EXHIBIT 10.12




                                COMMERCIAL LEASE



Dated:         as of December 11, 1997

Between:       McLAIN-RUBIN REALTY COMPANY III, L.L.C.,
                    a Delaware limited liability company ("Landlord")
               38207 Northeast Gerber Road
               Yacolt, WA 98675

And:           WESTERN POWER & EQUIPMENT CORP., an
               Oregon corporation ("Western Power" or "Tenant")
               4601 N.E. 77th Avenue
               Vancouver, Washington 98662

     Subject to the terms and conditions of this Lease, Landlord hereby leases
to Tenant, and Tenant hereby leases from Landlord, the real property described
on Exhibit A hereto (which by this reference is made a part hereof), together
with all improvements now and hereafter situated on said land (said land,
together with such improvements, being hereinafter referred to as the
"Premises"). The Premises are located at 3199 East Onstott Road, Yuba City,
California.

     The parties hereto, for themselves, their heirs, administrators, executors,
successors and assigns, hereby covenant and agree as follows:

Section 1. Occupancy.

     1.1 Term. The term of this Lease (hereinafter referred to as the "Term")
shall commence on the date (the "Commencement Date") on which Landlord acquires
fee title to the Premises, and continue through, and expire on, December 31,
2017 (the "Expiration Date"), unless sooner terminated as hereinafter provided.

     1.2 Possession. Tenant's right to possession of the Premises, and its
obligations under this Lease, shall commence on the Commencement Date. If the
Commencement Date does not fall on the first day of the month, Rent (as
hereinafter defined) for the first month under this Lease shall be prorated
accordingly, and shall be due on the Commencement Date.

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Section 2. Rent.

     2.1 Base Rent. Tenant covenants and agrees to pay to Landlord an annual
base rent (the "Base Rent"), in equal monthly installments, in advance, without
demand, deduction or set off, at such place as may be designated by Landlord, on
the first day of each month throughout the Term of this Lease, as follows:

          (a) For the period commencing on the Commencement Date and ending on
December 31, 2002, both dates inclusive, $54,000.00 per year ($4,500.00 per
month);

          (b) For the period commencing on January 1, 2003 and ending on
December 31, 2007, both dates inclusive, $59,400.00 per year ($4,950.00 per
month);

          (c) For the period commencing on January 1, 2008 and ending on
December 31, 2012, both dates inclusive, $66,000.00 per year ($5,500.00 per
month); and

          (d) For the period commencing on January 1, 2013 and continuing
thereafter throughout the remainder of the Term, $76,800.00 per year ($6,400.00
per month).

     2.2 Additional Rent. All taxes, insurance costs, utility charges,
maintenance costs, repair charges and other sums that Tenant is required to pay
pursuant to this Lease to Landlord or third parties, shall be "additional rent."
For the purposes of this Lease, Base Rent and additional rent are sometimes
collectively referred to as "Rent."

Section 3. Use of the Premises.

     3.1 Permitted Use. The Premises shall be used for retail sales, service,
storage and repair of agricultural, utility or industrial equipment, machinery
and parts, and incidental office use, and for any other lawful purpose, subject
to the applicable provisions of this Lease.

     3.2 Restrictions on Use. In connection with the use of the Premises, Tenant
shall:

          (a) Comply with all applicable laws and regulations of any public
authority having jurisdiction over the Premises and the use thereof, and
correct, at Tenant's own expense, any failure of compliance created through
Tenant's fault or by reason of Tenant's use;

          (b) Refrain from any activity that would make it impossible to insure
the Premises against casualty, would permanently increase the insurance rate, or
would prevent Landlord from taking advantage of any ruling allowing Landlord to
obtain reduced premium rates for long-term fire insurance policies, unless
Tenant pays the additional cost of the insurance;

          (c) Refrain from any use that would be reasonably offensive to other

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tenants or owners or users of neighboring premises or that would tend to create
a nuisance or damage the reputation of the Premises;

          (d) Refrain from loading the electrical system or floors beyond the
point considered safe by a competent engineer or architect reasonably selected
by Landlord; and

          (e) Subject to Section 3.3, refrain from making any marks on or
attaching any additional sign, insignia, antenna, aerial, satellite dish or
other device to the exterior or interior walls, windows, or roof of the Premises
without the written consent of Landlord, which shall not be unreasonably
withheld or delayed.

     3.3 Signage. Tenant will be responsible for providing its own signage.
Tenant will obtain Landlord's prior approval of the design, size, color,
materials, and other details of the sign face, which approval shall not be
unreasonably withheld or delayed. Landlord acknowledges that Tenant already has
signage on the Premises and hereby consents to such signage.

     3.4 Hazardous Substances.

          (a) Definitions. For purposes of this Section, the term "Hazardous
Substance" means any substance, material or waste, including oil or petroleum
products or their derivatives, solvents, PCB's, explosive substances, asbestos,
radioactive materials or waste, and any other toxic, ignitable, reactive,
corrosive, contaminating or pollution materials which are now or in the future
subject to any governmental regulation; the term Hazardous Substance Laws" means
all federal, state and local laws, ordinances, regulations and standards
relating to the use, analysis, production, storage, sale, release, discharge,
disposal or transportation of any Hazardous Substance.

