Tenant or Landlord under this Article 10 shall not be limited, reduced or
diminished by virtue of the subrogation waiver herein contained.

        10.5. Increase In Premiums. Tenant shall do all acts and pay all
expenses necessary to insure that the Premises are not used for purposes
prohibited by any applicable fire insurance, and that Tenant's use of the
Premises complies with all requirements necessary to obtain any such insurance.
If Tenant uses or permits the Premises to be used in a manner which increases
the existing rate of any insurance on the Premises carried by Landlord, Tenant
shall pay the amount of the increase in premium caused thereby, and Landlord's
costs of obtaining other replacement insurance policies, including any increase
in premium, within ten (10) days after demand therefor by Landlord, which demand
shall be accompanied by reasonably detailed documentation supporting such
demand.

        10.6. Indemnification.

             (a) Tenant shall indemnify, defend and hold Landlord, its partners,
shareholders, officers, directors, affiliates, agents, employees and
contractors, harmless from any and all liability for injury to or death of any
person, or loss of or damage to the property of any person, and all actions,
claims, demands, costs (including, without limitation, reasonable attorneys'
fees), damages or expenses of any kind arising therefrom which may be brought or
made against Landlord or which Landlord may pay or incur by reason of the use,
occupancy and enjoyment of the Premises by Tenant or any invitees, sublessees,
licensees, assignees, employees, agents or contractors of Tenant or holding
under Tenant arising during the term of this Lease from any cause whatsoever
other than negligence or willful misconduct or omission by Landlord, its agents
or employees. Landlord, its partners, shareholders, officers, directors,
affiliates, agents, employees and contractors shall not be liable for, and
Tenant hereby waives all claims against such persons for, damages to goods,
wares and merchandise in or upon the Premises, or for injuries to Tenant, its
agents or third persons in or upon the Premises, arising during the term of this
Lease from any cause whatsoever other than negligence or willful misconduct or
omission by Landlord, its agents or employees. Tenant shall give prompt notice
to Landlord of any casualty or accident of a material nature in, on or about the
Premises.

                                      -17-
<PAGE>   21

             (b) Landlord shall indemnify, defend and hold Tenant, its partners,
shareholders, officers, directors, affiliates, agents, employees and
contractors, harmless from any and all liability for injury to or death of any
person or loss of or damage to the property of any person, and all actions,
claims, demands, costs (including, without limitation, reasonable attorneys'
fees), damages or expenses of any kind arising therefrom which may be brought or
made against Tenant or which Tenant may pay or incur, to the extent such
liabilities or other matters arise by reason of (i) any negligence or willful
misconduct or omission by Landlord, its agents or employees, (ii) any breach by
Landlord, its agents or employees of any term of this Lease and (iii) any causes
of action or obligations the due date of performance of which arose prior to the
First Commencement Date (except to the extent that Tenant is required to
indemnify Landlord with respect to such causes of action or obligations pursuant
to the provisions of the Existing Lease as it applies to the First Space and/or
the Second Space).

        10.7. Blanket Policy. Any policy required to be maintained hereunder may
be maintained under a so-called "blanket policy" insuring other parties and
other locations so long as the amount of insurance required to be provided
hereunder is not thereby diminished.

                           11. SUBLEASE AND ASSIGNMENT

        11.1. Assignment And Sublease Of Premises. Tenant shall not have the
right or power to assign its interest in this Lease, or make any sublease, nor
shall any interest of Tenant under this Lease be assignable involuntarily or by
operation of law, without on each occasion obtaining the prior written consent
of Landlord, which consent shall not be unreasonably withheld or delayed. Any
purported sublease or assignment of Tenant's interest in this Lease requiring
but not having received Landlord's consent thereto shall be void. Without
limiting the generality of the foregoing, Landlord may withhold consent to any
proposed subletting or assignment solely on the ground that the use by the
proposed subtenant or assignee is reasonably likely to be incompatible with
Landlord's use of the balance of the Building or the Property. Notwithstanding
the foregoing provisions, however, Tenant may assign this Lease or sublet the
Premises, or any portion thereof, without Landlord's consent (but with prior or
substantially concurrent written notice to Landlord), to any entity which
controls, is controlled by, or is under common control with Tenant; to any
entity which results from a merger or consolidation with Tenant; to any entity
engaged in a joint venture with Tenant; or to any entity which acquires
substantially all of the stock or assets of Tenant, as a going concern, with
respect to the business that is being conducted in the Premises (hereinafter
each a "Permitted Transfer"). In addition, any sale or transfer of the capital
stock of Tenant shall be deemed a Permitted Transfer if (i) such sale or
transfer occurs in connection with any bona fide financing or capitalization for
the benefit of Tenant, or (ii) such sale or transfer occurs in connection with
Tenant's status as a publicly traded corporation. Landlord shall have no right
to terminate this Lease in connection with, and shall have no right to any sums
or other economic consideration resulting from, any Permitted Transfer. In the
event of a permitted subleasing of the Premises or any portion thereof by
Tenant, Tenant will retain all sublease profits net of its underlying
obligations under this Lease. Landlord will not have the right or option under
any circumstances, other than pursuant to the default provisions of this Lease
(to the extent applicable), to recapture any space that Tenant assigns or
subleases during the initial Lease term.

        11.2. Rights Of Landlord. Consent by Landlord to one or more assignments
of this Lease, or to one or more sublettings of the Premises, or collection of
rent by Landlord from any assignee or sublessee, shall not operate to exhaust
Landlord's rights under this Article 11, nor constitute consent to any
subsequent assignment or subletting. No assignment of Tenant's interest in this
Lease and no sublease shall relieve Tenant of its obligations hereunder,
notwithstanding any waiver or extension of time granted by Landlord to any
assignee or sublessee, or the failure of Landlord to assert its rights against
any assignee or sublessee, and regardless of whether Landlord's consent thereto
is given or required to be given hereunder. In the event of a default by any
assignee, sublessee or other successor of Tenant in the performance of any of
the terms or obligations of Tenant under this

                                      -18-
<PAGE>   22

Lease, Landlord may proceed directly against Tenant without the necessity of
exhausting remedies against any such assignee, sublessee or other successor. In
addition, Tenant immediately and irrevocably assigns to Landlord, as security
for Tenant's obligations under this Lease, all rent from any subletting of all
or a part of the Premises as permitted under this Lease, and Landlord, as
Tenant's assignee, or any receiver for Tenant appointed on Landlord's
application, may collect such rent and apply it toward Tenant's obligations
under this Lease; except that, until the occurrence of an act of default by
Tenant, beyond the expiration of any applicable grace period, Tenant shall have
the right to collect such rent.

                     12. RIGHT OF ENTRY AND QUIET ENJOYMENT

        12.1. Right Of Entry. Landlord and its authorized representatives shall
have the right to enter the Premises at any time during the term of this Lease
during normal business hours and upon not less than twenty-four (24) hours prior
notice, except in the case of emergency (in which event no notice shall be
required and entry may be made at any time), for the purpose of inspecting and
determining the condition of the Premises or for any other proper purpose
including, without limitation, to make repairs, replacements or improvements
which Landlord may deem necessary, to show the Premises to prospective
purchasers, to show the Premises to prospective tenants, and to post notices of
nonresponsibility; provided, however, that notwithstanding anything to the
contrary contained in the preceding portion of this sentence, Landlord shall not
enter any portions of Tenant's facility designated by Tenant as "secure" areas
except on reasonable prior notice to Tenant and except in compliance with all
conditions reasonably imposed by Tenant and/or by any governmental authority
with respect to such access (which conditions may, by way of example but not
limitation, include a requirement that any visitors to such areas be accompanied
by a representative of Tenant at all times). Landlord shall not be liable for
inconvenience, annoyance, disturbance, loss of business, quiet enjoyment or
other damage or loss to Tenant by reason of making any repairs or performing any
work upon the Premises unless such are the result of the negligence or willful
misconduct of Landlord or its agents, and the obligations of Tenant under this
Lease shall not thereby be affected in any manner whatsoever, provided, however,
Landlord shall use reasonable efforts to minimize the inconvenience to Tenant's
normal business operations caused thereby.

        12.2. Quiet Enjoyment. Landlord covenants that Tenant, upon paying the
rent and performing its obligations hereunder and subject to all the terms and
conditions of this Lease, shall peacefully and quietly have, hold and enjoy the
Premises throughout the term of this Lease, or until this Lease is terminated as
provided by this Lease.

