<PAGE>
                                                                   EXHIBIT 10.03
                            STANDARD LEASE AGREEMENT

                               NNN - MULTI-TENANT


     For and in consideration of the rental and of the covenants and agreements
hereinafter set forth to be kept and performed by the Tenant, Landlord hereby
leases to Tenant and Tenant hereby leases from Landlord the Premises described
below in Section 1.2 for the term, at the rental and subject to and upon all of
the terms, covenants and agreements hereinafter set forth.

1.   BASIC LEASE PROVISIONS.

     1.1 PARTIES: This Lease, dated for reference purposes only January 15,
2002, is made by and between Knowles Los Gatos, LLC, a California limited
liability company (hereinafter "Landlord") and LeapFrog Enterprises, Inc., a
Delaware corporation (hereinafter "Tenant").

     1.2 PREMISES: Those premises commonly known as 130 Knowles, Suites D & E,
Los Gatos, California, deemed to be approximately 14,470 square feet, more or
less, as defined in Paragraph 2 and as shown in Exhibit "A" attached hereto and
made a part hereof (hereinafter the "Premises").

     1.3 BUILDING: Commonly described as being deemed to be that certain 33,720
square foot building located at 130 Knowles Drive, Suites A through E, in the
City of Los Gatos, County of Santa Clara, State of California, as more
particularly shown in Exhibit "A" attached hereto and made a part hereof. Tenant
acknowledges that the sole purpose of any floor plan provided herein is to
identify the location of the Premises in the Building. Landlord makes no
representation or warranty in the attached floor plan as to the usable or
rentable square footage of the Premises.

     1.4 USE: General office, research and development, distribution and
warehouse of educational toys and related legal uses subject to Paragraph 7.

     1.5 TERM: Five (5) years, commencing on February 1, 2002, or upon
Landlord's delivery of Suite E to Tenant, pursuant to Paragraph 1.14 below
(hereinafter "Commencement Date") and ending January 31, 2007, subject to the
provisions of Paragraph 1.14 below.

     1.6 BASE RENT: Thirty-Six Thousand One Hundred Seventy-five and no/100ths
Dollars ($36,175.00) per month, payable on the first (1st) day of each month
subject to Paragraph 4 below.

     1.7 BASE RENT INCREASE: The monthly Base Rent payable under Paragraph 1.6
above shall be adjusted during the Term as follows:

<TABLE>
<CAPTION>
<S>                                                            <C>
February 1, 2003 through and including January 31, 2004:       Thirty-seven Thousand Nine Hundred Eighty-three and
                                                               75/100ths Dollars ($37,983.75)

February 1, 2004 through and including January 31, 2005:       Thirty-nine Thousand Eight Hundred Eighty-two and
                                                               94/100ths Dollars ($39.882.94)

February 1, 2005 through and including January 31, 2006:       Forty-one Thousand Eight Hundred Seventy-seven and
                                                               08/100ths Dollars ($41,877.08)

February 1, 2006 through and including January 31, 2007:       Forty-three Thousand Nine Hundred Seventy and
                                                               94/100ths Dollars ($43,970.94)
</TABLE>


                                       1.
<PAGE>
     1.8 RENT PAID UPON EXECUTION: Upon execution of this Lease, Tenant shall
pay the sum of Thirty-six Thousand One Hundred Seventy-five and no/100ths
Dollars ($36,175.00) for the first month's rent.

     1.9 SECURITY DEPOSIT: Tenant's existing deposit currently on account with
Landlord in the total sum of Forty-nine Thousand One Hundred Eighty-four and
62/100ths Dollars ($49,184.62) shall be transferred to this Lease as a security
deposit, as defined in Paragraph 5 below.

     1.10 TENANT'S SHARE OF OPERATING EXPENSES: Forty-two and ninety-one
hundredths percent (42.91%) of the Building and nine and twenty-six hundredths
percent (9.26%) of the Project, as defined in Paragraphs 2.1 and 4.2 below.

     1.11 PROPERTY TAXES: Pursuant to Paragraph 4.5, "Operating Expenses" and
Paragraph 6.1, "payment of Real Property Taxes as Additional Rent", Tenant shall
be responsible to pay Tenant's Share, as defined below, of all real property
taxes levied against the Premises during the term of this Lease.

     1.12 PROPERTY INSURANCE: Pursuant to Paragraph 4.5, "Operating Expenses"
and Paragraph 13.2, "Property Insurance", Tenant, as Additional Rent", Tenant
shall be responsible to pay Tenant's Share, as defined below, of all property
insurance, as further defined in Paragraph 13.2 below.

     1.13 PARKING: Tenant shall have the non-exclusive use of forty-five (45)
parking spaces.

     1.14 WORK OF IMPROVEMENT. Tenant shall accept the Premises in an "as is"
condition, except that Landlord shall construct the Improvements as outlined in
Exhibit "B" attached hereto and made a part hereof. Landlord shall bear the sole
cost of the Improvements, except that Tenant shall be responsible for the costs
associated with construction of the new lunch room and installation and
exhausting of Tenant's spray booth, including a portion of supervision and
overhead associated with these costs. Landlord and Tenant both acknowledge and
agree that the construction of the Improvements, as outlined in Exhibit "B"
attached hereto, shall be completed in two (2) phases. Phase 1 shall include: a)
demolition of all interior walls required by the Approved Plan, b)
reconstruction of offices and hallway between Suites D and E per the Approved
Plan, and, c) carpet and paint, per the Approved Plan. Phase 2 shall include: i)
construction of all work necessary for the lunch room; and, ii) installation and
exhausting of Tenant's spray booth equipment. Tenant herein acknowledges that
the Commencement Date referred herein shall occur after completion of all work
required in Phase 1 of the Improvements.

     1.15 MUTUAL TERMINATION OF EXISTING LEASE. Upon execution of this Lease,
Landlord and Tenant mutually agree to terminate that certain lease by and
between Landlord and Tenant dated October 18, 2000, including all addendums
thereto, for 130-C & D Knowles Drive, Los Gatos, California. Said mutual
termination of the above-referenced lease shall be effective upon the
Commencement Date of this Lease, as defined in Paragraph 1.5 above. The security
deposit in the amount of $49,184.62, currently on account with Landlord, shall
be applied to the Security Deposit required under Paragraph 1.9 of this Lease.
Prior to the Commencement Date as defined in Paragraph 1.5 above, Tenant shall
return 130 Knowles, Suite C, Los Gatos, California, to Landlord pursuant to
Paragraph 9.2(e) of that certain lease dated October 18, 2000, referred to
above.

2.   PREMISES, PARKING, COMMON AREAS, WORK OF IMPROVEMENT:

     2.1 PREMISES. The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in Paragraph 1.3. "Building" shall
include adjacent parking structures used in connection therewith. The Premises,
the Building, the Common Areas (as defined below) and the land upon which the
same are located, along with all other buildings and improvements thereon or
thereunder, are herein collectively referred to as the "Project".

     2.2 VEHICLE PARKING. Tenant shall be entitled to the non-exclusive use of
unreserved and unassigned parking spaces the number of which is specified in
Paragraph 1.13 above, on those portions of the Common Area designated by
Landlord for parking. Tenant shall not use more parking spaces than the number
specified. Said parking spaces shall be used only for parking by vehicles no
larger than full size passenger automobiles or pick-up


                                       2.
<PAGE>
trucks, herein called "Permitted Size Vehicles". Vehicles other than Permitted
Size Vehicles are herein referred to as "Oversized Vehicles". Tenant shall not
at any time park or permit the parking of Tenant's vehicles or trucks, or the
vehicles or trucks of Tenant, its employees, invitees, suppliers or others, in
any portion of the Common Area not designated by Landlord for such use by
Tenant. Tenant shall not abandon any inoperative vehicles or equipment on any
portion of the Common Area, nor shall Tenant, its employees, invitees, suppliers
or others park or store any vehicle (Permitted Size or otherwise) on any portion
of the Common Area, including designated parking areas, unattended for any
period longer than twenty-four (24) hours. If Tenant commits, permits or allows
any of the prohibited activities described in the Lease or the rules then in
effect, then Landlord shall have the right, without notice, in addition to such
other rights and remedies that it may have, to remove or tow away the vehicle
involved and charge the cost to Tenant, which cost shall be immediately paid by
Tenant to Landlord upon demand from Landlord.

     2.3 COMMON AREAS - DEFINITION. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Project that are provided and designated by Landlord from time to time
for the general non-exclusive use of Landlord, Tenant, and the other tenant and
other authorized users of the Project and their respective employees, suppliers,
shippers, customers and invitees, including, but not limited to common
entrances, lobbies, corridors, stairways and stairwells, public restrooms,
elevators, escalators, parking areas to the extent not otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways, sidewalk,
walkways, parkways, ramps, driveways, landscaped areas and decorative walls.

     2.4 COMMON AREAS - TENANT'S RIGHTS. Landlord hereby grants to Tenant, for
the benefit of Tenant and its employees, suppliers, shippers, customers and
invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Landlord
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Project. Under no circumstances shall the
right herein granted to use the Common Areas be deemed to include the right to
store any property, temporarily or permanently, in the Common Areas or to
construct or install any improvements in the Common Areas. Any such storage
shall be permitted only by the prior written consent of Landlord or Landlord's
designated agent, which consent may be revoked at any time. In the event that
any unauthorized storage shall occur, the Landlord shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove the property and charge the cost to Tenant, which cost shall be
immediately payable by Tenant to Landlord upon demand by Landlord.

     2.5 COMMON AREAS - RULES AND REGULATIONS/CC&R's. Landlord or such other
person(s) as Landlord may appoint, shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
establish, modify, amend and enforce reasonable rules and regulations with
respect thereto. Tenant agrees to abide by and conform to all such rules and
regulations, as well as any private conditions, covenants, and restrictions of
public record now or hereafter affecting the Premises and any amendment thereof,
and to cause its employees, suppliers, shippers, customers and invitees to abide
and conform. Landlord shall not be responsible to Tenant for the non-compliance
with said rules and regulations by other tenants or authorized users of the
Project. Any failure by Tenant or its agents, employees or representatives to
observe and comply with the rules and regulations established by Landlord with
respect to the Common Areas shall be a default by Tenant hereunder. A copy of
the current Rules and Regulations for the Project are attached hereto as Exhibit
"B".

     2.6 COMMON AREAS - CHANGES. Landlord shall have the right at Landlord's
sole discretion, from time to time:

          (a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas and walkways;

          (b) To close temporarily any of the Common Areas for maintenance
purposes, so long as reasonable access to the Premises remains available;

          (c) To designate other land outside the boundaries of the Project to
be a part of the Common Areas;


                                       3.
<PAGE>
          (d) To add additional buildings and improvements to the Common Areas;

          (e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Project, or any portion thereof;

          (f) To close, at reasonable times, all or any portion of the parking
areas for any reasonable purpose, including without limitation, the prevention
of a dedication thereof, or the accrual of the rights of any person or public
therein; and

          (g) To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and the Project as Landlord may, in the
exercise of sound business judgment, deem to be appropriate.

     Notwithstanding the foregoing, Landlord shall at all times provide the
parking spaces required by applicable law and except as provided immediately
below, in no event shall the number of parking spaces that Tenant is entitled to
under Paragraph 2.2 be reduced. The preceding sentence to the contrary
notwithstanding, in the event by reason of any rule, regulation, order, law,
statute or ordinance of any governmental or quasi-governmental authority
relating to or affecting parking on the Project, or any other cause beyond
Landlord's reasonable control, Landlord is required to have the right to
proportionately reduce the number of Tenant's parking spaces and the
non-exclusive parking spaces of the tenants of the Building.

3.   TERM.

     3.1 TERM. The term (the "Lease Term") and Commencement Date of this Lease
shall be as specified in Paragraph 1.5 of the Basic Lease Provisions, unless
terminated earlier pursuant to this Lease.

     3.2 DELAY IN COMMENCEMENT. Tenant agrees that in the event of the inability
of Landlord for any reason to deliver possession of the Premises to Tenant on
said Commencement Date set forth in Paragraph 1.5 of the Basic Lease Provisions,
Landlord shall not be liable for any damage thereby nor shall such inability
affect the validity of this Lease or the obligations of Tenant hereunder, but in
such case Tenant shall not be obligated to pay rent or other monetary sums until
possession of the Premises is tendered to Tenant; provided that if the delay in
delivery of possession exceeds thirty (30) days, then the expiration date of the
term of the Lease shall be extended by the period of time computed from the
scheduled commencement date to the date possession is tendered. If Tenant
occupies the Premises prior to said Commencement Date, such occupancy shall be
subject to all provisions hereof, such occupancy shall not advance the
termination date, and Tenant shall pay rent for such period at the initial
monthly rates as set forth below.

     3.3 COMMENCEMENT AFTER CONSTRUCTION. If Landlord is obligated under
Paragraph 1.14 of the Basic Lease Provisions and Exhibit "B" to perform
construction or remodeling work, then possession shall not be deemed tendered
and the term of this Lease shall not commence until the first to occur of the
following:

          (a) The date on which Phase 1 of the Improvements, as defined in
Paragraph 1.14 above, to be constructed by Landlord have been substantially
completed except for punch list items which do not prevent Tenant from using the
Premises for its intended use, such work as Landlord is required to perform but
which is delayed because of fault or neglect of Tenant, acts of Tenant or
Tenant's agents (including, without limitation, delays caused by work done on
the Premises by Tenant or Tenant's agents or by acts of Tenant's contractors or
subcontractors) or delays caused by change orders requested by Tenant or
required because of errors or omissions in plans submitted by Tenant; and such
work as Landlord is required to perform but cannot complete until Tenant
performs necessary portions of construction work it has elected or is required
to do; or

          (b) After a Certificate of Occupancy on the work of improvement for
Phase 1, or its equivalent, is granted by the proper governmental agency or, if
no Certificate of Occupancy, or its equivalent, is issued by any local agency,
then after notification by Landlord's architect or contractor that Landlord's
construction work has been completed; or


                                       4.
<PAGE>
          (c) Upon the occupancy of the Suite E of the Premises by any of
Tenant's operating personnel.

     3.4 If the term commences on a date other than as set forth in Paragraph
1.5 of the Basic Lease Provisions above, then Landlord and Tenant shall execute
a written acknowledgment stating the date of commencement.

4.   RENT.

     4.1 BASE MONTHLY RENT. Tenant shall pay to Landlord as base monthly rent
for the Premises in advance on the first day of each calendar month of the term
of this Lease without deduction, offset, prior notice or demand, in lawful money
of the United States, the sum as defined in Paragraphs 1.6 and 1.7 of the Basic
Lease Provisions (the "Base Rent"). If the Commencement Date is not the first
day of a month, or if the Lease expiration or termination date is not the last
day of a month, a prorated monthly installment shall be paid at the then current
rate for the fractional month during which the Lease commences and/or
terminates.

