<PAGE>   1
                                                                  EXHIBIT 10.20


                                      LEASE
                                       for
                            THE SOUTH BEACH WAREHOUSE

                               164 TOWNSEND STREET

                                     between

                           SOUTH BEACH WAREHOUSE, LLC,
                                    Landlord

                                       and

                             XYBERNAUT CORPORATION,
                                     Tenant

                         DATED AS OF: September 10, 1996




<PAGE>   2



                            THE SOUTH BEACH WAREHOUSE
                             BASIC LEASE INFORMATION
                              164 Townsend Street,
                            San Francisco, California



DATE OF THIS LEASE:                    September 10, 1996

LANDLORD:                              South Beach Warehouse, LLC

TENANT:                                Xybernaut Corporation

PREMISES:                              Unit Three, a portion of the First Floor,
                                       164 Townsend Street, San Francisco

LEASE COMMENCEMENT DATE:               September 15, 1996

EXPIRATION DATE OF EXTENDED            September 14, 1999
LEASE TERM:

INITIAL MONTHLY RENT:                  $4,450.00

BASE YEAR FOR TAXES AND                N/A
INSURANCE EXPENSES:

TENANT'S PRO RATA SHARE:               9.6% $228.00

LANDLORD'S ADDRESS FOR                 655 Third Street
NOTICES:                               San Francisco, CA 94107
                                       Attention:  Patrick McNerney

TENANT'S ADDRESS FOR NOTICES:          164 Townsend Street, Unit Three
                                       San Francisco, California 94107
                                       Attention:  Peter Ronzani

SECURITY DEPOSIT:                      $4,450.00

BROKER:                                N/A

EXHIBITS:                              A, B & C

RIDER TO LEASE:                        N/A

      The basic lease information is part of this Lease; however, if any of the
basic lease information contradicts any provision of this Lease, the provisions
of this Lease will prevail.

      Each of Landlord and Tenant hereby acknowledges and agrees that the
information appearing on this page entitled Basic Lease Information is true and
correct as of the Commencement Date shown above.

LANDLORD:                                 TENANT:
South Beach Warehouse, LLC                Xybernaut Corporation

By: [sig]                                 By: [sig]
   ----------------------------              ----------------------------
   Patrick McNerney, Genl. Mgr.              VP & CFO

<PAGE>   3


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
    Section                                                                                                       Page
    -------                                                                                                       ----
     <S>       <C>                                                                                                 <C>

       1.      Premises........................................................................................      1
       2.      Definitions.....................................................................................      1
       3.      Term; Delivery of Possession of Premises........................................................      1
       4.      Condition of Premises...........................................................................      2
       5.      Monthly Rent....................................................................................      2
       6.      Security Deposit................................................................................      2
       7.      Additional Rent: Increases in Insurance Expenses and Tax Expenses...............................      2
       8.      Use of Premises; Compliance with Law............................................................      3
       9.      Alterations and Restoration.....................................................................      3
      10.      Repair..........................................................................................      4
      11.      Abandonment.....................................................................................      4
      12.      Liens...........................................................................................      4
      13.      Assignment and Subletting.......................................................................      4
      14.      Indemnification of Landlord.....................................................................      6
      15.      Insurance.......................................................................................      6
      16.      Mutual Waiver of Subrogation Rights.............................................................      7
      17.      Utilities and Common Areas......................................................................      7
      18.      Personal Property and Other Taxes...............................................................      8
      19.      Rules and Regulations...........................................................................      8
      20.      Surrender, Holding Over.........................................................................      8
      21.      Subordination and Attornment....................................................................      8
      22.      Financing Condition.............................................................................      8
      23.      Entry by Landlord...............................................................................      9
      24.      Insolvency or Bankruptcy........................................................................      9
      25.      Default and Remedies............................................................................      9
      26.      Damage or Destruction...........................................................................     10
      27.      Eminent Domain..................................................................................     11
      28.      Landlord's Liability; Sale of Building..........................................................     11
      29.      Estoppel Certificates...........................................................................     11
      30.      Attorneys' Fees.................................................................................     12
      31.      Waiver..........................................................................................     12
      32.      Notices.........................................................................................     12
      33.      Defined Terms and Section Headings..............................................................     12
      34.      Time and Applicable Law.........................................................................     12
      35.      Successors......................................................................................     12
      36.      Entire Agreement; Modifications.................................................................     12
      37.      Light and Air...................................................................................     12
      38.      Name of Building................................................................................     12
      39.      Severability....................................................................................     12
      40.      Authority.......................................................................................     12
      41.      No Offer........................................................................................     12
      42.      Hazardous Substance Disclosure..................................................................     13
      43.      Real Estate Brokers.............................................................................     13
      44.      Counterparts; Exhibits, Riders and Other Attachments............................................     13
      45.      Joint and Several Liability.....................................................................     13
      46.      Square Footage..................................................................................     13
      47.      Condominium Conversion..........................................................................     13
</TABLE>


EXHIBITS:

      A        Outline of Premises
      B        Parking Location
      C        Rules and Regulations


<PAGE>   4

                           THE SOUTH BEACH WAREHOUSE

                                     LEASE

     THIS LEASE is effective as of the Tenth day of September, 1996, between
South Beach Warehouse LLC, a California limited liability company ("Landlord"),
and Xybernaut Corporation, a Delaware corporation ("Tenant").

     1. PREMISES: Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord, on the terms and conditions set forth in this Lease, the space
consisting of approximately 2,900 rentable square feet known as Unit Three (the
"Premises"). The Premises are located on the floor specified in Section 2 below
of the building (the "Building") located at 164 Townsend Street, San Francisco,
California and outlined on Exhibit A hereto. The Building, the parcel(s) of land
(the "Land") on which the Building is located and the other improvements on the
Land are referred to herein as the "Real Property".

     Tenant's lease of the Premises shall include the right to use, in common
with others, the lobbies, entrances, stairs, elevator, driveways, landscape and
plant areas, and other public portions of the Building (the "Common Areas"). All
of the windows and outside walls of the Premises and any space in the Premises
used for shafts, stacks, pipes, conduits, ducts, electrical equipment or other
utilities or Building facilities are reserved solely to Landlord and Landlord
shall have rights of access through the Premises for the purpose of operating,
maintaining and repairing the same.

     The Premises shall also include one (1) passenger vehicle parking stall
("Parking") located on the Land or within five hundred feet (500') of the Real
Property. The initial location of the Parking shall be in accordance with
Exhibit B hereto. The Parking may be relocated from time to time by Landlord
with ten (10) days written notice to Tenant.

     2. DEFINITIONS: As used in this Lease, the following terms shall have the
meanings specified below:

       a. Floor on which the Premises are located: First.

       b. Initial Lease Term: Twelve (12) months, commencing on September 15,
1996 (the "Commencement Date"), and ending midnight September 14, 1997 (the
"Expiration Date").

       c. Initial Monthly Rent: Four Thousand, Four Hundred, Forty Five Dollars
($4,445.00), adjusted annually pursuant to Section 3(c) below.

       d. Initial Parking Rent: Zero Dollars ($0.00), adjusted annually pursuant
to Section 3(c) below.

       e. Security Deposit: Four Thousand, Four Hundred, Forty Five Dollars
($4,445.00).

       f. Pro Rata Share of Utilities and Services: Nine and Six Tenths percent
(9.6%), with initial estimated monthly expenses of Two Hundred Twenty Eight
Dollars ($228.00).

       g. Business of Tenant: Live/Work use as permitted and in accordance with
the applicable provisions of the San Francisco Planning Code, including but not
necessarily limited to, Sections 102.2 and 102.13. Section 102.13 defines
Live/Work units and specifically establishes limits on occupancy and the numbers
of occupants who must be involved in permitted work activity in each unit.
Tenancy shall be restricted to work activities permitted in the Service/Light
Industrial district as defined in the San Francisco Planning Code.

