<PAGE>

                                                                   EXHIBIT 10.28

March 22, 2000

Terra Bella, Inc., and Archie J Snider d.b.a.
Terra Snider Joint Venture
C/o Mr. Tom Snider
BT Commercial
1995 N. 1st Street, Suite 200
San Jose, CA 95221

With respect to the Lease agreement dated March 16, 2000 by and between Peerless
Systems Networking, a wholly owned subsidiary of Peerless Systems Corporation
("Lessee") and Terra Bella, Inc., and Archie J. Snider d.b.a Terra Snider Joint
Venture ("Lessor"), Lessee and Lessor hereby agree to the following
modifications to the Lease agreement:

1.   Paragraph 5. Security Deposit. The following shall not be applicable:
     "If the Base Rent increases during the term of this Lease, Lessee shall,
     upon written request from Lessor, deposit additional moneys with Lessor so
     that the total amount of the Security Deposit shall at all times bear the
     same proportion to the increased Base Rent as the initial Security Deposit
     bore to the initial Base Rent".

2.   Paragraph 8.7 Indemnity. The following shall not be applicable:
     In the first sentence, delete "gross" preceding the word "negligence" and
     "willful" proceeding the word "misconduct".

3.   Paragraph 12. Assignment and Subletting.
     In subparagraph 12.1 (a) the following shall be added at the end of the
     sentence, "which consent shall not be unreasonably withheld".

4.   Paragraph 34. Signs. The following shall be added:
     "Notwithstanding the foregoing, Lessee, at their sole cost and expense,
     shall have the right to install signage on the monument sign post
     perpendicular to Terra Bella, subject to municipal approvals as required,
     and subject to Lessor's approval, which shall not be unreasonably
     withheld".
<PAGE>

      Terra Bella, Inc.
      March 22, 2000
      Page 2

5.   Paragraph 51. Letter of Credit (Additional Security Deposit), second
     paragraph (iv) shall be amended to read: "(iv) be payable on sight draft
     accompanied by a letter from an attorney licensed to practice in the State
     of California stating that upon a review of the "Standard
     Industrial/Commercial Single Tenant Lease-Net" between Terra Bella, Inc.
     and Archie J. Snider d.b.a. Terra Snider Joint Venture (Lessor) and
     Peerless Systems Networking, Inc., a wholly owned subsidiary of Peerless
     Systems Corporation (Lessee) that the Lessor is entitled to payment in the
     amount stated therein because an Event of Default under the Lease has
     occurred to the damage of the Lessor in the amount sought herein."

6.   Paragraph 54. Contaminate Acknowledgement. The following shall be added:
     "Lessor hereby warrants and represents that to the best of Lessor's
     knowledge at the date of execution of this Lease, there exist no known
     contaminates and that no current or pending legal actions against Lessor
     with respect to said contaminates".

     The foregoing accurately sets forth the agreement between lessee and
     Lessor, as of the date written below.

     READ AND APPROVED

     LESSEE:

     Peerless Systems Networking, a wholly owned subsidiary of Peerless Systems
     Corporation

     By:   /s/ Adam Au
           -----------------------------

     Its:  VP & General Manager
           -----------------------------

     Date: 3/22/2000
           -----------------------------


     READ AND APPROVED

     LESSOR:

     Terra Bella, Inc., and Archie J. Snider d.b.a Terra Snider Joint Venture

     By:   _____________________________

     Its:  _____________________________

     Date: _____________________________
<PAGE>

             [LOGO OF AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION]


            STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
               (DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)


1.   Basic Provisions ("Basic Provisions")

     1.1  Parties: This Lease ("Lease"), dated for reference purposes only March
16, 2000, is made by and between Terra Bella In. and Archie J. Snider d.b.a.
Terra Snider Joint Venture ("Lessor") and Peerless Systems Networking, a wholly
owned subsidiary of Peerless Systems Corporation "(Lessee"). (collectively the
"Parties," or individually a "Party").

     1.2  Premises: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of the Lease, and commonly
known as 1130 Terra Bella, Mountain View, located in the County of Santa Clara,
State of California, and generally described as (describe briefly the nature of
the property and, if applicable, the "Project", if the property is located
within a Project) an approximately 12,263 square foot Office/R&D Building
("Premises"). (See also Paragraph 2).

     1.3  Term: 7 years and 0 months ("Original Term") commencing July 1, 2000
("Commencement Date") and ending June 30, 2007 ("Expiration Date"). (See also
Paragraph 3)

     1.4  Early Possession: N/A ("Early Possession Date"). (see also Paragraphs
3.2 and 3.3)

     1.5  Base Rent: $67,447.00 per month ("Base Rent"), payable on the First
(1st) day of each month commencing July 1, 2000 (See also Paragraph 4) [x] If
this is checked, there are provisions in the Lease for The Base Rent to be
adjusted.

     1.6  Base Rent Paid Upon Execution $67,447.00 as Base Rent for the period
July 1- July 31, 2000.

     1.7  Security Deposit $134,894 in cash and $741,917.00 LOC ("Security
Deposit"). (See also Paragraph 5).

     1.8  Agreed Use: general office and related legal uses (See also Paragraph
6).

     1.9  Insuring Party. Lessor is the "Insuring Party" unless otherwise stated
herein. (See also Paragraph 8).

     1.10 Real Estate Brokers: (See also Paragraph 15)
          (a)  Representation: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction (check
applicable boxes):

[x]  BT Commercial represents Lessor exclusively ("Lessor's Broker"):

[x]  Cress Partners represents Lessee exclusively ("Lessee's Broker"): or

[_]  __________________________represents both Lessor and Lessee ("Dual
     Agency").

          (b)  Payment to Brokers: Upon execution and delivery of this Lease by
both Parties, Lessor shall pay to the Broker the fee agreed to in their separate
written agreement.

     1.11 Guarantor. The obligations of the Lessee under this Lease are to be
guaranteed by Peerless Systems Corporation, a Delaware Corporation
("Guarantor"). (See also Paragraph 37).

     1.12 Addends and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 56 and Exhibits A, all of which constitute a
part of this Lease.

2.   Premises.

     2.1  Letting. Lessor hereby leased to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in the Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease, or that may have
been used in calculating rental, is an approximation which the Parties agree is
reasonable and the rental based thereon is not subject to revision whether or
not the actual size is more or less.

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

     2.3  Compliance. Except for Seismic, ADA and Title 24 Codes and
regulations, Lessor warrants that the improvements of the Premises comply with
all applicable laws, covenants or restrictions of record, building codes,
regulations and ordinances ("Applicable Requirements") in effect on the Start
Date. Said warranty does not apply to the use to which Lessee will put the
Premises or to any Alterations of Utility installations (as defined in Paragraph
7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for
determining whether or not the zoning is appropriate for Lessee's intended use,
and acknowledges that past uses of the Premises may no longer be allowed. If the
Premises do not comply with said warranty, Lessor shall, except as otherwise
provided, promptly after receipt of written notice from Lessee setting forth
with specificity the nature and extent of such non-compliance, rectify the same
at Lessor's expense. If Lessee does not give Lessor written notice of a non-
compliance with this warranty within six (6) months following the Start Date,
correction of that non-compliance shall be the obligation of Lessee at Lessee's
sole cost and expense. If the Applicable Requirements are hereafter changed (as
opposed to being in existence at the Start Date, which is addressed in Paragraph
6.2 (a) below so as to require during the term of this Lease the construction of
an addition to or an alteration of the Building, the remediation of any
Hazardous Substance, or the reinforcement or other physical modification of the
building ("Capital Expenditure"). Lessor and Lessee shall allocate the cost of
such work as follows:

                                                          Initials /s/ AA
                                                                   ----------

                                    Page 1
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          (a)  Subject to Paragraph 2.3(c) below, if such Capital Expenditures
are required as a result of the specific and unique use of the Premises by
Lessee as compared with uses by tenants in general, Lessee shall be fully
responsible for the cost thereof, provided, however that if such Capital
Expenditure is required during the last two (2) years of this Lease and the cost
thereof exceeds six (6) months' Base Rent, Lessee may instead terminate this
Lease unless Lessor notifies Lessee, in writing, within ten (10) days after
receipt of Lessee's termination notice that Lessor has elected to pay the
difference between the actual cost thereof and the amount equal to six (6)
months' Base Rent. If Lessee elects termination, Lessee shall immediately cease
the use of the Premises which requires such Capital Expenditure and deliver to
Lessor written notice specifying a termination date at least ninety (90) days
thereafter. Such termination date shall, however, in no event be earlier than
the last day that Lessee could legally utilize the Premises without commencing
such Capital Expenditure.