                             13. CASUALTY AND TAKING

                                      -19-
<PAGE>   23

        13.1. Termination Or Reconstruction. If during the term of this Lease
the Premises or Building, or any substantial part of either, (i) is damaged
materially by fire or other casualty or by action of public or other authority
in consequence thereof, (ii) is taken by eminent domain or by reason of any
public improvement or condemnation proceeding, or in any manner by exercise of
the right of eminent domain (including any transfer in avoidance of an exercise
of the power of eminent domain), or (iii) receives irreparable damage by reason
of anything lawfully done under color of public or other authority, this Lease
shall terminate as to the entire Premises at Landlord's or Tenant's election by
written notice given to the other party within thirty (30) days after the damage
or taking has occurred; provided, however, that with respect to events of damage
or destruction described in clause (i) above, Landlord's termination right shall
be exercisable only if either (A) the time reasonably estimated by Landlord's
architect or contractor to be required for the repair or restoration of the
Building to the extent necessary to permit Tenant to resume substantially all of
its normal business activities therein exceeds six (6) months from the date of
the damage or destruction in the case of damage or destruction occurring prior
to the last year of the term of this Lease, or exceeds sixty (60) days from the
date of the damage or destruction in the case of damage or destruction occurring
during the last year of the term of this Lease, or (B) the reasonably estimated
cost of such repair or restoration is more than one hundred five percent (105%)
of the insurance proceeds reasonably available for such repair or restoration
under the insurance required to be maintained by Landlord pursuant to Section
10.1(b) hereof (including, in the case of any failure by Landlord to maintain
such required insurance, any proceeds that would have been reasonably available
for such repair or restoration if Landlord had maintained such required
insurance) and Landlord, in its reasonable and good faith judgment, determines
that it is not economically and commercially reasonable to use such proceeds for
the repair or restoration of the Premises; provided further, that with respect
to events of damage or destruction described in clause (i) above, Tenant's
termination right shall be exercisable only if either (I) the time reasonably
estimated by Landlord's architect or contractor to be required for the repair or
restoration of the Building to the extent necessary to permit Tenant to resume
substantially all of its normal business activities therein exceeds six (6)
months from the date of the damage or destruction in the case of damage or
destruction occurring prior to the last year of the term of this Lease, or
exceeds sixty (60) days from the date of the damage or destruction in the case
of damage or destruction occurring during the last year of the term of this
Lease, or (II) Landlord fails to complete the repair or restoration of the
Building to the extent necessary to permit Tenant to resume substantially all of
its normal business activities therein within six (6) months after the date of
the damage or destruction in the case of damage or destruction occurring prior
to the last year of the term of this Lease or within sixty (60) days from the
date of the damage or destruction in the case of damage or destruction occurring
during the last year of the term of this Lease (provided, however, that so long
as Landlord is proceeding diligently and with reasonable good faith efforts,
such periods shall be extended, day for day, by a number of days equal to the
number of days of actual delay in Landlord's completion of such repair or
restoration that are caused by weather, acts of God, strikes, shortage of labor
or materials or other circumstances beyond Landlord's reasonable control
(excluding financial inability), including (but not limited to) acts or
omissions of Tenant or its agents or employees), or (III) Landlord advises
Tenant that Landlord intends to perform only a Partial Restoration (as defined
below) and Tenant determines reasonably and in good faith, within thirty (30)
days after Tenant is advised of the nature and scope of the proposed Partial
Restoration, that the Premises available to Tenant following such Partial
Restoration will not be sufficient to permit Tenant to resume normal business
operations in the Premises for the uses permitted hereunder; and provided
further, that with respect to takings or damage described in clause (ii) or
(iii) above, Landlord's and Tenant's respective termination rights shall be
exercisable only if Landlord or Tenant, as applicable, determines reasonably and
in good faith that the extent and nature of such taking or damage is to
substantially and permanently impair Tenant's ability to conduct normal business
operations in the balance of the Premises for the uses permitted hereunder. If
neither Landlord nor Tenant elects to terminate this Lease as hereinabove
provided, Landlord shall repair any such damage and restore the Premises (to the
extent of Landlord's work therein under Section 2.4 and Exhibit C) and the
Building as nearly as reasonably possible to the condition existing before the
damage or taking, with an equitable abatement of Tenant's rent and Operating
Expense obligations pending completion of such repair or restoration as
contemplated in Section 13.3 below; provided, however, that in the case of any
damage or destruction described in clause (i) above, if the reasonably estimated
cost of such repair or restoration is more than one hundred five percent (105%)
of the insurance proceeds (if any)

                                      -20-
<PAGE>   24

reasonably available for such repair or restoration under the insurance required
to be maintained by Landlord pursuant to Section 10.1(b) hereof (including, in
the case of any failure by Landlord to maintain such required insurance, any
proceeds that would have been reasonably available for such repair or
restoration if Landlord had maintained such required insurance), Landlord may
elect to perform such repair or restoration (to the extent of Landlord's work
under Section 2.4 and Exhibit C) only to the extent of such insurance proceeds
that are (or would have been) available (a "Partial Restoration"); and provided
further, that upon completion of such Partial Restoration, Tenant's minimum
monthly rental and Operating Expense obligations shall be permanently adjusted,
for the balance of the remaining term of this Lease, in a fair and equitable
manner reflecting any decrease in the size and/or functionality of the partially
restored Premises for the uses contemplated hereunder. In the event of any
termination of this Lease by Tenant or Landlord pursuant to this Section 13.1 or
Section 13.2, Landlord agrees that to the extent any portion of the Premises can
still be lawfully occupied and used by Tenant, Tenant shall have the right, at
its option, to remain in and continue to use such portion of the Premises on a
month-to-month holdover basis, terminable by Landlord or Tenant at any time on
thirty (30) days' written notice (except that no such termination by Landlord
may be effective sooner than six (6) months after the date of the damage,
destruction or taking pursuant to which such termination arose), and Tenant's
minimum monthly rental and Operating Expense obligations shall be adjusted, for
the duration of such holdover occupancy, in a fair and equitable manner
reflecting any decrease in the size and/or functionality of the remaining
Premises for the uses contemplated hereunder. The provisions of the preceding
sentence shall supersede any inconsistent provisions in Section 2.6 of this
Lease.

        13.2. Tenant's Rights. If any portion of the Premises is so taken by
condemnation, Tenant may elect to terminate this Lease if the portion of the
Premises taken is of such extent and nature as substantially to handicap, impede
or permanently impair Tenant's use of the balance of the Premises. Tenant must
exercise its right to terminate by giving notice to Landlord within thirty (30)
days after the nature and extent of the taking have been finally determined. If
Tenant elects to terminate this Lease, Tenant shall also notify Landlord of the
date of termination, which date shall not be earlier than thirty (30) days nor
later than ninety (90) days after Tenant has notified Landlord of its election
to terminate, except that this Lease shall terminate on the date of taking if
the date of taking falls on any date before the date of termination designated
by Tenant.

        13.3. Lease To Remain In Effect. If neither Landlord nor Tenant
terminates this Lease as hereinabove provided, this Lease shall continue in full
force and effect, except that minimum monthly rental and Tenant's Operating
Expense obligations shall abate to the extent Tenant's use of the Premises is
impaired for any period that any portion of the Premises is unusable or
inaccessible because of a casualty or taking hereinabove described. Each party
waives the provisions of Code of Civil Procedure Section 1265.130, allowing
either party to petition the Superior Court to terminate this Lease in the event
of a partial condemnation of the Premises.

        13.4. Reservation Of Compensation. Landlord reserves, and Tenant waives
and assigns to Landlord, all rights to any award or compensation for damage to
the Premises, Building, Property and the leasehold estate created hereby,
accruing by reason of any taking in any public improvement, condemnation or
eminent domain proceeding or in any other manner by exercise of the right of
eminent domain or of anything lawfully done by public authority, except that
Tenant shall be entitled to any and all compensation or damages paid for or on
account of Tenant's moving expenses, trade fixtures, equipment, personal
property and any leasehold improvements in the Premises, the cost of which was
borne by Tenant, but only to the extent of the then remaining unamortized value
of such improvements computed on a straight-line basis over the term of this
Lease. Tenant covenants to deliver such further assignments of the foregoing as
Landlord may from time to time reasonably request.

        13.5. Restoration Of Fixtures. If Landlord repairs or causes repair of
the Premises after such damage or taking, Tenant at its sole expense shall
repair and replace promptly all fixtures, equipment and other property of Tenant
located at, in or upon the Premises and all additions, alterations and
improvements and all other items installed or paid for by Tenant under this
Lease that were damaged or taken, so as to restore the same to a condition
reasonably consistent with the conduct of the permitted uses contemplated in
Section 9.1 hereof. Tenant shall have the right to

                                      -21-
<PAGE>   25

make modifications to the Premises, fixtures and improvements, subject to the
prior written approval of Landlord, which approval shall not be unreasonably
withheld or delayed. In its review of Tenant's plans and specifications,
Landlord may take into consideration the effect of the proposed modifications on
the exterior appearance, the structural integrity and the mechanical and other
operating systems of the Building.

                                   14. DEFAULT

        14.1. Events Of Default. The occurrence of any of the following shall
constitute an event of default on the part of Tenant:

             (a) Abandonment. Abandonment of the Premises. Tenant waives any
right Tenant may have to notice under Section 1951.3 of the California Civil
Code, the terms of this subsection (a) being deemed such notice to Tenant as
required by said Section 1951.3;

             (b) Nonpayment. Failure to pay, when due, any amount payable to
Landlord hereunder, such failure continuing for a period of five (5) days after
written notice of such failure; provided, however, that any such notice shall be
in lieu of, and not in addition to, any notice required under California Code of
Civil Procedure Section 1161 et seq., as amended from time to time;

             (c) Other Obligations. Failure to perform any obligation, agreement
or covenant under this Lease other than those matters specified in subsection
(b) hereof, such failure continuing for fifteen (15) days after written notice
of such failure, or, if it is not possible to cure such default within fifteen
(15) days, failure to commence cure within said fifteen (15) day period and
thereafter to proceed diligently to complete cure; provided, however, that any
such notice shall be in lieu of, and not in addition to, any notice required
under California Code of Civil Procedure Section 1161 et seq., as amended from
time to time;

             (d) General Assignment. A general assignment by Tenant for the
benefit of creditors;

             (e) Bankruptcy. The filing of any voluntary petition in bankruptcy
by Tenant, or the filing of an involuntary petition by Tenant's creditors, which
involuntary petition remains undischarged for a period of thirty (30) days. In
the event that under applicable law the trustee in bankruptcy or Tenant has the
right to affirm this Lease and continue to perform the obligations of Tenant
hereunder, such trustee or Tenant shall, in such time period as may be permitted
by the bankruptcy court having jurisdiction, cure all defaults of Tenant
hereunder outstanding as of the date of the affirmance of this Lease and provide
to Landlord such adequate assurances as may be reasonably necessary to ensure
Landlord of the continued performance of Tenant's obligations under this Lease.
Specifically, but without limiting the generality of the foregoing, such
adequate assurances must include assurances that the Premises continue to be
operated only for the use permitted hereunder. The provisions hereof are to
assure that the basic understandings between Landlord and Tenant with respect to
Tenant's use of the Premises and the benefits to Landlord therefrom are
preserved, consistent with the purpose and intent of applicable bankruptcy laws;