     3. TERM; DELIVERY OF POSSESSION OF PREMISES.

       a. Term. The Initial Lease Term shall commence on the Commencement Date
and shall expire on the Expiration Date.

       b. Delivery of Premises. The Premises shall be delivered to Tenant on the
Commencement Date, provided Tenant shall have paid to Landlord the Monthly Rent
for the first month of the Lease Term and the Security Deposit. Except as
otherwise provided in this Section 3, no delay in delivery of possession of the
Premises to Tenant shall operate to extend the Lease Term or amend Tenant's
obligations under this Lease. Tenant shall, however, have the option to
terminate this Lease, and recover all rent and security deposit paid to
Landlord should Landlord not be able to provide Tenant with possession within
thirty (30) days of Commencement Date.

       c. Option to Renew.

           i. Tenant is hereby granted the option (the "First Option") to extend
the term of this for two (2) years after the expiration of the Initial Lease
Term (the "Extended Lease Term"). Tenant may not extend the Initial Lease Term
pursuant to any option granted by this Section if Tenant is in default, and the
period, if any, in which to cure such default has expired, as of the date of
exercise of such option or as of the date this Lease would have terminated but
for the exercise of such option.

           ii. Tenant shall be deemed to have waived the First Option, unless
Tenant has given Landlord notice in writing of its decision to exercise such
option no earlier than ninety (90) days nor later than forty-five (45) days

<PAGE>   5

before the date the Initial Lease Term would end but for said option. Time is of
the essence in regard to Tenant's notice to exercise, and unless notice to
exercise is timely given, Tenant's right to exercise of the First Option, shall
be terminated. If Tenant has given notice to exercise as of forty-five (45) days
before the date the Original Lease Term would have ended for said option, a
binding contract to lease the Premises for a two (2) year term is thereupon
created between Landlord and Tenant, upon the terms and conditions herein
provided.

          iii. All terms and conditions provided for in this Lease shall apply
during the option period, with the exception that (A) the Base Rent at the
commencement of the option period and on each successive anniversary date during
the Extended Lease Term will be increased and adjusted to reflect the average
annual cost of living increase during each preceding twelve (12) month period
for the Consumer Price Index, All Urban Consumers, San Francisco-Oakland-San
Jose, California area (1982-84 = 100), All Items, published by the United States
Department of Labor, Bureau of Labor Statistics, except that no such annual
increase shall be less than four percent (4%) nor more than eight percent (8%),
and (B) the Parking rent will be increased to one hundred dollars ($100.00) per
month.

     4. CONDITION OF PREMISES: Except as provide herein below, Tenant accepts
the Premises on the Commencement Date in "as-is, where is" condition. In the
event Tenant desires additional improvements, Tenant shall proceed pursuant to
Section 9 below.

     5. MONTHLY RENT:

       a. On or before the first day of each calendar month during the Lease
Term, Tenant shall pay to Landlord, as monthly rent for the Premises, the
Monthly Rent specified in Section 2 above and in sub-section (b) below. If the
Lease Term commences on a day other than the first day of a calendar month, or
terminates on a day other than the last day of a calendar month, then the
Monthly Rent payable for such partial month shall be appropriately prorated on
the basis of a thirty (30) day month. Monthly Rent shall be paid by Tenant to
Landlord, in advance, without deduction, offset, prior notice or demand, in
lawful money of the United States of America at Landlord's office specified in
the Basic Lease Information, or to such other person or at such other place as
Landlord may from time to time designate in writing. Payments made by check must
be drawn either on a California institution or in a financial institution that
is a member of the Federal Reserve system.

       b. The monthly rent for year one of the Lease Term shall be $4,450.00.

       c. All amounts payable by Tenant to Landlord under this Lease in addition
to the Monthly Rent hereunder shall constitute rent owed by Tenant to Landlord
hereunder.

       d. Tenant acknowledges that late payment of any installment of Monthly
Rent will cause Landlord to incur costs not contemplated by this Lease and that
the exact amount of such costs would be extremely difficult and impracticable to
fix. Such costs include, without limitation, processing and accounting charges,
late charges that may be imposed on Landlord by the terms of any encumbrance or
note secured by the Real Property and the loss of the use of the delinquent
funds. Therefore, if any installment of Monthly Rent due from Tenant is not
received within ten (10) days of the due date, Tenant shall pay to Landlord on
demand an additional sum of six percent (6%) of the overdue installment, which
sum represents a fair and reasonable estimate of the costs that Landlord will
incur by reason of late payment by Tenant. Acceptance of any late charge shall
not constitute a waiver of Tenant's default with respect to the overdue amount,
nor prevent Landlord from exercising any of the other rights and remedies
available to Landlord. Any rent not paid by Tenant to Landlord within ten (10)
days of the date due shall bear interest from the date due to the date of
payment by Tenant at an annual rate of interest (the "Interest Rate") equal to
the lesser of (i) the maximum annual interest rate allowed by law on such due
date, or (ii) the rate of eighteen percent (18%) per annum. Failure by Tenant to
pay when due, including any interest accrued under this subsection, shall
constitute an Event of Default (as defined in Section 25 below) by Tenant under
this Lease giving rise to all the remedies afforded Landlord under this Lease
for non-payment of rent.

       e. No security or guaranty which may now or hereafter be furnished to
Landlord for the payment of rent due under this Lease or for the performance by
Tenant of the other terms of this Lease shall in any way be a bar or defense to
any of Landlord's remedies set forth in Section 25 below.

     6. SECURITY DEPOSIT: Upon execution of this Lease, Tenant shall pay to
Landlord the Security Deposit specified in Section 2(e) hereof as security for
Tenant's performance of all of the provisions of this Lease. Landlord shall not
be required to segregate the Security Deposit from Landlord's other funds and no
interest shall accrue or be payable to Tenant with respect thereto. Landlord may
(but shall not be required to) use the Security Deposit so any portion thereof
to cure any Event of Default under this Lease or to compensate Landlord for any
damage Landlord incurs as a result of Tenant's failure to perform any of its
obligations hereunder. In such event and upon written notice form Landlord to
Tenant specifying the amount of the Security Deposit so utilized by Landlord and
the particular use for which such amount was used, Tenant shall immediately
deposit with Landlord an amount sufficient to return the Security Deposit to the
amount specified in Section 2(e). Tenant's failure to make such payment to
Landlord within five (5) days of Landlord's notice shall constitute an Event of
Default under this Lease. If Tenant is not in default at the expiration or
termination of this Lease, Landlord shall return to Tenant the Security Deposit
or the balance thereof then held by Landlord; provided, however, that in no
event shall any such return be construed as an admission by Landlord that Tenant
has performed all of Tenant's obligations under this Lease. No holder of a
Superior Interest (as defined in Section 21), nor any purchaser of any judicial
or private foreclosure sale of the Real Property or any portion thereof, shall
be responsible to Tenant of such Security Deposit unless such holder or
purchaser shall have actually received the same.

     7. ADDITIONAL RENT: Building insurance expenses and Building and Land tax
expenses are intentionally omitted from this Lease. See Section 17 for utilities
and other Building services.

                                  Page 2 of 13

<PAGE>   6

     8. USE OF PREMISES; COMPLIANCE WITH LAW:

       a. Use of Premises. The Premises shall be used solely for live/work
purposes as defined and permitted in the San Francisco Planning Code as
described in Section 2(g) hereof and for no other use or purpose without the
prior written consent of Landlord.

     Tenant shall not do or suffer or permit anything to be done in or about the
Premises or the Real Property, nor bring or keep anything therein, which would
in any way subject Landlord, Landlord's agents or the holder of any Superior
Interest to any liability, increase the premium rate of or affect any fire,
casualty, liability, rent or other insurance relating to the Real Property or
any of the contents of the Building, or cause a cancellation of, or give rise to
any defense by the Insurer to any claim under, or conflict with, any policies
for such insurance. If any act or omission of Tenant results in any such
increase in premium rates, Tenant shall pay to Landlord upon demand the amount
of such increase. Tenant shall not do or suffer 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 the Building or injure or annoy them, or
use or suffer or permit the Premises to be used for any immoral, unlawful or
objectionable purpose, nor shall Tenant cause, maintain, suffer or permit any
nuisance in, on or about the Premises. Tenant agrees not to handle, store or
dispose of any substance on the Premises which is prohibited by federal, state
or local law or regulation. Without limiting the foregoing, no loudspeakers or
other similar device which can be heard outside the Premises shall, without the
prior written approval of Landlord, be used in or about the Premises. Tenant
shall not commit or suffer to be committed any waste in, to or about the
Premises.

     Tenant agrees not to employ any person, entity or contractor for any work
in the Premises (including moving Tenant's equipment and furnishings in, out or
around the Premises) whose presence may give rise to a labor or other
disturbance in the Building and, if necessary to prevent such a disturbance in a
particular situation, Landlord may require Tenant to employ union labor for the
work.

       b. Compliance with Law. Tenant shall not do or permit anything to be done
in or about the Premises which will in any way conflict with any law, ordinance
or governmental requirement now in force or which may hereafter be enacted.
Tenant, at its sole cost and expense, shall promptly comply with all such laws,
ordinances and governmental requirements and with the requirements of any board
of fire underwriters or other similar body now or hereafter constituted relating
to the condition, use or occupancy of the Premises (excluding structural changes
to the Building not related to or affected by Tenant's Alterations (as defined
in Section 9 below and any changes to the Building required by the Americans
Disability Act and any regulations promulgated thereunder), or Tenant's
particular use of the Premises). The judgment of any court of competent
jurisdiction or the admission of Tenant in an action against Tenant, whether or
not Landlord is a party thereto, that Tenant has violated any law, ordinance or
governmental requirement shall be conclusive of that fact as between Landlord
and Tenant. Tenant shall immediately furnish Landlord with any notices received
from any insurance company or governmental agency or inspection bureau regarding
any unsafe or unlawful conditions within the Premises.

       c. Hazardous Substances. No Hazardous Substance as defined by any local,
state or federal law or regulation shall be used or stored upon the Premises
without Landlord's prior written consent and Tenant's compliance with any
applicable law. In the event Landlord permits Tenant to use or store a Hazardous
Substance in the Premises, Tenant indemnifies and holds Landlord harmless from
all liabilities, administrative orders, lawsuits, awards, judgments or claims of
whatsoever kind, including any attorneys' fees and costs incurred by Landlord in
connection therewith ("Actions") arising from the use, storage, release or
presence of any such Hazardous Substance(s) in or upon the Premises or Building,
and shall defend Landlord at Tenant's sole expense in any such Action with
counsel acceptable to Landlord in Landlord's sole judgment.

       d. Applicability of Section. The provisions of this Section 8 are for the
benefit of Landlord only and are not nor shall they be construed to be for the
benefit of any tenant or occupant of the Building.