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

          (c)  Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in intensity
of use, or modification to the Premises then, and in that event, Lessee shall be
fully responsible for the cost thereof, and Lessee shall not have any right to
terminate this Lease.

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

     2.5  Lessee as Prior Owner/Occupant. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.

3    Term.

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

     3.2  Early Possession. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease
(including but not limited to the obligations to pay Real Property Taxes and
insurance premiums and to maintain the Premises) shall, however, be in effect
during such period. Any such early possession shall not affect the Expiration
Date.

     3.3. Delay on Possession. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease. Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premises. If possession is not delivered within (60) see orig.
2.0 day period, cancel this Lease, in which event the Parties shall be
discharged from all obligations hereunder. If such written notice is not
received by Lessor within said ten (10) day period, Lessee's right to cancel
shall terminate. Except as otherwise provided, if possession is not tendered to
Lessee by the Start Date and Lessee does not terminate this Lease, as aforesaid,
any period of rent abatement that Lessee would otherwise have enjoyed shall run
from the date of delivery of possession and continue for a period equal to what
Lessee would otherwise have enjoyed shall run from the date of delivery of
possession and continue for a period equal to what Lessee would otherwise have
enjoyed under the terms hereof, but minus any days of delay caused by the acts
or omissions of Lessee. If possession of the Premises is not delivered within
four (4) months after the Commencement Date, this Lease shall terminate unless
other agreements are reached between Lessor and Lessee, in writing.

     3.4  Lease Compliance. Lessor shall not be required to tender possession of
the Premises to Lessee until Lessee complies with its obligation to provide
evidence of insurance (Paragraph 8.6). Pending delivery of such evidence, Lessee
shall be required to perform all of its obligations under this Lease from and
after the Start Date, including the payment of Rent, notwithstanding Lessor's
election to withhold possession pending receipt of such evidence of insurance.
Further, if Lessee is required to perform any other conditions prior to or
concurrent with the Start Date, the Start Date shall occur but Lessor may elect
to withhold possession until such conditions are satisfied.

4.   Rent.

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

     4.2  Payment. Lessee shall cause payment of Rent to be received by Lessor
in lawful money of the United States, without offset or deduction (except as
specifically permitted in this Lease), on or before the day on which it is due.
Rent for any period during the term hereof which is for less than one (1) full
calendar month shall be prorated based upon the actual number of days of said
month. Payment of Rent shall be made to Lessor at its address stated herein or
to such other persons or place as Lessor may from time to time designate in
writing. Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessor's rights to the balance of such Rent, regardless of
Lessor's endorsement of any check so stating.

5.   Security Deposit. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, Lessor may use, apply or retain all or any portion of said
Security Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, expense, loss or damage which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall within ten (10) days after written
request therefor deposit monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. If the Base Rent increases
during the term of this Lease, Lessee shall, upon written request from Lessor,
deposit additional monies with Lessor so that the total amount of the Security
Deposit shall at all times bear the same proportion to the Increased Base Rent
as the Initial Security Deposit bore to the Initial Base Rent. Should the Agreed
Use be amended to accommodate a material change in the business of Lessee or to
accommodate a sublessee or assignee, Lessor shall have the right to increase the
Security Deposit to the extent necessary, in Lessor's reasonable judgment, to
account for any increased wear and tear that the Premises may suffer as a result
thereof. If a change in control of Lessee occurs during this Lease and following
such change the financial condition of Lessee is, in Lessor's reasonable
judgment, significantly reduced, Lessee shall deposit such additional monies
with Lessor as shall be sufficient to cause the Security Deposit to be at a
commercially reasonable level based on said changes in financial condition.
Lessor shall not be required to keep the Security Deposit separate from its
general accounts. Within fourteen (14) days after the expiration or termination
of the Lease, if Lessor elects to apply the Security Deposit only to unpaid
Rent, and otherwise within thirty (30) days after the Premises have been vacated
pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the
Security Deposit not used or applied by Lessor. No part of the Security Deposit
shall be considered to be held in trust, to bear interest or to be prepayment
for any monies to be paid by Lessee under this Lease.

                                                            Initials /s/ AA
                                                                     ----------

                                    PAGE 2
<PAGE>

6.   Use.

     6.1  Use. Lessee shall use and occupy the Premises only for the Agreed Use,
or any other legal use which is reasonably comparable thereto, and for no other
purpose. Lessee shall not use or permit the use of the Premises in a manner that
is unlawful, creates damage, waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to neighboring properties. Lessor shall not
unreasonably withhold or delay its consent to any written request for a
modification of the Agreed Use, so long as the same will not impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, is not significantly more burdensome to the
Premises. If Lessor elects to withhold consent, Lessor shall within five (5)
business days after such request give written notification of same, which notice
shall include an explanation of Lessor's objections to the change in use.

     6.2  Hazardous Substances.

          (a)  Reportable Uses Require Consent. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, or waste whose
presence, use, manufacture, disposal, transportation, or release, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substances shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, and/or crude oil or any products, by-products, or fractions
thereof. Lessee shall not engage in any activity in or on the Premises which
constitutes a Reportable Use of Hazardous Substances without the express prior
written consent of Lessor and timely compliance (at Lessee's expenses) with all
Applicable Requirements. "Reportable Use" shall mean (i) the installation or use
of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, so long as such use
is in compliance with all Applicable Requirements, is not a Reportable Use, and
does not expose the Premises or neighboring property to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may condition its consent to any Reportable Use upon receiving such
additional assurances as Lessor reasonably deems necessary to protect itself,
the public, the Premises and/or the environment against damages, contamination,
injury and/or liability, including, but not limited to, the installation (and
removal on or before Lease expiration or termination) of protective
modifications (such as concrete encasements) and/or increasing the Security
Deposit.

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

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

          (d)  Lessee Indemnification. Lessee shall indemnify, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, harmless from
and against any and all loss of rents and/or damages, liabilities, judgments,
claims, expenses, penalties, and attorneys' and consultants' fees arising out of
or involving any Hazardous Substance brought onto the Premises by or for Lessee,
or any third party (provided, however, that Lessee shall have no liability under
this Lease with respect to underground migration of any Hazardous Substance
under the Premises from adjacent properties). Lessee's obligations shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the cost
of investigation, removal, remediation, restoration and/or abatement, and shall
survive the expiration or termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessee from its obligations under this Lease with respect to Hazardous
Substances, unless specifically so agreed by Lessor in writing at the time of
such agreement.

          (g)  Lessor Termination Option. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee shall make the investigation and remediation
thereof required by the Applicable Requirements and this Lease shall continue in
full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and
Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and
remediate such Hazardous Substance Condition, if required, as soon as reasonably
possible at Lessor's expense, in which event this Lessee shall continue in full
force and effect, or (ii) if the estimated cost to remediate such condition
exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is
greater, give written notice to Lessee, within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of
Lessor's desire to terminate this Lease as of the date sixty (60) days following
the date of such notice. In the event Lessor elects to give a termination
notice, Lessee may, within ten (10) days thereafter, give written notice to
Lessor of Lessee's commitment to pay the amount by which the cost of the
remediation of such Hazardous Substance Condition exceeds an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with said funds or satisfactory assurance thereof
within thirty (30) days following such commitment. In such event, this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time provided, this Lease shall terminate as of the
date specified in Lessor's notice of termination.