     Concurrently with Tenant's execution of this Lease; Tenant shall pay to
Landlord in the form of a check the sum as defined in Paragraph 1.8 of the Basic
Lease Provisions as Base Rent for the period defined in Paragraph 1.8 of the
Basic Lease Provisions.

     4.2 ADDITIONAL RENT. Commencing on the date set forth in Section 1.5 of the
Basic Lease Provisions above, and continuing throughout the Lease Term, Tenant
shall pay, as additional rent, Tenant's Share (as defined in Section 4.5(a)) of
(i) Operating Expenses as required by Section 4.5, 8.1 and 9.2 and as defined in
Paragraph 4.5 below; (ii) Real Property Taxes as required by Section 6.1; and,
(iii) the cost of any insurance premiums, pursuant to Section 13.2. All
Operating Expenses, real property taxes, insurance costs, late charges, costs,
expenses and other sums which Tenant is required to pay under this Lease,
together with all interest and penalties that may accrue thereon in the event of
Tenant's failure to pay such amounts, and all reasonable damages, costs and
attorneys' fees and expenses which Landlord may incur by reason of any default
of Tenant, or failure on Tenant's part to comply with the terms of this Lease,
shall be deemed to be additional rent ("Additional Rent") and shall be paid in
addition to the Base Rent, and, in the event of non-payment by Tenant, Landlord
shall have all the rights and remedies with respect thereto as Landlord has for
the non-payment of the Base Rent.

     4.3 LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant to
Landlord of Base Monthly Rent, Additional Rent and other sums due hereunder will
cause Landlord 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, accounting charges and late payment fees which may
be imposed on Landlord by the terms of any mortgage or trust deed covering the
Premises. Accordingly, if any installment of Base Monthly Rent, Additional Rent
or any other sum due from Tenant shall not be received by Landlord or Landlord's
designee within four (4) days after such amount shall be due, Tenant shall pay
to Landlord as Additional Rent a late charge equal to ten percent (10%) of such
overdue amount. The parties hereby agree that such late charge represents a fair
and reasonable estimate of the costs Landlord will incur by reason of late
payments by Tenant. Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue amount, nor
prevent Landlord from exercising any of the other rights and remedies granted
hereunder. In no event shall this provision for a late charge be deemed to grant
to Tenant a grace period or extension of time within which to pay any
installment of Base Monthly Rent or Additional Rent or prevent Landlord from
exercising any right or remedy available to Landlord upon Tenant's failure to
make such payment when due. In the event any payment of Base Monthly Rent or
Additional Rent is not received by Landlord by the thirtieth (30th) day after
the due date for such payment or installment, such payment or installment shall
bear interest at the Permitted Rate, as defined in Paragraph 20.17 below,
commencing on the thirty-first (31st) day after the due date for such payment or
installment and continuing until the same is paid.

     4.4 RETURNED CHECK FEE. A twenty-five dollar ($25.00) charge will be paid
by Tenant as Additional Rent to Landlord for each check returned unpaid by the
bank and Tenant shall replace the payment with a Cashier's Check or Certified
Check. If Tenant has two (2) or more checks returned for insufficient funds at
any time during its tenancy, Landlord, at its option, may request all payments,
current and future, be made by Cashier's Check or Certified Check.


                                       5.
<PAGE>
     4.5 OPERATING EXPENSES. Tenant shall pay to Landlord during the term
hereof, in addition to the Base Rent, Tenant's Share, as hereinafter defined, of
all Operating Expenses, as hereinafter defined, during each calendar year of the
term of this Lease, in accordance with the following provisions:

          (a) "Tenant's Share" is defined, for purposes of this Lease, as the
respective percentages set forth in Paragraph 1.10 of the Basic Lease
Provisions, which percentages have been determined by dividing the approximate
square footage of the Premises by the total approximate square footage of both
the space contained within the Building and all buildings located in the
Project. Tenant's Share used in calculating Tenant's Share of any Operating
Expense shall be determined by the specific charge and its relationship to the
Building versus the Project, which determination shall be made by Landlord in
its reasonable discretion. It is understood and agreed that the square footage
figures set forth in the Basic Lease Provisions are approximate, which Landlord
and Tenant agree are reasonable and shall not be subject to revision except in
connection with an actual change in the size of the Premises, or a change in the
space available for lease in the Project.

          (b) "Operating Expenses" as defined, for purposes of this Lease, shall
include all costs and expenses incurred by Landlord in connection with the
ownership and operating of the Project, including but not limited to the
following:

               (i) The operating, repair, maintenance, and replacement in neat,
clean, good order and condition of the following:

                    (aa) the Common Areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers. irrigation systems, Common Area
lighting facilities, electric rooms, elevators, fences and gates,

                    (bb) Common Area signage (i.e., address, directional.
Project identity and tenant directories),

                    (cc) fire detection systems, including sprinkler systems;
and,

                    (dd) security services, if provided.

               (ii) The cost of water, gas, electricity and other utilities to
serve the Common Areas or which are not separately metered to the Premises;

               (iii) trash disposal services;

               (iv) reserves set aside for maintenance repair and/or replacement
of the Common Areas;

               (v) Real Property Taxes as provided in Paragraph 6.1;

               (vi) property insurance premiums as provided in Paragraph 13.2;

               (vii) the cost of liability insurance carried by Landlord with
respect to the Common Areas;

               (viii) any deductible portion of an insured loss concerning the
Project or any portion thereto;

               (ix) the cost of any capital improvements made to the Building or
Project by Landlord that have the effect of reducing Operating Expenses or
avoiding increases in Operating Expenses or, subject to the terms of Paragraph
9.3 (b) below, the cost of any capital improvements that are required under any
governmental law or regulation that was not applicable to the Building at the
time it was constructed, which cost shall be amortized over such reasonable
period of time as Landlord shall determine with interest on the unamortized


                                       6.
<PAGE>
balance at the rate of ten percent (10%) per annum or such higher rate as may
have been paid by Landlord on funds borrowed for the purpose of constructing
such capital improvements;

               (x) fees for licenses and permits required for the operation of
the Building, Common Areas and Project;

               (xi) the reasonable cost of contesting the validity or
applicability of any governmental enactment's or assessments, including without
limitation property tax assessments, which may affect Operating Expenses;

               (xii) the repair, maintenance or patching, but not replacement,
of the roof membrane of the Building; and,

               (xiii) any other services to be provided by Landlord that are
stated elsewhere in this Lease to be an operating expense.

          (c) The inclusion of the improvements, facilities and services set
forth in Paragraph 4.5(b) shall not be deemed to impose an obligation by
Landlord to either have said improvements or facilities or to provide those
services. Without limiting the generality of the foregoing, nothing contained in
Paragraph 4.5(b) or elsewhere in this Lease shall create or imply an obligation
or duty on the part of Landlord to provide any security services or protection
for the Premises, the Building, Common Area and/or the Project.

          (d) Tenant's share of Operating Expenses shall be payable by Tenant
within ten (10) days after a reasonably detailed statement of actual expenses is
presented to Tenant by Landlord. At Landlord's option, however, an amount may be
estimated by Landlord from time to time of Tenant's share of annual Operating
Expenses and the same shall be payable monthly or quarterly, as Landlord shall
designate, during the Lease Term herein, on the same day as the Base Rent is due
hereunder. In the event that Tenant pays Landlord's estimate of Tenant's Share
of Operating Expenses as aforesaid, Landlord shall provide Tenant with a
reasonably detailed statement reconciling Tenant's Share of the actual Operating
Expenses. Said detailed statement shall be provided on an annual basis, or
within thirty (30) days of the expiration of this Lease or Tenant's vacation of
the Premises. If Tenant's payments under this Paragraph 4.5(d) during the
preceding year exceed Tenant's Share as indicated on said statement, Tenant
shall be entitled to credit the amount of such overpayment against Tenant's
Share of Operating Expenses next falling due. If Tenant's payments under this
Paragraph during said preceding year were less than Tenant's Share, as indicated
on said statement, Tenant shall pay to Landlord the amount of the deficiency
within ten (10) days after delivery by Landlord to Tenant of said statement.

5.   SECURITY DEPOSIT. Concurrently with Tenant's execution of this Lease,
Tenant shall deposit with Landlord the sum, as defined in Paragraph 1.9 of the
Basic Lease Provisions outlined above, in the form of a Cashier's Check or
Certified Check payable to Landlord. Said sum shall be held by Landlord as a
security deposit for the faithful performance by Tenant of all of the terms,
covenants, and conditions of this Lease to be kept and performed by Tenant
during the term hereof, including any extension or renewal of the term. If
Tenant defaults with respect to any provisions of this Lease, including but not
limited to the provisions relating to the payment of rent, Additional Rent and
any of the monetary sums due herewith, Landlord may use, apply or retain all or
any part of this security deposit for the payment of Base Rent, Additional Rent
or any other amount which Landlord may spend or become obligated to spend by
reason of Tenant's default or to compensate Landlord for any other loss or
damage which Landlord may suffer by reason of Tenant's default, including, but
not limited to, any damages or deficiency in the re-letting of the demised
Premises or other reentry by Landlord. If any portion of said deposit is so used
or applied, Tenant shall, within ten (10) days after written demand therefore,
deposit cash with Landlord in an amount sufficient to restore the security
deposit to its original amount; Tenant's failure to do so shall be a material
breach of this Lease. Landlord shall not be required to keep this security
deposit separate from its general funds, and Tenant shall not be entitled to
interest on such deposit. If Tenant shall fully and faithfully comply with all
the terms, covenants and conditions of this Lease, any part of the security
deposit not used or retained by Landlord pursuant to the terms outlined above
shall be returned to Tenant (or, at Landlord's option, to the last assignee of
Tenant's interest hereunder) at the expiration of the Lease Term and after
delivery of exclusive possession of the demised Premises to Landlord. If at any
time the Base Rent is increased, the security deposit shall be increased to an
amount equal to the Base Rent. In the event of termination of Landlord's
interest in the Lease, Landlord shall transfer said deposit to Landlord's


                                       7.
<PAGE>
successor in interest whereupon Landlord shall be automatically released of all
liability for return of such deposit or the accounting therefore.

     Tenant hereby agrees not to look to the mortgages, as mortgagee, mortgagee
in possession, or successor in title to the property, for accountability for any
security deposit required by the Landlord hereunder, unless said sums have
actually been received by said mortgagee as security for the Tenant's
performance of this Lease.

     Tenant covenants that it shall not assign or encumber the security deposit
given to Landlord pursuant to this Lease. Neither Landlord, its successors or
assigns shall be bound by any such assignment or encumbrance or any attempted
assignment or encumbrance.

6.   TAXATION.

     6.1 PAYMENT OF REAL PROPERTY TAXES AS ADDITIONAL RENT. Tenant shall pay, as
Additional Rent, Tenant's Share (as defined in Paragraph 4.5(a)) of all real
property taxes levied against the Premises during the term of this Lease. Such
payment shall be made by Tenant to Landlord within ten (l0) days after receipt
of Landlord's written statement setting forth the amount of such increase and
the reasonable computation thereof. Tenant's liability for Real Property Tax
Increases shall be prorated to reflect the commencement and termination dates of
this Lease.

     6.2 DEFINITION OF "REAL PROPERTY TAX". For the purpose of this Lease, "Real
Property Taxes" means and includes all taxes, assessments (including, but not
limited to, assessments for public improvements or benefits), taxes based on
vehicles utilizing parking areas, taxes based or measured by the rent paid,
payable or received under this Lease, taxes on the value, use, or occupancy of
the Premises, the Buildings and/or the Parcel, Environmental Surcharges, and all
other governmental impositions, fees and charges of every kind and nature
whatsoever, whether or not customary or within the contemplation of the parties
hereto and regardless of whether the same shall be extraordinary or ordinary,
general or special, unforeseen or foreseen, similar or dissimilar to any of the
foregoing which, at any time during the Lease Term, shall be applicable to the
Premises, the Building and/or the Project, or assessed, levied or imposed upon
the Premises, the Building and/or the Project, or become due and payable and a
lien or charge upon the Premises, the Building and/or the Project, or any part
thereof, under or by virtue of any present or future laws, statutes, ordinances,
regulations or other requirements of any governmental authority whatsoever. The
term "Environmental Surcharges" shall mean and include any and all expenses,
taxes, charges or penalties imposed by the Federal Department of Energy, the
Federal Environmental Protection Agency, the Federal Clean Air Act, or any
regulations promulgated thereunder or any other local, state or federal
governmental agency or entity now or hereafter vested with the power to impose
taxes, assessments, or other types of surcharges as a means of controlling or
abating environmental pollution or the use of energy. The term "Property Taxes"
shall not include any federal, state or local net income, estate, or inheritance
tax imposed on Landlord.

     6.3 PERSONAL PROPERTY TAXES.

          (a) Tenant shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Tenant contained in the Premises or elsewhere. When possible, Tenant
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of
Landlord.

          (b) If any of Tenant's personal property shall be assessed with
Landlord's real property, Tenant shall pay to Landlord the taxes attributable to
Tenant within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Tenant's property.

     6.4 OTHER TAXES. Tenant shall, as Additional Rent, pay or reimburse
Landlord for any tax based upon, allocable to, or measured by the area of the
Premises; or by the rent paid, payable or received under this Lease, any tax
upon or with respect to the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy of the Premises or any portion
thereof, any privilege tax, excise tax, business and occupation tax, gross
receipts tax, sales and/or use tax, water tax, sewer tax, employee tax,
occupational license tax imposed upon


                                       8.
<PAGE>
Landlord or Tenant with respect to the Premises, any tax upon this transaction
or any document to which Tenant is a party creating or transferring an interest
or an estate in the Premises.

7.   USE.

     7.1 USE. The Premises shall be used and occupied by Tenant only for the
purpose as set forth in Paragraph 1.4 of the Basic Lease Provisions above and
for no other purpose whatsoever.

     7.2 SUITABILITY. If the Premises are completed as of the date of execution
hereof, then Tenant, by execution of this Lease, shall be deemed to have
accepted the Premises in the condition existing as of the date of execution and
in any event this Lease shall be subject to all applicable zoning ordinances and
to any municipal, county and state laws and regulations governing and regulating
the use of the Premises, and further to have accepted tenant improvements to be
constructed by Landlord, if any, as being completed in accordance with the plans
and specifications for such improvements. Tenant acknowledges that neither
Landlord nor Landlord's agent has made any representation, warranty, estimation
or promise of any kind as to the suitability of the Premises for the conduct of
Tenant's business, the condition of the Building or Premises or the use or
occupancy which may be made thereof. Tenant hereby warrants to Landlord that
Tenant (i) has made its own investigation and examination of all the relevant
data relating to or affecting the Premises, (it) is relying solely on its own
judgment in entering into this Lease; and, (iii) is satisfied that the Premises
are suitable for Tenant's intended use and that the Building and Premises meet
all governmental requirements for such intended use.