             (f) Receivership. The employment of a receiver appointed by court
order to take possession of substantially all of Tenant's assets or the
Premises, if such receivership remains undissolved for a period of thirty (30)
days;

             (g) Attachment. The attachment, execution or other judicial seizure
of all or substantially all of Tenant's assets or the Premises, if such
attachment or other seizure remains undismissed or undischarged for a period of
thirty (30) days after the levy thereof;

             (h) Insolvency. The admission by Tenant in writing of its inability
to pay its debts as they become due, the filing by Tenant of a petition seeking
any reorganization or arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, the filing by Tenant of an answer admitting or failing timely to
contest a material allegation of a petition filed against Tenant in any such
proceeding or, if within

                                      -22-
<PAGE>   26

thirty (30) days after the commencement of any proceeding against Tenant seeking
any reorganization or arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, such proceeding shall not have been dismissed; or

             (i) Cross-Default. Any event of default by Tenant under any other
lease between Landlord and Tenant covering any other portion of the Property or
of Phase V of the Center from time to time during the term of this Lease, to the
extent such default continues beyond any applicable cure periods provided in the
applicable lease, and to the extent Landlord therefore has (and exercises
concurrently with any termination of this Lease) a right to terminate such other
applicable lease; provided, however, that the default event set forth in this
Section 14.1(i) shall not apply with respect to any default under a lease
described herein to the extent Tenant has previously assigned or transferred all
of its right, title and interest under the lease as to which such default then
exists and, as a result of such transfer, the holder of the lessee's interest
under the lease as to which such default then exists is not a person or entity
which controls, is controlled by or is under common control with the person or
entity which is then the holder of the lessee's interest under this Lease.

        14.2. Remedies Upon Tenant's Default.

             (a) Upon the occurrence of any event of default described in
Section 14.1 hereof, Landlord, in addition to and without prejudice to any other
rights or remedies it may have, shall have the immediate right to re-enter the
Premises or any part thereof and repossess the same, expelling and removing
therefrom all persons and property (which property may be stored in a public
warehouse or elsewhere at the cost and risk of and for the account of Tenant),
using such force as may be lawful and reasonably necessary to do so (as to which
Tenant hereby waives any claim for loss or damage that may thereby occur, except
for any such loss or damage arising from the negligence or willful misconduct or
omission of Landlord or its agents). In addition to or in lieu of such re-entry,
and without prejudice to any other rights or remedies it may have, Landlord
shall have the right either (i) to terminate this Lease and recover from Tenant
all damages incurred by Landlord as a result of Tenant's default, as hereinafter
provided, or (ii) to continue this Lease in effect and recover rent and other
charges and amounts as they become due.

             (b) Even if Tenant has breached this Lease or abandoned the
Premises, this Lease shall continue in effect for so long as Landlord does not
terminate Tenant's right to possession under subsection (a) hereof and Landlord
may enforce all of its rights and remedies under this Lease, including the right
to recover rent as it becomes due, and Landlord, without terminating this Lease,
may exercise all of the rights and remedies of a lessor under California Civil
Code Section 1951.4 (lessor may continue lease in effect after lessee's breach
and abandonment and recover rent as it becomes due, if lessee has right to
sublet or assign, subject only to reasonable limitations), or any successor Code
section. Acts of maintenance, preservation or efforts to relet the Premises or
the appointment of a receiver upon application of Landlord to protect Landlord's
interests under this Lease shall not constitute a termination of Tenant's right
to possession.

             (c) If Landlord terminates this Lease pursuant to this Section
14.2, Landlord shall have all of the rights and remedies of a landlord provided
by Section 1951.2 of the Civil Code of the State of California, or any successor
Code section, which remedies include Landlord's right to recover from Tenant (i)
the worth at the time of award of the unpaid rent and additional 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 and additional rent which would have been
earned after termination until the time of award exceeds the amount of such
rental loss that Tenant proves could have been reasonably avoided, (iii) the
worth at the time of award of the amount by which the unpaid rent and additional
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that Tenant proves could be reasonably avoided, and (iv) any
other amount necessary to compensate Landlord for all the detriment proximately
caused by Tenant'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 repair, renovation and alteration of the
Premises (provided that the cost of any such renovation or alteration shall be
recoverable only to the extent reasonably necessary to make

                                      -23-
<PAGE>   27

the Premises suitable for use and occupancy by the new tenant and shall be
allocated reasonably between the unexpired portion of the term of this Lease at
the date of termination thereof and the balance, if any, of the term of such new
tenant's lease falling after the scheduled expiration date of the term of this
Lease), reasonable attorneys' fees, and other reasonable costs. The "worth at
the time of award" of the amounts referred to in clauses (i) and (ii) above
shall be computed by allowing interest at ten percent (10%) per annum from the
date such amounts accrued to Landlord. The "worth at the time of award" of the
amounts referred to in clause (iii) above shall be computed by discounting such
amount at one percentage point above the discount rate of the Federal Reserve
Bank of San Francisco at the time of award.

        14.3. Remedies Cumulative. All rights, privileges and elections or
remedies of Landlord contained in this Article 14 are cumulative and not
alternative to the extent permitted by law and except as otherwise provided
herein.

                     15. SUBORDINATION, ATTORNMENT AND SALE

        15.1. Subordination To Mortgage.

             (a) This Lease, and any sublease entered into by Tenant under the
provisions of this Lease, shall be subject and subordinate to any ground lease,
mortgage, deed of trust, sale/leaseback transaction or any other hypothecation
for security now or hereafter placed upon the Building, the Property, or both,
and the rights of any assignee of Landlord or of any ground lessor, mortgagee,
trustee, beneficiary or leaseback lessor under any of the foregoing, and to any
and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof. If any
mortgagee, trustee, beneficiary, ground lessor, sale/leaseback lessor or
assignee elects to have this Lease be an encumbrance upon the Property prior to
the lien of its mortgage, deed of trust, ground lease or leaseback lease or
other security arrangement and gives notice thereof to Tenant, this Lease shall
be deemed prior thereto, whether this Lease is dated prior or subsequent to the
date thereof or the date of recording thereof. Tenant, and any sublessee, shall
execute such documents as may reasonably be requested by any mortgagee, trustee,
beneficiary, ground lessor, sale/leaseback lessor or assignee to evidence the
subordination herein set forth or to make this Lease prior to the lien of any
mortgage, deed of trust, ground lease, leaseback lease or other security
arrangement, as the case may be. Upon any default by Landlord in the performance
of its obligations under any mortgage, deed of trust, ground lease, leaseback
lease or assignment, Tenant (and any sublessee) shall attorn to the mortgagee,
trustee, beneficiary, ground lessor, leaseback lessor or assignee thereunder
upon demand and shall execute and deliver any instrument or instruments
confirming the attornment herein provided for. Landlord shall obtain and deliver
to Tenant, within ninety (90) days after mutual execution of this Lease, a
written nondisturbance agreement from Northwestern Mutual Life Insurance Company
(the beneficiary under the existing deed of trust on the Property) providing
that Tenant's right to quiet possession of the Premises shall not be disturbed
so long as Tenant is not in default beyond the expiration of any applicable cure
period and performs all of its obligations under this Lease, unless this Lease
is otherwise terminated pursuant to its terms; such written nondisturbance
agreement shall be substantially in the form of the written nondisturbance
agreements previously entered into by Tenant and Northwestern Mutual Life
Insurance Company with respect to Tenant's occupancy of other buildings on the
Property (such as, for example, Building G). If Landlord fails to deliver such
agreement to Tenant within the required time, Tenant shall have the right to
terminate this Lease by written notice to Landlord at any time prior to
Landlord's subsequent delivery (if any) of an executed agreement meeting such
requirements.

             (b) Landlord specifically agrees that (i) Tenant may conclusively
rely upon any written notice Tenant receives from any mortgagee, trustee,
beneficiary, ground lessor, sale/leaseback lessor or assignee ("Beneficiary"),
notwithstanding any claim by Landlord contesting the validity of any term or
condition of such notice, including, but not limited to, any default by such
Beneficiary or any default claimed by Landlord to have been committed by such
Beneficiary, and (ii) Landlord shall not make any claim of any kind against
Tenant or Tenant's leasehold interest with

                                      -24-
<PAGE>   28

respect to amounts paid to any such Beneficiary by Tenant or any acts performed
by Tenant pursuant to such written notice from any Beneficiary.

             (c) Notwithstanding anything to the contrary contained in this
Lease, Tenant shall not be required to subordinate its interest under this Lease
unless (i) such subordination does not materially increase Tenant's obligations
or materially decrease its rights under this Lease, and (ii) Landlord first
obtains from the Beneficiary requesting such subordination a written agreement
that provides that Tenant's right to quiet possession of the Premises shall not
be disturbed so long as Tenant is not in default beyond the expiration of any
applicable cure period and performs all of its obligations under this Lease,
unless this Lease is otherwise terminated pursuant to its terms.

        15.2. Sale Of Landlord's Interest. Upon sale, transfer or assignment of
Landlord's entire interest in the Building and Property, Landlord shall be
relieved of its obligations hereunder with respect to liabilities accruing from
and after the date of such sale, transfer or assignment.