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

     6.4  Inspection; Compliance. Lessor and Lessor's "Lender" (as defined in
Paragraph 30 below) and consultants shall have the right to enter into Premises
at any time, in the case of emergency, and otherwise at reasonable times, for
the purpose of inspecting the condition of the Premises and for verifying
compliance by Lessee with this Lease. The cost of any such inspections shall be
paid by Lessor, unless a violation of Applicable Requirements, or a
contamination is found to exist or be imminent, or the inspection is requested
or ordered by a governmental authority. In such case, Lessee shall upon request
reimburse Lessor for the cost of such inspections, so long as such inspection is
reasonably related to the violation or contamination.

                                                            Initials /s/ AA
                                                                     ---------

                                    PAGE 3
<PAGE>

7.   Maintenance, Repairs, Utility Installations; Trade Fixtures and
     Alterations.

     7.1  Lessee's Obligations.

          (a)  In General. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9. (Damage or Destruction, and 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises,
Utility Installations, and Alterations in good order, condition and repair
(whether or not the portion of the Premise as requiring repairs, or the means of
repairing the same, are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises), including, but
not limited to, all equipment or facilities, such as plumbing, heating,
ventilating, air-conditioning, electrical, lighting facilities, boilers,
pressure vessels, fire protection system, fixtures, walls (interior and
exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass,
skylights, landscaping, driveways, parking lots, fences, retaining walls, signs,
sidewalks and parkways located in, on, or adjacent to the Premises. Lessee, in
keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices, specifically including the procurement and
maintenance of the service contracts required by Paragraph 7.1(b) below.
Lessee's obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all Improvements thereon or a part thereof in
good order, condition and state of repair. Lessee shall, during the term of this
Lease, keep the exterior appearance of the Building in a first-class condition
consistent with the exterior appearance of other similar facilities of
comparable age and size in the vicinity, including, when necessary, the exterior
repainting of the Building.

          (b)  Service Contracts. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements, if any, if and when
installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure
vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke
detection, (iv) landscaping and irrigation systems, (v) roof covering and
drains, (vi) driveways and parking lots, (vii) clarifiers, (viii) basic utility
feed to the perimeter of the Building, and (ix) any other equipment, if
reasonably required by Lessor.

          (c)  Replacement. Subject to Leasee's Indemnification of Lessor as set
forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if the Basic Elements described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of replacing
such Basic Elements, then such Basic Elements shall be replaced by Lessor, and
the cost thereof shall be prorated between the Parties and Lessee shall only be
obligated to pay, each month during the remainder of the term of this Lease, on
the date on which Base Rent is due, an amount equal to the product of
multiplying the cost of such replacement by a fraction, the numerator of which
is one, and the denominator of which is the number of months of the useful life
of such replacement as such useful life is specified pursuant to Federal Income
tax regulations or guidelines for depreciation thereof (including Interest on
the unamortized balance as is then commercially reasonable in the judgment of
Lessor's accountants), with Lessee reserving the right to prepay its obligations
at any time.

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

     7.3  Utility Installation; Trade Fixtures; Alterations.

          (a) Installations; Consent Required. The term "Utility Installations"
refers to all floor and window coverings, air lines, power panels, electrical
distribution, security and fire protection systems, communication systems,
lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises.
The term "Trade Fixtures" shall mean Lessee's machinery and equipment that can
be removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements, other than Utility Installation
or Trade Fixtures, whether by addition or deletion. "Lessee Owned Alterations
and/or Utility Installations" are defined as Alterations and/or Utility
Installations made by Lessee that are not yet owned by Lessor pursuant to
Paragraph 7.4(a). Lessee shall not make any Alterations or Utility Installations
to the Premises without Lessor's prior written consent. Lessee may, however,
make non-structural Utility Installations to the Interior of the Premises
(excluding the roof) without such consent but upon notice to Lessor, as long as
they are not visible from the outside, do not involve puncturing, relocating or
removing the roof or any existing walls, and the cumulative cost thereof during
this Lease as extended does not exceed $50,000 in the aggregate or $10,000 in
any one year.

          (b)  Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. Consent shall be deemed
conditioned upon Lessee's: (i) acquiring all applicable governmental permits,
(ii) furnishing Lessor with copies of both the permits and the plans and
specifications prior to commencement of the work, and (iii) compliance with all
conditions of said permits and other Applicable Requirements in a prompt and
expeditious manner. Any Alterations or Utility Installations shall be performed
in a workmanlike manner with good and sufficient materials. Lessee shall
promptly upon completion furnish Lessor with as-built plans and specifications.
For work which costs an amount equal to the greater of one month's Base Rent, or
$10,000, Lessor may condition its consent upon Lessee providing a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such Alteration or Utility Installation and/or upon Lessee's posting an
additional Security Deposit with Lessor.

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

     7.4  Ownership; Removal; Surrender; and Restoration.

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

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

          (c)  Surrender Restoration. Lessee shall surrender the Premises by the
Expiration Date or any earlier termination date, with all of the improvements,
parts and surfaces thereof broom clean and free of debris, and in good operating
order, condition and state of repair, ordinary wear and tear excepted. "Ordinary
wear and tear" shall not include any damage or deterioration that would have
been prevented by good maintenance practice. Lessee shall repair any damage
occasioned by the installation, maintenance or removal of Trade Fixtures, Leasee
Owned Alterations and/or Utility Installations, furnishings, and equipment as
well as the removal of any storage tank installed by or for Lessee, and the
removal, replacement, or remediation of any soil, material or groundwater
contaminated by Leasee. Trade Fixtures shall remain the property of Lessee and
shall be removed by Lessee. The failure by Lessee to time by vacate the Premises
pursuant to this Paragraph 7.4(c) without the express written consent of Lessor
shall constitute a holdover under the provisions of Paragraph 26 below.

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8.   Insurance; Indemnity.

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

     8.2  Liability Insurance.

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

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

     8.3  Property Insurance - Building, Improvements and Rental Value.

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

          (b)  Rental Value. The Insuring Party shall obtain and keep in force a
policy or policies in the name of Lessor with loss payable to Lessor and any
Lender, insuring the loss of the full Rent for one (1) year. Said insurance
shall provide that in the event the Lease is terminated by reason of an insured
loss, the period of indemnity for such coverage shall be extended beyond the
date of the completion of repairs or replacement of the Premises, to provide for
one full year's loss of Rent from the date of any such loss. Said insurance
shall contain an agreed valuation provision in lieu of any coinsurances clause,
and the amount of coverage shall be adjusted annually to reflect to the
projected Rent otherwise payable by Lessee, for the next twelve (12) month
period. Lessee shall be liable for any deductible amount in the event of such
loss.

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

     8.4  Lessee's Property/Business Interruption Insurance.

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

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

          (c)  No Representation of Adequate Coverage. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.

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

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

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

     8.8  Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, HVAC or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Premises or upon either portions of the Building of which the Premises are a
part, or from other sources or places. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of Lessor.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under
no circumstances be liable for injury to Lessee's business or for any loss of
income or profit therefrom.

9.   Damage or Restriction

     9.1  Definitions

          (a)  "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alternations and Utility
Installations, which can reasonably be repaired in six (6) months or less from
the date of the damage or destruction.

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Lessor shall notify Lessee in writing within thirty (30) days from the date of
the damage or destruction as to whether or not the damage is Partial or Total.

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

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

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

          (e)  "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.

     9.2  Partial Damage - Insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lessee shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 of less, and, in such event, Lessor shall make any
applicable insurance proceeds available to Lessee on a reasonable basis for that
purpose. Notwithstanding the foregoing, if the required insurance was not in
force or the insurance proceeds are not sufficient to effect such repair, the
Insuring Party shall promptly contribute the shortage in proceeds (except as to
the deductible which is Lessee's responsibility) as and when required to
complete said repairs. In the event, however, such shortage was due to the fact
that, by reason of the unique nature of the improvements, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within then (10) days
following receipt of written notice of such shortage and request thereof. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, the party responsible for making the repairs shall complete them as
soon as reasonably possible and this Lease shall remain in full force and
effect. If such funds or assurance are not received, Lessor may nevertheless
elect by written notice to Lessee within ten (10) days thereafter to: (1) make
such restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full forces and
effect, or have this Lease terminate thirty (30) days thereafter. Lessee shall
not be entitled to reimbursement of any funds contributed by Lessee to repair
any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be
some insurance coverage, but the net proceeds for any such insurance shall be
made available for the repairs if made by either Party.