     7.3 USES PROHIBITED.

          (a) Tenant shall not do or permit anything to be done in or about the
Premises which will increase the existing rate of insurance upon the Premises
(unless Tenant shall pay any increased premium as a result of such use or acts)
or cause the cancellation of any insurance policy covering said Premises or any
building of which the Premises may be a part, nor shall Tenant sell or permit to
be kept, used or sold in or about said Premises any articles which may be
prohibited by a standard form policy of fire insurance.

          (b) Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of other
tenants or occupants of any building of which the Premises may be a part or
injure or annoy them or use or allow the Premises to be used for any unlawful or
objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance
in, on or about the Premises. Tenant shall not commit or suffer to be committed
any waste in or upon the Premises and Tenant shall keep the Premises in a clean,
attractive condition, free of any objectionable noises, odors, dust or debris.

          (c) Tenant shall not use the Premises or permit anything to be in or
about the Premises which will in any way conflict with or violate any law,
statute, zoning restriction, ordinance, governmental rule, regulation,
requirements now in force or which may hereafter be enacted or promulgated.
Tenant shall, at its sole cost and expense, promptly comply with all laws,
statutes, ordinances and governmental rules, regulations or requirements now in
force or which may hereafter be in force and with requirements of any board of
fire underwriters or other similar body now or hereafter constituted relating to
or affecting the condition, use or occupancy of the Premises. Tenant shall also
comply, at its sole cost, with the provisions of all recorded documents
affecting the Premises insofar as the same relate to or affect the condition,
use or occupancy of the Premises. Tenant shall obtain, prior to taking
possession of the Premises, any permits, licenses or other authorizations
required for the lawful operation of its business at the Premises. The judgment
of any court of competent jurisdiction or the admission of Tenant in any action
against Tenant, whether Landlord be a party thereto or not, that Tenant has
violated any law, statute, ordinance or governmental rule, regulation, recorded
document, or requirement, shall be conclusive of that fact as between Landlord
and Tenant. Tenant shall indemnify and hold Landlord harmless from and against
any and all loss, expense, cost, damage, attorney's fees, penalties or liability
arising out of the failure of Tenant or Tenant's agents or employees to comply
with any applicable law, statute, ordinance, rule, regulation, order,
requirement or recorded document

          (d) Tenant shall not store, park or operate any vehicles inside the
Building, other than those operated by electricity.


                                       9.
<PAGE>
8.   UTILITIES AND WASTE DISPOSAL.

     8.1 UTILITIES. Tenant shall pay as Additional Rent prior to delinquency for
all water, gas, heat, light, power, telephone, sewage, air conditioning and
ventilating, scavenger, trash disposal, janitorial, landscaping and all other
materials and utilities supplied to the Premises and all taxes and surcharges
thereon. If any such services are not separately metered to Tenant, Tenant shall
pay a reasonable proportion of all charges which are jointly metered or
maintained by Landlord as an Operating Expense, the determination to be made by
Landlord, and payment shall be made by Tenant within ten (10) days of receipt of
a statement for such charges. The lack or shortage of any utilities or services
described above due to any cause whatsoever shall not affect any obligation of
Tenant hereunder, and Tenant shall faithfully keep and observe all the terms,
conditions and covenants of this Lease and pay all rentals due hereunder, all
without diminution, credit or deduction.

     8.2 WASTE DISPOSAL. Tenant shall store its waste either inside the Premises
or in its own dumpsters located within outside trash enclosures. Tenant shall
not store, place or maintain any garbage, trash, rubbish, other refuse or
Tenant's personal property in any area of the Common Areas or exterior of the
Premises at any time. Tenant, at its sole expense, shall be responsible to
maintain and keep the designated trash enclosures and Common Areas free of
garbage, trash, rubbish, other refuse or Tenant's personal property.

9.   MAINTENANCE AND REPAIRS, ALTERATIONS AND ADDITIONS.

     9.1 LANDLORD'S OBLIGATIONS. Subject to the provisions of Section 14 and
except for damage caused by a negligent or intentional act or omission of Tenant
and Tenant's agents, employees or invitees, Landlord, at Landlord's expense,
shall keep in good order, condition and repair the foundations, exterior walls
and the exterior roof of the Premises. Landlord shall not, however, be obligated
to paint such exterior, nor shall Landlord be required to maintain the interior
surface of exterior walls, ceiling or doors, nor shall Landlord be required to
maintain, repair or replace windows, doors, skylights or plate glass. Landlord
shall have no obligation to make repairs under this Paragraph 9.1 until a
reasonable time after receipt of written notice of the need for such repairs.
Landlord shall maintain, repair or patch the roof membrane (as an Operating
Expense), and Tenant shall pay Tenant's Share of the cost thereof, pursuant to
Paragraph 4.5 above. Tenant expressly waives the benefits of any statute
(including, without limitation, the provisions of subsection 1 of Section 1932,
Section 1941 and Section 1942 of the California Civil Code and any similar law,
statute or ordinance now or hereafter in effect) which would otherwise afford
Tenant the right to make repairs at Landlord's expense (or to deduct the cost of
such repairs from rent due hereunder) or to terminate this Lease because of
Landlord's failure to keep the Premises in good order, condition and repair.

     9.2 TENANT'S OBLIGATIONS.

          (a) Subject to the provisions of Sections 9.1 and 14, Tenant, at
Tenant's expense, shall maintain in good order, condition and repair the
Premises and every part thereof, regardless of whether the damaged portion of
the Premises or the means of repairing the same are accessible to Tenant,
including, but not limited to floors, ceilings, windows, doors, skylights,
interior walls, and the interior surfaces of the exterior walls, plumbing,
heating, air conditioning and ventilating equipment, telecommunications
equipment and intrabuilding network cabling, electrical and lighting facilities
and equipment including circuit breakers and exterior lighting attached to the
Premises. In addition, Tenant shall, at Tenant's expense, maintain in good
order, condition and repair any sidewalks, landscaping (including but not
limited to irrigation systems and backflow prevention devices), driveways,
parking lots, fences and signs located in the areas which are adjacent to and
included with the Premises, unless such items are to be maintained by Landlord
as an Operating Expense, pursuant to Paragraphs 4.5, 8.1 and 9.1 above. Where
there is any rooftop mounted heating and/or air conditioning equipment, said
maintenance shall include, without limitation, a periodic agreement with a
reputable and licensed heating and air conditioning service company. If Tenant's
use of the Premises is limited to normal business hours (8:00 am to 6:00 p.m.),
such agreement shall provide for service at least as often as every ninety (90)
days. If Tenant's use extends beyond normal business hours, this service shall
be as often as may be required by Landlord. If Tenant does not provide Landlord
with a copy of said maintenance contract within sixty (60) days from
Commencement Date set forth in Paragraph 1.5 of the Basic Lease Provisions and
Section 3.1 above, Landlord may elect, at its option, to keep and maintain the
heating and air conditioning systems of the Premises and in such event, Tenant
shall pay to Landlord upon demand the full cost of such maintenance and repairs
to such systems.


                                      10.
<PAGE>
          (b) All glass in or around the building, both interior and exterior,
is at the sole risk of Tenant, and any broken glass shall promptly be replaced
by Tenant at Tenant's expense with glass of the same kind, size and quality
according to the current local code.

          (c) In the event the Premises is damaged due to an attempted burglary
or forcible entry into Premises, Tenant shall be responsible for any ensuing
damage to the Premises or that larger building of which Premises is part
thereof.

          (d) In the event Tenant fails to perform Tenant's obligations under
this Section 9, Landlord shall give Tenant notice to do such acts as are
reasonably required to so maintain the Premises. If Tenant, within ten (10) days
after notice from Landlord, fails to commence to do the work and diligently
prosecute it to completion, then Landlord shall have the right (but not the
obligation) to do such acts and expend such funds at the expense of Tenant as
are reasonably required to perform such work. Any amount so expended by Landlord
shall be paid by Tenant promptly after demand with interest at the Permitted
Rate from the date of such work until paid. Landlord shall have no liability to
Tenant for any damage, inconvenience or interference with the use of the
Premises by Tenant as a result of performing any such work.

          (e) Upon the expiration or earlier termination of this Lease, Tenant
shall surrender the Premises in the same condition as received, broom clean,
ordinary wear and tear and damage by fire, earthquake, act of God or the
elements alone excepted. On the last day of the Lease Term or upon the sooner
termination of the Lease, Tenant shall, to the reasonable satisfaction of
Landlord surrender the Premises in good condition (and free of all Hazardous
Materials used, generated or stored by Tenant and its agents. employees and
contractors) with all originally painted interior walls washed, or re-painted if
marked or damaged and other interior walls and doors cleaned and repaired or
replaced, all carpets cleaned and in good condition, the HVAC equipment
inspected, serviced and repaired by a reputable and licensed service firm and
all floors cleaned and waxed. Tenant further agrees to remove all Tenant's
personal property and trade fixtures from the Premises and repair any damage to
the Premises caused by or in connection with the removal of any articles of
personal property, business or trade fixtures, machinery, equipment or
furniture, including without limitation thereto, repairing the floor and
patching and painting the walls where required by Landlord to Landlord's
reasonable satisfaction. Tenant agrees that all Tenant's personal property and
trade fixtures not removed shall be deemed to be abandoned by Tenant and may be
removed by Landlord at Tenant's expense. Tenant shall continue to pay rent at
the rate paid by Tenant prior to the termination of the Lease until such time
that the Premises are returned in a condition as required above; however, said
payment of rent does not constitute an extension or renewal of lease nor does it
constitute a month-to-month tenancy, it shall constitute immediate compensation
for Tenant's detention of the Premises and does not preclude Landlord from
obtaining additional monetary damages for Tenant's delay in surrendering the
Premises, as set forth below. Tenant shall indemnify the Landlord against any
loss or liability resulting from delay by Tenant in so surrendering the
Premises, including without limitation, any claims made by any succeeding tenant
founded on such delay.

     9.3 ALTERATIONS.

          (a) Tenant shall not construct any improvements or additions or
otherwise alter, change or improve the Premises without Landlord's prior written
approval, and not until Landlord shall have first approved the plans and
specifications therefor, which approvals shall not be unreasonably withheld.
Landlord's approval of the plans, specifications and working drawings for
Tenant's alterations shall create no responsibility or liability on the part of
Landlord for their completeness, design sufficiency, or compliance with all
laws, rules and regulations of governmental agencies or authorities. All such
approved alterations or improvements shall be installed by Tenant at Tenant's
expense using a licensed contractor first approved by Landlord in compliance
with the approved plans and specifications therefor and in strict accordance
with all laws. All such construction shall be done in a good and workmanlike
manner using new materials of good quality. As a condition to consenting to any
leasehold improvement or alteration or change requested by Tenant, the cost of
which may exceed Twenty-five Thousand Dollars ($25,000), Landlord shall have the
right to require Tenant to post a completion bond in an amount and in a form
satisfactory to Landlord. In no event shall Tenant make any structural changes
to the Premises or make any changes to the Premises which would weaken or impair
the structural integrity of the Building or the roof membrane integrity of the
Building. Tenant shall not commence construction of any alterations, additions,
or improvements until (i) all required governmental approvals and permits shall
have been obtained, (ii) all requirements regarding insurance imposed by this
Lease have been satisfied, and (iii) Tenant shall have given Landlord at least
five (5) days


                                      11.
<PAGE>
prior written notice of its intention to commence such construction. All
alterations, additions and improvements constructed by Tenant shall remain the
property of Tenant during the Lease Term but shall not be damaged, altered, or
removed from the Premises. At the expiration or sooner termination of the Lease
Term, all alterations, additions, or improvements shall be surrendered to
Landlord as a part of the realty and shall then become Landlord's property, and
Landlord shall have no obligation to reimburse Tenant for all or any portion of
the value or cost thereof, however, Landlord may, at its option, require Tenant
to remove any alterations, additions, or improvements in which case Tenant shall
so remove such alterations, additions or improvements prior to the expiration or
sooner termination of the Lease Term.

          (b) Alterations Required by Law. If during the term of this Lease, any
alteration, addition or change of any sort, whether structural or otherwise to
all or any portion of the Premises is required by law (including, but not
limited to, alterations required by the Americans with Disabilities Act of 1990
or any amendments thereto or any regulations prorogated thereunder (collectively
the "ADA") because of (i) Tenant's use or occupancy of the Premises or change of
use or occupancy of the Premises, (ii) Tenant's application for any permit or
governmental approval, (iii) Tenant's construction or installation of any
leasehold improvements or trade fixtures, (iv) any violation by Tenant of any
Law (including any requirement of the ADA), (v) any special use of the Premises
or any part thereof by Tenant or any subtenant or assignee of Tenant (including,
but not limited to any use for a facility which constitutes, or if open to the
public would generally constitute a "place of public accommodation" under the
ADA requirements), or (vi) any special needs of the employees of Tenant or any
assignee or subtenant of Tenant, then Tenant shall promptly make the same at its
sole cost and expense. Within ten (10) days after receipt, Tenant shall notify
Landlord in writing and provide Landlord with copies of (i) any notices alleging
any violation of any Law relating to the Premises or Tenant's occupancy or use
of the Premises, including any notices alleging violation of the relating ADA to
any portion of the Project or the Premises; (ii) any claims made or threatened
in writing regarding non-compliance with the ADA or any Law relating to the
Project or the Premises, or (iii) any governmental or regulatory actions or
investigations instituted or threatened regarding non-compliance with the ADA or
any Law relating to any portion of the Project or the Premises.

10.  ENTRY BY LANDLORD.

     Landlord and Landlord's agents shall have the right at reasonable times to
enter the Premises to inspect the same or to maintain or repair, make
alterations or additions to the Premises or any portion thereof or to show the
Premises to prospective purchasers, tenants or lenders. Landlord may, at any
time, place on or about the Premises any ordinary "for sale" signs; Landlord may
at any time during the last one hundred eighty (180) days of the term of the
Lease place on or about the Premises any ordinary "for lease" signs. Tenant
hereby waives claim for abatement of rent or for damages for any injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or quiet enjoyment of the Premises, and any other loss occasioned thereby

11.  LIENS.

     Tenant shall keep the Premises and any building of which the Premises are a
part free from any liens arising out of work performed, materials furnished or
obligations incurred by Tenant and shall indemnify, hold harmless and defend
Landlord from any liens and encumbrances arising out of any work performed or
materials furnished to or at the direction of Tenant. In the event that Tenant
shall not, within twenty (20) days following the imposition of any such liens,
cause such lien to be released of record by payment or posting of a proper bond.
Landlord shall have, in addition to all other remedies provided herein and by
law, the right, but not the obligation, to cause the same to be released by such
means as it shall deem proper, including payment of the claim giving rise to
such lien. All such sums paid by Landlord and all expenses incurred by it in
connection therewith including attorneys' fees and costs shall be payable to
Landlord by Tenant on demand with interest at the Permitted Rate (as defined in
Paragraph 20.17 below). Landlord shall have the right at all times to post and
keep posted on the Premises any notices permitted or required by law, or which
Landlord shall deem proper, for the protection of Landlord and the Premises, and
any other party having an interest therein, from mechanics' and material
person's liens and Tenant shall give to Landlord at least ten (10) business days
prior written notice of the expected date of commencement of any work relating
to alterations, improvements or additions to the Premises.