        15.3. Estoppel Certificates. Tenant shall at any time and from time to
time, within ten (10) days after written request by Landlord, execute,
acknowledge and deliver to Landlord a certificate in writing stating: (i) that
this Lease is unmodified and in full force and effect, or if there have been any
modifications, that this Lease is in full force and effect as modified and
stating the date and the nature of each modification; (ii) the date to which
rental and all other sums payable hereunder have been paid; (iii) that to
Tenant's actual knowledge Landlord is not in default in the performance of any
of its obligations under this Lease, that Tenant has given no notice of default
to Landlord and that to Tenant's actual knowledge, no event has occurred which,
but for the expiration of the applicable time period, would constitute an event
of default hereunder; and (iv) such other matters as may reasonably be requested
by Landlord or any institutional lender, mortgagee, trustee, beneficiary, ground
lessor, sale/leaseback lessor or prospective purchaser of the Property. Any such
certificate provided under this Section 15.3 may be relied upon by any lender,
mortgagee, trustee, beneficiary, assignee or successor in interest to Landlord,
by any prospective purchaser, by any purchaser on foreclosure or sale, or by any
grantee under a deed in lieu of foreclosure of any mortgage or deed of trust on
the Property or Premises. Failure to execute and return within the required time
any estoppel certificate requested hereunder shall be deemed to be an admission
of the truth of the matters set forth in the form of certificate submitted to
Tenant for execution.

        15.4. Subordination to CC&R's. This Lease, and any permitted sublease
entered into by Tenant under the provisions of this Lease, shall be subject and
subordinate (a) to any declarations of covenants, conditions and restrictions
recorded by Landlord with respect to the Property from time to time, provided
that the terms of such declarations are reasonable and do not discriminate
against Tenant relative to other tenants occupying portions of the Property, and
(b) to the Declaration of Covenants, Conditions and Restrictions dated June 20,
1979 and recorded on July 5, 1979 as Instrument No. 79-130777, Alameda County
Records, as amended from time to time (the "Master Declaration"), the provisions
of which Master Declaration are an integral part of this Lease. Tenant agrees to
execute, upon request by Landlord, any documents reasonably required from time
to time to evidence the subordination provided in this Section 15.4.

                                  16. SECURITY

        16.1. Deposit.

                                      -25-
<PAGE>   29

             (a) Concurrently with Tenant's execution of this Lease, Tenant
shall deposit with Landlord the sum of Fifty Thousand Four Hundred Eighty-Three
and 75/100 Dollars ($50,483.75), which sum (the "Security Deposit") shall be
held by Landlord as security for the faithful performance of all of the terms,
covenants, and conditions of this Lease to be kept and performed by Tenant
during the term hereof. If Tenant defaults, beyond the expiration of any
applicable grace period, with respect to any provision of this Lease, including,
without limitation, the provisions relating to the payment of rental and other
sums due hereunder, Landlord shall have the right, but shall not be required, to
use, apply or retain all or any part of the Security Deposit for the payment of
rental or any other amount which Landlord may spend or become obligated to spend
by reason of Tenant's default or to compensate Landlord for any other loss or
damage which Landlord may suffer by reason of Tenant's default. If any portion
of the Security Deposit is so used or applied, Tenant shall, within thirty (30)
days after written demand therefor, deposit cash with Landlord in an amount
sufficient to restore the Security Deposit to its original amount and Tenant's
failure to do so shall be a material breach of this Lease. Landlord shall not be
required to keep any deposit under this Section separate from Landlord's general
funds, and Tenant shall not be entitled to interest thereon. If Tenant fully and
faithfully performs every provision of this Lease to be performed by it, the
Security Deposit, or any balance thereof, shall be returned to Tenant or, at
Tenant's direction, to the last assignee of Tenant's interest hereunder, at the
expiration of the term of this Lease and within ten (10) days after Tenant has
vacated the Premises. In the event of termination of Landlord's interest in this
Lease, Landlord shall transfer all deposits then held by Landlord under this
Section to Landlord's successor in interest, whereupon Tenant agrees to release
Landlord from all liability for the return of such deposit or the accounting
thereof.

             (b) In lieu of the Security Deposit, Tenant may deliver to Landlord
at any time, and shall thereafter maintain in full force and effect during the
remaining term of this Lease, an irrevocable standby letter of credit in the
amount of the required Security Deposit, issued in favor of Landlord by a
commercial bank or trust company approved in writing by Landlord (which approval
shall not be unreasonably withheld or delayed), in form reasonably satisfactory
to Landlord (the "Letter of Credit"), to be held by Landlord as security for the
faithful performance of all the payment obligations of Tenant under this Lease
during the term hereof, subject to the following terms and conditions (and upon
delivery of any such Letter of Credit by Tenant, if Landlord is then already
holding a cash Security Deposit from Tenant, Landlord shall promptly return such
cash Security Deposit to Tenant):

                    (i) Landlord shall be entitled (but shall not be required)
to draw against the Letter of Credit and receive and retain proceeds thereof
upon any default by Tenant, beyond the expiration of any applicable cure
periods, in the payment of any rent or other amounts required to be paid by
Tenant under this Lease (a "monetary default") or upon any other default, beyond
the expiration of any applicable cure periods, in Tenant's obligations under
this Lease (a "non-monetary default"). The amount of any such draw shall be,
with respect to a monetary default, the amount due from Tenant to Landlord, and,
in the event of a non-monetary default, an amount estimated by Landlord, in its
reasonable discretion, to be the amount necessary to cure such default. Within
thirty (30) days following any draw by Landlord against the Letter of Credit,
Tenant shall cause the amount of the Letter of Credit to be restored to the full
amount of the required Security Deposit pursuant to paragraph (a) above.
Landlord's entitlement to draw against the Letter of Credit shall not limit or
impair in any way Landlord's other rights and remedies, following any default by
Tenant, under any other applicable provision of this Lease or under applicable
law.

                    (ii) Notwithstanding any provisions of subparagraph (i)
above, Landlord shall also be entitled (but shall not be required) to draw
against the then remaining balance of the Letter of Credit in full and to
receive the entire proceeds of such draw if the Letter of Credit will expire as
of a date prior to the expiration of the initial term of this Lease and Tenant
fails to provide to Landlord an extension or replacement of such Letter of
Credit, in at least the amount of the required Security Deposit, at least thirty
(30) days prior to the scheduled expiration date of such existing Letter of
Credit.

                    (iii) Any amount drawn or received by Landlord pursuant to a
draw under the Letter of Credit that is not immediately used or applied by
Landlord to remedy a default

                                      -26-
<PAGE>   30

by Tenant shall be retained by Landlord as a cash Security Deposit on the terms
set forth in paragraph (a) above.

                                17. MISCELLANEOUS

        17.1. Notices. All notices, consents, waivers and other communications
which this Lease requires or permits either party to give to the other shall be
in writing and shall be deemed given when delivered personally (including
delivery by private courier or express delivery service) or when delivered by
United States mail if sent via registered or certified mail, postage prepaid, or
upon refusal of a party to accept delivery of a notice sent in accordance with
this Section, in each instance addressed to the parties at their respective
addresses as follows:

        To Tenant:              Aradigm Corporation
                                3929 Point Eden Way
                                Hayward, CA  94545
                                Attn: Richard P. Thompson, President and CEO

        with a copy to:         Norman Halleen, Vice President Finance & CFO
                                Aradigm Corporation
                                3929 Point Eden Way
                                Hayward, CA  94545

        and a copy to:          Cooley Godward LLP
                                One Maritime Plaza, 20th Floor
                                San Francisco, CA  94111
                                Attn:  Dina E. Alexander, Esq.

        To Landlord:            Hayward Point Eden I Limited Partnership
                                c/o Britannia Property Management, Inc.
                                1939 Harrison Street, Suite 715
                                Park Plaza Building
                                Oakland, CA 94612
                                Attn: T. J. Bristow

        with a copy to:         Slough Estates USA Inc.
                                33 West Monroe St., Suite 2000
                                Chicago, IL  60603
                                Attn:  Bill Rogalla

        and a copy to:          Folger Levin & Kahn LLP
                                Embarcadero Center West
                                275 Battery Street, 23rd Floor
                                San Francisco, CA 94111
                                Attn: Donald E. Kelley, Jr.

or to such other address as may be contained in a notice at least fifteen (15)
days prior to the address change from either party to the other given pursuant
to this Section. Rental payments and other sums required by this Lease to be
paid by Tenant shall be delivered to Landlord at Landlord's address provided in
this Section, or to such other address as Landlord may from time to time specify
in writing to Tenant, and shall be deemed to be paid only upon actual receipt.

        17.2. Successors And Assigns. The obligations of this Lease shall run
with the land, and this Lease shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, except that the
original Landlord named herein and each successive Landlord under this Lease
shall be liable only for obligations accruing during the period of its ownership
of the Property, which liability shall survive, but future liability under the
Lease shall then pass to the successor lessor.

                                      -27-
<PAGE>   31

        17.3. No Waiver. The failure of either party to seek redress for
violation, or to insist upon the strict performance, of any covenant or
condition of this Lease shall not be deemed a waiver of such violation, or
prevent a subsequent act which would originally have constituted a violation
from having all the force and effect of an original violation.

        17.4. Severability. If any provision of this Lease or the application
thereof is held to be invalid or unenforceable, the remainder of this Lease or
the application of such provision to persons or circumstances other than those
as to which it is invalid or unenforceable shall not be affected thereby, and
each of the provisions of this Lease shall be valid and enforceable, unless
enforcement of this Lease as so invalidated would be unreasonable or grossly
inequitable under all the circumstances or would materially frustrate the
purposes of this Lease.

        17.5. Litigation Between Parties. In the event of any litigation between
the parties hereto growing out of this Lease, the prevailing party shall be
reimbursed for all reasonable costs, including, but not limited to, reasonable
accountants' fees and attorneys' fees. "Prevailing party" within the meaning of
this Section shall include, without limitation, a party who dismisses an action
for recovery hereunder in exchange for payment of the sums allegedly due,
performance of covenants allegedly breached or consideration substantially equal
to the relief sought in the action.

        17.6. Surrender. A voluntary or other surrender of this Lease by Tenant,
or a mutual termination thereof between Landlord and Tenant, shall not result in
a merger but shall, at the option of Landlord, operate either as an assignment
to Landlord of any and all existing subleases and subtenancies, or a termination
of all or any existing subleases and subtenancies. This provision shall be
contained in any and all assignments or subleases made pursuant to this Lease.