     9.3  Partial Damage - Uninsured Loss. If a Premises Partial Damage that is
not an insured loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense),
Lessor may either: (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) terminate this Lease by giving written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage. Such termination shall be effective sixty (60) days following the date
of such notice. In the event Lessor elects to terminate this Lease, Lessee shall
have the right within (10) days after receipt of the termination notice to give
written notice to Lessor of Lessee's commitment to pay for the repair of such
damage without reimbursement from Lessor. Lessee shall provide Lessor with said
funds or satisfactory assurance thereof within thirty (30) days after making
such commitment. In such event this Lease shall continue in full force and
effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not make the
required commitment, this Lease shall terminate as of the date specified in the
termination notice.

     9.4  Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs, this Lease shall terminate sixty (60) days
following such Destruction. If the damage or destruction was caused by the gross
negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.

     9.5  Damage Near End of Term. If at any time during the last six (6) months
of this Lease there is damage for which the cost to repair exceeds one (1)
month's Base Rent, whether or not an Insured Loss, Lessor may terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving a written termination notice to Lessee within thirty (30) days after
the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee
at that time has an exercisable option to amend this Lease or to purchase the
Premises, then Lessee may preserve this Lease by, (a) exercising such option and
(b) providing Lessor with any shortage in insurance proceeds (or adequate
assurances thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten days after Lessee's receipt of Lessor's written notice
purporting to terminate this Lease, or (ii) the day prior to the date upon which
such option expires. If Lessee duly exercises such option during such period and
provides Lessor with funds (or adequate assurance thereof) to cover any shortage
in insurance proceeds, Lessor shall, at Lessor's commercially reasonable
expense, repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurances during such period, than this Lease shall
terminate on the date specified in the termination notice and Lessee's option
shall be extinguished.

     9.6  Abatement of Rent; Lessee's Remedies

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

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

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

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

10.  Real Property Taxes

     10.1 Definition of "Real Property Taxes." As used herein, the term "Real
Property Taxes" shall include any form of assessment; real estate, general,
special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes); improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises. Lessor's right to other income herefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated

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with reference to the Building address and where the proceeds so generated are
to be applied by the city, county or other local taxing authority of a
jurisdiction within which the Premises are located. The term "Real Property
Taxes" shall also include any tax, fee, levy, assessment or charge, or any
increase therein, imposed by reason of events occurring during the term of this
Lease, including, but not limited to, a change in the ownership of the Premises.

     10.2

          (a)  Payment of Taxes. Lessee shall pay the Real Property Taxes
applicable to the Premises during the term of this Lease. Subject to Paragraph
10.2(b), all such payments shall be made at least ten (10) days prior to any
delinquency date. Lessee shall promptly furnish Lessor with satisfactory
evidence that such taxes have been paid. If any such taxes shall cover any
period of time prior to or after the expiration or termination of this Lease,
Lessee's share of such taxes shall be prorated to cover only that portion of the
tax bill applicable to the period that this Lease is in effect, and Lessor shall
reimburse Lessee for any overpayment. If Lessee shall fail to pay any required
Real Property Taxes, Lessor shall have the right to pay the same, and Lessee
shall reimburse Lessor therefor upon demand.

          (b)  Advance Payment. In the event Lessee incurs a late charge on any
Rent payment, Lessor may, at Lessor's option, estimate the current Real Property
Taxes, and require that such taxes be paid in advance to Lessor by Lessee,
either: (i) in a lump sum amount equal to the installment due, at least twenty
(20) days prior to the applicable delinquency date, or (ii) monthly in advance
with the payment of the Base Rent. If Lessor elects to require payment monthly
in advance, the monthly payment shall be an amount equal to the amount of the
estimated installment of taxes divided by the number of months remaining before
the month in which said installment becomes delinquent. When the actual amount
of the applicable tax bill is known, the amount of such equal monthly advance
payments shall be adjusted as required to provide the funds needed to pay the
applicable taxes. If the amount collected by Lessor is insufficient to pay such
Real Property Taxes when due, Lessee shall pay Lessor, upon demand, such
additional sums as are necessary to pay such obligations. All moneys paid to
lessor under this Paragraph may be intermingled with other moneys of Lessor and
shall not bear interest. In the event of a Breach by Lessee in the performance
of its obligations under the Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may at the option of Lessor, be treated
as an additional Security Deposit.

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

     10.4 Personal Property Taxes. Lessee shall pay, prior to delinquency, all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee. When possible, Lessee shall cause such property to be assessed and
billed separately from the real property of Lessor. If any of Lessee's said
personal property shall be assessed with Lessor's real property, Lessee shall
pay Lessor the taxes attributable to Lessee's property within ten (10) days
after receipt of a written statement.

11.  Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any terms thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered.

12.  Assignment and Subletting

     12.1 Lessor's Consent Required.

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

          (b)  A change in the control of Lessee shall constitute an assignment
requiring consent. The transfer, on a cumulative basis, of twenty-five percent
(25%) or more of the voting control of Lessee shall constitute a change in
control for this purpose.

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

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

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

     12.2 Terms and Conditions Applicable to Assignment and Subletting.

          (a)  Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) after the primary
liability of Lessee for the payment of Rent or for the performance of any other
obligations to be performed by Lessee.

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

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

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

          (e)  Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to, the intended use and/or
required modification of the Premises. If any, together with a fee of $1,000 or
ten percent (10%) of the current monthly Base Rent applicable to the portion of
the Premises which is the subject of the proposed assignment or sublease,
whichever is greater, as consideration for Lessor's considering and processing
said request. Lessee agrees to provide Lessor with such other or additional
information and/or documentation as may be reasonably requested.

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

     12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all sublease under this
Lease whether or not expressly incorporated therein:

          (a)  Lessor hereby assigns and transfer to Lessor all of Lessee's
interest in all Rent payable on any sublease, and Lessor may collect such Rent
and apply same toward Lessee's obligations under this Lease; provided, however,
that until a Breach shall occur in the performance of Lessee's obligations,
Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or
any assignment of such sublease, nor by reason of the collection of Rent, be
deemed liable to the sublessee for any failure of Lessee to perform and comply
with any of Lessee's obligations to such subleases. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice

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from Lessor stating that a Breach exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor all Rent due and to become due
under the sublease. Sublessee shall rely upon any such notice from Lessor and
shall pay all Rents to Lessor without any obligation or right to inquire as to
whether such Breach exists, notwithstanding any claim from Lessee to the
contrary.

            (b) In the event of a Breach by Lessee, Lessor may, at its option,
require sublessee to attorn to Lessor, in which event Lessor shall undertake the
obligations of the sublessor under such sublease from the time of the exercise
of said option to the expiration of such sublease: provided, however, Lessor
shall not be liable for any prepaid rents or security deposit paid by such
sublessee to such sublessor or for any prior Defaults or Breaches of such
sublessor.

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

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

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

13.   Default, Breach; Remedies.

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

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

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

            (c) The failure by Lessee to provide (1) reasonable written evidence
of compliance with Applicable Requirements, (ii) the service contracts, (iii)
the rescission of an unauthorized assignment or subletting, (iv) a Tenancy
Statement, (v) a requested subordination, (vi) evidence concerning any guaranty
and/or Guarantor, (vii) any document requested under Paragraph 42 (easements),
or (viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where any such failure
continues for a period of ten (10) days following written notice to Lessee.

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

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

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

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

      13.2 Remedies. If Lessee fails to perform any of its affirmative duties or
obligations, within ten (10) days after written notice (or in case of an
emergency, without notice), Lessor may, at its option, perform such duty or
obligation on Lessee's behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental licensee, permits
or approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee upon receipt of invoice therefor. If any check given
to Leasor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made by Lessee to
be by cashier's check. In the event of a Breach, Lessor may, with or without
further notice or demand, and without limited Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach:

            (a) Terminate. Lessee's right to possession of the Premises by any
lawful means, in which case the Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lessee. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of the District within which the Premises are located
at the time of award plus one percent (1%). Efforts by Lessor to mitigate
damages caused by Lessee's Breach of this Lease shall not waive Lessor's right
to recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding any unpaid Rent and damages as are recoverable
therein, or Lessor may reserve the right to recover all or any part thereof in a
separate suit. If a notice and grace period required under Paragraph 13.1 was
not previously given, a notice to pay rent or quit, or to perform or quit given
to Lessee under the unlawful detainer statute shall also constitute the notice
required by Paragraph 13.1. In such case, the applicable grace period required
by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and
the failure of Lessee to cure the Default within the greater of the two such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.