          (b) Tenant Compliance With Hazardous Substance Laws. Neither Tenant or
its officers, employees, agents, invitees, sublessees or assigns shall cause or
permit any Hazardous Substance to be spilled, leaked, disposed of, or otherwise
released or discharged on or under the Premises, or cause any Hazardous
Substance to be spilled, leaked, disposed of, or otherwise released or
discharged on or under any property adjacent to the Premises. Tenant may use or
otherwise handle on the Premises only those Hazardous Substances (hereinafter
referred to as "Ordinary Hazardous Substances") typically used or sold in the
prudent and safe operation of the business specified in Section 3.1. Tenant may
store such Hazardous Substances on the Premises only in quantities necessary to
satisfy Tenant's reasonably anticipated needs. Tenant shall comply with all
Hazardous Substance Laws and exercise care in the use, handling, storage and
transportation of Hazardous Substances and shall take all possible measures
consistent with the practicable operation of its business to minimize the
quantity and toxicity of Hazardous Substances used, handled, transported or
stored on the Premises. Upon the expiration or termination of this Lease, Tenant
shall remove from the Premises all Hazardous Substances stored there by Tenant
or its sublessees or assigns.

          (c) Indemnification by Tenant. Tenant shall indemnify, defend, and
hold

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Landlord harmless from any and all claims, judgments, damages, penalties, fines,
costs, liabilities, or losses which arise during or after the Term as a result
of contamination by Hazardous Substances as a result of Tenant's use or
activities or the use or activities of Tenant's officers, employees, agents,
invitees, sublessees or assigns. This indemnification of Landlord by Tenant
shall include, without limitation, all costs incurred in connection with any
investigation of site conditions or any cleanup, remedial, removal or
restoration work required by any federal, state, or local governmental agency or
political subdivision because of Hazardous Substances present in the soil and
ground water on or under the Premises.

          (d) Indemnification by Landlord. Landlord shall indemnify, defend, and
hold Tenant harmless from any and all claims, judgments, damages, penalties,
fines, costs, liabilities, or losses which arise during or after the Term as a
result of contamination by Hazardous Substances that exist on or before the date
of this Lease or as a result of Landlord's use or activities on the Premises or
the use or activities of Landlord's officers, employees, agents, invitees, or
assignees on the Premises. This indemnification of Tenant by Landlord shall
include, without limitation, all costs incurred in connection with any
investigation of site conditions or any cleanup, remedial, removal or
restoration work required by any federal, state, or local governmental agency or
political subdivision because of Hazardous Substances present in the soil and
ground water on or under the Premises.

          (e) Notification. Each party shall give written notice to the other
within three (3) business days after the date on which the party learns or first
has reason to believe that:

          (1) there has or will come to be located on or about the Premises any
Hazardous Substance (other than Ordinary Hazardous Substances);

          (2) a release, discharge or emission of a Hazardous Substance has
occurred on or about the Premises;

          (3) an enforcement, cleanup, removal or other governmental or
regulatory action has been threatened or commenced against the party or with
respect to the Premises pursuant to any Hazardous Substance Laws;

          (4) a claim has been made or threatened by any person or entity
against the party or the Premises on account of an alleged loss or bodily injury
claimed to result from the alleged presence or release on the Premises of a
Hazardous Substance; or

          (5) a report, notice, or complaint has been made to or filed with a
governmental agency concerning the presence, use or disposal of any Hazardous
Substance on the Premises. Any such notice shall be accompanied by copies of any
such claim, report, complaint, notice, warning or other communication that is in
the possession of or is reasonably available to the party.

          (f) Cleanup Activity.

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          (1) If during the Term any remedial action is necessary to clean up
any environmental contamination of the Premises (the "Cleanup Activity") to
which Tenant's indemnification of Landlord in Section 3.4(c) applies, Tenant
shall proceed with reasonable diligence to complete the Cleanup Activity as
promptly as possible in compliance with all Hazardous Substance Laws. If after
written notice from Landlord, Tenant fails to proceed with reasonable diligence
to complete the Cleanup Activity, Landlord shall have the right, but not the
obligation, to carry out the Cleanup Activity, and to recover all of the costs
and expenses thereof from Tenant. The rights and obligations of the parties set
forth in this Section 3.4(f) shall be in addition to those rights and
obligations set forth elsewhere in this Lease.

          (2) Except as set forth in Section 3.4(f)(1), if any other Cleanup
Activity is necessary, Landlord shall proceed with reasonable diligence to
complete the Cleanup Activity as promptly as possible in compliance with all
Hazardous Substance Laws. If Landlord fails to proceed with reasonable diligence
to complete the Cleanup Activity, Tenant shall have the right, but not the
obligation, to carry out the Cleanup Activity, and to recover all of the costs
and expenses thereof from Landlord as a set off against payment of rent under
this Lease. The rights and obligations of the parties set forth in this Section
3.4(f) shall be in addition to those rights and obligations set forth elsewhere
in this Lease.

          (g) Phase I Report. Within thirty (30) days prior to after the
expiration or sooner termination of the Term, Tenant, at its expense, shall
cause a so-called "Phase I" environmental inspection to be performed and a
report in respect thereof to be prepared and delivered to both Landlord and
Tenant to determine whether any Cleanup Activity is required, Landlord and
Tenant agreeing that the responsibility for the Cleanup Activity shall be
determined by the preceding provisions of this Section.

          (h) Survival. The parties obligations under this Section 3.4 shall
survive the expiration or earlier termination of this Lease.

Section 4. Repairs and Maintenance.

     4.1 Tenant's Obligations. Tenant shall repair and maintain the entire
Premises to the extent necessary to preserve the Premises in good working order
and condition, including but not limited to providing regularly scheduled
maintenance and replacement (if necessary) of the heating and air conditioning
system, and making structural repairs. Tenant's repair obligation shall include,
but not be limited to, the repair of any damage to exterior building siding and
internal walls of the Premises caused by moving furniture, fixtures and
equipment in and out of the Premises.

     4.2 Repairs to Comply with Laws. All repairs, alterations and other
improvements on or to the Premises that are required by any governmental
authority having jurisdiction over the Premises or the use thereof shall be
performed by Tenant at its sole cost and expense.