        17.7. Interpretation. The provisions of this Lease shall be construed as
a whole, according to their common meaning, and not strictly for or against
Landlord or Tenant. The captions preceding the text of each Section and
subsection hereof are included only for convenience of reference and shall be
disregarded in the construction or interpretation of this Lease.

        17.8. Entire Agreement. This written Lease, together with the exhibits
hereto, contains all the representations and the entire understanding between
the parties hereto with respect to the subject matter hereof. Any prior
correspondence, memoranda or agreements are replaced in total by this Lease and
the exhibits hereto, except as otherwise expressly provided herein. This Lease
may be modified only by an agreement in writing signed by each of the parties.

        17.9. Governing Law. This Lease and all exhibits hereto shall be
construed and interpreted in accordance with and be governed by all the
provisions of the laws of the State of California.

        17.10. No Partnership. Nothing contained in this Lease shall be
construed as creating any type or manner of partnership, joint venture or joint
enterprise with or between Landlord and Tenant.

        17.11. Financial Information. From time to time Tenant shall promptly
provide directly to prospective lenders and purchasers of the Property
designated by Landlord such financial information pertaining to the financial
status of Tenant as Landlord may reasonably request; provided, Tenant shall be
permitted to provide such financial information in a manner which Tenant deems
reasonably necessary to protect the confidentiality of such information. In
addition, from time to time, Tenant shall provide Landlord with such financial
information pertaining to the financial status of Tenant as Landlord may
reasonably request. Landlord agrees that all financial information supplied to
Landlord by Tenant shall be treated as confidential material, and shall not be
disseminated to any person or entity (including any entity affiliated with
Landlord, except as otherwise expressly provided below) without Tenant's prior
written consent, except that Landlord shall be entitled to provide such
information, subject to reasonable precautions to protect the confidential
nature thereof, (i) to Landlord's partners and professional advisors, solely for
use in connection with Landlord's execution and enforcement of this Lease, and
(ii) to prospective lenders and/or purchasers of the Property, solely for use in
connection with their bona fide consideration of

                                      -28-
<PAGE>   32

a proposed financing or purchase of the Property, provided that such prospective
lenders and/or purchasers are not engaged in businesses directly competitive
with the business then being conducted by Tenant. For purposes of this Section,
without limiting the generality of the obligations provided herein, (A) it shall
be deemed reasonable for Landlord to request copies of Tenant's most recent
audited annual financial statements, or, if audited statements have not been
prepared, unaudited financial statements for Tenant's most recent fiscal year,
accompanied by a certificate of Tenant's chief financial officer that such
financial statements fairly present Tenant's financial condition as of the
date(s) indicated, and (B) during any period when Tenant has a class of
publicly-traded securities and is a reporting company under the Securities
Exchange Act of 1934, it shall be deemed sufficient compliance with Tenant's
obligations under this Section for Tenant to provide, upon Landlord's request,
copies of Tenant's most recent quarterly and annual filings (and any Form 8-K
filings since the most recent of such quarterly or annual filings) with the
Securities and Exchange Commission.

             Landlord and Tenant recognize the need of Tenant to maintain the
confidentiality of information regarding its financial status and the need of
Landlord to be informed of, and to provide to its partners and to prospective
lenders and purchasers of the Property financial information pertaining to,
Tenant's financial status. Landlord and Tenant agree to cooperate with each
other in achieving these needs within the context of the obligations set forth
in this Section.

        17.12. Costs. If Tenant requests the consent of Landlord under any
provision of this Lease for any act that Tenant proposes to do hereunder,
including, without limitation, assignment or subletting of the Premises, Tenant
shall, as a condition to doing any such act and the receipt of such consent,
reimburse Landlord promptly for any and all reasonable costs and expenses
incurred by Landlord in connection therewith, including, without limitation,
reasonable attorneys' fees.

        17.13. Time. Time is of the essence of this Lease, and of every term and
condition hereof.

        17.14. Rules And Regulations. Tenant shall observe and obey such
non-discriminatory rules and regulations as Landlord may promulgate from time to
time for the safety, care, cleanliness, order and use of the Premises, the
Building and the Property, provided that any such rules and regulations shall
not unreasonably interfere with Tenant's access to, or use of, the Premises.

        17.15. Brokers. Landlord and Tenant each represents and warrants to the
other that no broker participated in the consummation of this Lease, and each
agrees to indemnify, defend and hold the other party harmless against any
liability, cost or expense, including, without limitation, reasonable attorneys'
fees, arising out of any claims for brokerage commissions or other similar
compensation in connection with any conversations, prior negotiations or other
dealings by the indemnifying party with any such other broker or other claimant.

        17.16. Memorandum Of Lease. At any time during the term of this Lease,
either party, at its sole expense, shall be entitled to record a memorandum of
this Lease and, if either party so elects, both parties agree to cooperate in
the preparation, execution, acknowledgment and recordation of such document in
reasonable form.

        17.17. Corporate Authority. Each of the persons signing this Lease on
behalf of Landlord and Tenant, respectively, warrants that he or she is fully
authorized to do so and, by so doing, to bind Landlord or Tenant, as applicable.

        17.18. Execution and Delivery. Submission of this Lease for examination
or signature by Tenant does not constitute an agreement or reservation of or
option for lease of the Premises. This instrument shall not be effective or
binding upon either party, as a lease or otherwise, until executed and delivered
by both Landlord and Tenant. This Lease may be executed in one or more
counterparts and by separate parties on separate counterparts, but each such
counterpart shall constitute an original and all such counterparts together
shall constitute one and the same instrument.

        17.19. Stock Warrants. As a material inducement to Landlord's execution
of this Lease, within thirty (30) days after mutual execution of this Lease
Tenant shall deliver to Landlord, subject

                                      -29-
<PAGE>   33

to compliance with all applicable securities laws, a warrant or warrants,
registered in the name(s) of Landlord or its designee(s) (provided that such
designee(s) are partners of Landlord or are shareholders, members or affiliates,
directly or indirectly, of Landlord or of one or more of its partners or are
approved in writing by Tenant, which approval shall not be unreasonably withheld
or delayed) and in form and substance reasonably satisfactory to Landlord,
providing for the purchase of an aggregate of Twenty-Five Thousand (25,000)
shares of Tenant's common stock. Such warrants shall have an exercise price
equal to one hundred twenty-five percent (125%) of the closing market price of
Tenant's common stock on the date of mutual execution of this Lease, shall
include reasonable registration rights and shall be exercisable at any time up
from the First Commencement Date until the seventh (7th) anniversary of the date
of mutual execution of this Lease.

             IN WITNESS WHEREOF, the parties hereto have executed this Lease as
of the day and year first set forth above.

          "Landlord"                                      "Tenant"

HAYWARD POINT EDEN I LIMITED                 ARADIGM CORPORATION, a California
PARTNERSHIP, a Delaware limited              corporation
partnership

By:     Slough Point Eden Inc., a Delaware   By:
        corporation, Its General Partner        --------------------------------
                                                 Richard P. Thompson, President

        By:
           -------------------------------   By:
                                                -------------------------------
        Its:                                    Norman Halleen, VP Finance and
            ------------------------------      CFO

                                      -30-
<PAGE>   34

                                    EXHIBITS

                   EXHIBIT A       Location of Premises

                   EXHIBIT B       Real Property Description

                   EXHIBIT C       Construction

                   EXHIBIT D       Acknowledgment of Third Commencement Date

<PAGE>   35
                                                                       EXHIBIT A

                              LOCATION OF PREMISES

                                     [MAP]

<PAGE>   36

                            REAL PROPERTY DESCRIPTION

Improved real property located in the City of Hayward, County of Alameda, State
of California, more particularly described as follows:

Lots 2, 3, 4, 5 and 7, Tract 4019, filed June 28, 1979, Map Book 110, Pages 97,
98 and 99, Alameda County Records.

Subject to easements, restrictions and other matters of record affecting title.

                                           EXHIBIT B

<PAGE>   37

                                  CONSTRUCTION

        Landlord, at its sole cost and expense, shall undertake and diligently
complete, subject to delays for causes beyond its reasonable control,
construction of tenant improvements in the First Space, Second Space and Third
Space in accordance with plans and specifications to be mutually approved by
Landlord and Tenant, which approval shall not be unreasonably withheld or
delayed; provided, however, that the parties may by mutual agreement, as
contemplated below and in Section 2.4(c) of the Lease, determine instead that
Tenant will contract for the design and/or construction of the tenant
improvements subject to reimbursement by Landlord to the extent provided below.
The contemplated tenant improvements under Section 2.4 and this Exhibit C shall
also include the proposed linkage between Buildings G and E, subject to receipt
of required approvals from applicable governmental authorities, and the entire
direct costs (as described below) of such linkage shall be chargeable against
the Tenant Improvement Allowance (as defined below) or, to the extent they
exceed (in combination with the other tenant improvements) the Tenant
Improvement Allowance, shall be payable by Tenant as set forth below.

        All such work hereunder shall be performed in a neat and workmanlike
manner and shall conform to all applicable governmental codes, laws and
regulations in force at the time such work is completed. Landlord and Tenant
shall both use their best endeavors to develop, review and approve all working
drawings, final drawings, specifications, changes (if applicable) and other
matters promptly, diligently and within such time periods as may be reasonably
requested by the other party or by the architects, contractors and other
professionals engaged in the design and construction of the work.