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

            (c) Pursue any other remedy now or hereafter available under the
laws or judicial decision of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's right
to possession shall not relieve Lessee from liability.


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                                    PAGE 8
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under any Indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.

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

      13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
of Rent will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent
shall not be received by Lessor within five (5) days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a one-time late charge equal to ten percent (10%) of each such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of such late
payment. Acceptance of such late charge by Lessor shall in no event constitutes
a waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent the exercise of any of the other rights and remedies granted hereunder.
In the event that a late charge is payable hereunder, whether or not collected,
for three (3) consecutive installments of Base Rent, then notwithstanding any
provisions of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.

      13.5 Interest. Any monetary payment due Lessor hereunder, other than late
charges, not received by Lessor, when due as to schedule payments (such as Base
Rent) or within thirty (30) days following the date on which it was due for non-
scheduled payment, shall bear interest from the date when due, as to scheduled
payments, or the thirty-first (31st) day after it was due as to non-scheduled
payments. The interest ("Interest") charged shall be equal to the prime rate
reported in the Wall street Journal as published closest prior to the date when
due plus four percent (4%), but shall not exceed the maximum rate allowed by
law. Interest is payable in addition to the potential late charge provided for
in Paragraph 13.4.

      13.6 Breach by Lessor.

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

          (b) Performance by Lessee on Behalf of Lessor. In the event that
neither Lessor nor Lender cures said breach within thirty (30) days after
receipt of said notice, or if having commenced said cure they do not diligently
pursue it to completion, then Lessee may elect to cure said breach at Lessee's
expense and offset from Rent an amount equal to the greater of one month's Base
Rent or the Security Deposit, and to pay an excess of such expense under
protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall
document the cost of said cure and supply said documentation to Lessor.

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

15.   Brokers' Fee.

      15.2 Assumption of Obligations. Any buyer or transferee of Lessor's
interest in this Lease shall be deemed to have assured Lessor's obligation
hereunder. Each Broker shall be a third party beneficiary of the provisions of
Paragraphs 1.10, 15,22 and 31. If Lessor fails to pay to a Broker any amounts
due as and for commissions pertaining to this Lessee when due, then such amounts
shall accrue interest. In addition, if Lessor fails to pay any amounts to
Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and
Lessee of such failure and if Lessor fails to pay such amounts within ten (10)
days after said notice, Lessee shall pay said monies to its Broker and offset
such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a
third party beneficiary of any commission agreement entered in to and by and/or
between Lessor and Lessor's Broker.

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

16.   Estoppel Certificate.

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

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


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

17. Definition of Lessor. The term "Lessor" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's Interest in the prior lease. In the event of
a transfer of Lessor's title or interest in the Premises or this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined. Notwithstanding the above, and subject to the provisions of Paragraph
20 below, the original Lessor under this Lease, and all subsequent holders of
the Lessor's Interest in this Lease shall remain liable and responsible with
regard to the potential duties and liabilities of Lessor pertaining to Hazardous
Substances as outlined in Paragraph 6 above.

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

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

20. Limitation on Liability. Subject to the provisions of Paragraph 17 above,
the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the Individual partners of Lessor or its or their
Individual partners, directors, officers or shareholders, and Lessee shall look
to the Premises, and to no other assets of Lessor, for the satisfaction of any
liability of Lessor with respect to this Lease, and shall not seek recourse
against the Individual partners of Lessor, or its or their Individual partners,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.

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

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

23. Notices.

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

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

24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. The acceptance of Rent by
Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by
Lessees may be accepted by Lessor on account of moneys or damages due Lessor,
notwithstanding any qualifying statements or conditions made by Lessee in
connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor at
or before the time of deposit of such payment.

25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The party requesting recordation shall be
responsible for payment of any fees applicable thereto.

26. No Right to Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this Lease.
In the event that Lessee holds over, than the Base Rent shall be increased to
one hundred fifty percent (150%) of the Base Rent applicable during the month
immediately preceding the expiration or termination. Nothing contained herein
shall be construed as consent by Lessor to any holding over by Lessee.

27.   Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with as other remedies at
law or in equity.

28. Covenants and Conditions; Construction of Agreement. All provisions of this
Lease to be observed or performed by Lessee are both covenants and conditions.
In construing this Lease, all headings and titles are for the convenience of the
parties only and shall not be considered a part of this Lease. Whenever required
by the context, the singular shall include the plural and vice versa. This Lease
shall not be construed as if prepared by one of the parties, but rather
according to be their meaning as a whole, as if both parties had perceived it.

29. Binding Effect; Choice of Law. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.

30. Subordination, Attornment; Non-Disturbance.

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

      30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new

                                                       Initials /s/ AA
                                                               -----------------

                                     PAGE 10
<PAGE>

owner shall not: (i) be liable for any act or omission of any prior lessor or
with respect to events occurring prior to acquisition of ownership; (ii) be
subject to any offsets or defenses which Lessee might have against any prior
lessor, or (iii) be bound by prepayment of more than one (1) month's rent.

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

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

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

32.   Lessor's Access Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchaser, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises as Lessor may deem necessary.
All such activities shall be without abatement of rent or liability to Lessee.
Lessor may at any time place on the Premises any ordinary "For Sale" signs and
Lessor may during the last six (6) months of the term hereof place on the
Premises any ordinary "For Lease" signs. Lessee may at any time, place on or
about the Premises any ordinary "For Sublease" sign.

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

34.   Signs. Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.

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

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

37.   Guarantor.

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

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

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

39.   Options

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

      39.2 Options Personal To Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee, and cannot be assigned or
exercised by anyone other than said original Lessee and only while the original
Lessee is in full possession of the Premises and, if requested by Lessor, with
Lessee certifying that Lessee has no intention of thereafter assigning or
subletting.

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

      39.4 Event of Default on Options.

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

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

          (c) An Option shall terminate and be of no further force or effect,
notwithstanding Lessee's due and timely exercise of the Option, if, after such
exercise and prior to the commencement of the extended term, (i) lessee fails to
pay Rent for a period of thirty (30) days after such Rent becomes due without
any necessity of Lessor to give notice thereof), (ii) Lessor gives to Lessee
three (3) or more notices of separate Default during any twelve (12) month
period, whether or not the Default are cured, or (iii) if Lessee commits a
Breach of this Lease.

40.   Multiple Buildings. If the Premises are a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe an reasonable rules and
regulations which Lessor may make from time to time for the management , safety,
and care of said properties, including

                                                       Initials /s/ AA
                                                               -----------------

                                     PAGE 11
<PAGE>

the care and cleanliness of the grounds and including the parking, loading and
unloading of vehicles, and that Lessee will pay its fair share of common
expenses incurred in connection therewith.

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

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

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

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

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

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

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

48.   Multiple Parties. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.

49.   Mediation and Arbitration of Disputes. An addendum requiring the Mediation
and/or Arbitration of all disputes between the Parties and/or Brokers arising
out of this Lease [ ] is [X] is not attached to this Lease.

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

--------------------------------------------------------------------------------

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

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

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

--------------------------------------------------------------------------------

The parties herein have executed this Lease at the place and on the dates

specified above their respective signatures.