     9. ALTERATIONS AND RESTORATION:

       a. Alterations. Tenant shall not make or suffer to be made any
alterations, additions or improvements to the Premises ("Alterations"), except
as expressly provided in this Section 9. If Tenant desires any Alteration,
Tenant must obtain Landlord's prior written approval of such Alteration, which
approval shall not be unreasonably withheld or delayed. The Alteration shall be
made at Tenant's sole cost and expense by a general contractor approved in
writing by Landlord in advance and Tenant shall pay Landlord on demand or prior
to or during the course of such construction a reasonable amount determined by
Landlord to compensate Landlord for its review of the proposed Alteration (which
shall not exceed $500.00) and for other reasonable direct and indirect expenses
incurred by Landlord or Landlord's agents in connection with the Alteration
(e.g., freight elevator operation, additional cleaning expenses and additional
security expenses). All such work shall be performed diligently and in a
first-class workmanlike manner and in accordance with plans and specifications
approved by Landlord, and shall comply with all applicable laws and Landlord's
construction procedures for the Building. In no event shall Tenant employ any
person, entity or contractor to perform work in the Premises whose presence may
give rise to a labor or other disturbance in the Building. Default by Tenant in
the payment of any sums agreed to be paid by Tenant for or in connection with an
Alteration (regardless of whether such agreement is pursuant to the Section 9 or
separate instrument) shall entitle Landlord to all the same remedies as for
non-payment of rent under this Lease. Any Alterations, including, without
limitation, movable partitions that are affixed to the Premises (but excluding
movable, free standing partitions) and all carpeting, shall at once become part
of the Building and the property of Landlord. Tenant shall give Landlord not
less than five (5) days prior written notice of the date the construction of the
Alteration is to commence. Landlord may post and record an appropriate notice of
non-responsibility with respect to any Alteration and Tenant shall maintain any
such notices posted by Landlord in or on the Premises.

       b. Restoration. All Alterations constructed by Tenant shall be removed
from the Premises at the expiration or sooner termination of this Lease and the
Premises shall be restored to their condition prior to the

                                  Page 3 of 13

<PAGE>   7

making of the Alterations, ordinary wear and tear excepted, provided Landlord
informs Tenant in writing of its intent to have Tenant restore the Premises not
less than three (3) days prior to the start of Tenant's Alterations. The removal
of the Alterations and the restoration of the Premises shall be performed by a
general contractor selected by Tenant and approved by Landlord, and Tenant shall
pay the general contractor's fees and costs in connection with such work. Any
separate work letter or other agreement hereafter entered into between Landlord
and Tenant pertaining to Alterations shall be automatically incorporated into
this Lease without the necessity for further reference thereto.

         c. Demolition/Major Renovation.  If Landlord, its successor or assigns,
elect at any time to demolish the total Building or to remodel or renovate at
least fifty percent (50%) of the gross rentable area of the Building containing
the Premises (the "Demolition/Remodel Work"), then Landlord may elect to
terminate this lease upon giving Tenant not less than one hundred and eighty
(180) days advanced written notice of Landlord's election to terminate. In the
event of giving of such notice, Tenant shall vacate the premises on or before
the date set forth in Landlord's notice, and this lease shall be deemed canceled
as of said date as specified in said notice.

     10. REPAIR: By taking possession of the Premises, Tenant agrees that the
Premises are in good condition and repair. Tenant, at Tenant's sole cost and
expense, shall keep the Premises and every part thereof (excepting load bearing
walls and any plumbing and electrical facilities located outside the Premises)
in good condition and repair, damage by fire, earthquake, act of God or the
elements excepted. Tenant waives all rights to make repairs at the expense of
Landlord as provided by any law, statute or ordinance now or hereinafter in
effect. It is specifically understood and agreed that, except as specifically
set forth in this Lease, Landlord has no obligation and has made no promises to
alter, remodel, improve, repair, decorate or paint the Premises or any part
thereof. Tenant hereby waives the provisions of California Civil Code Sections
1932(l), 1941 and 1942 and of any similar law, statute or ordinance now or
hereafter in effect. Landlord, at Landlord's sole cost and expense, shall keep
the load bearing walls and the exterior walls and roof in good condition.

     11. ABANDONMENT: Tenant shall not vacate or abandon the Premises or any
part thereof at any time during the Lease Term. Tenant understands that if
Tenant leaves the Premises or any part thereof vacant, the risk of fire, other
casualty and vandalism to the Premises and the Building will be increased.
Accordingly, such action by Tenant shall constitute an Event of Default
hereunder regardless of whether Tenant continues to pay Monthly Rent and
Additional Rent under this Lease. If Tenant abandons, vacates or surrenders all
or any part of the Premises or is dispossessed of the Premises by process of
law, or otherwise, any movable furniture, equipment, trade fixtures, or other
personal property belonging to Tenant and left on the Premises shall at the
option of Landlord be deemed to be abandoned and, whether or not the property is
deemed abandoned, Landlord shall have the right to remove such property from the
Premises and charge Tenant for the removal and restoration of the Premises as
provided in Section 9. Landlord may charge Tenant for the storage of Tenant's
property left on the Premises at such rates as Landlord may from time to time
reasonably determine, or, Landlord may, at its option, store Tenant's property
in a public warehouse at Tenant's expense. Notwithstanding the foregoing,
neither the provisions of this Section 11 nor any other provision of this Lease
shall impose upon Landlord any obligation to care for or preserve any of
Tenant's property left upon the Premises, and Tenant hereby waives and releases
Landlord from any claim or liability in connection with the removal of such
property from the Premises and the storage thereof and specifically waives the
provisions of California Civil Code Section 1542 with respect to such release.
Landlord's action or inaction with regard to the provisions of this Section 11
shall not be construed as a waiver of Landlord's right to require Tenant to
remove its property, restore any damage to the Building caused by such removal,
and make any restoration required pursuant to Section 9 hereof.

     12. LIENS: Tenant shall not permit any mechanic's, materialman's or other
liens arising out of work performed at the Premises by or on behalf of Tenant to
be filed against the fee of the Real Property nor against Tenant's interest in
the Premises. Landlord shall have the right to post and keep posted on the
Premises any notices which it deems necessary for protection from such liens. If
any such liens are filed, Landlord may, upon thirty (30) days written notice to
Tenant, without waiving its rights based on such breach by Tenant and without
releasing Tenant from any obligations hereunder, pay and satisfy the same and in
such event the sums so paid by Landlord shall be due and payable by Tenant
immediately without notice or demand, with interest from the date paid by
Landlord through the date Tenant pays Landlord, at the Interest Rate, as defined
in Section 5(d).

     13. ASSIGNMENT AND SUBLETTING:

         a. Landlord's Consent; Definitions.  Tenant acknowledges that the
Building is a live/work residential property occupied by tenants specifically
selected by Landlord, and that Landlord has a legitimate interest in the type
and quality of such tenants, the location of tenants in the Building and in
controlling the leasing of space in the Building so that Landlord can better
meet the particular needs of its tenants and protect and enhance the relative
image and position of the Building in the market. Tenant further acknowledges
that the rental value of the Premises may fluctuate during the Lease Term in
accordance with market conditions, and, as a result, the rent paid by Tenant
under this Lease at any particular time may be higher or lower than the then
market rental value of the Premises. Landlord and Tenant agree, and the
provisions of this Section 13 are intended to so provide, that if Tenant elects
to assign this Lease or sublet any portion of the Premises, the profits from any
increase in the market rental value of the Premises shall belong solely to
Landlord. Tenant acknowledges that, if Tenant elects to assign this Lease or
sublet any portion of the Premises, a portion of Tenant's monetary investment in
the subject portion of the Premises (specifically including, but not limited to,
tenant improvements, good will or other assets) may be lost or reduced as a
result of such action.