                                      12.
<PAGE>
12.  INDEMNITY.

     12.1 INDEMNITY. Tenant agrees to indemnify, protect and defend Landlord and
Landlord's agents and lenders against and hold Landlord and Landlord's agents
and lenders harmless from any and all claims, causes of action, judgments,
obligations or liabilities and all reasonable expenses incurred in investigating
or resisting the same (including reasonable attorneys' fees), on account of, or
arising out of (i) the operation, condition, maintenance, use or occupancy of
the Premises, (ii) any bodily injury, death or property damage occurring in or
about the Premises, (iii) any act, omission or neglect of Tenant or its agents,
or (iv) any breach or default in the performance in a timely manner of any
obligation on Tenant's part to be performed under this Lease. In the event any
action or proceeding is brought against Landlord by reason of any such claim,
Tenant upon notice from Landlord shall defend same at Tenant's expense by
counsel satisfactory to Landlord. Tenant, as a material part of the
consideration to Landlord, hereby assumes all risk of damage to property or
injury to persons, in, upon or about the Premises arising from any cause and
Tenant hereby waives all claims in respect thereof against Landlord. The
provisions of this Paragraph 12.1 shall survive termination of the Lease with
respect to any damage, injury or death occurring or accruing prior to such
termination.

     12.2 EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not be liable for
injury and Tenant waives all claims against Landlord to Tenant's business or
loss of income therefrom or for damage which may be sustained by the person,
goods, wares, merchandise or property of Tenant, its employees, invitees,
customers, agents or contractors or any other person in or about the Premises,
caused by or resulting from fire, steam, electricity, gas, water or rain, which
may leak or flow from or into any part of the Premises, or from the breakage,
leakage, obstruction or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures of the same, whether
the said damage or injury results from conditions arising upon the Premises or
upon other portions of the building of which the Premises are a part, or from
other sources or places and regardless of whether the cause of such damage or
injury or the means of repairing the same is inaccessible to Tenant. Landlord
shall not be liable for any damages arising from any act or neglect of any other
tenant, if any, of the Building in which the Premises are located, or of the
Project.

13.  INSURANCE

     13.1 TENANT'S INSURANCE. Tenant shall procure at Tenant's sole cost and
expense and keep in force during this Lease the following insurance issued by an
insurance company acceptable to Landlord and licensed to do business in the
State of California.

          (a) Commercial General Liability (CGL) Insurance written on an
occurrence basis, covering the Premises and all operations of Tenant in or about
the Premises for bodily injury, property damage and personal injury liability.

               (i) Tenant's CGL coverage shall be written with limits of not
less than:

                    (aa) Two Million Dollars ($2,000,000) each occurrence
(combined single limit for bodily injury and property damage);

                    (bb) One Million Dollars ($1,000,000) for personal injury
liability;

                    (cc) One Million Dollars ($1,000,000) aggregate for products
- completed operations; and

                    (dd) Two Million Dollars ($2,000,000) general aggregate. The
general aggregate limit shall apply separately to liability arising in
connection with Tenant's use and occupancy of the Premises.

               (ii) Said policy shall provide contractual liability coverage
insuring Tenant's indemnification obligations under this Lease.

                                      13.
<PAGE>
               (iii) Said policy shall name Tenant's employees, Landlord, its
agent's employees and any party holding an interest to which this Lease may be
subordinated as Additional Insureds, and shall provide for the severability of
interests of insureds and shall provide that such parties may, although
additional insured, recover for any loss suffered by Tenant's neglect.

               (iv) Said policy shall provide that its coverage shall be
"primary" and non-contributing with any insurance maintained by Landlord and any
party holding an interest to which this Lease may be subordinated.

          (b) Fire Legal Liability Insurance covering direct physical damage and
loss of use of the Building for which Tenant is legally obligated in an amount
of the full replacement value of the Building.

          (c) Workers' Compensation and Employers' Liability Insurance. Workers'
Compensation Insurance shall be provided as required by any applicable law or
regulation. Employers' Liability Insurance shall be provided in amounts not less
than One Million Dollars ($1,000,000) each accident for bodily injury by
accident and One Million Dollars ($1,000,000) each employee for bodily injury by
disease.

          (d) Property Insurance on Tenant Improvements and Betterments on an
"all risk" basis, excluding earthquake peril, for one hundred percent (100%) of
replacement value.

          (e) Commercial Auto Liability Insurance with a combined limit of not
less than One Million Dollars ($1,000,000) for bodily injury and property damage
for each accident. Such insurance shall cover liability arising out of any auto
(including owned, hired and non-owned autos).

          (f) General Insurance Requirements. All coverages described in this
paragraph B shall provide, or shall be endorsed to provide:

               (i) that said insurance shall not be canceled nor be materially
reduced unless thirty (30) days prior written notice shall have been given to
Landlord; and

               (ii) a waiver of all rights of subrogation by the insurance
carrier against Landlord, its agents, employees and any party holding an
interest to which this Lease may be subordinated.

               (iii) Said policies or certificate(s) of insurance, along with
any required endorsements, evidencing the foregoing coverage requirements shall
be delivered to Landlord by Tenant upon commencement of the term of this Lease
and upon renewal of said insurance.

          (g) If Landlord's lender, insurance advisor or counsel reasonably
determines at any time that the amount of such coverage is not adequate, Tenant
shall increase such coverage to such amount as Landlord's lender, insurance
advisor or counsel reasonably deems adequate. The limits of such insurance shall
not limit the liability of Tenant.

     13.2 PROPERTY INSURANCE. Landlord shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or damage to
the Premises, the Building and all other buildings located in the Project, in
the amount of full replacement cost thereof, including protection against those
perils included within the classification of "all risk" insurance plus a policy
of rental income insurance in the amount of 100% of 12 months rent (including,
without limitation, sums payable as Additional Rent) plus, at Landlord's option,
flood insurance and earthquake insurance and any other coverages which may be
required from time to time by Landlord's lender. Tenant shall have no interest
in nor any right to the proceeds of any insurance procured by Landlord on the
Premises, the Building or the Project. Landlord shall not be required to cause
such insurance to cover any of Tenant's personal property, inventory, trade
fixtures or any modifications, alterations or improvements made or constructed
by Tenant to or within the Premises. During the term of this Lease, Tenant shall
pay to Landlord, as Additional Rent, Tenant's Share (as defined in Paragraph
4.5(a) above) of the amount of any premium for the insurance maintained by
Landlord under this Paragraph 13.2, including, without limitation, any insurance
premium due to lender's requirements or increase in insured value. Tenant shall
pay such insurance premiums to Landlord


                                      14.
<PAGE>
within ten (10) days after receipt by Tenant of a copy of the premium statement
or other reasonably satisfactory evidence of the amount due, which shall include
the method of calculation of Tenant's share thereof if the insurance covers
other improvements than the Premises. If the term of this Lease does not expire
concurrently with the expiration of the period covered by the insurance,
Tenant's liability for such insurance premium shall be prorated on an annual
basis.

     13.3 MUTUAL WAIVER OF SUBROGATION. Tenant and Landlord hereby mutually
waive their respective rights of recovery against each other of any loss of or
damage to the property of either party, to the extent such loss or damage is
covered by any insurance policy required to be maintained by this Lease or
otherwise in force at the time of such loss or damage. Each party shall obtain
any special endorsements, if required by the insurer, whereby the insurer waives
its right of subrogation against the other party hereto. The provisions of this
Subparagraph 13.3 shall not apply in those instances in which the waiver of
subrogation would cause either party's insurance coverage to be voided or
otherwise made uncollectible; or, if any such insurance policy cannot be
obtained with such a waiver of subrogation, then the party obtaining such
insurance shall notify the other party of that fact and thereon shall be
relieved of the obligation to obtain such a waiver of subrogation rights from
the insurer with respect to the particular insurance involved.

14.  DAMAGE OR DESTRUCTION.

     14.1 PARTIAL DAMAGE - INSURED. Subject to the provisions of Paragraphs 12
and 13 above, and if at any time during the term of this Lease there is partial
damage to the Premises that is not caused by the fault, omission, or negligence
of Tenant, its agents, employees, contractors, or invitees, which is covered
under an insurance policy required to be maintained pursuant to Section 13.2,
then Landlord shall repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If there is a monetary deductible
applicable to the aforementioned insurance policy coverage which is required to
be paid prior to coverage of such casualty or damage, it shall be the sole
responsibility for Tenant to reimburse Landlord for said monetary deductible.
Tenant shall reimburse Landlord within ten (10) days of receipt by Tenant of a
copy of the monetary deductible statement. In the event of damage to the
Premises or the Building by fire or other causes resulting from fault, omission
or negligence of Tenant, its agents, employees, contractors, or invitees, such
damage shall be promptly reported to Landlord and shall be repaired by and at
expense of Tenant under direction and supervision of Landlord and there shall be
no abatement of rent during the period of repair. Tenant shall indemnify and
hold harmless Landlord from and against any damages, injuries, losses, claims,
liabilities or causes of action arising out of or relating to the repair or
restoration of the Premises or Building.

     14.2 PARTIAL DAMAGE - UNINSURED. In the event the improvements on the
Premises are damaged, except by a negligent or willful act or omission of Tenant
or from an attempted burglary or forcible entry pursuant to Section 9.2 (c), by
any casualty not covered under an insurance policy required to be maintained
pursuant to Section 13.2, then Landlord may, at Landlord's option, either (a)
repair such damage as soon as reasonably possible at Landlord's expense, in
which event this Lease shall continue in full force and effect or (b) give
written notice to Tenant within thirty (30) days after the date of occurrence of
such damage of Landlord's intention to cancel and terminate this Lease as of the
date of the occurrence of the damage. In the event Landlord elects to terminate
this Lease pursuant to this Section 142, Tenant shall have the right within ten
(10) days of receipt of the required notice to notify Landlord, in which event
this Lease shall continue in full force and effect, and Tenant shall proceed to
make such repairs as soon as reasonably possible (or Landlord may elect, in its
sole discretion, to require Tenant to pay to Landlord within ten (10) days
following written request therefor, or furnish evidence reasonably satisfactory
to Landlord of Tenant's ability to fund that portion of the cost of such repair
or restoration which is not covered by insurance proceeds, in which event
Landlord shall proceed to make such repairs). If Tenant does not give such
notice within the ten (10) day period, this Lease shall be canceled and
terminated as of the date of the occurrence of such damage. All insurance
proceeds available from the fire and property damage insurance carried by
Landlord pursuant to Section 13.2 shall be paid to and become the property of
Landlord. If this Lease is not so terminated, then upon receipt of the insurance
proceeds (if the loss is covered by insurance) and the issuance of all necessary
governmental permits, Landlord shall commence and diligently prosecute to
completion the restoration of the leased Premises, to the extent then allowed by
law, to substantially the same condition in which the leased Premises was
immediately prior to such damage. Landlord's obligation to restore shall be
limited to the building and interior improvements constructed by Landlord as
they existed as of the Commencement Date. Landlord's obligation to


                                      15.
<PAGE>
repair or restore the Premises shall not include restoration of Tenant's trade
fixtures, equipment, merchandise, or any improvements alterations or additions
made by Tenant to the Premises.

     14.3 TOTAL DESTRUCTION. If the Premises are totally destroyed during the
term of this Lease from any cause whether or not covered by the insurance
required under Section 13.2 (including any destruction required by any
authorized public authority), this Lease, at Landlord's option, may
automatically terminate as of the date of such total destruction. If Lease is
not terminated pursuant to this Section, Landlord shall immediately begin the
process of reconstructing the Premises and all rent for the Premises shall be
abated during the period of reconstruction.

     14.4 DAMAGE NEAR END OF THE TERM. If the Premises are partially destroyed
or damaged during the last six (6) months of the term of this Lease, Landlord
may at Landlord's option cancel and terminate this Lease as of the date of
occurrence of such damage by giving written notice to Tenant of Landlord's
election to do so within thirty (30) days after the date of occurrence of such
damage.

     14.5 LANDLORD'S OBLIGATIONS. The Landlord shall not be required to repair
any injury or damage by fire or other cause, or to make any restoration or
replacement of any paneling, decorations, office fixtures, partitions, railings,
ceilings, floor covering, equipment, machinery or fixtures or any other
improvements or property installed in the Premises by Tenant or at the direct or
indirect expense of Tenant. Tenant shall be required to restore or replace same
in the event of damage.

     14.6 ABATEMENT OF RENT; TENANT'S REMEDIES.

          (a) If the Premises are partially destroyed or damaged and Landlord or
Tenant repairs them pursuant to this Lease, the rent payable hereunder for the
period during which such damage and repair continues shall be abated in
proportion to the extent to which Tenant's use of the Premises is impaired;
provided, however there shall be no abatement of rent if the damage or
destruction was caused by the fault, omission, negligence or willful misconduct
of Tenant or any of its agents, employees or representatives. Except for
abatement of rent, if any, Tenant shall have no claim against Landlord for any
damage suffered by reason of any such damage, destruction or restoration.

          (b) If Landlord shall be obligated to repair or restore the Premises
under this Section 14 and shall not commence such repair or restoration within
ninety (90) days after such obligation shall accrue, Tenant, at Tenant's option,
may cancel and terminate this Lease by written notice to Landlord at any time
prior to the commencement of such repair or restoration. In such event, the
Lease shall terminate as of the date of such notice.

     14.7 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to Section 14, an equitable adjustment shall be made concerning advance rent and
any advance payments made by Tenant to Landlord. Landlord shall, in addition,
return to Tenant so much of Tenant's security deposit as has not therefore been
applied by Landlord.

15.  CONDEMNATION.

     15.1 DEFINITION OF TERMS. For the purposes of this Lease, the term (l)
"Taking" means a taking of the Premises or damage to the Premises related to the
exercise of the power to eminent domain and includes a voluntary conveyance in
lieu of court proceedings, to any agency, authority, public utility, person or
corporate entity empowered to condemn property; (2) "Total Taking" means the
taking of the entire Premises or so much of the Premises as to prevent or
substantially impair the use thereof by Tenant for the uses herein specified;
(3) "Partial Taking" means the taking of only a portion of the Premises which
does not constitute a Total Taking, (4) "Date of Taking" means the date upon
which the title to the Premises, or a portion thereof, passes to and vests in
the condemnor or the effective date of any order for possession if issued prior
to the date title vests in the condemnor, and (5) "Award" means the amount of
any award made, consideration paid, or damages ordered as a result of a Taking.

     15.2 RIGHTS. The parties agree that in the event of a Taking all rights
between them or in and to an Award shall be as set forth herein and Tenant shall
have no right to any Award except as set forth herein.