Executed at:_________________________     Executed at: San Jose
on: _________________________________     On:  March 22, 2000
By LESSOR:                                By LESSEE:
Terra Bella Inc. & Archie J. Snider       Peerless System Networking a wholly
-------------------------------------     -----------------------------------
D.b.a. Terra Snider Joint Venture         owned subsidiary of Peerless System
-------------------------------------     -----------------------------------
                                          Corporation
                                          -----------------------------------

By:__________________________________     By: /s/ Adam Au
                                             --------------------------------
Name Printed:________________________     Name Printed: Adam Au
                                                       ----------------------
Title:_______________________________     Title: VP & General Manager
                                                -----------------------------
By:__________________________________     By:________________________________
Name Printed:________________________     Name Printed:______________________
Title:_______________________________     Title:_____________________________
Address:_____________________________     Address:___________________________
_____________________________________     ___________________________________
Telephone: (   )_____________________     Telephone: (650) 569-4405
                                                    -------------------------
Facsimile: (   )_____________________     Facsimile: (650) 568-9308
                                                    -------------------------
Federal ID No.: (   )________________     Federal ID No.: (   )______________


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


                                    PAGE 12

/C/ Copyright 1997 - By American Industrial Real Estate Association. All rights
    reserved. No part of these works may be reproduced in any form without
                            permission in writing.
<PAGE>

ADDENDUM TO THE LEASE AGREEMENT DATED MARCH 16, 2000 BY AND BETWEEN PEERLESS
SYSTEMS NETWORKING A WHOLLY OWNED SUBSIDIARY OF PEERLESS SYSTEMS CORPORATION, AS
LESSEE/TENANT, AND TERRA BELLA INC. AND ARCHIE J. SNIDER, D.B.A. TERRA SNIDER
JOINT VENTURE, AS LESSOR/LANDLORD, FOR THE PROPERTY COMMONLY KNOWN AS 1130 TERRA
BELLA IN MOUNTAIN VIEW, CALIFORNIA.

50.   Rent Schedule:
      -------------
      Lessee shall pay rent to Lessor based upon the following schedule:

                   MONTHS          MONTHLY BASE RENT NNN
                   ------          ---------------------
                     1-12               $67,447.00
                    13-24               $70,145.00
                    25-36               $72,951.00
                    37-48               $75,869.00
                    49-60               $78,903.00
                    61-72               $82,060.00
                    73-84               $85,342.00

51.   Letter of Credit (Additional Security Deposit):
      ----------------------------------------------
      Subject to all the terms and conditions of paragraph 5 of the Lease
      Agreement and in addition to the Cash Security Deposit amount of
      $134,894.00, Lessee shall deliver to Lessor, upon execution of this lease
      agreement, an Additional Security Deposit in the form of an irrevocable
      Letter of Credit as hereinafter described (the "Letter of Credit").

      The Letter of Credit shall (i) be an irrevocable standby letter of credit
      (ii) be issued by a reputable bank reasonably approved by Landlord, (iii)
      name Landlord as beneficiary, (iv) be payable on sight draft accompanied
      only by Landlord's statement that it is entitled to payment there on
      because an Event of Default under the Lease has occurred, (v) be in a form
      acceptable to Lessor, (vi) be for an initial term of at least twelve (12)
      months and shall be renewed for four (4) twelve (12) months periods
      immediately thereafter (for a total term of five (5) years), and (vii)
      assume payment in the amount of $741,917.00. The following provisions
      shall govern the parties' rights and obligations with respect to the
      Letter of Credit.

            51.1 Landlord shall be entitled to recourse against the Letter of
      Credit to recover any loss or damage it may suffer as a result of any
      breach or default by Tenant under this Lease. Partial draws shall be
      permitted under the Letter of Credit.

            51.2 Tenant shall keep the Letter of Credit in effect during the
      entire initial Term; Tenant's failure to do same or Tenant's failure to
      furnish written evidence to Landlord of the renewal of the Letter of
      Credit shall be an Event of Default hereunder. Provided Tenant is not in
      default at the end of the twelfth (12th), twenty-fourth (24th), thirty-
      sixth (36th) and forty-eighth (48th) months, respectively, of the Term,
      and not more than one (1) Event of Default under the Lease had occurred
      during the preceding twelve (12) month period. Tenant may reduce the
      amount of the Letter of Credit at the end of each such months as follows:

                   MONTHS         LETTER OF CREDIT AMOUNT
                   ------         -----------------------
                   1-12                 $741,917.00
                   13-24                $593,533.60
                   25-36                $445,150.20
                   37-48                $296,766.80
                   49-60                $148,383.40


            51.3 Tenant shall pay, as Additional Rent under this Lease, any and
      all costs or fees charged in connection with the Letter of Credit that
      arise due to: (i) Landlord's sale or transfer of all or a portion of the
      Building; (ii) the addition, deletion or modification of any beneficiaries
      under the Letter of Credit.

            51.4 Tenant shall have no injunctive relief against either Landlord
      or the issuer of the irrevocable standby Letter of Credit for Landlord's
      or Issuer's failure to draw upon or pay from such Letter of Credit to the
      manner provided for in the Lease or in the Letter of Credit.

52.   Assignment and Subletting (Additional Terms and Conditions):
      -----------------------------------------------------------
            52.1 Notwithstanding anything to the contrary contained in the Lease
      Agreement, and in addition in Landlord's right to approve of any subtenant
      or assignee, Landlord shall have the option, in its sole discretion, in
      the event of any proposed subletting or assignment to terminate this
      Lease, or in the case of a proposed subletting of less than the entire
      Premises, to recapture the portion of the Premises to be sublet, as of the
      date the subletting or assignment to be effective. The option shall be
      exercised, if at all, by Landlord giving Tenant written notice given by
      Landlord to Tenant within fifteen (15) days following Landlord's receipt
      of Tenant's written notice as required above. If this Lease shall be
      terminated with respect to the entire Premises pursuant to this Section,
      the Term of this Lease shall end on the date stated to Tenant's notice as
      the effective date of the sublease assignment as if that date had been
      originally fixed in this Lease for the expiration of the Term. If landlord
      recaptures under this Section only a portion of the Premises, the rent to
      be paid from time to time during the unexpired Term shall abate
      proportionately based in the proportion by which the approximate square
      footage of the remaining portion of the Premises shall be less than that
      of the Premises as of the date immediately prior to such recapture.

            52.2 Notwithstanding anything to the contrary contained in the Lease
      Agreement, in the event that Tenant sells, sublets, assigns or transfers
      this Lease, Tenant shall pay to Landlord as additional rent an amount
      equal to fifty percent (50%) of any Increased Rent (is defined below) when
      and as such Increased Rent is received by Tenant. As used in this Section,
      "Increased Rent" shall mean the excess of (i) all rents and other
      consideration which Tenant is entitled to receive by reason of any sale,
      sublease, assignment or other transfer of this Lease, ever (ii) the rent
      otherwise payable by Tenant under this Lease at such time. For purposes of
      the foregoing, any consideration received by Tenant in form other than
      cash shall be valued as its fair market value as determined by the
      Landlord in good faith.

53.   Relief
      ------
      Lessor, at Lessor's sole cost and expense, shall install a new roof
      membrane prior to the Lease Commencement Date.

54.   Contaminate Acknowledgement:
      ---------------------------
      Lessee Acknowledges that certain contaminates may be present, due to an
      offsite source, in the ground water below the Premises.

                                                                 Initials /s/ AA
                                                                        --------

                                       1
<PAGE>

55.   Compliance with Covenants, Restrictions and Building Code:
      ---------------------------------------------------------
      Lessee, at Lessee's sole cost and expense, shall be responsible for
      compliance with the Disabled Access Regulation under Title 24 of the
      California Code of Regulations and to American With Disabilities Act and
      any Seismic requirements if such compliance is required by any
      governmental organization holding jurisdiction as a result or any
      Alterations or Utility Installations made to the Premises by Lessee or due
      to the date Lessee will put to the Premises.

56.   Effect of Addendum:
      ------------------
      In the event of any inconsistency between this Addendum and the Lease
      Agreement, the terms of this Addendum shall prevail. As used herein, the
      term "Lease Agreement" shall mean the pre-printed Lease Form (American
      Industrial Real Estate Association 1997 Standard Industrial/Commercial
      Single-Tenant Lease-Net) attached hereto.