         In light of the foregoing, Tenant agrees that except upon Landlord's
prior written consent, which consent shall not (subject to Landlord's rights
under Section 13(d) below) be unreasonably withheld or delayed, neither this
Lease nor all or any part of the leasehold interest created hereby shall
directly or indirectly, voluntarily or involuntarily, by operation or law or
otherwise, be assigned, mortgaged, pledged, encumbered or otherwise transferred
by Tenant or Tenant's legal representatives or successors in interest
(collectively, an "assignment")

                                  Page 4 of 13

<PAGE>   8

and neither the Premises nor any part thereof shall be sublet or be used or
occupied for any purpose by anyone other than Tenant (collectively, a
"sublease"). Tenant agrees that any instrument by which Tenant assigns or
sublets all or any portion of the Premises shall expressly provide that the
subtenant or assignee may not further assign or sublet the assigned or sublet
space, that the assignee or subtenant will comply with all of the provisions of
this Lease and that Landlord may enforce the provisions of this Lease directly
against such assignee or subtenant. Any attempted assignment or subletting
without Landlord's prior written consent shall be void and shall constitute an
Event of Default entitling Landlord to terminate this Lease and to exercise all
other remedies provided in Section 25 of this Lease.

            In determining whether to approve a proposed assignment or sublease,
Landlord shall place primary emphasis on the proposed transferee's reputation
and creditworthiness, the character of the business to be conducted by the
proposed transferee on the Premises and the effect of such assignment or
subletting on the tenant mix in the Building. In no event shall Landlord be
obligated to consent to an assignment or subletting which increases (a) the
operating costs for the Building, (b) the burden on the Building services, or
(c) the foot traffic, elevator usage or security concerns in the Building, or
creates an increased probability that the comfort and/or safety of the Landlord
and other tenants in the Building will be unreasonably compromised or reduced.
Landlord shall not be obligated to approve an assignment or subletting to a
current tenant of the Building or a prospective tenant of the Building with whom
Landlord is then actively (i.e., within the previous ninety (90) days) and in
good-faith negotiating. Landlord's foregoing rights and options shall continue
throughout the entire Lease Term.

            For purposes of this Section 13, a transfer of Control of Tenant or
any subtenant or assignee, or any entity controlling any of them, in a single
transaction or a series of related or unrelated transactions (including, without
limitation, by consolidation, merger, acquisition or reorganization), shall be
deemed an assignment, except that the transfer of outstanding capital stock or
other listed equity interests by persons or parties other than "insiders" within
the meaning of the Securities Exchange Act of 1934, as amended, through the
"over-the-counter" market or any recognized national or international securities
exchange, shall not be included in determining whether Control has been
transferred. "Control" shall mean direct or indirect ownership of fifty percent
(50%) or more of all of the voting stock of a corporation or fifty percent (50%)
or more of all the legal and equitable interest in any other business entity.

            If this Lease is assigned, whether or not in violation of the terms
of this Lease, Landlord may collect rent from the assignment. If the Premises or
any part thereof is sublet, Landlord may, upon an Event of Default by Tenant
hereunder, collect rent from the subtenant. In either event, Landlord apply the
amount collected from the assignee or subtenant to Tenant's monetary obligations
hereunder.

            The consent by Landlord to an assignment or subletting hereunder
shall not relieve Tenant or any assignee or subtenant from obtaining Landlord's
express prior written consent to any other or further assignment or subletting,
as provided herein. Neither an assignment or subletting, nor the collection of
rent by Landlord from any person other than Tenant, nor the application of any
such rent as provided in this Section 13(a) shall be deemed a waiver of any of
the provisions of this Section 13(a) or release Tenant from its obligation to
comply with the provisions of this Lease and Tenant shall remain fully and
primarily liable for all of Tenant's obligations under this Lease. If Landlord
approves of an assignment or subletting hereunder and this Lease contains any
renewal options, expansion options, rights of first refusal, rights of first
negotiation or any other rights or options pertaining to additional space in the
Building, such rights and/or options shall not run to the subtenant or assignee,
it being agreed by the parties hereto that any such rights and options are
personal to Tenant named herein and may not be transferred.

         b. Processing Expenses.  Tenant shall pay to Landlord the amount of
Landlord's actual, reasonable cost of processing each proposed assignment or
subletting (including, without limitation, the cost of Landlord's
administrative, accounting and clerical time, and any attorneys' and other
professional fees reasonably incurred by Landlord, collectively "Processing
Costs"), provided, however, that the Processing Costs shall not exceed Five
Hundred Dollars ($500.00) for any single proposed assignment or subletting,
together with the amount of all direct and indirect expenses incurred by
Landlord arising from the assignee or sublessee taking occupancy of the subject
space (including, without limitation, costs of freight elevator operation for
moving of furnishings and trade fixtures, security service, janitorial and
cleaning service, and rubbish removal service). Notwithstanding anything to the
contrary herein, Landlord shall not be required to process any request for
Landlord's consent to an assignment or subletting until Tenant has paid to
Landlord the amount of Landlord's estimate of the Processing Costs.

         c. Consideration to Landlord.  In the event of any assignment or
sublease, whether or not requiring Landlord's consent, Landlord shall be
entitled to receive, as additional rent hereunder, any consideration (including,
without limitation, payment for leasehold improvements owned by Landlord) paid
by the assignee or subtenant for the assignment or sublease and, in the case of
a sublease, the excess of the amount of rent paid for the sublet space by the
subtenant over the total amount of Monthly Rent under Section 5 hereof and
Additional Rent under Sections 7 and 17 hereof applicable to such sublet space
on a pro rata basis. Upon Landlord's request, Tenant shall assign to Landlord
all amounts to be paid to Tenant by any such subtenant and assignee which belong
to Landlord and shall direct such subtenant or assignee to pay the same directly
to Landlord. If there is more than one sublease under this Lease, the amounts
(if any) to be paid by Tenant to Landlord pursuant to the preceding sentence
shall be separately calculated for each sublease and amounts due Landlord with
regard to any one sublease may not be offset against rental and other
consideration pertaining due under any other sublease.

            With regard to an approved assignment or subletting, Tenant
acknowledges that Landlord's agreement to deal directly with the subtenant or
assignee with regard to such party's occupancy of the subject premises and the
administration of this Lease, without requiring Tenant to monitor or become
directly involved in such matters, constitutes appropriate and acceptable
consideration for the capture by Landlord of any rent or consideration paid by
the subtenant or assignee in excess of that required to be paid by Tenant under
this Lease.

                                  Page 5 of 13

<PAGE>   9

         d. Procedures. If Tenant desires to assign this Lease or any interest
therein or sublet all or part of the Premises, Tenant shall give Landlord
written notice thereof designating the space proposed to be sublet and the terms
proposed. Landlord shall have the prior right and option (to be exercised by
written notice to Tenant given within thirty (30) days after receipt of Tenant's
notice) either (i) to sublet from Tenant any portion of the Premises proposed by
Tenant to be sublet, for the term for which such portion is proposed to be
sublet, but at the same rent (including Additional Rent as provided for in
Sections 7 and 17 hereof) as Tenant is required to pay to Landlord under this
Lease for the same space, computed on a pro rata square footage basis, and
during the term of such sublease Tenant shall be released of its obligations
under this Lease with regard to the subject space, or (ii) to approve Tenant's
proposal to sublet conditional upon Landlord's subsequent written approval of
the specific sublease obtained by Tenant and the specific subtenant named
therein. If Landlord exercises its option in (i) above, then Landlord may, at
Landlord's sole cost, construct improvements in the subject space and, so long
as the improvements are suitable for general Live/Work purposes, Landlord shall
have no obligation to restore the subject space to its original condition
following the termination of the sublease. If Landlord exercises its option
described in (ii) above, Tenant shall submit to Landlord for Landlord's written
approval Tenant's proposed sublease agreement (in which the proposed subtenant
shall be named) together with a current financial statement of such proposed
subtenant. If Landlord fails to exercise its option to sublet, this shall not be
construed as or constitute a waiver of any of the provisions of Sections 13(a),
(b), (c) or (d) herein. If Landlord exercises its option to sublet, Landlord
shall not have any liability for any real estate brokerage commission(s) or any
of the costs and expenses that Tenant may have incurred in connection with its
proposed subletting, and Tenant agrees to indemnify, defend and hold harmless
Landlord from and against any and all claims (including, without limitation,
claims for commissions) arising from such proposed subletting. Landlord's
foregoing rights and options shall continue throughout the entire Lease Term.
For purposes of this Section 13(d), a proposed assignment of this Lease in whole
or in part shall be deemed a proposed subletting of such space.

         e. Documentation. No permitted subletting by Tenant shall be effective
until there has been delivered to Landlord a counterpart of the sublease in
which the subtenant agrees to be and remain jointly and severally liable with
Tenant for the payment of rent pertaining to the sublet space and for the
performance of all of the terms and provisions of this Lease; provided, however,
that the subtenant shall be liable to Landlord for rent only in the amount set
forth in the sublease. No permitted assignment shall be effective unless and
until there has been delivered to Landlord a counterpart of the assignment in
which the assignee assumes all of Tenant's obligations under this Lease arising
on or after the date of the assignment. The failure or refusal of a subtenant or
assignee to execute any such instrument shall not release or discharge the
subtenant or assignee from its liability as set forth above.

         f. No Merger. Without limiting any of the provisions of this Section
13, if Tenant has entered into any subleases of any portion of the Premises, the
voluntary or other surrender of this Lease by Tenant, or a mutual cancellation
by Landlord and Tenant, shall not work a merger, and shall, at the option of
Landlord, terminate all or any existing subleases or subtenancies or, at the
option of Landlord, operate as an assignment to Landlord of any or all such
subleases or subtenancies.