                                      16.
<PAGE>
     15.3 TOTAL TAKING. In the event of a Total Taking during the term hereof,
(1) the rights of Tenant under the Lease and the leasehold estate of Tenant in
and to the Premises shall cease and be terminated as of the Date of Taking; (2)
Landlord shall refund to Tenant any prepaid rent; (3) Tenant shall pay to
Landlord any rent or charges due Landlord under the Lease, each prorated as of
the Date of Taking; (4) To the extent the Award is not payable to the
beneficiary of any mortgage affecting the Premises, Tenant shall receive from
the Award those portions of the Award attributable to trade fixtures of Tenant,
and (5) the remainder of the Award shall be paid to and be the property of
Landlord.

     15.4 PARTIAL TAKING. In the event of a Partial Taking during the term
hereof, (1) the rights of Tenant under the Lease and the leasehold estate of
Tenant in and to the portion of the Premises taken shall cease and terminate as
of the Date of Taking; (2) from and after the Date of Taking the monthly
installment of rent shall be an amount equal to the product obtained by
multiplying the monthly installment of rent immediately prior to the Taking by
the quotient obtained by dividing the number of square feet of floor area
contained in the Premises after the Taking by the number of square feet of floor
area contained in the Premises prior to the Taking; (3) To the extent the Award
is not payable to the beneficiary of any mortgage affecting the Premises, Tenant
shall receive from the Award the portions of the Award attributable to trade
fixtures of Tenant, and (4) the remainder of the Award shall be paid to and be
the property of Landlord. Each party waives the provisions of California Code of
Civil Procedure Section 1265.130 allowing either party to petition the Superior
Court to terminate this Lease in the event of a Partial Taking.

16.  ASSIGNMENT & SUBLETTING.

     16.1 LANDLORD'S CONSENT REQUIRED. Tenant's interest in this Lease is not
assignable, by operation of law or otherwise, nor shall Tenant have the right to
sublet the Premises, transfer any interest of Tenant therein or permit any use
of the Premises by another party, without the prior written consent of Landlord
to each such assignment, subletting, transfer or use, which consent Landlord
agrees not to withhold unreasonably subject to the provisions of Subparagraph
16.3 below. A consent to one assignment, subletting, occupancy or use by another
party shall not be deemed to be a consent to any subsequent assignment,
subletting, occupancy or use by another party. Any assignment or subletting
without such consent shall be void and shall, at the option of Landlord,
terminate this Lease.

     Landlord's waiver or consent to any assignment or subletting hereunder
shall not relieve Tenant from any obligation under this Lease unless the consent
shall so provide

     16.2 TRANSFEREE INFORMATION REQUIRED. If Tenant desires to assign its
interest in this Lease or sublet the Premises, or transfer any interest of
Tenant therein, or permit the use of the Premises by another party (hereinafter
collectively referred to as a "Transfer"), Tenant shall give Landlord at least
fifteen (15) business days prior written notice of the proposed Transfer and of
the name and legal composition of the proposed transferee, a financial statement
of the proposed transferee, the nature of the (including a list of the type and
quantities of all Hazardous Materials to be used by the transferee on the
Premises), the payment to be made or other consideration to be given to Tenant
on account of the Transfer, and such other pertinent information as may be
requested by Landlord, all in sufficient detail to enable Landlord to evaluate
the proposed Transfer and the prospective transferee.

     16.3 LANDLORD'S RIGHTS. It is the intent of the parties hereto that this
Lease shall confer upon Tenant only the right to use and occupy the Premises,
and to exercise such other rights as are conferred upon Tenant by this Lease.
The parties agree that this Lease is not intended to have a bonus value nor to
serve as a vehicle whereby Tenant may profit by a future Transfer of this Lease
or the right to use or occupy the Premises as a result of any favorable terms
contained herein, or future changes in the market for leased space. It is the
intent of the parties that any such bonus value that may attach to this Lease
shall be and remain the exclusive property of Landlord, except as provided in
Paragraph 16.3(6) below. In the event Tenant seeks to Transfer its interest in
this Lease or the Premises, Landlord shall have the following options, which may
be exercised at its sole choice without limiting Landlord in the exercise of any
other right or remedy which Landlord may have by reason of such proposed
Transfer.

          (a) In the event of a Transfer constituting either an assignment of
the entire Lease or a sublease of substantially all of the Premises for the
balance of the Lease Term, Landlord may elect to terminate this Lease effective
as of the proposed effective date of the proposed Transfer and release Tenant
from any further


                                      17.
<PAGE>
liability hereunder accruing after such termination date by giving Tenant
written notice of such termination within fifteen (15) days after receipt by
Landlord of Tenant's notice of intent to Transfer as provided above. If Landlord
makes such election to terminate this Lease, Tenant shall surrender the
Premises, in accordance with Paragraph 9.2(e), on or before the effective
termination date, or

          (b) Landlord may consent to the proposed Transfer on the condition
that Tenant agrees to pay to Landlord, as additional rent, seventy-five percent
(75%) of any and all rents or other consideration (including key money) received
by Tenant from the transferee by reason of such Transfer in excess of the rent
payable by Tenant to Landlord under this Lease (less any brokerage commissions,
attorneys' fees and advertising expenses incurred by Tenant in connection with
the Transfer). Tenant expressly agrees that the foregoing is a reasonable
condition for obtaining Landlord consent to any Transfer; or

          (c) Landlord may reasonably withhold its consent to the proposed
transfer.

     16.4 ATTORNEYS' FEES. In the event Landlord shall consent to a sublease or
assignment under this Section 16, Tenant shall pay Landlord's reasonable
attorneys' fees not to exceed $500.00 incurred in connection with giving such
consent.

     16.5 TRANSFER TO AN AFFILIATE. Tenant may, upon written notice to Landlord,
but without Landlord's consent and without the obligations of the forgoing
Paragraph 16.1, 16.2 and 16.3 above, transfer its interests under this Lease to
any affiliate of Tenant. For the purposes of this Lease, an "Affiliate" shall
mean any entity which is controlling, controlled by, or under common control of
Tenant and which directly or indirectly owns 50% or more of the voting power in
such other entity. "Control" as used herein shall mean the ability to manage the
operations of such entity by ownership of stock, contract or otherwise. In the
event of any transfer to an Affiliate of Tenant as provided above, Tenant shall
not be released or relieved of any obligations hereunder.

17.  SUBORDINATION. The following provisions shall govern the relationship of
this Lease to any underlying lease, mortgage or deed of trust which now or
hereafter affects the Premises or Landlord's interest or estate therein and any
renewal, modification, consolidation, replacement, or extension thereof (a
"Security Instrument").

     17.1 PRIORITY. This Lease is subject and subordinate to all Security
Instruments existing as of the Commencement Date. However, if any lender so
requires, this Lease shall become prior and superior to any such Security
Instrument.

     17.2 SUBSEQUENT SECURITY INSTRUMENTS. At Landlord's election, this Lease
shall become subject and subordinate to any Security Instrument created after
the Commencement Date. Notwithstanding such subordination, Tenant's right to
quiet possession of the Premises shall not be disturbed so long as Tenant is not
in default and performs all of its obligations under this Lease, unless this
Lease is otherwise terminated pursuant to its terms.

     17.3 DOCUMENTS. Tenant shall execute any reasonable document or instrument
required by Landlord or any lender to make this Lease either prior or
subordinate to a Security Instrument, which may include such other matters as
the lender customarily requires in connection with such agreements, including
provisions that the lender, if it succeeds to the interest of Landlord under
this Lease, shall not be (i) liable for any act or omission of any prior
landlord (including Landlord), (ii) subject to any offsets or difference which
Tenant may have against any prior landlord (including Landlord), (iii) bound by
any rent or additional rent paid more than one (1) month in advance of the date
due under this Lease, (iv) liable for any defaults on the part of Landlord
occurring prior to the time that lender takes possession of the Premises in
connection with enforcement of its Security Instrument, (v) liable for the
return of any security deposit unless such deposit has been delivered to lender,
and (vi) bound by any agreement or modification of the Lease made without the
prior written consent of the lender.

     17.4 TENANT'S ATTORNMENT. Tenant shall attorn (1) to any purchase of the
Premises at any foreclosure sale or private sale conducted pursuant to any
Security Instrument encumbering the Premises; (2) to any grantee or transferee
designated in any deed given in lieu of foreclosure, or (3) to the lessor under
any underlying ground lease should such ground lease be terminated.


                                      18.
<PAGE>
18.  DEFAULT; REMEDIES.

     18.1 DEFAULT. The occurrence of any of the following shall constitute a
material default and breach of this Lease by Tenant:

          (a) Default in payment when due of any installment of rent or other
payment required to be made by Tenant hereunder, where such default shall not
have been cured within three (3) days after written notice of such default is
given to Tenant;

          (b) The abandonment or vacation of the Premises by Tenant;

          (c) A failure by Tenant to observe and perform any other provision of
the Lease to be observed or performed by Tenant, where such failure shall have
continued for twenty (20) days after written notice thereof by Landlord to
Tenant; provided, however, that if the nature of such default is such that the
same cannot reasonably be cured within such twenty (20) day period, Tenant shall
not be deemed to be in default if Tenant shall within such period commence such
cure and thereafter diligently prosecute the same to completion;

          (d) Tenant or any guarantor of Tenant's obligations hereunder shall
commence any case, proceeding or other action seeking reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it or its
debts under any law relating to bankruptcy, insolvency, reorganization, or
relief of debtors, or seek appointment of a receiver, trustee, custodian, or
other similar official for it or for all or any substantial part of its
property;

          (e) Tenant or any such guarantor shall take any corporate action to
authorize any of the actions set forth in Clause (d) above, or,

          (f) Any case, proceeding or other action against Tenant or any
guarantor of Tenant's obligations hereunder shall be commenced seeking to have
an order for relief entered against it as debtor, or seeking reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it or its
debts under any law relating to bankruptcy, insolvency, reorganization or relief
of debtors, or seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its property, and
such case, proceeding or other action (i) results in the entry of an order for
relief against it which is not fully stayed within seven (7) business days after
the entry thereof or (ii) is not dismissed within forty-five (45) days of filing
such case, action or proceeding.

          (g) Levy of a writ of attachment or execution of Tenant's interest
under this Lease where such writ continues for a period of ten (10) days;

          (h) An assignment, sublease or other transfer of this Lease or
Tenant's interest in the Premises or portion thereof contrary to the provisions
of Section 16, or

          (i) Execution of an assignment for the benefit of creditors of
substantially all assets of Tenant available by law for the satisfaction of
judgment creditor.

     18.2 NOTICES. When this Lease requires service of a notice that notice
shall replace rather than supplement any equivalent or similar statutory notice,
including any notices required under Code of Civil Procedure Section 1161, or
any similar successor statute.

     18.3 REMEDIES. In the event of any such material default or breach by
Tenant, Landlord may at any time thereafter, with or without notice and demand
and without limiting Landlord in the exercise of any right or remedy at law or
in equity which Landlord may have by reason of such default or breach.

          (a) Maintain this Lease in full force and effect and recover the rent
and other monetary charges as they become due, without terminating Tenant's
right to possession, irrespective or whether Tenant shall have abandoned the
Premises. In the event Landlord elects to not terminate the Lease, Landlord
shall have the right


                                      19.
<PAGE>
to attempt to re-let the Premises at such rent and upon such conditions and for
such a term, and to do all acts necessary to maintain or preserve the Premises
as Landlord deems reasonable and necessary without being deemed to have elected
to terminate the Lease including removal of all persons and property from the
Premises; such property may be removed and stored in a public warehouse or
elsewhere at the cost of and for the account of Tenant. In the event any such
re-letting occurs, this Lease shall terminate automatically upon the new tenant
taking possession of the Premises. Notwithstanding that Landlord fails to elect
to terminate the Lease initially, Landlord at any time during the Term of this
Lease may elect to terminate this Lease by virtue of such previous default of
Tenant.

          (b) Terminate this Lease by giving Tenant written notice of
termination or other lawful means. On the giving of the notice all of Tenant's
rights in the Premises and the Building and Project shall terminate. Upon the
giving of the notice of termination, Tenant shall surrender and vacate the
Premises in the condition required by Paragraph 9.2(e), and Landlord may
re-enter and take possession of the Premises and all the remaining improvement
or property and eject Tenant or any of Tenant's subtenants, assignees or the
person or persons claiming any right under or through Tenant or eject some and
not others or eject none. This Lease may also be terminated by a judgment
specifically providing for termination. Any termination under this paragraph
shall not release Tenant from the payment of any sum then due Landlord or from
any claim for damages or rent previously accrued or then accruing against
Tenant. In no event shall any one or more of the following actions by Landlord
constitute a termination of this Lease:

               (i) maintenance and preservation of the Premises;

               (ii) efforts to relet the Premises;

               (iii) appointment of a receiver in order to protect Landlord's
interest hereunder;

               (iv) consent to any subletting of the Premises or assignment of
this Lease by Tenant, whether pursuant to provisions hereof concerning
subletting and assignment or otherwise; or

               (v) any other action by Landlord or Landlord's agents intended to
mitigate the adverse effects from any breach of this Lease by Tenant.

          (c) In the event this Lease terminated pursuant to Subparagraph
18.3(b) above, or otherwise, Landlord shall be entitled to damages in the
following sums:

               (i) the worth at the time of award of the unpaid rent which has
been earned at the time of termination; plus

               (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 Tenant proves could have been
reasonably avoided; plus

               (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 Tenant proves could be reasonably avoided; and

               (iv) any other amount necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under the Lease, or which in ordinary course of things would be likely to result
therefrom including, without limitation, the following: (A) expenses for
cleaning, repairing or restoring the Premises; (B) expenses for altering,
remodeling or otherwise improving the Premises for the purpose of reletting,
including installation of leasehold improvements (whether such installation be
funded by a reduction of rent, direct payment or allowance to the succeeding
lessee, or otherwise), (C) real estate broker's fees, advertising costs and
other expenses of reletting the Premises; (D) costs of carrying the Premises
such as taxes and insurance premiums thereon, utilities and security
precautions, (E) expenses in retaking possession of the Premises;


                                      20.
<PAGE>
(F) attorneys' fees and court costs; and (G) any unamortized real estate
brokerage commission paid in connection with this Lease.

               (v) The "worth at the time of award" of the amounts referred to
in Subparagraphs (i) and (ii) of this paragraph 18.3(c) is computed by allowing
interest at the Permitted Rate. The "worth at the time of award" of the amounts
referred to in Subparagraph (iii) of this Paragraph 18.3(c) is computed by
discounting such amount at the discount rate of the Federal Reserve Board of San
Francisco at the time of award plus one percent (1%). The term "rent" as used in
this Paragraph 18 shall include all sums required to be paid by Tenant to
Landlord pursuant to the terms of this Lease, including, without limitation,
Base Rent, Additional Rent and Operating Expenses.