     4.3 Reimbursement for Repairs Assumed. If Tenant fails or refuses to make
the

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repairs that are required by this Section in a timely manner, Landlord may (but
shall not be obligated to) make the repairs and charge the actual costs of
repairs to Tenant. Such expenditures by Landlord shall be charged to Tenant as
additional rent and shall be reimbursed by Tenant within ten (10) days after
Landlord's demand therefor. Except in an emergency creating an immediate risk of
personal injury or property damage, Landlord may not perform repairs which are
the obligation of Tenant and charge Tenant for the resulting expense, unless at
least ten (10) days before work is commenced Tenant is given notice in writing
outlining with reasonable particularity the repairs required, and Tenant fails
within that time to initiate such repairs in good faith.

     4.4 Inspection of Premises. Landlord shall have the right to inspect the
Premises at any reasonable time or times, and upon reasonable prior (written or
oral) notice, to determine the necessity of repair.

Section 5. Alterations.

     5.1 Alterations Prohibited. Tenant shall make no improvements or
alterations to the Premises without first obtaining Landlord's written consent,
which consent shall not be unreasonably withheld or delayed. All alterations
shall be made according to architectural designs and plans, construction
drawings and specifications approved by Landlord, which approval shall not be
unreasonably withheld or delayed, and in a good and workmanlike manner, and in
compliance with applicable laws and building codes. As used herein,
"alterations" includes the exterior installation of transmitters and receivers
(e.g., satellite dishes) and related wiring, cables, and conduit. All approved
improvements and alterations shall be made at Tenant's sole expense and Tenant
shall keep the Premises free from any lien arising out of work performed
pursuant to this Section. In the event any such lien is filed against the
Premises by any person claiming by, through or under Tenant, Tenant shall,
within fifteen (15) days after Landlord's demand therefor, at Tenant's expense,
either cause such lien to be removed from the record or furnish a bond in form
and amount and issued by a surety reasonably satisfactory to Landlord,
indemnifying the Landlord against all liability relating to such lien. Provided
that such bond has been furnished to Landlord, Tenant, at its sole cost and
expense may contest, by appropriate proceedings conducted in good faith and with
due diligence, any lien, encumbrance or charge against the Premises arising from
work done or materials provided to and for Tenant, providing that such contest
is conducted in a manner that does not cause any risk that Landlord's interest
in the Premises will be foreclosed for nonpayment.

     5.2 Ownership and Removal of Alterations. All approved improvements and
alterations made to the Premises by Tenant during the Term, other than Tenant's
trade fixtures, shall be the property of Landlord when installed unless the
applicable Landlord's consent provides otherwise. Upon expiration of the Term or
earlier termination under this Lease, Tenant's trade fixtures shall be removed
by Tenant and the Premises restored to its condition prior to installation if
the applicable consent so requires.

Section 6. Insurance; Indemnification; Subrogation.

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     6.1 Liability Insurance. Tenant shall procure, and thereafter maintain
during the Term, the following insurance at Tenant's cost: commercial general
liability policy (occurrence version) in a responsible company with coverage for
bodily injury and property damage liability with a general aggregate limit of
not less than $1,000,000 for injury to one person, $2,000,000 for injury to two
or more persons in one occurrence. Such insurance shall cover all risks arising
directly or indirectly out of Tenant's activities on, or any condition of, the
Premises. Such insurance shall protect Tenant against the claims of Landlord on
account of the obligations assumed by Tenant under Section 6.3, and shall name
Landlord as an additional insured. Certificates evidencing such insurance and
bearing endorsements requiring 10 days' written notice to Landlord prior to any
change or cancellation shall be furnished to Landlord prior to Tenant's
occupancy of the Premises.

     6.2 Property Insurance. Tenant shall, at Tenant's expense, keep the
Premises insured against loss or damage resulting from perils covered by what is
commonly referred to as "all risk" coverage insurance (but excluding earthquake
and flood) for the full insurable replacement cost (guaranteed replacement). All
premiums on said policy(s) shall be paid by Tenant. The policy(s) or a
certificate thereof signed by the insurer shall be delivered to Landlord within
five (5) days after the issuance and/or renewal of the policy(s) to the Tenant.
Each policy shall name Landlord as an additional insured, and shall provide that
such policy(s) may not be amended or canceled without thirty (30) days' prior
written notice to Landlord. If Tenant fails to obtain the above required
insurance, Landlord may, but shall not be required to procure such insurance and
charge the cost to Tenant as additional rent, payable on demand. Tenant shall
carry similar insurance insuring the property of Tenant on the property against
such risks.

     6.3 Indemnification. Except as set forth in Section 3.4(d), Tenant shall
indemnify and hold Landlord harmless from and against any and all third-party
claims, loss or liability for accident, injury or damage to persons or property
arising from or in connection with, Tenant's possession, operation, use, or
occupation of the Premises. In case any action or proceeding is brought against
Landlord and such claim is a claim from which Tenant is obligated to indemnify
Landlord pursuant to this Section, Tenant, upon notice from Landlord, shall
resist and defend such action or proceeding (by counsel reasonably satisfactory
to Landlord). Landlord and Landlord's agents shall have no liability to Tenant
for any injury, loss, or damage caused by third parties or by any condition of
the Premises, except to the extent caused by Landlord's negligence or breach of
any of Landlord's covenants contained in this Lease.