     14. INDEMNIFICATION OF LANDLORD:

         a. Landlord and the holders of any Superior Interests (as defined in
Section 21 hereof) shall not be liable to Tenant and Tenant hereby waives all
claims against such parties for any loss, injury or other damage to person or
property in or about the Premises or the Real Property from any cause
whatsoever, including, without limitation, water leakage of any character from
the roof, walls, basement or other portion of the Premises or the Real Property,
or gas, fire, explosion or electricity within the Premises or the Real Property,
or acts of other tenants of the Building; provided, however, that the foregoing
waiver shall be inapplicable to any loss, injury or damage resulting directly or
indirectly from Landlord's negligence, gross negligence or willful misconduct.

         b. Tenant shall hold Landlord and the holders of any Superior Interest,
and the constituent shareholders, partners or other owners thereof, and all of
their agents, contractors, servants, officers, directors, employees and
licensees (hereinafter collectively called the "Indemnitees") harmless from and
indemnify the Indemnitees against any claims, liability, damages, costs or
expenses, including reasonable attorneys' fees and costs incurred in defending
against the same, to the extent arising from (a) the acts or omissions of
Tenant, Tenant's employees, agents, contractors, licensees, subtenants,
customers, guests or invitees in or about the Real Property, (b) any
construction or other work undertaken by Tenant on the Premises, whether prior
to or during the term of this Lease, (c) any breach or Event of Default under
this Lease by Tenant, or (d) any accident, injury or damages, to any person or
property, occurring in or about the Premises caused by the intentional acts,
negligence, gross negligence or willful misconduct of Tenant, its employees and
others; except to the extent such claims, liability, damages, costs or expenses
are caused directly or indirectly by the negligence, gross negligence or willful
acts or omissions of Landlord or its authorized representatives or agents. In
case any action or proceeding be brought against any of the Indemnitees by
reason of any such claim or liability, Tenant, upon notice from Landlord,
covenants to resist and defend at Tenant's sole expense such action or
proceeding by counsel reasonably satisfactory to Landlord. The provisions of
this Section 14(b) shall survive the termination of this Lease with respect to
any injury, illness, death or damage occurring prior to such termination.

     15. INSURANCE:

         a. Tenant's Insurance. Tenant shall, at Tenant's expense, maintain
during the Lease Term (and, if Tenant shall occupy or conduct activities in or
about the Premises prior to or after the Lease Term, then also during such
pre-term or post-term period): (i) comprehensive general liability insurance
including contractual liability coverage, with a minimum coverage of One Million
Dollars ($1,000,000) per occurrence/One Million Dollars ($1,000,000) general
aggregate, for injuries to, or illness or death of, persons and damage to
property occurring in or about the Premises or otherwise resulting from Tenant's
operations in the Building, (ii) property insurance protecting Tenant against
loss or damage by fire and such other risks as are insurable under
then-available standard forms of "all

                                  Page 6 of 13

<PAGE>   10

risk" insurance policies (excluding earthquake and flood but including water
damage), covering Tenant's property in or about the Premises or the Real
Property and also covering any fixtures that may belong to Tenant and any
Alterations not in the nature of ordinary office improvements, but excluding the
improvements existing in the Premises as of the date of Tenant's initial
occupancy of the Premises, for not less than eighty percent (80%) of the full
replacement value thereof without deduction for depreciation; and (iii) workers'
compensation insurance in statutory limits. The above-described comprehensive
general liability insurance shall protect Tenant, as named insured, and Landlord
and all the Indemnities, as defined in Section 14, and any other parties
designated by Landlord, as additional insureds; shall insure Landlord's and such
other parties' contingent liability with regard to acts or omissions of Tenant;
and shall specifically include all liability assumed by Tenant under this Lease
(provided, however, that such contractual liability coverage shall not limit or
be deemed to satisfy Tenant's indemnity obligations under this Lease). Landlord
reserves the right to reasonably increase the foregoing amount of liability
coverage from time to time as Landlord's insurance consultant determines is
required to adequately protect Landlord and the other parties designated by
Landlord from the matters insured thereby.

         b. Policy Form.  Each insurance policy required pursuant to this
Section 15 shall be issued by an insurance company licensed to do business in
the State of California and approved by Landlord. Each insurance policy, other
than Tenant's workers' compensation insurance, shall (i) provide that it may not
be materially changed, canceled or allowed to lapse unless thirty (30) days
prior written notice to Landlord and any other insureds designated by Landlord
is first given, and (ii) provide that no act or omission of Tenant shall affect
or limit the obligations of the insurer with respect to any other insured. Each
such insurance policy or a certificate thereof shall be delivered to Landlord by
Tenant on or before the effective date of such policy and thereafter Tenant
shall deliver to Landlord renewal policies or certificates prior to the
expiration dates of expiring policies. If Tenant fails to procure such insurance
or to deliver such policies or certificates, Landlord may, at its option and
after written notice to Tenant, procure the same for Tenant's account, and the
cost thereof shall be paid to Landlord by Tenant upon demand.

         c. Nothing in this Section 15 shall be construed as creating or
implying the existence of (i) any ownership by Tenant of any fixtures,
additions, Alterations, or improvements in or to the Premises or (ii) any right
on Tenant's part to make any addition, Alteration or improvement in or to the
Premises.

     16. MUTUAL WAIVER OF SUBROGATION RIGHTS:  Each party hereto hereby releases
the other respective party and, in the case of Tenant as the releasing party,
the other Indemnitees identified in Section 14 hereof, and the respective
partners, shareholders, agents, employees, officers, directors and authorized
representatives of such released party, from any claims such releasing party may
have for damage to the Building, the Premises or any of such releasing party's
fixtures, personal property, improvements and Alterations in or about the
Premises, the Building or the Real Property that is caused by or results from
risks insured against under any fire and extended coverage insurance policies
actually carried by such releasing party or deemed to be carried by such
releasing party; provided, however, that such waiver shall be limited to the
extent of the net insurance proceeds payable by the relevant insurance company
with respect to such loss or damage. For purposes of this Section 16, Tenant
shall be deemed to be carrying any of the insurance policies required pursuant
to Section 15 even if not actually carried by Tenant, and Landlord shall be
deemed to carry standard fire and extended coverage policies on the Real
Property. Each party hereto shall cause each such fire and extended coverage
insurance policy obtained by it to provide that the insurance company waives all
rights of recovery by way of subrogation against the other respective party and
the other aforesaid released parties in connection with any matter covered by
such policy.

     17. UTILITIES, COMMON AREAS, AND OTHER BUILDING SERVICES:

         a. Premises Utilities and Services.  Tenant shall pay Tenant's pro rata
share of the costs of the utilities provided by Landlord to the Premises in
accordance with Section 17(c) below. Landlord shall furnish hot and cold
domestic water, radiant heating water, sewer service, and fire sprinkler service
to the Premises. Tenant shall be solely responsible for all costs associated
with obtaining and utilizing electrical and telephone service in the Premises.

         b. Common Area Utilities and Services.  Tenant shall pay Tenant's pro
rata share of all costs incurred by Landlord for the operation and maintenance
of the Common Areas. Common Area costs include, but are not necessarily limited
to, costs and expenses for the following: gardening and landscaping; electric,
natural gas, water, sewage charges and other utilities; fire and entry
monitoring; maintenance of signs; fees for required licenses and permits;
elevator maintenance; refuse removal; repairing, painting, cleaning, and similar
items; and a reasonable allowance to Landlord for Landlord's supervision of the
Common Areas (not to exceed five percent (5%) of the total of all Common Area
costs for the entire calendar year). Landlord may cause any or all of such
services to be provided by third parties. Insurance premiums and real or
personal property taxes which are directly attributable to the Common Area are
the sole responsibility of Landlord.

         c. Payment for Utilities and Services.  Tenant shall pay Tenant's pro
rata share of all estimated Common Area and Premises utilities and services
provided by Landlord, in advance, in monthly installments on or before the first
day of each calendar month during the Lease Term. Tenant's pro rata percentage
shall be as set forth in Section 2(f) above. Landlord may adjust such estimates
at any time and from time to time, based on Landlord's experience and reasonable
anticipation of costs. The estimate of costs for Common Area and Premises
utilities shall be adjusted annually based on the costs incurred from the
previous calendar year and including any anticipated increases and/or decreases
in said costs.