        Landlord has agreed to provide a tenant improvement allowance of up to
Seventy Dollars ($70.00) per square foot, or Two Million Eight Hundred
Twenty-Seven Thousand Ninety Dollars ($2,827,090) in the aggregate for the
40,387 square feet of space in the Premises, for the tenant improvements
described in the initial paragraph hereof (the "Tenant Improvement Allowance").
The total direct costs of design and construction of the tenant improvement work
in the Premises under Section 2.4 and this Exhibit C, including, but not limited
to, payments to contractors or subcontractors for labor, materials and profits
or overhead, permit fees and charges, sales and use taxes, testing and
inspection costs, architects', engineers' and other consulting and professional
fees, costs of power, water and other utilities and of collection and removal of
debris, and all other related costs incurred in connection with the design and
construction of the tenant improvement work (collectively, "Direct Costs"),
shall be chargeable against the Tenant Improvement Allowance and shall result in
an obligation of Tenant to pay Additional Rent pursuant to Section 3.1(c) of the
Lease. All such Direct Costs of the tenant improvements, as incurred and payable
from time to time, shall be payable eighty percent (80%) by Landlord (and
charged against the Tenant Improvement Allowance) and twenty percent (20%) by
Tenant, until (if ever) the aggregate amounts expended by Landlord for such
Direct Costs have reached the maximum Tenant Improvement Allowance. Tenant's 20%
share of such Direct Costs shall be payable by Tenant, and any such Direct Costs
in excess of the Tenant Improvement Allowance shall be payable solely by Tenant,
each within thirty (30) days after written request by Landlord accompanied by
evidence reasonably satisfactory to Tenant of the nature and amount of the
expense or work for which such payment is requested; provided, however, that
Tenant shall have no liability for Direct Costs or excess Direct Costs to the
extent such Direct Costs are attributable to changes in the Approved Plans and
Specifications (as hereinafter defined) for which Tenant's approval was required
under this Exhibit C and which were nevertheless implemented without Tenant's
approval. Notwithstanding any contrary provisions contained in the Lease,
Landlord agrees that Tenant shall have no obligation to remove, at the
expiration of the term of the lease, any improvements constructed by Landlord
pursuant to this Exhibit C.

        The general contractor for the tenant improvements shall be any licensed
and qualified general contractor selected by Tenant, subject to written approval
by Landlord (which approval shall not be unreasonably withheld or delayed). The
architect for the tenant improvements ("Architect") shall be any licensed and
qualified architect selected by Tenant, subject to written approval by Landlord
(which approval shall not be unreasonably withheld or delayed). The costs and
fees of Architect with respect to the tenant improvements (but not any such fees
with respect to the building

                             EXHIBIT C (PAGE 1 OF 2)

<PAGE>   38

shell or any common area improvements) shall be Direct Costs of the tenant
improvements and, to the extent paid by Landlord, shall be chargeable against
the Tenant Improvement Allowance. Landlord and Tenant shall determine by mutual
agreement whether the contracts with Architect, with the general contractor for
the tenant improvements and with other consultants or professionals with respect
to the tenant improvements shall be entered into by Landlord or Tenant. If such
contracts are entered into by Tenant, then (i) Section 2.4(c) of the Lease shall
define Landlord's obligations with respect to the work performed under such
contracts and (ii) to the extent Landlord is responsible under this Exhibit C
for the costs incurred under such contracts, Landlord shall make payments to
Tenant or to the applicable parties providing goods and services, as Landlord
and Tenant may agree, on a monthly or other regular basis, subject to receipt of
such invoices, lien releases, certifications and other documentation as Landlord
may reasonably require.

        Landlord and Tenant shall jointly cause Architect to prepare initial
plans and specifications for the tenant improvements in the Premises, which
plans and specifications shall be mutually approved (such approval not to be
unreasonably withheld or delayed) by Landlord and Tenant (the "Approved Plans
and Specifications"). Landlord and Tenant shall then jointly cause Architect to
produce detailed working drawings, based on the Approved Plans and
Specifications, for submission to the City of Hayward for building permit
approval. Any material changes from the Approved Plans and Specifications shall
be subject to mutual approval (not unreasonably withheld or delayed) by Landlord
and Tenant, provided, however, that any changes required from time to time in
the Approved Plans and Specifications, working drawings and/or final plans and
specifications as a result of applicable law or governmental requirements, or at
the insistence of any other third party whose approval may be required with
respect to such improvements, or as a result of unanticipated conditions
encountered in the course of construction, may be implemented by Landlord after
prior notice to Tenant (if Landlord is the contracting party who is responsible
for construction of the applicable improvements), but shall not require Tenant's
approval or consent.

        All material subcontracts for the tenant improvements shall be
competitively bid under the joint direction of Landlord and Tenant, except as
otherwise provided herein. Landlord and Tenant shall consult with one another
regarding all design and cost matters relating to the tenant improvements,
including (but not limited to) bidding of material subcontracts as described in
the preceding sentence, and both parties shall have access on an "open book"
basis to all bids, contracts and other cost-related information regarding the
tenant improvements. Without limiting the generality of the foregoing, cost
aspects of any changes requested by Tenant from time to time in the Approved
Plans and Specifications, working drawings and/or final plans and specifications
shall be subject to mutual approval by Landlord and Tenant; cost aspects of any
changes required from time to time in the Approved Plans and Specifications,
working drawings and/or final plans and specifications as a result of applicable
law or governmental requirements, or at the insistence of any other third party
whose approval may be required with respect to such improvements, or as a result
of unanticipated conditions encountered in the course of construction, shall not
require Tenant's approval or consent, but Tenant shall at all times have access
to the details of the cost aspects of such changes (including estimates and
actual expenses) for information purposes. Notwithstanding any other provisions
of this paragraph, however, to the extent Tenant contracts directly with the
general contractor for any of the tenant improvements, Tenant shall not be
required to obtain Landlord's prior approval of or joint participation in the
bidding of material subcontracts to the extent Tenant reasonably determines that
such prior approval or joint participation is impractical as a result of the
construction timetable and timing requirements for the work contracted for by
Tenant; but Tenant shall nevertheless keep Landlord as fully informed as the
circumstances reasonably permit and shall in all events provide Landlord with
full "open book" access at all reasonable times, on request by Landlord, to all
bids, contracts and other information relating to the tenant improvements
contracted for by Tenant.

                             EXHIBIT C (PAGE 2 OF 2)

<PAGE>   39

                    ACKNOWLEDGMENT OF THIRD COMMENCEMENT DATE

        This Acknowledgment is executed as of _________________, 200__, by
HAYWARD POINT EDEN I LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord"), and ARADIGM CORPORATION, a California corporation ("Tenant"),
pursuant to Section 2.5 of the Lease dated July 1, 2000 between Landlord and
Tenant (the "Lease") covering premises located at 3930 Point Eden Way, Hayward,
CA 94545 (the "Premises").

        Landlord and Tenant hereby acknowledge and agree as follows:

        1. The Third Commencement Date under the Lease is _______________,
200__.

        2. The termination date under the Lease shall be May 1, 2014, subject to
any applicable provisions of the Lease for any early termination thereof.

        3. The square footage of the Premises is 40,387 square feet.

        4. The final amount of the Tenant Improvement Allowance expended by
Landlord for tenant improvements for the Premises is $_______________. Based on
that cost, the applicable monthly Additional Rent required under Section 3.1(c)
of the Lease is as follows: $_______________. [If the foregoing information is
not available at the date of execution of this Acknowledgement, the necessary
determinations shall be made by the parties at such time as the information
becomes available in accordance with the terms of the Lease and shall be
reflected in a letter agreement or other appropriate written instrument between
the parties.]

        5. Tenant has accepted all of the Premises and acknowledges the
satisfactory completion of all improvements therein (if any) required to be made
by Landlord, subject only to any applicable "punch list" or similar procedures
specifically provided under the Lease.

        EXECUTED as of the date first set forth above.

          "Landlord"                                      "Tenant"

HAYWARD POINT EDEN I LIMITED                 ARADIGM CORPORATION, a California
PARTNERSHIP, a Delaware limited              corporation
partnership

By:     Slough Point Eden Inc., a Delaware   By:
        corporation, Its General Partner        -------------------------------
                                                Norman Halleen, VP Finance and
                                                CFO
        By:
           -------------------------------

        Its:
            ------------------------------

                                    EXHIBIT D<PAGE>   1
                                  Exhibit 10.1

                         Next Level Communications, Inc.
                              6085 State Farm Drive
                             Rohnert Park, CA 94928
                                 (707) 584-6820
                              (888) 653-8354 (fax)

                               _____________, 2000

[name]
[address]
[phone]
[fax]

Dear _______________:

        The Board of Directors (the "Board") of Next Level Communications, Inc.,
a Delaware corporation (the "Corporation"), has determined that it is in the
best interests of the Corporation and its stockholders to assure that the
Corporation will continue to have your dedication and services notwithstanding
the possibility, threat or occurrence of a Change in Control (as defined
herein). The Board believes it is imperative to diminish the distraction that
you would face by virtue of the personal uncertainties created by a pending or
threatened Change in Control and to encourage your full attention and dedication
to the Corporation currently and in the event of any threatened or pending
Change in Control. Further, the Board desires to provide you with compensation
and benefits arrangements upon a Change in Control which ensure that your
compensation and benefits expectations will be satisfied and which are
competitive with those of other corporations. Therefore, in order to accomplish
these objectives, the Board has caused the Corporation to enter into this
Agreement (the "Agreement").

        1.     Term of Agreement. The terms of this Agreement shall become
effective upon the execution hereof by the Corporation and shall continue unless
terminated by written agreement between you and the Corporation; provided, that
if a Change in Control occurs, then the term of this Agreement shall continue in
effect for a period of not less than twenty-four (24) months beyond the date
(the "Change in Control Date") on which a Change in Control occurs. No benefits
shall be payable hereunder unless there has been a Change in Control.