     6.4 Waiver of Subrogation. Neither party, nor its officers, directors,
employees, agents or invitees, nor, in the case of Tenant, subtenants, shall be
liable to the other party or to any insurance company (by way of subrogation or
otherwise) insuring the other party for any loss or damage to any building,
structure or other tangible property, when such loss is caused by any of the
perils which are or could be insured against under a standard policy of full
replacement cost insurance for fire, theft and all risk coverage, or losses
under workers' compensation laws and benefits, even though such loss or damage
might have been occasioned by the negligence of such party, its agents or
employees (Landlord and Tenant agreeing that the preceding clause shall not
apply, however, to any damages causes by

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intentionally wrongful actions or omissions of such party); provided, however,
that if, by reason of the foregoing waiver, either party shall be unable to
obtain any such insurance, such waiver shall be deemed not to have been made by
such party and, provided further, that if either party shall be unable to obtain
any such insurance without the payment of an additional premium therefor, then,
unless the party claiming the benefit of such waiver shall agree to pay such
party for the cost of such additional premium within thirty (30) days after
notice setting forth such requirement and the amount of the additional premium,
such waiver shall be of no force and effect between such party and such claiming
party. Each party shall use reasonable efforts to obtain such insurance from a
company that does not charge an additional premium or, if that is not possible,
one that charges the lowest additional premium. Each party shall give the other
party notice at any time when it is unable to obtain insurance with such a
waiver of subrogation without the payment of an additional premium and the
foregoing waiver shall be effective until thirty (30) days after notice is
given. Notwithstanding anything contained herein, Landlord is not obligated
under this Lease to insure the Premises.

Section 7. Taxes; Utilities.

     7.1 Property Taxes. Tenant shall pay as due all taxes on its personal
property located on the Premises. Tenant shall pay as due all real property
taxes levied against the Premises. As used herein, real property taxes includes
any fee or charge relating to the ownership, use, or rental of the Premises,
other than taxes on the net income of Landlord or Tenant.

     7.2 Special Assessments. If an assessment for a public improvement is made
against the Premises, Tenant shall pay such assessment. Landlord shall take all
appropriate action to cause such assessment to be paid in the maximum number of
installments permitted by law, statute or ordinance (if such option for
installment payments is available to Landlord), in which case all installments
coming due during the Lease term shall be treated the same as general property
taxes pursuant to section 7.1.

     7.3 Contest of Taxes. Tenant shall be permitted to contest the amount of
any tax or assessment as long as such contest is conducted in a manner that does
not cause any risk that Landlord's interest in the Premises will be foreclosed
for nonpayment.

     7.4 Proration of Taxes. Tenant's share of real property taxes for the years
in which this Lease commences or terminates shall be prorated based on the
portion of the tax year that this Lease is in effect.

     7.5 New Charges or Fees. If a new charge or fee relating to the ownership
or use of the Premises or the receipt of rental therefrom or in lieu of property
taxes is assessed or imposed, then, to the extent permitted by law, Tenant shall
pay such charge or fee. Tenant, however, shall have no obligation to pay any
income, profits, or franchise tax levied on the net income derived by Landlord
from this Lease.

     7.6 Payment of Utilities Charges. Tenant shall pay when due all charges for

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services and utilities incurred in connection with the use, occupancy,
operation, and maintenance of the Premises, including, but not limited to,
charges for fuel, water, gas, electricity, sewage disposal, power,
refrigeration, air conditioning, telephone, and janitorial services.

Section 8. Damage and Destruction.

     8.1 Damaged Premises. Tenant shall give immediate notice to Landlord in the
event of any damage or destruction affecting the Premises. Subject to the
provisions of this Section, Tenant shall immediately proceed to restore the
Premises using the proceeds of insurance carried pursuant to Section 6 of this
Lease and any insurance proceeds available from Landlord's insurance.
Restoration shall be performed according to architectural designs, plans and
construction drawings and specifications approved in advance by Landlord, which
approval shall not be unreasonably withheld or delayed.

     8.2 Damage or Destruction Late in Term. If within two years before the end
of the lease term the Premises are destroyed or damaged such that the cost of
repair exceeds 50% of the value of the structure before the destruction or
damage, Tenant may elect to terminate this Lease as of the date of the damage or
destruction by giving notice to Landlord in writing not more than 45 days
following the date of destruction or damage. In such event all rights and
obligations of the parties shall cease as of the date of termination, and Tenant
shall be entitled to the reimbursement of any prepaid amounts paid by Tenant and
attributable to what would have otherwise been the unexpired Term. Tenant shall
surrender possession of the Premises within a reasonable time after such written
notice is given, and assign any insurance proceeds paid on account of such
damage to Landlord. If Tenant does not elect to terminate, Tenant shall proceed
to restore the Premises to substantially the same form as prior to the damage or
destruction using the proceeds of insurance carried pursuant to Section 6 of
this Lease and any insurance proceeds available from Landlord's insurance. Work
shall be commenced as soon as reasonably possible and thereafter shall proceed
without interruption except for work stoppages on account of labor disputes and
other matters beyond Tenant's reasonable control.

     8.3 Rent Abatement. To the extent that the Premises are rendered
untenantable as a result of a fire or other casualty, the Rent shall not be
abated or reduced in any way.

     8.4 Personal Property. All personal property in said Premises shall be at
the risk of Tenant. Except to the extent caused by the negligent or intentional
acts of Landlord, Landlord or Landlord's agents shall not be liable for any
damage either to person or property, sustained by Tenant or others, caused by
any defects now in said Premises or hereafter occurring therein, or any part or
appurtenance thereof, caused by being out of repair, or caused by the bursting
or leaking of water, gas, sewer or steam pipes.

Section 9. Eminent Domain.

     9.1 Partial Taking. If a portion of the Premises is condemned and Section
9.2 does not apply, this Lease shall continue on the following terms:

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          (a) The parties shall be entitled to share in the condemnation
proceeds in proportion to the values of their respective interests in the
Premises. Tenant's right to participate in the condemnation proceeds shall be
limited to the value of its leasehold interest and the depreciated value of any
improvements and alterations constructed on the Premises at the Tenant's sole
expense subsequent to the Commencement Date.