         d. Interruption of Services.  In the event of any interruption in, or
failure or inability to provide any of the above-described services or utilities
due to causes beyond Landlord's control, such interruption, failure or inability
shall not constitute an eviction of Tenant, constructive or otherwise, or impose
upon Landlord any liability whatsoever, including, but not limited to, liability
for consequential damages or loss of business by Tenant. Tenant

                                  Page 7 of 13

<PAGE>   11

hereby waives the provisions of California Civil Code Section 1932(1) or any
other applicable existing or future law, ordinance or governmental regulation
permitting the termination of this Lease due to such interruption, failure or
inability.

     e. Governmental Controls. In the event any governmental authority having
jurisdiction over the Real Property or the Building promulgates or revises any
law, ordinance or regulation or building, fire or other code or imposes
mandatory or voluntary controls or guidelines on Landlord or the Real Property
or the Building relating to the use or conservation of energy or utilities or
the reduction of automobile or other emissions (collectively "Controls") or in
the event Landlord is required or elects to make alterations to the Real
Property or the Building in order to comply with such mandatory or voluntary
Controls, Landlord may, in its sole discretion, comply with such Controls or
make such alterations to the Real Property or the Building related thereto. Such
compliance and the making of such alterations shall not constitute an eviction
of Tenant, constructive or otherwise, or impose upon Landlord any liability
whatsoever, including, but not limited to, liability of consequential damages or
loss of business by Tenant. Landlord shall use his best efforts to prevent
disruption of Tenant's business.

     18. PERSONAL PROPERTY AND OTHER TAXES: Tenant shall pay before delinquency
any and all taxes, fees, charges or other governmental impositions levied or
assessed against Landlord or Tenant (a) upon Tenant's equipment, furniture,
fixtures, improvements and other personal property (including carpeting
installed by Tenant) located in the Premises, (b) by virtue of any Alterations
made by Tenant to the Premises, and (c) upon this transaction or any document to
which Tenant is a party creating or transferring an interest or an estate in the
Premises. If any such fee, charge or other governmental imposition is paid by
Landlord, Tenant shall reimburse Landlord for Landlord's payment upon demand.

     19. RULES AND REGULATIONS: Tenant shall comply with the Rules and
Regulations as may be established, modified or amended by Landlord from time to
time. If Tenant's Premises are on the second floor of the building, Tenant shall
cover not less than 70% of the concrete floors with floor coverings such as area
rugs, carpets or other sound reducing coverings approved by Landlord. Landlord
shall not be responsible to Tenant for the non-performance by any other tenant
or occupant of the Building of any of the Rules and Regulations. The Initial
Rules and Regulations for the Building are attached hereto as Exhibit C.

     20. SURRENDER; HOLDING OVER:

         a. Surrender. Upon the expiration or other termination of this Lease,
Tenant shall surrender the Premises and all improvements and Alterations to
Landlord broom-clean and in their original condition, except for reasonable wear
and tear and damage from casualty, and Tenant shall remove from the Premises all
of Tenant's personal property and trade fixtures. If such removal is not
completed at the expiration or other termination of this Lease, Landlord may
remove the same at Tenant's expense. Any damage to the Premises or the Building
caused by such removal shall be repaired promptly by Tenant or, if Tenant fails
to do so, Landlord may do so at Tenant's expense. The removal of Alterations
from the Premises shall be governed by Section 9 hereof. Tenant's obligations
under this Section shall survive the expiration or other termination of this
Lease. Upon expiration or termination of this Lease or of Tenant's possession,
Tenant shall surrender all keys to the Premises or any other part of the
Building and shall make known to Landlord the combination of locks on all safes,
cabinets and vaults that may be located in the Premises.

         b. Holding Over. If Tenant remains in possession of the Premises after
the expiration or earlier termination of this Lease, Tenant's continued
possession shall be on the basis of a tenancy at sufferance and Tenant shall pay
as Monthly Rent during the holdover period an amount equal to the greater of
(i) one hundred fifty percent (150%) of the fair market rental (as reasonably
determined by Landlord) for the Premises or (ii) two hundred percent (200%) of
the Monthly Rent and Additional Rent payable under this Lease for the last full
month prior to the date of such expiration.

     21. SUBORDINATION AND ATTORNMENT: This Lease is expressly made subject and
subordinate to any mortgage, deed of trust, ground lease, underlying lease
covenants, conditions and restrictions ("CC&Rs") or like encumbrance affecting
any part of the Real Property or any interest of Landlord therein which is now
existing or hereafter executed or recorded (any of the foregoing being a
"Superior Interest") without the necessity of any further documentation
evidencing such subordination. Notwithstanding the foregoing, Tenant shall, upon
Landlord's request, execute and deliver to Landlord a document (submitted to
Tenant by Landlord) evidencing the subordination of this Lease to a particular
Superior Interest. If the interest of Landlord in the Real Property or the
Building is transferred to any person ("Purchaser") pursuant to or in lieu of
proceedings for enforcement of any encumbrance, Tenant shall immediately and
automatically attorn to the Purchaser, and this Lease shall continue in full
force and effect as a direct lease between the Purchaser and Tenant on the terms
and conditions set forth in this Lease. As long as Tenant performs his
obligations under this Lease as to any future financing secured by the Building,
no foreclosure of, deed given in lieu of foreclosure of, or sale under any
encumbrance shall affect Tenant's rights under this Lease.

     22. FINANCING CONDITION: If any lender which intends to make a loan to
Landlord and take a mortgage or deed of trust encumbering the Real Property
should require, as a condition to such financing, execution by Tenant of an
agreement requiring Tenant to send such lender written notice of any default by
Landlord under this Lease, giving such lender the right to cure such default
until such lender has completed foreclosure, and preventing Tenant from
terminating this Lease unless such default remains uncured after foreclosure has
been completed, then Tenant agrees to execute and deliver such agreement as
required by such lender. Tenant acknowledges and agrees that its failure to
execute any such agreement required by such lender may cause Landlord serious
financial damage by causing the failure of a financing transaction and such
failure shall give Landlord all of its rights and remedies under Section 25
hereof, including its right to damages caused by the loss of said financing.

                                  Page 8 of 13

<PAGE>   12

     23. ENTRY BY LANDLORD: Landlord may, upon 24 hours notice to Tenant, except
in the case of emergency, enter the Premises to (a) inspect the same and to
determine whether Tenant is in compliance with its obligations hereunder, (b)
supply janitorial and any other service Landlord is required to provide
hereunder, (c) show the Premises to prospective purchasers or tenants, (d) post
notices of non-responsibility, and (e) alter, improve or repair the Premises or
any portion of the Real Property. In connection with any such alteration,
improvement or repair, Landlord may erect in the Premises or elsewhere in the
Real Property scaffolding and other structures reasonably required for the work
to be performed. In no event shall Tenant's rent abate as a result of any such
entry or work; provided, however, that all such work shall be done in such a
manner as to cause as little interference to Tenant as reasonably possible.
Except in the event of Landlord's gross negligence or willful misconduct,
Landlord shall not be liable in any manner for any inconvenience, loss of
business or other damage to Tenant or other persons arising out of Landlord's
entry on the Premises as provided in this Section 23. Landlord shall at all
times retain a key with which to unlock all of the doors in the Premises, except
Tenant's vaults and safes. If an emergency necessitates immediate access to the
Premises, Landlord may use whatever force is necessary to enter the Premises and
any such entry to the Premises shall not constitute a forcible or unlawful entry
into the Premises, a detainer of the Premises, or an eviction of Tenant from the
Premises, or any portion thereof.

     24. INSOLVENCY OR BANKRUPTCY: The occurrence of any of the following shall
constitute an Event of Default under Section 25 hereof:

         a. Tenant ceases doing business as a going concern, makes an assignment
for the benefit of creditors, is adjudicated as insolvent, files a petition (or
files an answer admitting the material allegations of such petition) seeking for
Tenant any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any state or federal bankruptcy or other
law, or Tenant consents to or acquiesces in the appointment, pursuant to any
state or federal bankruptcy or other law, of a trustee, receiver or liquidator
for the Premises, for Tenant or for all or any substantial part of Tenant's
assets;

         b. Tenant fails within sixty (60) days after the commencement of any
proceedings against Tenant seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any state or
federal bankruptcy or other law, to have such proceedings dismissed, or Tenant
fails, within sixty (60) days after an appointment pursuant to any state or
federal bankruptcy or other law without Tenant's consent or acquiescence, of any
trustee, receiver or liquidator for the Premises, for Tenant or for all or any
substantial part of Tenant's assets, to have such appointment vacated;

         c. Tenant is unable, or admits in writing its inability, to pay its
debts as they mature; or

         d. Tenant gives notice to any governmental body of its insolvency or
pending insolvency, or of its suspension or pending suspension of operations.