     18.4 DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord
fails to perform obligations required of Landlord hereunder within a reasonable
time, but in no event later than thirty (30) days after written notice by Tenant
to Landlord and to the holder of any first mortgage or deed of trust covering
the Premises whose name and address shall have theretofore been furnished to
Tenant in writing, specifying wherein Landlord has failed to perform such
obligation, provided, however, that if the nature of Landlord's obligation is
such that more than thirty (30) days are required for performance, then Landlord
shall not be in default if Landlord commences performance within such thirty-day
period and thereafter diligently prosecutes the same to completion. Any money
judgment obtained by Tenant based upon Landlord's breach of this Lease shall be
satisfied only out of the proceeds of the sale or disposition of Landlord's
interest in the Premises (whether by Landlord or by execution of judgment).

19.  HAZARDOUS MATERIALS.

     19.1 DEFINITIONS. As used herein, the term "Hazardous Material" shall mean
any substance: (i) the presence of which requires investigation or remediation
under any federal, state or local statute, regulation, ordinance, order, action,
policy or waste," "hazardous substance", pollutant or contaminant under any
federal, state or local statute, regulation, rule or ordinance or amendments
thereto including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C Section 9601 et seq.) and/or the
Resource Conservation and Recover Act (42 U.S.C. Section 6901 et seq.); (iii)
which is toxic, explosive, corrosive, flammable, infectious, radioactive,
carcinogenic, mutagenic, or otherwise hazardous and is or becomes regulated by
any governmental authority, agency, department, commission, board, agency or
instrumentality of the United States, the State of California or any political
subdivision thereof; (iv) the presence of which on the Premises causes or
threatens to cause a nuisance upon the Premises or to the adjacent properties or
poses or threatens to pose a hazard to the health or safety of persons on or
about the Premises, (v) the presence of which on adjacent properties could
constitute a trespass by Landlord or Tenant: (vi) without limitation which
contains gasoline, diesel fuel or other petroleum hydrocarbons, (vii) without
limitation which contains polychlorinated biphenyl's (PCBs), asbestos or urea
formaldehyde foam insulation, or (viii) without limitation radon gas.

     19.2 PERMITTED USE. Subject to the compliance by Tenant with the provisions
of Paragraphs 19.3, 19.4, 19.5, 19.6, 19.7, 19.8 and 19.9 below, Tenant shall be
permitted to use and store on the Premises those Hazardous Materials listed in
Paragraph 19.11 attached hereto, in the quantities set forth in Paragraph 19.11.

     19.3 HAZARDOUS MATERIALS MANAGEMENT PLAN.

          (a) Prior to Tenant using, handling, transporting or storing any
Hazardous Material at or about the Premises (including, without limitation,
those listed in Paragraph 19.11), Tenant shall submit to Landlord a Hazardous
Materials Management Plan ("HMMP") for Landlord's review and approval, which
approval shall not be unreasonably withheld. The HMMP shall describe: (aa) the
quantities of each material to be used, (bb) the purpose for which each material
is to be used, (cc) the method of storage of each material, (dd) the method of
transporting each material to and from the Premises and within the Premises (ee)
the methods Tenant will employ to monitor the use of the material and to detect
any leaks or potential hazards, and (ff) any other information any department of
any governmental entity (city, state or federal) requires prior to the issuance
of any required permit for the Premises or during Tenant's occupancy of the
Premises. Landlord may, but shall have no obligation to review and approve the
foregoing information and HMMP, and such review and approval or failure to
review and approve shall not act as an estoppel or otherwise waive Landlord's
rights under this Lease or relieve Tenant of its


                                      21.

<PAGE>
obligations under this Lease. If Landlord determines in good faith by inspection
of the Premises or review of the HMMP that the methods in use or described by
Tenant are not adequate in Landlord's good faith judgment to prevent or
eliminate the existence of environmental hazards, then Tenant shall not use,
handle, transport, or store such Hazardous Materials at or about the Premises
unless and until such methods are approved by Landlord in good faith and added
to an approved HMMP. Once approved by Landlord, Tenant shall strictly comply
with the HMMP and shall not change its use, operations or procedures with
respect to Hazardous Materials without submitting an amended HMMP for Landlord's
review and approval as provided above.

                  (b) Tenant shall pay to Landlord when Tenant submits an HMMP
(or amended HMMP) the amount reasonably determined by Landlord to cover all
Landlord's costs and expenses reasonably incurred in connection with Landlord's
review of the HMMP which costs and expenses shall include, among other things,
all reasonable out-of-pocket fees of attorneys, architects, or other consultants
incurred by Landlord in connection with Landlord's review of the HMMP. Landlord
shall have no obligation to consider a request for consent to a proposed HMMP
unless and until Tenant has paid all such costs and expenses to Landlord
irrespective of whether Landlord consents to such proposed HMMP. Tenant shall
pay to Landlord on demand the excess, if any, of such costs and expenses
actually incurred by Landlord over the amount of such costs and expenses
actually paid by Tenant, and Landlord shall promptly refund to Tenant the
excess, if any, of such costs and expenses actually paid by Tenant over the
amount of such costs and expenses actually incurred by Landlord.

         19.4 USE RESTRICTION. Except as specifically allowed in Paragraph 19.2
above, Tenant shall not cause or permit any Hazardous Material to be used,
stored, generated, discharged, transported to or from, or disposed of in or
about the Premises, or any other land or improvements in the vicinity of the
Premises. Without limiting the generality of the foregoing, Tenant, at its sole
cost, shall comply with all Laws relating to the storage, use, generation,
transport, discharge and disposal by Tenant or its Agents of any Hazardous
Material. If the presence of any Hazardous Agents results in contamination of
the Premises or any soil, air, ground or surface waters under, through, over,
on, in or about the Premises, Tenant, at its expense, shall promptly take all
actions necessary to return the Premises and/or the surrounding real property to
the condition existing prior to the appearance of such Hazardous Material. In
the event there is a release, discharge or disposal of or contamination of the
Premises by a Hazardous Material which is of the type that has been stored,
handled, transported or otherwise used or permitted by Tenant or its Agents on
or about the Premises, Tenant shall have the burden of proving that such
release, discharge, disposal of contamination is not the result of the acts or
omissions of Tenant or its Agents.

         19.5 TENANT INDEMNITY. Tenant shall defend, protect, hold harmless and
indemnify Landlord and its agents and lenders with respect to all actions,
claims, losses (including, diminution in value of the Premises), fines,
penalties, fees (including, but not limited to, attorneys' and consultants'
fees) costs, damages, liabilities, remediation costs, investigation costs,
response costs and other expenses arising out of resulting from, or caused by
any Hazardous Material used, generated, discharged, transported to or from,
stored, or disposed of by Tenant or its agents in, on, under, over through or
about the Premises and/or the surrounding real property. Tenant shall not suffer
any lien to be recorded against the Premises as a consequence of the disposal of
any Hazardous Material on the Premises by Tenant or its agents, including any so
called state, federal or local "super fund" lien related to the "clean up" of
any Hazardous Material in, over, on, under, through or about the Premises.

         19.6 COMPLIANCE. Tenant shall immediately notify Landlord of any
inquiry, test, investigation, enforcement proceeding by or against Tenant or the
Premises concerning any Hazardous Material. Any remediation plan prepared by or
on behalf of Tenant must be submitted to Landlord prior to conducting any work
pursuant to such plan and prior to submittal to any applicable government
authority and shall be subject to Landlord's consent. Tenant acknowledges that
Landlord, as the owner of the Property, at its election, shall have the sole
right to negotiate, defend, approve and appeal any action taken or order issued
with regard to any Hazardous Material by any applicable governmental authority.

         19.7 ASSIGNMENT AND SUBLETTING. It shall not be unreasonable for
Landlord to withhold its consent to any proposed assignment or subletting if (i)
the proposed assignee's or subtenant's anticipated use of the Premises involves
the storage, generation, discharge, transport, use or disposal of any Hazardous
Material, (ii) if the proposed assignee or subtenant has been required by any
prior landlord, lender or governmental authority to "clean up" or remediate any
Hazardous Material, (iii) if the proposed assignee or subtenant is subject to
investigation or

                                      22.
<PAGE>
enforcement order or proceeding by any governmental authority in connection with
the use, generation, discharge, transport, disposal of storage of any Hazardous
Material.

         19.8 SURRENDER. Upon the expiration or earlier termination of the
Lease, Tenant, at its sole cost, shall remove all Hazardous Materials from the
Premises that Tenant or its Agents introduced to the Premises. If Tenant fails
to so surrender the Premises, Tenant shall indemnify, protect, defend and hold
Landlord harmless from and against all damages resulting from Tenant's failure
to surrender the Premises as required by this Paragraph, including without
limitation, any actions, claims, losses, liabilities, fees, (including but not
limited to attorneys' and consultants' fees), fines costs, penalties, or damages
in connection with the condition of the Premises including, without limitation,
damages occasioned by the inability to relet the Premises or a reduction m the
fair market and/or rental value of the Premises by reason of the existence of
any Hazardous Material in, on, over, under, through or around the Premises.

         19.9 RIGHT TO APPOINT CONSULTANT. Landlord shall have the right to
appoint a consultant to conduct an investigation to determine whether any
Hazardous Material is being used, generated, discharged, transported to or from,
stored or disposed of in, on, over, through, or about the Premises, in an
appropriate and lawful manner and in compliance with the requirements of this
Lease. If Tenant has violated any Law or covenant in this Lease regarding the
use, storage or disposal of Hazardous Materials on or about the Premises, Tenant
shall reimburse Landlord for the cost of such investigation. Tenant, at its
expense, shall comply with all reasonable recommendations of the consultant
required to conform Tenant's use, storage or disposal of Hazardous Materials to
the requirements of applicable Law or to fulfill the obligations of Tenant
hereunder.

         Tenant shall defend, protect, hold harmless and indemnify Landlord and
its agents and employees with respect to all actions, claims, losses, fines,
penalties, fees, costs, damages and liabilities (including but not limited to
attorneys' and consultants' fees) arising out of or in connection with any
Hazardous Material used, generated, discharged, transported to or from, stored,
or disposed of in, on, under, through or about the Premises and/or the
surrounding real and personal property. Tenant shall not suffer any lien to be
recorded against the Premises as a consequence of a Hazardous Material,
including any so called state, federal or local "super fund" lien related to the
"clean up" of a Hazardous Material in, over, on, under, through, or about the
Premises.

         19.10 HOLDING OVER. If any action of any kind is required or requested
to be taken by any governmental authority to clean-up, remove, remediate or
monitor any Hazardous Materials (the presence of which is the result of the acts
or omissions of Tenant or its Agents) and such action is not completed prior to
the expiration or earlier termination of the Lease, Tenant shall be deemed to
have impermissibly held over until such time as such required action is
completed, and Landlord shall be entitled to all damages directly or indirectly
incurred in connection with such holding over, including, without limitation,
damages occasioned by the inability to re-let the Premises or a reduction of the
fair market and/or rental value of the Premises.

         19.11 MATERIALS. Tenant shall provide the list of its Hazardous
Chemicals to be legally used during its tenancy in the following section
provided below in this Paragraph 19.11, or attach a separate list and so
indicate below or indicate "NONE" and initial below to indicate if no Hazardous
Materials will be used:

<TABLE>
<CAPTION>
MATERIALS:                         QUANTITIES:              LOCATION AND METHOD OF STORAGE:
<S>                                <C>                     <C>
Acetone                            < 1 Gallon              Flammable Liquids Storage Cabinet

Alcohol                            < 1 Gallon                 "        "        "       "

Methyl Ethyl Ketone                < 1 Gallon                 "        "        "       "

Lacquer & Paint                    < 1 Gallon                 "        "        "       "

Epoxy                              < I Gallon -               "        "        "       "

Cleaning Solvent                   < 1 Gallon                 "        "        "       "
</TABLE>

         19.12 PROVISIONS SURVIVE TERMINATION. The provisions of this Paragraph
19.0 shall survive the expiration or termination of this Lease.

         19.13 CONTROLLING PROVISIONS. The provisions of this Paragraph 19.0 are
intended to govern the rights and liabilities of the Landlord and Tenant
hereunder respecting Hazardous Materials to the exclusion of any other

                                      23.
<PAGE>
provisions in this Lease that might otherwise be deemed applicable. The
provisions of this Paragraph 19.0 shall be controlling with respect to any
provisions in this Lease that are inconsistent with this Paragraph 19.0.

20. MISCELLANEOUS.

         20.1 ESTOPPEL CERTIFICATE.

                  (a) Tenant shall at any time, upon not less than ten (10) days
prior written notice from Landlord, execute, acknowledge and deliver to Landlord
a statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, (ii)
acknowledging that there are not, to Tenant's knowledge, any uncured defaults on
the part of Landlord hereunder, or specifying such defaults if any are claimed;
(iii) evidence the status of this Lease as may be required by a lender making a
loan to Landlord to be secured by a deed of trust covering the Premises,
Building or Project or a purchaser of the same from Landlord, (iv) certify that
all improvements to be constructed on or in the Premises by Landlord have been
substantially completed except for punch list items which do not prevent Tenant
from using the Premises for its intended use, and (v) certify such other matters
relating to the Lease and/or the Premises as may be requested by a lender making
a loan to Landlord or a purchaser of the Premises, Building or Project from
Landlord. Any such statement may be conclusively relied upon by any prospective
purchaser or encumbrancer of the Premises.

                  (b) Tenant's failure to deliver such statement within such
time shall be conclusive upon Tenant (i) that this Lease is in full force and
effect without modification except as may be represented by Landlord, (ii) that
there are no uncured defaults in Landlord's performance, and (iii) that not more
than one month's rent has been paid in advance; and, (iv) the improvements to be
constructed on the Premises by Landlord have been substantially completed except
for punch list items which do not prevent Tenant from using the Premises for its
intended use.

                  (c) If Landlord desires to finance, refinance or sell said
Premises, or any part hereof, Tenant hereby agrees to deliver to Landlord, its
agent or any prospective purchaser or lender designated by Landlord such
financial statements of Tenant as may be reasonably required by such lender or
prospective purchaser. Such statements shall include the past three years
financial statements of Tenant. All such financial statements shall be received
by Landlord in confidence and shall be used only for the purposes herein set
forth.

         20.2 TRANSFER OF LANDLORD'S INTEREST. In the event of a sale or
conveyance by Landlord of Landlord's interest in the Premises other than a
transfer for security purposes only, Landlord shall be relieved from and after
the date specified in such notice of transfer of all obligations and liabilities
accruing thereafter on the part of the Landlord, provided that any funds in the
hands of Landlord at the time of transfer in which Tenant has an interest, shall
be delivered to the successor of Landlord. This Lease shall not be affected by
any such sale and Tenant agrees to attorn to the purchaser or assignee provided
all Landlord's obligations hereunder are assumed in writing by the transferee.

         20.3 CAPTIONS; ATTACHMENTS; DEFINED TERMS.

                  (a) The captions of the paragraphs of this Lease are for
convenience only and shall not be deemed to be relevant in resolving any
question of interpretation or construction of any section of this Lease.