READ AND APPROVED:
-----------------

Lessor:     Terra Bella Inc. & Archie J. Snider
            d.b.a. Terra Snider Joint Venture

By: __________________________

By: __________________________

By: __________________________

Date: ________________________


Lessee:     Peerless System Networking a wholly owned Subsidiary of Peerless
            System Corporation

By:  /s/ Adam Au
    --------------------------
Its: VP & General Manager
    --------------------------
Date: 3/22/2000
     -------------------------

                                                              Initials /s/ AA
                                                                      ----------

                                       2
<PAGE>

                               GUARANTY OF LEASE
                  AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION


      WHEREAS, Terra Bella Inc. And Archie J. Snider, d.b.a. Terra Snider Joint
               ----------------------------------------------------------------
Venture, hereinafter referred to as "Lessor", and Peerless Systems Networking a
-------                                           -----------------------------
wholly owned Subsidiary of Peerless Systems Corporation, hereinafter referred to
-------------------------------------------------------
as "Lessee", are about to execute a document entitled "Lease" dated March 16,
                                                                    --------
2000 concerning the premises commonly known as 1130 Terra Bella, Mountain View,
----                                           -------------------------------
California wherein Lessor will lease the premises to Lessee, and
----------

      WHEREAS, Peerless Systems Corporation "a Delaware Corporation",
               ----------------------------------------------------
hereinafter referred to as "Guarantors", have a financial interest in Lessee,
and

      WHEREAS, Lessor would not execute the Lease if Guarantors did not execute
and deliver to Lessor this Guaranty of Lease.

      NOW THEREFORE, for and in consideration of the execution of the foregoing,
Lease by Lessor and as a material inducement to Lessor to execute said Lease,
Guarantors hereby jointly, severally, unconditionally and irrevocably guarantee
the prompt payment by Lessee of all rentals and all other sums payable by Lessee
under said Lease and the faithful and prompt performance by Lessee of each and
every one of the terms, conditions and covenants of said Lease to be kept and
performed by Lessee.

      It is specifically agreed and understood that the terms of the foregoing
Lease may be altered, affected, modified or changed by agreement between Lessor
and Lessee, by a course of conduct, and said Lease may be assigned by Lessor or
any assignee of Lessor without consent of notice to Guarantors and that this
Guaranty shall thereupon and thereafter guarantee the performance of said Lease
as to changed, modified, altered or assigned.

      This Guaranty shall not be released modified or affected by failure to
delay on the part of Lessor to enforce any of the rights or remedies of the
Lessor under said Lease, whether pursuant to the terms thereof or at law or in
equity.

      No notice of default need be given to Guarantors, it being specifically
agreed and understood that the guarantee of the undersigned is a continuing
guarantee under which Lessor may proceed forthwith and immediately against
Lessee or against Guarantors following any breach or default by Lessee or the
enforcement of any rights which Lessor may have as against Lessee pursuant to or
under the terms of the written Lease or at law or in equity.

      Lessor shall have the right to proceed against Guarantors hereunder
following any breach or default by Lessee without first proceeding against
Lessee and without previous notice to or demand upon either Lessee or
Guarantors.

      Guarantors hereby waive (a) notice of acceptance of this Guaranty, (b)
demand of payment, presentation and protect, (c) all right to assert or please
any statue of limitation as to or relating to this Guaranty and the Lease, (d)
any right to require the Lessor to proceed against the Lessee or any other
Guarantor or any other person or entity liable to Lessor, (e) any right to
require Lessor to apply any default any security deposit or other security it
may hold under the Lease, (f) any right to require Lessor to proceed under any
other remedy Lessor may have before proceeding against Guarantors, (g) any right
of subrogation.

      Guarantors do hereby subrogate all existing or future indebtedness of
Lessee to Guarantors to the obligations owed to Lessor under the Lease and this
Guaranty.

      Any married woman who signs this Guaranty expressly agrees that recourse
may be had against her separate property for all of her obligations hereunder.

      The obligations of Lessee under the Lease to execute and deliver estoppel
statements and financial statements, as therein provided, shall be deemed to
also require the Guarantors hereunder to do and provide the same relative to
Guarantors.

      The term "Lessor" whenever hereinabove used refers to and means the Lessor
in the foregoing Lease specifically named and also any assignee of said Lessor,
whether by outright assignment or by assignment for security, and also any
successor to the interest of said Lessor or of any assignee in such Lessee or
any part thereof, whether by assignment or otherwise. So long as the Lessor's
interest in or to the leased premises or the rents, issues and profits
therefrom, or in, to or under said Lease, are subject to any mortgage or deed of
trust or assignment for security, no acquisition by Guarantors of the Lessor's
interest in the leased premises or under said Lease shall effect the continuing
obligation of Guarantors under this Guaranty which shall nevertheless continue
in full force and effect for the benefit of the mortgagee, beneficiary, trustee
or assignee under such mortgage, deed or trust or assignment, of any purchase at
sale by judicial foreclosure or under private power of sale, and the successors
and assigns of any such mortgagee, beneficiary, trustee, assignee or purchaser.

      The term "Lessee" whenever hereinabove used refers to and means the Lessee
in the foregoing Lease specifically named and also any assignee or sublease of
said Lease and also any successor to the interests of said Lease, assignee or
sublessee or said Lease or any part thereof, whether by assignment, sublease or
otherwise.

      In the event any action be brought by said Lessor against Guarantors
hereunder to enforce the obligation of Guarantors hereunder, the unsuccessful
party in such action shall pay to the prevailing party therein a reasonable
attorney's fee which shall be fixed by the court.


If this Form has been filled in it has been prepared for submission to your
attorney for his approval. No representation or recommendation is made by the
real estate broker or its agents or employees as to the legal sufficiency, legal
effect, or tax consequences of this Form or the transaction relating therein.


Executed at:________________________      Peerless System Corporation "a
                                          ------------------------------
                                          Delaware Corporation"
on:_________________________________      --------------------
                                          By: /s/ Adam Au
Address_____________________________         ---------------------------------
                                          Its:  VP & General Manager
____________________________________           -------------------------------
                                                   "GUARANTORS"


NOTE: For these forms write or call the American Industrial Real Estate
Association, 350 S. Figuroine Street, Suite 275, Los Angeles, CA 90071.
213-687-8777.


                                                                 Initials /s/ AA
                                                                        --------

                                       -1-
<PAGE>

                                   EXHIBIT A

[LOGO OF COMMERCIAL REAL ESTATE]



                  REAL PROPERTY DISCLOSURE AND ACKNOWLEDGMENT
                                    (LEASE)

Date:             March 16, 2000
                  --------------------------------------------------------------
Broker:           BT Commercial
                  --------------------------------------------------------------
Lessor:           Terra Bella Inc. and Archie Snider of d.b.a. Terra Snider
                  Joint Venture
                  --------------------------------------------------------------
Lease:            Peerless Systems Networking, a wholly owned subsidiary of
                  Peerless Systems Corporation
                  --------------------------------------------------------------
Property Address: 1130 Terra Bella, Mountain View
                  --------------------------------------------------------------
Also Known As:    A + / - 12,263 square foot Office / R&D Building
                  --------------------------------------------------------------

--------------------------------------------------------------------------------

NOTIFICATION RE: NATIONAL FLOOD INSURANCE PROGRAM
-------------------------------------------------
This property [_] is / [x] is not located in a Special Flood Hazard Area on
United States Department of Housing and Urban Development (HUD) "Special Flood
Zone Area Maps." Federal law requires that as a condition of obtaining federally
related financing on most properties located in "flood zones, banks, savings and
loan associations, and some insurance lenders require flood insurance to be
carried where the property, real or personal, is secured for a loan. This
requirement is mandated by the National Flood Insurance Act of 1968 and the
Flood Disaster Protection Act of 1973. The purpose of the program is to provide
flood insurance to property owners at a reasonable cost. Cities or countries
participating in the National Flood Insurance Program may have adopted building
or zoning restrictions, or other measures, as a part of their participation in
the program. You should contact the city or county in which the property is
located to determine any such restrictions. The extent of coverage available in
your area and the cost of this coverage may vary, and for further information,
you should consult your tender or insurance carrier.
Flood Zone Designation:  Zone:_________     Source:_____________________________


NOTIFICATION: ALQUIST - PRIOLO SPECIAL EARTHQUAKE FAULT ZONING ACT
------------------------------------------------------------------
The Property described above [_] is / [x] is not / [_] may not be situated in an
Earthquake Fault Zone as designated under the Alquist-Priolo Earthquake Fault
Zoning Act, Sections 2621-2630, inclusive, of the California Public Resources
Code; and, as such, the construction or development of the Property of any
structure for human occupancy may be subject to the findings of a geologic
report prepared by a geologist registered in the State of California, unless
such report is waived by the city or county under the terms of the Act. No
representations on the subject are made by Lessor or by Broker of its agents or
employees, and the Lessee should make his/her/its own inquiry or investigation.