          (b) Landlord shall proceed as soon as reasonably possible to make such
repairs and alterations to the Premises as are necessary to restore the
remaining Premises to a condition as comparable as reasonably practicable to
that existing at the time of the condemnation.

          (c) After the date on which title vests in the condemning authority or
an earlier date on which alterations or repairs are commenced by Landlord to
restore the balance of the Premises in anticipation of taking, the Base Rent
shall be reduced in proportion to the reduction in value of the Premises as an
economic unit on account of the partial taking. If the parties are unable to
agree on the amount of the reduction of Base Rent, the amount shall be
determined by arbitration in the manner provided in Section 17.

     9.2 Total Taking. If a condemning authority takes all of the Premises or a
portion which Landlord and Tenant agree is sufficient to render the remaining
Premises reasonably unsuitable for the use that Tenant was then making of the
Premises, this Lease shall terminate as of the date the title vests in the
condemning authorities. The parties shall be entitled to share in the
condemnation proceeds in proportion to the values of their respective interests
in the Premises.

     9.3 Sale in Lieu of Condemnation. Sale of all or part of the Premises to a
purchaser with the power of eminent domain in the face of a threat or
probability of the exercise of the power shall be treated for the purposes of
this Section 9 as a taking by condemnation.

Section 10. Liens.

     10.1 Except with respect to activities for which Landlord is responsible,
Tenant shall pay as due all claims for work done on and for services rendered or
material furnished to the Premises, and shall keep the Premises free from any
liens. If Tenant fails to pay any such claims or to discharge any lien, Landlord
may do so and collect the cost as additional rent. Any amount so added shall
bear interest at the Interest Rate (as hereinafter defined) from the date
expended by Landlord and shall be payable on demand. Such action by Landlord
shall not constitute a waiver of any right or remedy which Landlord may have on
account of Tenant's default. For the purposes of this Lease "Interest Rate"
shall mean two (2%) percent per annum over the then prime rate of interest
established by Citibank, N.A. (or any successor thereto), adjusted daily, but in
no event in excess of the maximum lawful rate of interest permitted by
applicable law.

     10.2 Tenant may withhold payment of any claim in connection with a
good-faith dispute over the obligation to pay, as long as Landlord's interest in
the Premises will not

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be foreclosed for nonpayment. If a lien is filed as a result of nonpayment,
Tenant shall, within ten (10) days after knowledge of the filing, secure the
discharge of the lien or deposit with Landlord cash or sufficient corporate
surety bond or other surety satisfactory to Landlord in an amount sufficient to
discharge the lien plus any costs, attorney fees, and other charges that could
reasonably accrue as a result of a foreclosure or sale under the lien.

Section 11. Quiet Enjoyment; Mortgage Priority.

     11.1 Landlord's Warranty. Landlord warrants that it is the owner of the
Premises and has the right to lease them free of all encumbrances, except for
the encumbrances (the "Permitted Encumbrances") set forth on Exhibit B hereto
(which by this reference is made a part hereof) and except as expressly set
forth in Section 11.2 below. Landlord will defend Tenant's right to quiet
enjoyment of the Premises from the lawful claims of all persons during the Term.
Tenant hereby acknowledges and agrees that this Lease, and the leasehold estate
created hereby, are subject and subordinate to all of the Permitted
Encumbrances.

     11.2 Mortgage Priority. This lease is and shall be prior to all mortgages
or deeds of trust (collectively, "Fee Mortgages") recorded after the date of
this lease and affecting Landlord's interest in the Premises. However, if any
lender holding a Fee Mortgage requires that this Lease be subordinate to the Fee
Mortgage in question, then Tenant agrees that this Lease shall be subordinate to
such Fee Mortgage if the holder thereof agrees in writing with Tenant that as
long as Tenant performs its obligations under this Lease no foreclosure, deed
given in lieu of foreclosure, or sale pursuant to the terms of such Fee
Mortgage, or other steps or procedures taken under such Fee Mortgage shall
affect Tenant's rights under this Lease. If the foregoing condition is met,
Tenant shall execute the written agreement and any other documents required by
the holder of such Fee Mortgage to accomplish the purposes of this paragraph. If
the Premises are sold as a result of foreclosure of any Fee Mortgage thereon, or
otherwise transferred by Landlord or any successor, Tenant shall attorn to the
purchaser or transferee.

     11.3 Estoppel Certificate. Either party will, within 20 days after notice
from the other, execute and deliver to the other party a certificate stating
whether or not this Lease has been modified and is in full force and effect and
specifying any modifications or alleged breaches by the other party. The
certificate shall also state the amount of monthly Base Rent, the dates to which
Base Rent and any other Rent payments have been paid in advance, and the amount
of any security deposit or prepaid Rent. Failure to deliver the certificate
within the specified time shall be conclusive upon the party from whom the
certificate was requested that this Lease is in full force and effect and has
not been modified except as represented in the notice requesting the
certificate.

Section 12. Assignment and Subletting.

     12.1 Landlord hereby agrees that Tenant may assign this Lease or sublease
all or a portion of the Premises in writing to any other party, with the prior
written consent of

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Landlord, provided that:

          (1) Landlord shall have the right to pre-approve each and every
proposed subtenant and assignee, which approval shall not be unreasonably
withheld or delayed.

          (2) Any attempt by Tenant to assign, transfer, or sublet without
Landlord's prior written consent shall be void and shall constitute a material
default by Tenant.