                  (b) Exhibits attached hereto, and addendums and schedules
initialed by the parties, are deemed by attachment to constitute part of this
Lease and are incorporated herein.

                  (c) The words "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular. Words used in neuter gender include
the masculine and feminine and words in the masculine or feminine gender include
the neuter. If there be more than one Landlord or Tenant, the obligations
hereunder imposed upon Landlord or Tenant shall be joint and several. If the
Tenants are husband and wife, the obligations shall extend individually to their
sole and separate property as well as to their community property. The term
"Landlord" shall

                                      24.
<PAGE>
mean only the owner or owners at the time in question of the fee title or a
tenant's interest in a ground lease of the Premises. The obligations contained
in this Lease to be performed by Landlord shall be binding on Landlord's
successors and assigns only during their respective periods of ownership.

                  (d) LAW. As used in this Lease, the term "Law" or "Laws" shall
mean any judicial decision, statute, constitution, ordinance, resolution,
regulation, rule, administrative order, or other requirement of any government
agency or authority having jurisdiction over the parties to this Lease or the
Premises or both, in effect at the Commencement Date of this Lease or any time
during the Lease Term, including, without limitation, any regulation, order, or
policy of any quasi-official entity or body (e.g., board of fire examiners,
public utility or special district).

                  (e) AGENT. As used in this Lease, the term "Agent" shall mean,
with respect to either Landlord or Tenant, its respective agents, employees,
contractors (and their subcontractors), and invitees (and in the case of Tenant,
its subtenants).

                  (f) LENDER. As used in this Lease, the term "Lender" shall
mean any beneficiary, mortgagee, secured party or other holder of any deed of
trust, mortgage or other written security device or agreement affecting
Landlord's interest in the Premises.

         20.4 ENTIRE AGREEMENT. This instrument along with any exhibits and
attachments hereto constitutes the entire agreement between Landlord and Tenant
relative to the Premises and this Agreement and the exhibits and attachments may
be altered, amended or revoked only by an instrument in writing signed by both
Landlord and Tenant. Landlord and Tenant agree hereby that all prior or
contemporaneous oral agreements between and among themselves and their agents or
representatives relative to the leasing of the Premises are merged in or revoked
by this Agreement.

         20.5 SEVERABILITY. If any term or provision of this Lease shall, to any
extent, be determined by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby, and
each term and provision of this Lease shall be valid and enforceable to the
fullest extent permitted by law.

         20.6 COSTS OF SUIT.

                  (a) If Tenant or Landlord shall bring any action for any
relief against the other, declaratory or otherwise, arising out of this Lease,
including any suit by Landlord for the recovery of rent or possession of the
Premises, the losing party shall pay the successful party a reasonable sum for
attorneys' fees which shall be deemed to have accrued on the commencement of
such action and shall be paid whether or not such action is prosecuted to
judgment.

         The attorney's fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse attorneys' fees
reasonably incurred in good faith.

         20.7 LANDLORD AS PARTY DEFENDANT. Should Landlord, without fault on
Landlord's part, be made a party to any litigation instituted by Tenant or by
any third party against Tenant, or by or against any person holding under or
using the Premises by license of Tenant, or for the foreclosure of any lien for
labor or material furnished to or for Tenant or any such other person or
otherwise arising out of or resulting from any act or transaction of Tenant or
of any such other person, Tenant covenants to save and hold Landlord harmless
from any judgment rendered against Landlord or the Premises or any part thereof,
and all costs and expenses, including reasonable attorneys fees, incurred by
Landlord in or in connection with such litigation. Such indemnity obligation
shall survive termination of this Lease.

         20.8 WAIVER OF JURY TRIAL. Landlord and Tenant hereby waive their
respective right to trial by jury of any cause of action, claim, counterclaim,
cross-complaint in any action, proceeding and/or hearing brought by either
Landlord against Tenant or Tenant against Landlord on any matter whatsoever
arising out of, or in any way connected with, this Lease, the relationship of
Landlord and Tenant, Tenant's use or occupancy of the Premises, or

                                      25.
<PAGE>
any claim or injury or damage, or the enforcement of any-remedy under any law,
statute or regulation, emergency or otherwise, now or hereafter in effect.

         20.9 TIME; JOINT AND SEVERAL LIABILITY. Time is of the essence of this
Lease and each and every provision hereof, except as to the conditions relating
to the delivery of possession of the Premises to Tenant. All the terms,
covenants and conditions contained in this Lease to be performed by either
party, if such party shall consist of more than one person or organization,
shall be deemed to be joint and several, and all rights and remedies of the
parties shall be cumulative and non-exclusive of any other remedy at law or in
equity.

         20.10 BINDING EFFECT: CHOICE OF LAW. Each provision of this Lease to be
performed by Tenant shall be construed as both a covenant and condition. Subject
to any provisions hereof restricting assignment or subletting any Tenant and
subject to Section 18.2, all of the provisions hereof shall bind and inure to
the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns. This Lease shall be governed by the
laws of the State of California.

         20.11 WAIVER. No covenant term or condition or the breach thereof shall
be deemed waived, except by written consent of the party against whom the waiver
is claimed, and any waiver or the breach of any covenant, term or condition
shall not be deemed to be a waiver of any preceding or succeeding breach of the
same of any other covenant, term or condition. Acceptance by Landlord of the
performance by Tenant after the time the same shall have become due shall not
constitute a waiver by Landlord of the breach or default of any covenant, term
or condition unless otherwise expressly agreed to by Landlord in writing.

         Landlord's failure to enforce against Tenant or any other tenant of the
Building or the Project any of the rules or regulations made by Landlord shall
not be deemed a waiver of such rules or regulations. No act or thing done by
Landlord, its agents or employees during this Lease Term shall be deemed an
acceptance of a surrender of the Premises and no agreement to accept a surrender
of the Premises shall be valid unless it is in writing and is signed by
Landlord. The delivery of keys to any of Landlord's agents or employees shall
not serve to terminate this Lease or surrender the Premises. No payment by
Tenant, or receipt and acceptance by Landlord, of a lesser amount than the rent
due shall be deemed to be other than on account of the earliest stipulated rent
or additional rent, nor shall any endorsement or statement on any check or any
letter accompanying a payment as rent be deemed an accord and satisfaction. The
receipt and acceptance by Landlord of any delinquent rent shall not constitute a
waiver of any other default; it shall only be a waiver of timely payment for the
particular rent payment involved. Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such rent or
pursue any other remedy available to Landlord.

         20.12 SURRENDER OF PREMISES. The voluntary or other surrender of this
Lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and
shall, at the option of the Landlord, terminate all or any existing subleases or
subtenancies, or may, at the option of Landlord, operate as an assignment to it
or any or all such subleases or subtenancies.

         20.13 HOLDING OVER.

                  (a) SURRENDER OF POSSESSION. Tenant shall surrender possession
of the Premises immediately upon the expiration or earlier termination of the
Lease. If Tenant shall continue to occupy or possess the Premises after such
expiration or termination without the consent of Landlord, then Tenant shall be
a tenant at will. If Landlord has consented to such holdover in writing, Tenant
shall be a tenant from month-to-month. All the terms, provisions and conditions
of the Lease shall apply to the month-to-month tenancy except those terms,
provisions and conditions pertaining to the Lease Term, and except that the
rental shall be immediately adjusted upward upon the expiration or earlier
termination of the Lease to equal the greater of (i) one hundred fifty percent
(150%) of the then prevailing monthly rental rate for similar commercial space,
as determined by Landlord; or (ii) one hundred fifty percent (150%) of the
Rental for the Premises in effect under this Lease on the day immediately prior
to the date of the expiration or earlier termination of the Lease.

         The month-to-month tenancy may be terminated by Landlord or Tenant upon
thirty (30) days prior notice to the non-terminating party. In the event that
Tenant fails to surrender the Premises upon such expiration or earlier
termination, then Tenant shall indemnify and hold Landlord harmless against all
losses or liability resulting from or

                                      26.
<PAGE>
arising out of Tenant's failure to surrender the Premises. This includes, but is
not limited to any amounts required to be paid or damages incurred due to the
loss of any tenant or prospective tenant who was to have occupied the Premises
after said termination or expiration and any related attorneys' fees and
brokerage commissions.

         20.14 PAYMENT OF MONEY AFTER TERMINATION. No payment of money by Tenant
to Landlord after the termination of the Lease by Landlord or after the giving
of any notice of termination to Tenant by Landlord, which Landlord is entitled
to give Tenant under the Lease, shall reinstate, continue or extend the Term of
the Lease or shall affect any such notice given to Tenant prior to the payment
of such money. It is agreed that after the service of such notice or the
commencement of any suit by Landlord to obtain possession of the Premises,
Landlord may receive and collect when due any and all payments owed by Tenant
under the Lease and otherwise exercise its rights and remedies. The making of
any such payments by Tenant shall not waive such notice or in any manner affect
any pending suit or judgment obtained.

         20.15 SIGNS AND AUCTIONS.

                  (a) Tenant shall not place any sign upon the Premises or
conduct any auction thereon without Landlord's prior written consent. All such
signs placed on the Premises by Tenant and consented to by Landlord shall comply
with all recorded documents affecting the Premises and applicable statutes,
ordinances, rules and regulations of governmental agencies having jurisdiction
thereof. At Landlord's option, Tenant shall, at the expiration or earlier
termination of the Lease, remove any sign which it has placed on the Premises
and shall at its sole cost, repair any damage caused by the installation or
removal of such sign.

                  (b) Obtaining permits for Tenant signs as may be required by
any governmental agency shall be the responsibility of Tenant.

         20.16 REASONABLE CONSENT. Except as limited elsewhere in this Lease,
wherever in this Lease Landlord or Tenant is required to give consent or
approval to any action on the part of the other, such consent or approval shall
not be unreasonably withheld. In the event of failure to give any such consent,
the other party shall be entitled to specific performance at law and shall have
such other remedies to it under this Lease, but in no event shall Landlord or
Tenant be responsible in monetary damages for failure to give consent unless
said failure is withheld maliciously or in bad faith.

         20.17 INTEREST ON PAST DUE OBLIGATIONS. Any installment of Base Rent or
Additional Rent due from Tenant, or any other sum due under this Lease from
Tenant, which is not received by Landlord when due, shall bear interest from
said due date until paid, at an annual rate equal to the lower of (the
"Permitted Rate"): (a) twelve percent (12%); or (b) five percent (5%) plus the
rate established by the Federal Reserve Bank of San Francisco, as of the
twenty-fifth (25th) day of the month immediately preceding the due date, on
advances to member banks under Sections 13 and 13(a) of the Federal Reserve Act,
as now in effect or hereafter from time to time amended. Payment of such
interest shall not excuse or cure any default by Tenant. In addition, Tenant
shall pay all costs and attorneys' fees incurred by Landlord in collection of
such amounts.

         20.18 RECORDING. Tenant shall not record this Lease without Landlord's
prior written consent (which may be given or withheld in Landlord's sole and
absolute discretion), and such recordation shall, at the option of Landlord,
constitute a non-curable default of Tenant hereunder.

         20.19 NOTICES. All notices or demands of any kind required or desired
to be given by Landlord or Tenant hereunder shall be in writing and shall be
deemed delivered on the date received if personally delivered to Landlord or
Tenant, as the case may be, or if mailed, then forty-eight (48) hours after
depositing the notice or demand in the United States mail, certified or
registered, postage prepaid, addressed to the Landlord or Tenant respectively at
the addresses set forth after their signatures at the end of this Lease.

         20.20 CORPORATE AUTHORITY. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation in accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the Bylaws of said
corporation, and that this Lease is binding upon said corporation in accordance

                                      27.
<PAGE>
with its terms. If Tenant is a corporation Tenant shall, within thirty (30) days
after execution of this Lease, deliver to Landlord a certified copy of a
resolution of the Board of Directors of said corporation authorizing or
ratifying the execution of this Lease.

         20.21 LIMITATION ON LANDLORD'S LIABILITY. Tenant, for itself and its
successors and assigns (to the extent this Lease is assignable), hereby agrees
that in the event of any actual or alleged, breach or default by Landlord under
this Lease that:

                  (a) Tenant's sole and exclusive remedy and recourse against
Landlord shall be as against Landlord's interest in the Project;

                  (b) No partner of Landlord shall be sued or named as a party
in a suit or action (except as may be necessary to secure jurisdiction of the
partnership);

                  (c) No service of process shall be made against any partner of
Landlord (except as may be necessary to secure jurisdiction of the partnership);

                  (d) No partner of Landlord shall be required to answer or
otherwise plead to any service of process;

                  (e) No judgment will be taken against any partner of Landlord;

                  (f) Any judgment taken against any partner of Landlord may be
vacated and set aside at anytime nunc pro tunc;

                  (g) No writ of execution will ever be levied against the
assets of any partner of Landlord; and,

                  (h) The covenants and agreements of Tenant set forth in this
Paragraph 20.21 shall be enforceable by Landlord and any partner of Landlord.

         20.22 CONSTRUCTION OF LEASE PROVISIONS. Although printed provisions of
this Lease were prepared by Landlord, the doctrine or rule that ambiguities in
an agreement or document are to be construed against the drafting party, shall
not be utilized in interpreting this Lease and this Lease shall instead be
construed or interpreted in accordance with the general tenor of the language to
reach a fair and equitable result.

         20.23 CONFIDENTIALITY. Tenant hereby agrees not to disclose the terms
of this lease (specifically including, without limitation, the rent or rental
rate to be paid by Tenant hereunder and/or any tenant improvement allowance to
be furnished by Landlord to Tenant) to any existing or prospective tenant of the
Building or other third party; provided, however, Tenant may disclose the terms
of this Lease to its accountant, bookkeeper or tax advisor or any employee of
Tenant who has a need to know such information for a legitimate business
purpose, or if Tenant is otherwise required to disclose such confidential
information as permitted hereunder of the requirements of this Paragraph and
shall require each such person to comply with such confidentiality requirements.
In the event Tenant or any person to whom it discloses such confidential
information fails in any respect to comply with its obligations under this
Paragraph, Tenant shall be liable to Landlord for breach of this Paragraph 20.23
and Landlord may bring an action against Tenant for damages as a result of such
breach. In addition, nothing stated herein shall preclude or prohibit Landlord
from seeking an injunction to prevent disclosure of such confidential
information or an order compelling specific protection of such confidential
information. The provisions of this Paragraph 20.23 shall survive the
termination of this Lease.

LANDLORD AND TENANT HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN AND BY 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

                                      28.
<PAGE>
COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LANDLORD AND
TENANT.

IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO LEGAL
COUNSEL FOR APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY LANDLORD OR
BY SOUTH BAY DEVELOPMENT COMPANY, ITS AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT OR THE CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
RELATING THERETO. THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN
LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.



         IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the
date and year first above written.