        2.     Change in Control. A Change in Control shall be deemed to occur
upon the earliest to occur after the date of this Agreement of any of the events
set forth in Sections 2.1 through 2.5 below:

               2.1  Acquisition of Stock by Third Party. Any Person (as defined
below) is or becomes the Beneficial Owner (as defined below), directly or
indirectly, of securities of the Corporation representing thirty-three and one
third percent (33-1/3%) or more of the combined voting power of the
Corporation's then outstanding securities and Motorola, Inc. ("Motorola") then
owns less than fifty percent (50%) of such securities;

               2.2  Change in Board of Directors. During any period of two (2)
consecutive years (not including any period prior to the execution of this
Agreement),

<PAGE>   2

_____________, 2000
Page 2

individuals who at the beginning of such period constitute the Board, and any
new director (other than a director designated by a person who has entered into
an agreement with the Corporation to effect a transaction described in Sections
2.1, 2.3 or 2.4) whose election by the Board or nomination for election by the
Corporation's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority of the members of the
Board;

               2.3  Corporate Transactions. The effective date of a merger or
consolidation of the Corporation with any other entity, other than a merger or
consolidation which would result in the voting securities of the Corporation
outstanding immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 51% of the combined voting power
of the voting securities of the surviving entity outstanding immediately after
such merger or consolidation and with the power to elect at least a majority of
the board of directors or other governing body of such surviving entity;

               2.4  Liquidation. The approval by the stockholders of the
Corporation of a complete liquidation of the Corporation or an agreement for the
sale or disposition by the Corporation of all or substantially all of the
Corporation's assets;

               2.5  Other Events. There occurs any other event of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A (or a response to any similar item on any similar schedule or
form) promulgated under the Exchange Act (as defined below), whether or not the
Corporation is then subject to such reporting requirement; or

               2.6  Motorola Acquisition. Notwithstanding the foregoing, a
Change in Control shall not include any acquisition by Motorola of all or
substantially all of the total voting power represented by the Corporation's
then outstanding voting securities, whether through a tender offer, merger, or
any other means (a "Motorola Acquisition"). Subject to Section 3, in the event
of a Motorola Acquisition, and regardless of whether your employment with the
Corporation is terminated in connection with the Motorola Acquisition, fifty
percent (50%) of the unvested stock options granted for the Corporation's
securities held by you shall become fully vested and immediately exercisable
immediately prior to the consummation of the Motorola Acquisition and shall be
exercisable to the extent then so vested in accordance with the provisions of
the stock option agreement and stock option plan pursuant to which such stock
option was granted, with the remainder of your unvested stock options vesting in
accordance with the original vesting schedule of the stock option agreement and
stock option plan pursuant to which such stock option was granted for the period
commencing on the consummation of the Motorola Acquisition and ending on the
twelve (12) month anniversary following such Motorola Acquisition, except that
all unvested stock options shall vest on such twelve (12) month anniversary
following such Motorola Acquisition, provided, however, that you are an employee
of the Corporation or a successor entity to the Corporation on such twelve (12)
month anniversary, provided, further, that all of your unvested stock options
will vest upon your termination without Cause or your termination of your
employment for Good Reason that occurs within such twelve (12) month period.

<PAGE>   3

_____________, 2000
Page 3

               2.7  Acceleration upon a Change in Control. Subject to Section
2.6 and Section 3, all unvested stock options held by you shall immediately
prior to the consummation of a Change in Control vest and become exercisable in
full and shall remain exercisable for the period specified in such options,
notwithstanding any vesting schedule or other provisions to the contrary in the
agreements or plans evidencing such options.

               2.8  Certain Definitions. The following terms shall have the
following meanings:

               "Approval Date" shall mean the date on which the stockholders of
the Corporation approve a transaction the consummation of which would result in
the occurrence of a Change in Control.

               "Beneficial Owner" shall have the meaning given to such term in
Rule 13d-3 under the Exchange Act; provided, however, that Beneficial Owner
shall exclude any Person otherwise becoming a Beneficial Owner by reason of the
stockholders of the Corporation approving a merger of the Corporation with
another entity.

               "Cause" shall mean termination by the Corporation of your
employment (a) upon your willful and continued failure to perform substantially
your duties with the Corporation (other than any such failure resulting from
your incapacity due to physical or mental illness or any such actual or
anticipated failure after your issuance of a Notice of Termination for Good
Reason), after a written demand for substantial performance is delivered to you
by the Board which demand specifically identifies the manner in which the Board
believes that you have not substantially performed your duties, (b) upon your
willful and continued failure to follow and comply substantially with the
specific and lawful directives of the Board, as reasonably determined by the
Board (other than any such failure resulting from your incapacity due to
physical or mental illness or any such actual or anticipated failure after your
issuance of a Notice of Termination for Good Reason), after a written demand for
substantial performance is delivered to you by the Board, which demand
specifically identifies the manner in which the Board believes that you have not
substantially followed or complied with the directives of the Board, (c) upon
your willful commission of an act of fraud or dishonesty resulting in material
economic or financial injury to the Corporation, or (d) upon your willful
engagement in illegal conduct which is materially and demonstrably injurious to
the Corporation. For purposes of this definition of "Cause" no act, or failure
to act, on your part shall be deemed "willful" unless done, or omitted to be
done, by you not in good faith. Notwithstanding the foregoing, you shall not be
deemed terminated for Cause pursuant to (a), (b), (c) or (d) hereof unless and
until there shall have been delivered to you a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of the Board (after reasonable notice to you, an
opportunity for you, together with your counsel, to be heard before the Board
and a reasonable opportunity to cure), finding that in the Board's good faith
opinion you were guilty of conduct set forth above in (a), (b), (c) or (d) and
specifying the particulars thereof in reasonable detail. In the event of a
Change in Control under Section 2.3 pursuant to which the Corporation is not the
surviving entity, then on and after the Change in Control Date all
determinations and actions required to be taken by the Board under this
definition shall be made or taken by the board of directors of the surviving
entity, or if the surviving entity is a subsidiary, then by the board of
directors of the ultimate parent corporation of the surviving entity.

<PAGE>   4

_____________, 2000
Page 4

               "Date of Termination" shall mean (a) if your employment is
terminated due to your death, the date of your death; (b) if your employment is
terminated for Disability, thirty (30) days after Notice of Termination is given
(provided that you shall not have returned to the full-time performance of your
duties during such thirty (30) day period), and (c) if your employment is
terminated for Cause or Good Reason or for any other reason (other than death or
Disability), the date specified in the Notice of Termination (which, in the case
of a termination for Cause shall not be less than thirty (30) days from the date
such Notice of Termination is given, and in the case of a termination for Good
Reason shall not be less than fifteen (15) nor more than sixty (60) days from
the date such Notice of Termination is given). Notwithstanding anything to the
contrary contained in this definition, if within fifteen (15) days after any
Notice of Termination is given, the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the termination, then
the Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, or otherwise;
provided, however, that (i) the Date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence; and (ii) in the event of your death pending a dispute, and the
resolution of such dispute is ultimately in your favor, then the Date of
Termination shall be the date specified in the Notice of Termination.

               "Disability" shall mean you shall have been absent from the
full-time performance of your duties with the Corporation for six (6)
consecutive months as a result of your incapacity due to physical or mental
illness.

               "Dispute" shall mean any disagreement, dispute, controversy,
claim, suit, action or proceeding arising out of or relating to this Agreement
or the interpretation of this Agreement.

               "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

               "Good Reason" shall mean, without your express written consent,
the occurrence after the Approval Date of any of the following circumstances
unless, in the case of (a), (f), (g), or (h) below, such circumstances are fully
corrected (provided such circumstances are capable of correction) prior to the
Date of Termination specified in the Notice of Termination given in respect
thereof:

               (a)  the assignment to you of any duties inconsistent with the
     position in the Corporation that you held immediately prior to the Approval
     Date, a significant adverse alteration in the nature or status of your
     responsibilities or the conditions of your employment from those in effect
     immediately prior to the Approval Date, or any other action by the
     Corporation that results in a material diminution in your position,
     authority, title, duties or responsibilities;

               (b)  the Corporation's reduction of your annual base salary as in
     effect on the Approval Date or as the same may be increased from time to
     time;

               (c)  the relocation of the Corporation's offices at which you are
     principally employed immediately prior to the Approval Date (your
     "Principal Location")

<PAGE>   5

_____________, 2000
Page 5

     to a location more than twenty-five (25) miles from such location or the
     Corporation's requiring you, without your written consent, to be based
     anywhere other than your Principal Location, except for required travel on
     the Corporation's business to an extent substantially consistent with your
     present business travel obligations;

               (d)  the Corporation's failure to pay to you any portion of your
     current compensation or to pay to you any portion of an installment of
     deferred compensation under any deferred compensation program of the
     Corporation within seven (7) days of the date such compensation is due;

               (e)  the Corporation's failure to continue in effect any material
     compensation or benefit plan or practice in which you are eligible to
     participate in on the Approval Date (other than any equity based plan),
     unless an equitable arrangement (embodied in an ongoing substitute or
     alternative plan) has been made with respect to such plan, or the
     Corporation's failure to continue your participation therein (or in such
     substitute or alternative plan) on a basis not materially less favorable,
     both in terms of the amount of benefits provided and the level of your
     participation relative to other participants, as existed at the time of the
     Approval Date;

               (f)  the Corporation's failure to continue to provide you with
     benefits substantially similar in the aggregate to those enjoyed by you
     under any of the Corporation's life insurance, medical, health and
     accident, disability, pension, retirement, or other benefit plans or
     practices in which you and your eligible family members were eligible to
     participate in on the Approval Date (other than any equity based plans),
     the taking of any action by the Corporation which would directly or
     indirectly materially reduce any of such benefits, or the failure by the
     Corporation to provide you with the number of paid vacation days to which
     you are entitled on the basis of years of service with the Corporation in
     accordance with the Corporation's normal vacation policy in effect on the
     Approval Date;

               (g)  the Corporation's failure to obtain a satisfactory agreement
     from any successor to assume and agree to perform this Agreement, as
     contemplated in Section 4 hereof; or

               (h)  any purported termination of your employment that is not
     effected pursuant to a Notice of Termination, which purported termination
     shall not be effective for purposes of this Agreement.