          (3) Regardless of Landlord's consent to an assignment or sublease,
Tenant shall not be released from any of its obligations and liabilities under
this Lease, except as may be set forth in Landlord's written consent.

          (4) Landlord's acceptance of Rent from any other person or entity
pending a determination of whether to consent to an assignment or sublease shall
not constitute a waiver of Landlord's right to approve or disapprove such
assignment or sublease.

          (5) A default by an assignee, sublessee, or transferee shall
constitute a default by Tenant and in the event of such default, Landlord may
proceed directly against Tenant.

          (6) Tenant shall grant to Landlord a security interest in all of its
right, title and interest in all rents and income from an assignment or sublease
to secure the payment of Rent owed under this Lease.

          (7) Tenant shall pay all reasonable costs and fees incurred by
Landlord in connection with evaluating whether to give its consent and/or in
giving its consent to a proposed assignment or sublease, including attorneys',
architects', engineers' and consultants' fees, not to exceed $2500.

     12.2 Notwithstanding any provision to the contrary, Tenant may assign this
Lease or sublet all or part of the Premises, without Landlord's approval, to a
parent corporation, any subsidiary, any affiliate, any partnership, limited
liability company or other business entity where Tenant or any affiliate of
Tenant is the managing or general partner, manager or the equivalent, as the
case may be, or in connection with a merger, acquisition, reorganization or
consolidation of Tenant, or in connection with the sale or transfer of all or
substantially all of Tenant's (or its parent's or affiliates') stock or assets.
The term "affiliate" as used herein shall mean any entity in which Tenant or its
parent corporation holds fifty percent (50%) or more of the ownership interests.
Notwithstanding a transfer pursuant to this Section 12.2, Tenant shall not be
released from liability under this Lease upon the assignment or subletting of
all or part of the Premises to such parent corporation, subsidiary, affiliate,
partnership, limited liability company or other business entity.

Section 13. Default. The following shall be events of default:

     13.1 Default in Rent. Failure of Tenant to pay any installment of Rent
within ten

Commercial Lease - 12
<PAGE>
(10) days after written notice by Landlord specifying the nature of the default
with reasonable particularity.

     13.2 Default in other covenants. Failure of Tenant to comply with any other
term or condition or fulfill any other obligation of this Lease within 20 days
after written notice by Landlord specifying the nature of the default with
reasonable particularity. If the default is of such a nature that it cannot be
completely remedied within the 20-day period, an event of default shall not have
occurred if Tenant begins correction of the default within the 20-day period and
thereafter proceeds with reasonable diligence and in good faith to effect the
remedy as soon as practicable.

     13.3 Insolvency. Insolvency of Tenant; an assignment by Tenant for the
benefit of creditors; the filing by Tenant of a voluntary petition in
bankruptcy; an adjudication that Tenant is bankrupt or the appointment of a
receiver of the properties of Tenant; or the filing of any involuntary petition
of bankruptcy and failure of Tenant to secure a dismissal of the petition within
90 days after filing shall constitute a default. If Tenant consists of two or
more individuals or business entities, the events of default specified in this
Section 13.3 shall apply to each individual unless within ten (10) days after an
event of default occurs, the remaining individuals produce evidence satisfactory
to Landlord that they have unconditionally acquired the interest of the one
causing the default. If this Lease has been assigned, the events of default so
specified shall apply only with respect to Tenant and to the one then exercising
the rights of Tenant under this Lease.

     13.4 Abandonment. Failure of Tenant for thirty (30) days or more to occupy
the Premises for one or more of the purposes permitted under this Lease, unless
such failure is excused under other provisions of this Lease.

Section 14. Remedies on Default.

     14.1 Termination. In the event of a default, the Lease may be terminated at
the option of Landlord by written notice to Tenant. Whether or not the Lease is
terminated by the election of Landlord or otherwise, Landlord shall be entitled
to recover damages from Tenant for the default, and Landlord may reenter, take
possession of the Premises, and remove any persons or property by legal action
and without having accepted a surrender.

     14.2 Reletting. Following reentry or abandonment, Landlord may relet the
Premises and in that connection may make any suitable alterations or refurbish
the Premises, or both, or change the character or use of the Premises, but
Landlord shall not be required to relet for any use or purpose other than that
specified in this Lease or which Landlord may reasonably consider injurious to
the Premises, or to any tenant that Landlord may reasonably consider
objectionable. Landlord may relet all or part of the Premises, alone or in
conjunction with other properties, for a term longer or shorter than the term of
this Lease, upon any reasonable terms and conditions, including the granting of
reasonable rent-free occupancy or other rent concession.

     14.3 Remedies. In the event of material breach or default under the terms
of this

Commercial Lease - 13
<PAGE>
Lease, either party shall have all rights and remedies available to them under
law or equity in the State of California and/or Yuba City.

     14.4 Landlord's Right to Cure Defaults. If Tenant fails to perform any
obligation under this Lease, Landlord shall have the option to do so after 30
days' written notice to Tenant. All of Landlords expenditures to correct the
default shall be reimbursed by Tenant on demand with interest at the Interest
Rate from the date of expenditure by Landlord. Such action by Landlord shall not
waive any other remedies available to Landlord because of the default.

     14.5 Remedies Cumulative. The foregoing remedies shall be in addition to
and shall not exclude any other remedy available to Landlord under applicable
law.

Section 15. Surrender at Expiration.

     15.1 Condition of Premises. Subject to the provisions of Section 8 herein,
upon expiration of the Term or earlier termination on account of default, Tenant
shall deliver all keys to Landlord and surrender the Premises in first class
condition and broom clean, reasonable wear and tear excepted. Improvements and
alterations constructed by Tenant with permission from Landlord shall not be
removed, or the Premises restored to the original condition, unless the terms of
permission for the improvement or alteration so require.