         In no event shall this Lease be assigned or assignable by reason of any
voluntary or involuntary bankruptcy proceedings, nor shall any rights or
privileges hereunder be an asset of Tenant, the trustee, debtor-in-possession,
or the debtor's estate in any bankruptcy, insolvency or reorganization
proceedings.

     25. DEFAULT AND REMEDIES:

         a. Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" by Tenant:

            (i) Tenant fails to pay rent or other sums as and when due
hereunder.

            (ii) Tenant fails to comply with any other provision of this Lease
in the manner and within the time required after ten (10) days written notice
from Landlord to Tenant.

            (iii) Tenant fails to occupy and use the Premises for fifteen (15)
consecutive days, which failure shall be deemed an abandonment of the Premises
by Tenant.

            (iv) Tenant violates the bankruptcy and insolvency provisions of
Section 24 hereof.

         b. Remedies. Upon the occurrence of an Event of Default, Landlord shall
have the following remedies, which shall not be exclusive but shall be
cumulative and shall be in addition to any other remedies now or hereafter
allowed by law or equity:

            (i) Landlord may terminate Tenant's right to possession of the
Premises at any time by written notice to Tenant. Tenant expressly acknowledges
that in the absence of such written notice from Landlord, no other act of
Landlord, including, but not limited to, its re-entry into the Premises, its
reletting of the Premises for Tenant's account, or its exercise of any other
rights and remedies under this Section 25, shall constitute an acceptance of
Tenant's surrender of the Premises or constitute a termination of this Lease or
of Tenant's right to possession of the Premises.

                Upon such termination in writing of Tenant's right to possession
of the Premises, this Lease shall terminate and Landlord shall be entitled to
recover damages from Tenant as provided in California Civil Code Section 1951.2
or any other applicable existing or future law, ordinance or regulation
providing for recovery of damages for such breach, including but not limited to
the following:

                (A) the reasonable cost of recovering the Premises; plus

                                  Page 9 of 13

<PAGE>   13

                (B) the reasonable cost of removing Tenant's Alterations, trade
fixtures and improvements; plus

                (C) all unpaid rent due or earned hereunder prior to the date of
termination, less the proceeds of any reletting or any rental received from
subtenants prior to the date of termination applied as provided in Section
25(b)(ii) below, together with interest at the Interest Rate specified in
Section 5(c) of this Lease, on such sums from the date such rent is due and
payable until the date of the reward of damages; plus

                (D) the amount by which the rent which would be payable by
Tenant hereunder, as reasonably estimated by Landlord, from the date of
termination until the date of the award of damages, exceeds the amount of such
rental loss as Tenant proves could have been reasonably avoided together with
interest at the Interest Rate specified in Section 5 hereof on such sums from
the date such rent is due and payable until the date of the award of damages;
plus

                (E) the amount by which the rent which would be payable by
Tenant hereunder, as reasonably estimated by Landlord, for the remainder of the
then term, after the date of the award of damages exceeds the amount such rental
loss as Tenant proves could have been reasonably avoided, discounted at the
discount rate published by the Federal Reserve Bank of San Francisco for member
banks at the time of the award plus one percent (1%); plus

                (F) such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable law.

            (ii) Landlord may continue this Lease in full force and effect and
may enforce all of its rights and remedies under this Lease, including, but not
limited to, the right to recover rent as it becomes due. During the continuance
of an Event of Default, Landlord may enter the Premises without terminating this
Lease and sublet all or any part of the Premises for Tenant's account to any
person, for such term (which may be a period beyond the remaining term of this
Lease), at such rents and on such other terms and conditions as Landlord deems
advisable. In the event of any such subletting, rents received by Landlord from
such subletting shall be applied (A) first, to the payment of the costs of
maintaining, preserving, altering and preparing the Premises for subletting, the
other costs of subletting, including but not limited to brokers' commissions,
attorneys' fees and expenses of removal of Tenant's personal property, trade
fixtures and Alterations; (B) second, to the payment of rent then due and
payable hereunder; (C) third, to the payment of future rent as the same may
become due and payable hereunder; (D) fourth, the balance, if any, shall be paid
to Tenant upon (but not before) expiration of the Lease Term. If the rents
received by Landlord from such subletting, after application as provided above,
are insufficient in any month to pay the rent due and payable hereunder for such
month, Tenant shall pay such deficiency to Landlord monthly upon demand.
Notwithstanding any such subletting for Tenant's account without termination,
Landlord may at any time thereafter, by written notice to Tenant, elect to
terminate this Lease by virtue of a previous Event of Default.

                During the continuance of an Event of Default, for so long as
Landlord does not terminate Tenant's right to possession of the Premises and
subject to Section 13, entitled Assignment and Subletting, and the options
granted to Landlord thereunder, Landlord shall not unreasonably withhold its
consent to an assignment or sublease of Tenant's interest in the Premises or in
this Lease.

           (iii) During the continuance of an Event of Default, Landlord may
enter the Premises without terminating this Lease and remove all of Tenant's
personal property, Alterations and trade fixtures from the Premises and store
them at Tenant's risk and expense. If Landlord removes such property from the
Premises and stores it at Tenant's risk and expense, and if Tenant fails to pay
the cost of such removal and storage after written demand therefor and/or to pay
any rent then due, then after the property has been stored for a period of
thirty (30) days or more, Landlord may sell such property at public or private
sale, in the manner and at such times and places as Landlord deems commercially
reasonable following reasonable notice to Tenant of the time and place of such
sale. The proceeds of any such sale shall be applied first to the payment of the
expenses for removal and storage of the property, the preparation for and the
conducting of such sale, and for attorneys' fees and other legal expenses
incurred by Landlord in connection therewith, and the balance shall be applied
as provided in Section 25(b)(ii) above.

                Tenant hereby waives all claims for damages that may be caused
by Landlord's reentering and taking possession of the Premises or removing and
storing Tenant's personal property pursuant to this Section 25, and Tenant shall
hold Landlord harmless from and against any loss, cost or damage resulting from
any such act. No reentry by Landlord shall constitute or be construed as a
forcible entry by Landlord.

           (iv) Landlord may require Tenant to remove any and all Alterations
from the Premises or, if Tenant fails to do so within thirty (30) days after
Landlord's request, Landlord may do so at Tenant's expense.

            (v) Landlord may cure the Event of Default at Tenant's expense. If
Landlord pays any sum or incurs any expense in curing the Event of Default,
Tenant shall reimburse Landlord upon demand for the amount of such payment or
expense with interest at the Interest Rate specified in Section 5 from the date
the sum is paid or the expense is incurred until Landlord is reimbursed by
Tenant. Any amount due Landlord under this subsection shall constitute
additional rent hereunder.

     26. DAMAGE OR DESTRUCTION: If all or a part of the Premises or the Real
Property are damaged by fire or other casualty, and the damage can, in
Landlord's reasonable opinion, be repaired within sixty (60) days of the damage,
then Landlord shall repair the damage and this Lease shall remain in full force
and effect. If the repairs cannot, in Landlord's opinion, be made within the
sixty (60) day period, Landlord at its option exercised by written notice to
Tenant within the sixty (60) day period, shall either (a) repair the damage, in
which event this Lease shall continue in full force and effect, or (b) terminate
this Lease as of the date specified by Landlord in the notice,

                                 Page 10 of 13

<PAGE>   14

which date shall be not less than thirty (30) days nor more than sixty (60) days
after the date such notice is given, and this Lease shall terminate on the date
specified in the notice.

     If fire or other casualty damages the Premises or the Common Areas of the
Real Property necessary for Tenant's use and occupancy of the Premises, and the
damage does not result from the negligence or willful misconduct of Tenant or
Tenant's agents, employees, contractors, licensees or invitees, then during the
period the Premises or any part thereof are rendered unusable by such damage and
repair, Tenant's Monthly Rent and Additional Rent under Sections 5, 7 and 17
hereof shall be proportionately reduced based upon the extent to which the
damage and repair prevents Tenant from conducting its business at the Premises.
Landlord shall not be obligated to repair or replace any of Tenant's movable
furniture, equipment, trade fixtures, and other personal property, nor any
Alterations installed in the Premises by Tenant, and Tenant shall, at Tenant's
sole cost and expense, repair and replace such items. All such repair and
replacement of Alterations shall be constructed in accordance with Section 9
hereof regarding Alterations.

     A total destruction of the Building shall automatically terminate this
Lease. Tenant hereby waives California Civil Code Sections 1932(2) and 1933(4),
providing for termination of hiring upon destruction of the thing hired, and
Sections 1941 and 1942 providing for repairs to and of premises.