               Your continued employment shall not constitute consent to, or a
     waiver of rights with respect to, any circumstance constituting Good Reason
     hereunder.

               "Notice of Termination" shall mean a notice that shall indicate
     the specific termination provision in this Agreement relied upon and shall
     set forth in reasonable detail the facts and circumstances claimed to
     provide a basis for termination of your employment under the provision so
     indicated.

               "Person" shall have the meaning as set forth in Sections 13(d)
     and 14(d) of the Exchange Act; provided, however, that Person shall exclude
     (i) the Corporation, (ii) any

<PAGE>   6

_____________, 2000
Page 6

trustee or other fiduciary holding securities under an employee benefit plan of
the Corporation, (iii) any corporation owned, directly or indirectly, by the
stockholders of the Corporation in substantially the same proportions as their
ownership of stock of the Corporation and (iv) Motorola.

        3.     Taxes. You shall bear all expense of, and be solely responsible
for, all federal, state, local or foreign taxes due with respect to any benefit
received hereunder, including, without limitation, any excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code");
provided, however, that any benefit received or to be received by you in
connection with a Change in Control or Motorola Acquisition ("Contract
Benefits") or any other plan, arrangements or agreement with the Corporation or
an affiliate (collectively with the Contract Benefits, the "Total Benefits"))
that would constitute a "parachute payment" within the meaning of Section 280G
of the Code, shall be reduced to the extent necessary so that no portion thereof
shall be subject to the excise tax imposed by Section 4999 of the Code but only
if, by reason of such reduction, the net after-tax benefit received by you shall
exceed the net after-tax benefit received by you if no such reduction was made.
For purposes of this Section 3, "net after-tax benefit" shall mean (i) the Total
Benefits which you receive or are then entitled to receive from the Corporation
that would constitute "parachute payments" within the meaning of Section 280G of
the Code, less (ii) the amount of all federal, state and local income and
employment taxes payable by you with respect to the foregoing calculated at the
highest marginal income tax rate for each year in which the foregoing shall be
paid to you (based on the rate in effect for such year as set forth in the Code
as in effect at the time of the first receipt of the foregoing benefits), less
(iii) the amount of excise taxes imposed with respect to the benefits described
in (i) above by Section 4999 of the Code. The foregoing determination will be
made by the Corporation's independent certified public accountants serving
immediately prior to the Change in Control or Motorola Acquisition (the
"Accountants"). In the event that the Accountants are also serving as accountant
or auditor for the individual, group or entity effecting the Change in Control
or Motorola Acquisition you may appoint another nationally recognized public
accounting firm to make the determination required hereunder (which firm shall
then be referred to as the Accountants hereunder). All fees and expenses of the
Accountants shall be borne by the Corporation. You will direct the Accountants
to submit their determination and detailed supporting calculations to both you
and the Corporation within fifteen (15) days of receipt from you or the
Corporation that you have received or will receive the Total Benefits. If the
Accountants determine that such reduction is required by this Section 3, you, in
your sole and absolute discretion, may determine which Total Benefits shall be
reduced to the extent necessary so that no portion thereof shall be subject to
the excise tax imposed by Section 4999 of the Code, and the Corporation shall
pay such reduced amount to you. You and the Corporation will each provide the
Accountants access to and copies of any books, records, and documents in the
possession of you or the Corporation, as the case may be, reasonably requested
by the Accountants, and otherwise cooperate with the Accountants in connection
with the preparation and issuance of the determinations and calculations
contemplated by this Section 3.

        4.     Successors; Binding Agreement.

               4.1  Successor to Assume Agreement. The Corporation shall require
any successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Corporation to expressly assume and agree to perform this Agreement. Unless
expressly provided otherwise, "Corporation" as used herein

<PAGE>   7

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Page 7

shall mean the Corporation as defined in this Agreement and any successor to its
business and/or assets as aforesaid.

               4.2  Binding Agreement. This Agreement shall inure to the benefit
of and be enforceable by you and your personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If you should die while any amount would still be payable to you
hereunder had you continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to your
devisee, legatee or other designee or, if there is no such designee, to your
estate.

        5.     Notice. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by telecopy; the day after it is sent, if sent
for next day delivery to a domestic address by recognized overnight delivery
service (e.g., Federal Express); and upon receipt, if sent by certified or
registered mail, return receipt requested. All notices, requests, demands and
other communications shall be addressed to the respective addresses set forth on
the first page of this Agreement, provided that all notices to the Corporation
shall be directed to the attention of the Board with a copy to the Secretary of
the Corporation, or to such other address as either party may have furnished to
the other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.

        6.     Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. All references to
sections of the Exchange Act or the Code shall be deemed also to refer to any
successor provisions to such sections. Any benefits provided for hereunder shall
be paid net of any applicable withholding required under federal, state or local
law. The section headings contained in this Agreement are for convenience only,
and shall not affect the interpretation of this Agreement.

        7.     Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.

        8.     Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.

        9.     Suits, Actions, Proceedings, Etc.

               9.1  Legal Fees. The Corporation shall pay to you all legal fees
and expenses incurred by you in connection with any Dispute arising out of or
relating to this

<PAGE>   8

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Page 8

Agreement or the interpretation thereof in which you are the prevailing party
(including, without limitation, all such fees and expenses, if any, incurred in
contesting or disputing any termination of your employment or in seeking to
obtain or enforce any right or benefit provided by this Agreement, or in
connection with any tax audit or proceeding to the extent attributable to the
application of section 4999 of the Code to any benefit provided hereunder).

               9.2  Choice of Law; Arbitration. The internal laws of the State
of California, United States of America, applicable to contracts entered into
and wholly to be performed in California by California residents, without
reference to any principles concerning conflicts of law, shall govern the
validity of this Agreement, the construction of its terms and the interpretation
of the rights and duties of the parties hereunder; provided, however, that this
Section 9.2 and the parties' rights under this Section 9.2 shall be governed by
and construed in accordance with the Federal Arbitration Act, 9 U.S.C. ss. 1 et
seq. Any controversy or claim arising out of or relating to this Agreement, or
the breach thereof, shall be settled by the following procedures: Either party
may send the other written notice identifying the matter in dispute and
involving the procedures of this Section 9.2. Within fourteen (14) days after
such written notice is given, one or more principals of each party shall meet at
a mutually agreeable location in San Francisco, California, for the purpose of
determining whether they can resolve the dispute themselves by written
agreement, and, if not, whether they can agree upon a third-party impartial
arbitrator (the "Arbitrator") to whom to submit the matter in dispute for final
and binding arbitration. If the parties fail to resolve the dispute by written
agreement or agree on the Arbitrator within such twenty-one (21) day period,
either party may make written application to the Judicial Arbitration and
Mediation Services ("JAMS"), JAMS, 2 Embarcadero Center Suite 1100, San
Francisco, CA 94111, for the appointment of a single Arbitrator to resolve the
dispute by arbitration and at the request of JAMS, the parties shall meet with
JAMS at its offices or confer with JAMS by telephone within ten (10) calendar
days of such request to discuss the dispute and the qualifications and
experience which each party respectively believes the Arbitrator should have;
provided, however, the selection of the Arbitrator shall be the exclusive
decision of JAMS and shall be made within thirty (30) days of the written
application to JAMS. Within 30 days of the selection of the Arbitrator, the
parties shall meet in San Francisco, California with such Arbitrator at a place
and time designated by the Arbitrator after consultation with the parties and
present their respective positions on the dispute. Each party shall have no
longer than one day to present its position, the entire proceedings before the
Arbitrator shall be on no more than three consecutive days, and the award shall
be made in writing no more than 30 days following the end of the proceeding.
Such award shall be a final and binding determination of the dispute and shall
be fully enforceable as an arbitration award in any court having jurisdiction
and venue over the parties. The prevailing party (as determined by the
Arbitrator) shall in addition be awarded by the Arbitrator such party's own
attorneys' fees and expenses in connection with such proceeding. The
non-prevailing party (as determined by the Arbitrator) shall pay the
Arbitrator's fees and expenses.

        10.    Effect on Other Agreements. In the event that you are a party to
any employment agreement ("Employment Agreement") with the Corporation, it is
the intention that this Agreement provide benefits which are not otherwise
provided by any Employment Agreement. Therefore, in the event that during the
term of this Agreement you are entitled to benefits under both this Agreement
and any Employment Agreement, then you shall only receive the greater of the
benefits provided under either this Agreement or such Employment Agreement,

<PAGE>   9

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Page 9

but not both. In the event you receive benefits under this Agreement, you waive
all rights to receive any benefits under such Employment Agreement, and vice
versa.

        11.    Entire Agreement. This Agreement sets forth the entire agreement
of the parties hereto in respect of the subject matter contained herein and
supersedes all other prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect of the subject matter contained herein,
including, without limitation, any prior severance agreements, is hereby
terminated and canceled; provided, however, that any Employment Agreement as
amended by Section 10 hereof shall remain in full force and effect and shall,
pursuant to the terms and conditions thereof, provide certain severance benefits
to you upon certain terminations of employment. Any of your rights hereunder
shall be in addition to any rights you may otherwise have under benefit plans or
agreements of the Corporation to which you are a party or in which you are a
participant, including, but not limited to, any Corporation sponsored employee
benefit plans and stock options plans. Provisions of this Agreement shall not in
any way abrogate your rights under such other plans and agreements.

<PAGE>   10

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Page 10

        If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Corporation the enclosed copy of this letter. A
duly authorized officer of the Corporation will sign this letter and a fully
executed copy will be returned to you, constituting our agreement on this
subject. Unless and until accepted in writing by the Corporation, this Agreement
is deemed to be neither executed nor effective.

                                          Sincerely,

                                          NEXT LEVEL COMMUNICATIONS, INC.

                                          -----------------------------------
                                          Name:
                                          Title:

Agreed and Accepted,
this _____ day of ___________, 2000.

------------------------------------
[name]

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