     15.2 Fixtures.

          (a) All fixtures placed upon the Premises during the Term, other than
Tenant's trade fixtures, shall, at Landlord's option, become the property of
Landlord. Tenant's trade fixtures include, without limitation, air compressors
in shop area (but excluding air lines that are attached to the walls and
overhead bridge cranes and hoists attached to the shop ceiling or otherwise
attached to the walls or floors of the shop area), and those additional trade
fixtures placed on the Premises during the Term. If Landlord's applicable
consent referenced in Section 5 so requires, Tenant shall remove any or all
fixtures placed upon the Premises by the Tenant that would otherwise remain the
property of Landlord, and shall repair any physical damage resulting from the
removal. If Tenant fails to remove such fixtures, Landlord may do so and charge
the cost to Tenant with interest at the Interest Rate from the date of
expenditure.

          (b) Prior to expiration or other termination of the Term, Tenant shall
remove all furnishings, furniture, and trade fixtures that remain its property
and repair any damage to the Premises caused by such removal. If Tenant fails to
do so, this shall be an abandonment of the property, and Landlord may retain the
property and all rights of Tenant with respect to it shall cease or, by notice
in writing given to Tenant within 20 days after removal was required, Landlord
may elect to hold Tenant to its obligation of removal. If Landlord elects to
require Tenant to remove, Landlord may effect a removal and place the property
in public storage for Tenant's account. Tenant shall be liable to Landlord for
the cost of removal, transportation to storage, and storage, with interest at
the Interest Rate

Commercial Lease - 14
<PAGE>
on all such expenses from the date of expenditure by Landlord.

     15.3 Holdover.

          (a) If Tenant does not vacate the Premises at the time required,
Landlord shall have the option to treat Tenant as a tenant from month-to-month,
subject to all of the provisions of this Lease except the provisions for term
and renewal and at a rental rate equal to $15,000.00 per month, or to eject
Tenant from the Premises and recover damages caused by wrongful holdover.
Failure of Tenant to remove fixtures, furniture, furnishings, or trade fixtures
that Tenant is required to remove under this Lease shall constitute a failure to
vacate to which this Section shall apply if the property not removed will
substantially interfere with occupancy of the Premises by another tenant or with
occupancy by Landlord for any purpose including preparation for a new tenant.

          (b) If a month-to-month tenancy results from a holdover by Tenant
under this Section 15.3, the tenancy shall be terminable at the end of any
monthly rental period on written notice from Landlord given not less than ten
(10) days prior to the termination date which shall be specified in the notice.
Tenant waives any notice that would otherwise be provided by law with respect to
a month-to-month tenancy.

Section 16. Miscellaneous.

     16.1 Nonwaiver. Waiver by either party of strict performance of any
provision of this Lease shall not be a waiver of or prejudice to the party's
right to require strict performance of the same provision in the future or of
any other provision.

     16.2 Attorney Fees. If suit or action is instituted in connection with any
controversy arising out of this Lease, the prevailing party shall be entitled to
recover in addition to costs such sum as the court may adjudge reasonable as
attorney fees at trial, on petition for review, and on appeal.

     16.3 Notices. Except as otherwise expressly permitted in this Lease, all
notices, demands, approvals, consents, requests and other communications which
under the terms of this Lease, or under any statute, must or may be given or
made by the parties hereto, must be in writing, and must be made either (i) by
depositing such notice in registered or certified mail of the United States of
America, return receipt requested, or (ii) by delivering such notice by a
commercial courier, which courier provides for delivery with receipt guaranteed,
addressed to each party at the addresses set forth on the first page of this
Lease. All notices, demands, approvals, consents, requests and other
communications shall be deemed to have been delivered (i) if mailed as provided
for in this Paragraph, on the date which is three (3) business days after
mailing or (ii) if sent by commercial courier, on the date which is one (1)
business day after dispatching. Either party may designate by notice in writing
given in the manner herein specified a new or other address to which such
notice, demand, approval, consent, request and other communication shall
thereafter be so given or made. Notwithstanding the foregoing all Rent
statements, bills and invoices may be given by regular mail.

Commercial Lease - 15
<PAGE>
     16.4 Exculpation. Tenant shall look solely to the estate and property of
Landlord in the Premises (including Landlord's rights to the rents, profits,
insurance proceeds and condemnation awards related thereto), for the
satisfaction of Tenant's remedies for the collection of a judgment (or other
judicial process) requiring the payment of money by Landlord in the event of any
default or breach by Landlord with respect to any of the terms, covenants and
conditions of this Lease to be observed and/or performed by Landlord, and no
other property or assets of Landlord (or of any direct or indirect, disclosed or
undisclosed, partner, member, shareholder, officer, director, employee or
principal in or of Landlord) shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Tenant's remedies under or with
respect to this Lease, the relationship of Landlord and Tenant hereunder, or
Tenant's use and occupancy of the Premises.

     16.5 Succession. Subject to the above-stated limitations on transfer of
Tenant's interest, this Lease shall be binding on and inure to the benefit of
the parties and their respective successors and assigns, heirs, executors and
administrators.

     16.6 Recordation. Landlord shall execute and acknowledge a memorandum of
this lease in a form suitable for recording, and Tenant may record the
memorandum.

     16.7 Entry for Inspection. Landlord shall have the right to enter upon the
Premises upon reasonable advance notice to determine Tenant's compliance with
this Lease, to make repairs to the Premises which it expressly has the right to
make under this Lease, or to show the Premises to any prospective tenant or
purchaser, and in addition shall have the right, at any time during the last two
(2) months of the term of this Lease, to place and maintain upon the Premises
notices for leasing or selling of the Premises.