HAZARDOUS WASTES OR SUBSTANCES AND UNDERGROUND STORAGE TANK
-----------------------------------------------------------
Comprehensive federal and state laws and regulations have been enacted in the
past several years in an effort to control the use, storage, handling, clean-up,
removal and disposal of hazardous wastes or substances. Some of these laws and
regulations (such as, for example, the Comprehensive Environmental Response
Compensation Liability Act (CERCLA) provide for broad liability on the part of
owners, tenants, or other users on property for clean-up costs and damages,
regardless of fault. Another such statute is California Health and Safety Code
Section 25359.7(a), which provides in part that a Lessor of nonresidential real
property who knows, or has reasonable cause to believe, that any release of a
hazardous substance that has come to be located on or beneath that real property
shall, prior to the lease, give written notice of that condition to the Lessee;
and that failure of the Lessor to provide written notice as required shall
subject the Lessor to liability for damages. Other laws and regulations set
standards for the handling of asbestos, and establish requirements for the use,
modification, abandonment, and closure of underground storage tanks.

                                   Page 1 of 3
<PAGE>

It is not practical or possible to list all such laws and regulations in this
Notice. Therefore, Broker recommends that Lessors and Lessees consult legal
counsel to determine their respective rights and liabilities with respect to the
issues described in the Notice, as well as all other aspects of the proposed
transaction. If hazardous wastes or substances have been, or are going to be
used, stored, handled or disposed on the Property, of if the Property has had or
may have underground storage tanks, it is essential that legal and technical
advise be obtained to determine, among other things, the nature of permits and
approvals which have been obtained or may be required; the estimated costs and
expenses associated with the use, storage, handling, clean-up, disposal or
removal of hazardous wastes or substances; and the nature and extent of
contractual provisions necessary or desirable in this transaction. Broker
recommends expert assistance and site investigation to determine past uses of
the property, which may provide valuable information as to the likelihood of
hazardous wastes or substances, or underground storage tanks, being on the
Property.

Lessor agrees to disclose to Broker and to Lessee any and all information which
he/she/it has regarding present and future zoning and environmental matters
affecting the Property and regarding the condition of the Property, including,
but not limited to, structural, mechanical and soil conditions, the presence and
location of asbestos, PCB transformers, other toxic, hazardous or contaminated
substances, and underground storage tanks, in, on or about the Property. Broker
hereby requests that such information be provided immediately so that it may be
timely communicated to the Lessee.

Broker has conducted no investigation regarding the subject matter hereof,
except as may be contained in a separate written document signed by Broker.
Broker makes no representations concerning the existence or nonexistence of
hazardous wastes or substances, or underground storage tanks in, on, or about
the Property. Lessee should contact a professional such as a civil engineer,
industrial hygienist or other persons with experience in these matters, to
advise on these matters.

The term "hazardous wastes or substances" is used herein in its very broadest
sense and includes, but is not limited to, petroleum based products, paint and
solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonium
compounds, asbestos, PCBs and other chemical products. Hazardous wastes or
substances and underground storage tanks may be present on all types of real
property. This Notice is intended to apply to any transaction involving any type
of real property, whether improved or unimproved.

BROKER DISCLOSURE
-----------------
The parties hereby expressly acknowledge that Broker has made no independent
determination or investigation regarding the following: present or future use or
zoning of the property; environmental matters affecting the Property; the
condition of the Property, including, but not limited to, structural, mechanical
and soils conditions, as well as issues surrounding hazardous wastes or
substances as set out above; violations of the Occupational Safety and Health
Act or any other federal, state, county or municipal laws, ordinances, or
statutes; measurements of land and/or buildings. Lessee agrees to make its own
investigation and determination regarding such items.

A real estate broker is qualified to advise on real estate. If you desire legal
advice, please consult your attorney.

AMERICANS WITH DISABILITIES ACT (ADA)
-------------------------------------
Owners of tenants of real property may be subject to the Americans with
Disabilities Act (ADA), a federal law codified at 42 USC Section 12201 et. seq.
Among other requirements of the ADA that could apply to your property, Title III
of the Act requires owners and tenants of "public accommodations" to remove
barriers to access by disabled persons and provide auxiliary aids and services
for hearing, vision or speech impaired persons. The regulations under Title III
of the ADA are codified at 28 CFR Part 36.

Broker recommends that you and your attorney review the ADA and the regulations,
and, if appropriate, your proposed lease agreement, to determine if this law
would apply to you and the nature of the requirements. These are legal issues.
You are responsible for conducting your own independent investigation of these
issues.

                                  Page 2 of 3
<PAGE>

EARTHQUAKE SAFETY
-----------------
Owners of their agents who are involved in the transfer of a precast concrete or
reinforced or unreinforced masonry building with wood frame floors or roof which
was built before January 1, 1975 must deliver to the transferee a copy of a
state entitled "The Commercial Property Owner's Guide to Earthquake Safety"
published by the California Seismic Safety Commissions. The undersigned Lessee
of the real property herein described acknowledges that Broker has delivered to
the undersigned a copy thereof in accordance with California Government Code
Section 8875.6 and Sections 8893 et seq.

Y2K DISCLOSURE
--------------
Many buildings are depended on computers, computer software applications or
microchips (collectively, "Computer") that operate building systems like
elevators, lighting, power, HVAC and security systems. Many of these Computers
are date sensitive. Unless the Computers are Year 2000 Compliant (hereinafter
defined), the Computers may experience operating problems or fall to operate
when the date changes to a number the Computer does not properly recognize. In
addition, many vendors providing services in or for the benefit of a building
owner may rely on computers or software systems that are not year 2000
Compliant. The failure of the vendor's systems may cause service interruptions
when the date changes. Any Computer or vendor failures may have a significant
impact upon the value of a building or any leasehold interest in a building.
Year 2000 Compliant means, that a computer will properly read and process
information involving dates in both the twentieth and twenty-first century, and
that date information will be read or sorted in accurate sequence and that
calculations involving dates will be performed properly, including leap year
calculations.

The real estate brokers involved in this transaction are neither authorized nor
qualified to advise you as to whether the Building, its systems, or its vendors
are Year 2000 Compliant. Nor are the brokers involved in this transaction
qualified to advise you concerning whether the Seller or Owner has an adequate
plan to bring it or the Property into Year 2000 Compliance, or to assure that
the vendors providing goods or services to the property have adequately
addressed the Year 2000 issue. It is the responsibility of the parties to a
transaction to retain expert advisors to assist them in evaluating the potential
Year 2000 Compliance Issues relating to any particular transaction. The brokers
involved in this transaction are not qualified to advise you concerning a
potential expert's qualifications.

--------------------------------------------------------------------------------

         RECEIPT OF A COPY OF THESE DISCLOSURES IS HEREBY ACKNOWLEDGED


LESSOR:  Terra Bella Inc. and Archie J.       LESSEE: Peerless System Networking
         Snider d.b.a. Terra Snider
         Joint Venture

By:_____________________________________      By: /s/ Adam Au
                                                 -------------------------------
Its:____________________________________      Its: VP & General Manager
                                                  ------------------------------
Dated:__________________________________      Dated:  3/22/2000
                                                     ---------------------------

Notice to Lessor and Lessee: BT Commercial is not authorized to give legal or
tax advice. No representation or recommendation is made by BT Commercial or it s
agents or employees as to the legal sufficiency, legal effect or tax
consequences of this document or any transaction relating thereto since these
are matters which should be discussed with your attorney.

                                  Page 3 of 3