<TABLE>
<CAPTION>
LANDLORD:                                           TENANT:
<S>                                                 <C>
KNOWLES LOS GATOS LLC, a California Limited         LEAPFROG ENTERPRISES, INC., a Delaware
liability company                                   corporation


By: /s/ J.D. Mair                                   By: /s/ David J. Conroy
   --------------                                      --------------------

Printed: J.D. Mair                                  Printed: David J. Conroy
         ---------                                          ----------------

Its: Member                                         Its: Vice President of Software
    -------                                              --------------------------

Dated: 1/24/01                                      Dated: 1/18/01
       -------                                            --------

                                                    By:
                                                       ------------------------------------

                                                    Printed:
                                                            -------------------------------

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

                                                    Dated:
                                                          ---------------------------------

                                                    NOTE:  If Tenant is a corporation, the signatures of two
                                                    corporate officers is required, one signature must be
                                                    one of the following: chairman of the board, president
                                                    or any vice-president and the second signature must be
                                                    one of the following: secretary, assistant secretary,
                                                    chief financial officer or any assistant treasurer
</TABLE>


                                      29.
<PAGE>
                                   EXHIBIT "A"



                            [Floor Plan of Property]




                                       1.
<PAGE>
                                   EXHIBIT "B"

                              IMPROVEMENT AGREEMENT


         This Improvement Agreement ("Agreement") is made part of that Lease
dated January 15, 2001, by and between ("Landlord"), and LeapFrog Enterprises,
Inc. ("Tenant"). Landlord and Tenant agree that the following terms are hereby
added to the Lease:

         1. DEFINITIONS. Unless otherwise defined in this Agreement, capitalized
terms used herein shall have the same meaning and definition as set forth for
such terms in the Lease. The terms listed below, when used in this Agreement,
shall mean the following:

                  (a) APPROVED INTERIOR PLANS. The term "Approved Interior
Plans" shall have the meaning set forth in Paragraph 2(a) of this Agreement.

                  (b) IMPROVEMENTS. The term "Improvements" shall mean all
improvements to be constructed by Landlord within the Premises pursuant to the
Approved Interior Plans.

                  (c) IMPROVEMENT COSTS. The term "Improvement Costs" shall mean
and include all of the following:

                           (i) All "hard" construction costs for the
construction of the Improvements according to the Approved Interior Plans and
all approved changes thereto, including, but not limited to:

                                    (A) All labor and supervision costs;

                                    (B) Costs of all materials and supplies;

                                    (C) Contract price for all construction work
undertaken by general contractors and sub-contractors (including, without
limitation, the applicable general contractor's fee for overhead and profit);

                                    (D) Fees, taxes or other charges levied by
governmental or quasi-governmental agencies (including public utilities) in
connection with the issuance of all authorizations, approvals, licenses, and
permits necessary to undertake construction of the Improvements; including the
cost of installation;

                                    (E) The cost of all equipment and fixtures
provided for in the Approved Interior Plans,

                                    (F) The cost of all concrete, welding,
survey and other testing expenses;

                                    (G) The cost of premiums for surety bonds,
if any, including but not limited to payment and performance bonds and
mechanics' lien bonds;

                                    (H) The cost of installing a meter or meters
in the Premises to measure the utility services supplied to and consumed in the
Premises; and

                                    (I) The cost of installing standard utility
services (i.e., standard HVAC controls and distribution facilities; standard
electrical panels, distribution facilities, wiring, fixtures, switches and
receptacles) and special utility services (i.e., services other than those
specified above).

                                       1.
<PAGE>
                           (ii) All "soft" construction costs directly or
indirectly related to the construction of the Improvements including, but not
limited to, the following:

                                    (A) Engineering, initial space planning and
architectural fees for preparation of all plans, specifications and working
drawings and processing of applications for all governmental authorizations,
approvals, licenses and permits;

                                    (B) Fees of engineers, space. planners,
architects, attorneys and others providing professional or extra services in
connection with the construction of the Improvements or the supervision of the
construction; and

                                    (C) Inspection fees, recording costs and
filing fees.

         2. CONSTRUCTION OF IMPROVEMENTS. Landlord agrees to construct the
Improvements in the Premises in conformance with applicable construction codes
and with the Approved Interior Plans approved by both Landlord and Tenant and
developed pursuant to this Paragraph 2.

                  (a) APPROVAL OF PLANS. On or before the date five (5) business
days following execution of the Lease, Landlord shall deliver plans and
specifications to Tenant for its approval, which shall not be unreasonably
withheld. Tenant shall reasonably approve or disapprove such plans and
specifications within five (5) calendar days following delivery of the same to
Tenant. If Tenant reasonably disapproves such plans, then the parties shall
expeditiously confer and negotiate in good faith to reach agreement on the plans
and specifications for the Improvements. As soon as the final plans and
specifications are approved by Tenant, four (4) copies of such plans and
specifications shall be initialed and dated by Landlord and Tenant, and Landlord
shall submit such plans and specifications and working drawings to all
appropriate governmental agencies for approval. Immediately after all such
governmental approvals have been obtained, the final plans and specifications so
approved (including any governmentally required changes), and all change orders
specifically permitted by this Agreement, are referred to herein as the
"Approved Interior Plans" and shall become part of this Lease as though set
forth in full.

                  (b) CONSTRUCTION CONTRACTS. Landlord shall contract for the
construction of the Improvements in the following manner:

                           (i) It is presently contemplated that the
Improvements will be constructed by South Bay Construction Company, as general
contractor. Tenant acknowledges that one or more of the members of Landlord has
an ownership or other beneficial interest in South Bay Construction Company, but
Tenant nevertheless consents to Landlord's hiring of such company for purposes
of constructing the Improvements. Notwithstanding the above, Landlord shall have
no obligation to hire South Bay Construction Company, or any other specific
general contractor, for the purpose of constructing the Improvements, and
Landlord may select for such purposes any licensed general contractor it may
deem qualified to perform such work. The general contractor so selected by
Landlord (which likely is to be South Bay Construction Company) is referred to
herein as the "Prime Contractor."

                           (ii) Prior to commencement of construction of the
Improvements, Landlord shall cause the Prime Contractor to obtain at least two
competitive bids for each portion of the work to be performed by subcontractors
in the major trades. Tenant shall have the right to review all such competitive
bids, and the final bid accepted must be reasonably agreed upon by Landlord and
Tenant prior to the start of construction of the Improvements.

                  (c) CHANGES TO APPROVED INTERIOR PLANS. Once the Approved
Interior Plans have been finally approved by Landlord and Tenant and the general
construction contract signed with the Prime Contractor, Tenant shall have no
right to order extra work or change orders with respect to the construction of
the Improvements without the prior written consent of the Landlord, which
consent shall not be unreasonably withheld or delayed. All extra work or change
orders requested by Tenant shall be made in writing, shall specify the amount of
delay or the time saved resulting therefrom, shall specify any added or reduced
cost resulting therefrom, and shall become effective and a part of the Approved
Interior Plans once approved in writing by both parties.

                                       2.
<PAGE>
                  (d) COMMENCEMENT AND COMPLETION OF THE IMPROVEMENTS. As soon
as (i) the Approved Interior Plans have been developed as provided above, (ii)
all necessary governmental approvals have been obtained, and (iii) Landlord has
entered into a general construction contract with Prime Contractor for
construction of the Improvements, Landlord shall cause construction of the
Improvements to be commenced and diligently prosecuted to completion. Landlord
makes no representation or warranty as to when the Improvements will be
completed.

                  (e) PAYMENT OF IMPROVEMENT COSTS. Landlord shall pay all
Improvement Costs with the exception of I) any costs associated with
construction of the lunch room and installation and exhausting of Tenant's Spray
Booth; and ii) any change orders requested by Tenant that result in an increase
in construction costs. If Tenant incurs Improvement Costs as outlined herein,
then Tenant shall pay the entire amount of such costs, with one-half (1/2) of
such excess payable to Landlord in cash prior to commencement of construction of
the Improvements and the balance payable on the Commencement Date. The
obligation of Landlord to contribute monies up to pay for the Improvements shall
pertain only to Improvement Costs incurred by Landlord in connection with the
design and construction of the Improvements shown on the Approved Interior
Plans.

         3. DELAYS IN COMPLETION. The obligation of Tenant to pay Base Rent and
Tenant's Share of Operating Expense increases (and other additional rent) shall
commence on the Commencement Date of the Lease (as provided in the Lease) unless
otherwise provided in this Section 3. The parties hereto acknowledge that the
date on which Tenant's obligation to pay the Base Rent would otherwise commence
may be delayed because of (i) Tenant's failure to prepare and submit information
to Landlord so Landlord may prepare plans and specifications for the
Improvements and/or Tenant's failure to promptly review and approve the plans or
specifications for the Improvements, (ii) the entry by Tenant into the Premises,
or portion thereof, which interferes with or delays the completion of Landlord's
work, (iii) change orders requested by Tenant and approved by Landlord, and /or
(iv) any other act or omission of Tenant. It is the intent of the parties hereto
that the Tenant's obligation to pay the Base Rent and Tenant's Share of
Operating Expense Increases (and all additional rent) not be delayed by any of
such causes or by any other act of Tenant, and in the event it is so delayed,
then Tenant's obligation to pay Base Rent and Tenant's Share of Operating
Expense Increases (and all additional rent) shall commence as of the date it
would otherwise have commenced absent said delay caused by Tenant.

         4. REPRESENTATIONS AND WARRANTIES.

                  (a) LANDLORD. Landlord's Prime Contractor shall warrant the
Improvements constructed in the premises, but not any equipment included in the
Improvements, against defects in material and workmanship for a period of twelve
(12) months from the date of signed acceptance of the Improvement by Tenant.
Said warranty extends only to Tenant and shall be effective only as to defects
of which Landlord and the Prime Contractor are notified in writing by Tenant
within the warranty period. The Prime Contractor's sole obligation shall be
either to repair or replace, as the Prime Contractor and project architect
determine appropriate, any defect which is warranted hereunder. Any repair or
replacement is warranted against defects in material and workmanship for a
period ending on the date said warranty expires with regard to the original
construction to which the repair or replacement was made. Tenant agrees that
Landlord, Prime Contractor and the project architect shall not be liable for
consequential damages arising as a result of a defect warranted hereunder.
Tenant covenants that it will not pursue any remedy against Landlord, Prime
Contractor or the project architect as a result of such consequential damages if
any. Landlord shall inform Tenant of all written equipment warranties existing
in favor of Landlord which affect any equipment included in the Improvements.
Landlord shall cooperate with Tenant in enforcing such warranties and in
bringing any suit that may be necessary to enforce liability with regard to any
defective operation of equipment so long as Tenant pays all costs incurred by
Landlord in so acting. The warranties to be given as set forth in this paragraph
are all of the warranties of Landlord, Prime Contractor and the project
architect with respect to the subject matter hereof. LANDLORD, PRIME CONTRACTOR
AND THE PROJECT ARCHITECT MAKE NO OTHER EXPRESS OR IMPLIED WARRANTY WITH RESPECT
TO THE CONSTRUCTION OR OPERATION OF THE IMPROVEMENTS INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF FITNESS FOR PURPOSE OR MERCHANTABILITY.

                  (b) TENANT. Tenant represents to Landlord that Tenant shall
inspect or, if Tenant lacks sufficient expertise to so inspect, shall employ
experts of Tenant's choosing, to inspect the plans and specifications for the
Improvements and that upon written approval of such plans and specifications by
Tenant, Tenant shall be deemed fully satisfied that the Improvements constructed
in substantial accordance with such plans and

                                       3.
<PAGE>
specifications are sufficient to meet Tenant's purpose. Tenant covenants that
Tenant will not pursue any action against Landlord, Prime Contractor or the
project architect if the Improvements made in accordance with such plans and
specifications fail to meet Tenant's purpose. Landlord makes no warranty,
express or implied, of fitness for purpose or merchantability, of any equipment
or fixtures included in the Premises. Tenant acknowledges that Tenant shall rely
upon the manufacturer of such equipment or fixtures for any warranty with
respect thereto.

         5. HEADINGS. The paragraph headings used in this Agreement are for
convenience of reference only. They shall not be construed to limit or extend
the meaning of any part of this Agreement, and shall not be deemed relevant in
resolving any questions of interpretation or construction of any paragraph of
this Agreement.

<TABLE>
<S>                                   <C>
                                      LANDLORD:

                                      KNOWLES LOS GATOS LLC, a California Limited
                                      liability company


                                      By: /s/ J.D. Mair

                                      Its: Member

Dated: January 21, 2002
                                      TENANT:

                                      LEAPFROG ENTERPRISES, INC., a Delaware corporation


                                      By: /s/ David J. Conroy

Dated:                                Its: Vice President of Software
      -------------------------           ---------------------------

Dated:                                By:
      -------------------------          --------------------------------------

                                      Its:
                                          -------------------------------------
</TABLE>


                                       4.
<PAGE>
                                   EXHIBIT "C"

                   EL GATO BUSINESS PARK RULES AND REGULATIONS


         By and between Knowles, Los Gatos, LLC, a California limited liability
company ("Landlord") and Knowledge Kids Enterprises, Inc, a Delaware corporation
"Tenant") as exhibit to that certain Lease dated January 15, 2002.

         1. Tenant, its employees or invitees, shall not suffer or permit the
obstruction of any Common Areas, including driveways, walkways, and entrances.

         2. Tenant, its employees or invitees, shall not suffer or permit
loitering of any kind in the Common Areas, including driveways, walkways and
entrances.

         3. Tenant, its employees or invitees, shall not litter the Common areas
with trash or any type of debris, including, but not limited to cigarette butts.

         4. Tenant, its employees or invitees, shall not verbally, or otherwise,
harass other tenants, their employees or invitees.

         5. Tenant, its employees or invitees, shall not deface building walls,
fences, parking lots or any other part of the Premises or Common Areas.

         6. Tenant, its employees or invitees, shall not go on the roof of the
Building for any reason without the permission of Landlord.

         7. The Premises shall not be used for lodging of any kind.

         8. Tenant, its employees or invitees, shall not make or permit any
noise or odors that annoy or interfere with other Tenants or persons having
business within the Project.

         9. Tenant, its employees or invitees, shall not keep animals or birds
within the Common Areas. Any animals visiting the Leased premises must remain
properly leashed.

         10. Tenant, its employees or invitees, shall not store any rubbish
containers in the Common Areas other than the designated enclosures. Containers
that do not fit inside the enclosures are prohibited.

         11. Tenant, its employees or invitees, shall not store any pallets,
boxes or other debris any place in the Common Areas at any time. Landlord shall
have the right to remove and dispose of anything left in the Common Areas at the
expense of Tenant without prior notice.

         12. Landlord shall have the right to make further such reasonable rules
and regulations, and to alter the same, as in its judgment may from time to time
be needful for the safety, care, cleanliness and appearance of the Leased
Premises, the Project and the preservation of good order therein. Landlord also
has the right to suspend or cancel any or all of these rules and regulations
herein set out.



                                                                 INITIALS [INIT]

                                       1.