     16.8 Interest on Rent and other Charges. Any rent or other payment required
of Tenant by this Lease shall, if not paid within ten (10) days after it is due,
bear interest at the Interest Rate from the due date until paid. In addition, if
Tenant fails to make any rent or other payment required by this Lease to be paid
to Landlord within ten (10) days after it is due, Landlord shall impose a late
charge of five cents ($.05) per dollar of the overdue payment to reimburse
Landlord for the costs of collecting the overdue payment. Tenant shall pay the
late charge upon demand by Landlord. Landlord may levy and collect a late charge
in addition to all other remedies available for Tenant's default, and collection
of a late charge shall not waive the breach caused by the late payment.

     16.9 Proration of Rent. In the event of commencement or termination of this
Lease at a time other than the beginning or end of one of the specified rental
periods, then the Rent shall be prorated as of the date of commencement or
termination and in the event of termination for reasons other than default, all
pre paid Rent shall be refunded to Tenant or paid on its account.

     16.10 Time of Essence. Time is of the essence of the performance of each of
Tenant's and Landlord's obligations under this Lease.

Commercial Lease - 16
<PAGE>
Section 17. Arbitration.

     17.1 Any dispute arising out of or relating to this Lease that cannot be
resolved by good faith negotiations between the parties shall be submitted to
the American Arbitration Association in Portland, Oregon ("AAA") for final and
binding arbitration pursuant to AAA's rules and procedures. The substantive and
procedural law of the State of Washington shall govern this Lease and the
mediation and arbitration proceedings. All statutes of limitation which would
otherwise be applicable will apply to the arbitration proceedings. There will be
one arbitrator agreed upon by the parties or, if not agreed, selected by the
AAA. The arbitrator shall conduct an arbitration hearing within ninety (90) days
after the arbitration demand is received by the AAA. The arbitrator shall issue
a written award within fourteen (14) days after the hearing.

     17.2 The arbitrator may award damages, injunctive relief and/or any other
relief available in law or equity under Washington law. The prevailing party in
the arbitration shall be entitled to an award of costs and reasonable attorneys'
fees in addition to any other award or relief granted. The arbitration award
shall be final and may be reduced in judgment in any court of competent
jurisdiction.

     17.3 Absent fraud, collusion or willful misconduct by the arbitrator, the
award will be final, and judgment may be entered in any court having
jurisdiction thereof. The arbitrator may award injunctive relief or any other
remedy available from a judge, including the joinder of parties or consolidation
of this arbitration with any other involving common issues of law or fact or
which may promote judicial economy, and may award attorneys' fees and costs to
the prevailing party but will not have the power to award punitive or exemplary
damages.

     17.4 If AAA is no longer in existence at the time of any dispute subject to
this Section 17, the parties agree to use an alternative arbitration service
using substantially similar rules and procedures.

     IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed as of the day and year first herein written.

     Landlord:                    McLAIN-RUBIN REALTY COMPANY III, L.L.C.,
                                    a Delaware limited liability company
                                      /s/ C. DEAN McLAIN
                                  By: C. Dean McLain
                                      --------------

                                  Its: Manager
                                       -------

     Tenant:                      WESTERN POWER & EQUIPMENT CORP.,
                                    an Oregon corporation
                                      /s/ MARK J. WRIGHT
                                  By: Mark J. Wright
                                      --------------
                                  Its:  Vice President of Finance
                                        and Chief Financial Officer
                                        ---------------------------

Commercial Lease - 17
<PAGE>
STATE OF WASHINGTON     )
                        )  ss.
County of Clark         )

     I certify that I know or have satisfactory evidence that C. Dean McLain is
the person who appeared before me, and said person acknowledged that said person
signed this instrument, on oath stated that said person was authorized to
execute the instrument, and acknowledged it as the Manager of McLain-Rubin
Realty Company III, L.L.C., a Delaware limited liability company, to be the free
and voluntary act of such company for the uses and purposes mentioned in the
instrument.

     Dated this 7th day of May, 1998.



                                  ----------------------------------------
                                           (Signature of Notary)


                                  ----------------------------------------
                                  (Legibly print or Stamp Name of Notary)

                                  Notary Public in and for the state of
                                  Washington, residing at ________________

                                  My Appointment Expires _________________


STATE OF WASHINGTON     )
                        )  ss.
County of Clark         )

     I certify that I know or have satisfactory evidence that Mark J. Wright is
the person who appeared before me, and said person acknowledged that said person
signed this instrument, on oath stated that said person was authorized to
execute the instrument, and acknowledged it as the Vice President of Finance and
Chief Financial Officer of Western Power & Equipment Corp., an Oregon
corporation, to be the free and voluntary act of such company for the uses and
purposes mentioned in the instrument.

     Dated this 7th day of May, 1998.



                                  ----------------------------------------
                                           (Signature of Notary)


                                  ----------------------------------------
Commercial Lease - 18
<PAGE>

                                  (Legibly print or Stamp Name of Notary)

                                  Notary Public in and for the state of
                                  Washington, residing at ________________

                                  My Appointment Expires _________________


Commercial Lease - 19
<PAGE>
                                    EXHIBIT A
                          Description of Real Property
                          ----------------------------


          Parcels 1 and 2, as shown on that certain map entitled, "Parcel Map
          No. 690", filed in the office of the County Recorder of the County of
          Sutter, State of California, on September 21, 1993 in Book 4 of Parcel
          Maps, page 40.

          AP#10-260-065
          AP#10-260-066





         Commonly known as 3199 East Onstott Road, Yuba City, California.

Commercial Lease - 20
<PAGE>
                                    EXHIBIT B
                             Permitted Encumbrances
                             ----------------------




Commercial Lease - 21