     27. EMINENT DOMAIN:

         a. If all or any part of the Premises are taken by any public or
quasi-public authority under the power of eminent domain, or any agreement in
lieu thereof (a "taking"), this Lease shall terminate as to the portion of the
Premises taken effective as of the date of taking. If only a portion of the
Premises is taken, Landlord or Tenant may terminate this Lease as to the
remainder of the Premises upon written notice to the other party within ninety
(90) days after the taking; provided, however, that Tenant's right to terminate
this Lease is conditioned upon the remaining portion of the Premises being of
such size or configuration that such remaining portion of the Premises is
unusable or uneconomical for Tenant's business. Landlord shall be entitled to
all compensation, damages, income, rent awards and interest thereon whatsoever
which may be paid or made in connection with any taking and Tenant shall have no
claim against Landlord for the value of any unexpired Lease Term or of any of
the improvements or Alterations in the Premises; provided, however, that the
foregoing shall not prohibit Tenant from prosecuting a separate claim against
the taking authority for an amount separately designated for Tenant's relocation
expenses or the interruption of or damage to Tenant's business or as
compensation for Tenant's personal property, trade fixtures, Alterations or
other improvements paid for by Tenant.

            In the event of a partial taking of the Premises which does not
result in a termination of this Lease, the Monthly Rent and Additional Rent
under Sections 5 and 7 hereunder shall be equitably reduced. If all or any part
of the Real Property other than the Premises is taken, Landlord may terminate
this Lease upon written notice to Tenant given within ninety (90) days after the
date of taking.

         b. Notwithstanding the foregoing, if all or any portion of the Premises
is taken for a period of time ending prior to the end of the Lease Term, this
Lease shall remain in full force and effect and Tenant shall continue to pay all
rent and to perform all of its obligations under this Lease; provided, however,
that Tenant shall be entitled to all compensation, damages, income, rent awards
and interest thereon that is paid or made in connection with such temporary
taking, except that any such compensation in excess of the rent or other amount
payable to Landlord hereunder shall be promptly paid over to Landlord as
received. Landlord and Tenant each hereby waive the provisions of California
Code of Civil Procedure Section 1265.130 and any other applicable existing or
future law, ordinance or governmental regulation providing for, or allowing
either party to petition the courts of the state in which the Real Property is
located for, a termination of this Lease upon a partial taking of the Premises
and/or the Building.

     28. LANDLORD'S LIABILITY; SALE OF BUILDING: The term "Landlord", as used in
this Lease, shall mean only the owner or owners of the Real Property at the time
in question. Notwithstanding any other provision of this Lease, the liability of
Landlord for its obligations under this Lease is limited solely to Landlord's
interest in the Real Property as the same may from time to time be encumbered,
and no personal liability shall at any time be asserted or enforceable against
any other assets of Landlord or against Landlord's stockholders, directors,
officers or partners on account of any of Landlord's obligations or actions
under this Lease. In addition, in the event of any conveyance of title to the
Real Property, then from and after the date of such conveyance, Landlord shall
be relieved of all liability with respect to Landlord's obligations to be
performed under this Lease after the date of such conveyance. Upon any
conveyance of title to the Real Property, the grantee or transferee, by
accepting such conveyance, shall be deemed to have assumed Landlord's
obligations to be performed under this Lease from and after the date of
transfer, subject to the limitations on liability set forth above in this
Section 28. If Tenant provides Landlord with any security for Tenant's
performance of its obligations hereunder, and Landlord transfers such security
to the grantee or transferee of Landlord's interest in the Real Property,
Landlord shall be released from any further responsibility or liability for such
security. Notwithstanding any other provision of this Lease, Landlord shall not
be liable for any consequential damages, nor shall Landlord be liable for loss
of or damage to artwork, currency, jewelry, bullion, unique or valuable
documents, securities or other valuables, or for other property not in the
nature of ordinary fixtures, furnishings and equipment used in general
administrative and executive office activities and functions. Wherever in this
Lease Tenant (a) releases Landlord from any claim or liability, (b) waives or
limits any right of Tenant to assert any claim against Landlord or to seek
recourse against any property of Landlord or (c) agrees to indemnify Landlord
against any matters, the relevant release, waiver, limitation or indemnity shall
run in favor of and apply to Landlord, the constituent shareholders, partners or
other owners of Landlord, and the directors, officers, employees and agents of
Landlord.

     29. ESTOPPEL CERTIFICATES: At any time and from time to time, upon ten (10)
days prior notice from Landlord, Tenant shall execute, acknowledge and deliver
to Landlord a statement certifying to the best of Tenant's knowledge the
Commencement Date of this Lease, stating that this Lease is unmodified and in
full force and

                                 Page 11 of 13

<PAGE>   15

effect (or if there have been modifications, that this Lease is in full force
and effect as modified and the date and nature of each such modification), that
Landlord is not in default under this Lease (or, if Landlord is in default,
specifying the nature of such default), that Tenant is not in default under this
Lease (or if Tenant is in default, specifying the nature of such default), the
current amounts of and the dates to which the Monthly Rent and Additional Rent
has been paid, and setting forth such other matters as may be reasonably
requested by Landlord. Any such statement may be conclusively relied upon by a
prospective purchaser of the Real Property or by a lender obtaining a lien on
the Real Property as security.

     30. ATTORNEYS' FEES:  In the event of any action or proceeding between
Landlord and Tenant (including an action or proceeding between Landlord and the
trustee or debtor-in-possession while Tenant is a debtor in a proceeding under
any bankruptcy law) to enforce any provision of this Lease, the losing party
shall pay to the prevailing party all costs and expenses, including, without
limitation, reasonable attorneys' fees and expenses, incurred in such action and
in any appeal in connection therewith by such prevailing party.

     31. WAIVER:  No provisions of this Lease shall be deemed waived by Landlord
unless such waiver is in writing signed by Landlord. The waiver by Landlord of
any breach of any provision of this Lease shall not be deemed a waiver of any
subsequent breach of the same or any other provision of this Lease. No delay or
omission in the exercise of any right or remedy of Landlord upon any default by
Tenant shall impair such right or remedy or be construed as a waiver. Landlord's
acceptance of any payments of rent due under this Lease shall not be deemed a
waiver of any default by Tenant under this Lease (including Tenant's recurrent
failure to timely pay rent) other than Tenant's non-payment of the accepted
sums, and no endorsement or statement accompanying or upon any check or payment
shall be deemed an accord and satisfaction. Landlord's consent to or approval of
any act by Tenant requiring Landlord's consent or approval shall not be deemed
to waive or render unnecessary Landlord's consent to or approval of any
subsequent act by Tenant.

     32. NOTICES:  All notices and demands which are required or permitted to be
given by either party hereunder shall be in writing. All notices and demands by
Landlord to Tenant shall be delivered personally or sent by United States mail,
postage prepaid, addressed to Tenant at the Premises, or to such other place as
Tenant may from time to time designate by notice to Landlord hereunder. All
notices and demands by Tenant to Landlord shall be sent by United States mail,
postage prepaid, addressed to Landlord at the address set forth in the Basic
Lease Information, or to such other place as Landlord may from time to time
designate by notice to Tenant hereunder.

     33. DEFINED TERMS AND SECTION HEADINGS:  When required by the contents of
this Lease, the singular includes the plural. The headings and titles to the
Sections of this Lease are for convenience only and are not to be used to
interpret or construe this Lease. Wherever the term "including" or "includes" is
used in this Lease it shall be construed as if followed by the phrase "without
limitation".

     34. TIME AND APPLICABLE LAW:  Time is of the essence of this Lease and of
each and all of its provisions. This Lease shall be governed by and construed in
accordance with the laws of the State of California.

     35. SUCCESSORS:  Subject to the provisions of Sections 13 and 28 hereof,
the covenants and conditions hereof shall be binding upon and inure to the
benefit of the heirs, successors, executors, administrators and assigns of the
parties hereto.

     36. ENTIRE AGREEMENT; MODIFICATIONS:  This Lease (including any exhibit,
rider or attachment hereto) constitutes the entire agreement between Landlord
and Tenant with respect to Tenant's lease of the Premises. Neither Landlord nor
Landlord's agents have made any representations or warranties with respect to
the Premises or the Real Property or this Lease except as expressly set forth
herein, and no rights, easements or licenses shall be acquired by Tenant by
implication or otherwise unless expressly set forth herein.

     37. LIGHT AND AIR:  Tenant agrees that no diminution of light, air or view
by any structure which may hereafter be erected (whether or not by Landlord)
shall entitle Tenant to any reduction of rent hereunder, result in any liability
of Landlord to Tenant, or in any other way affect this Lease.

     38. NAME OF BUILDING:  Tenant shall not use the name or address of the
Building for any purpose other than as the address of the business conducted by
Tenant in the Premises without the written consent of Landlord. Landlord
reserves the right to change the name or street address of the Building at any
time by written notice to Tenant and Landlord shall not be liable to Tenant for
any loss, cost or expense on account of any such change of name or street
address.

     39. SEVERABILITY:  If any provision of this Lease or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Lease and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.

     40. AUTHORITY:  If Tenant is a corporation, partnership, trust, association
or other entity, Tenant and each person executing this Lease on behalf of
Tenant, hereby covenants and warrants that (a) Tenant is duly incorporated or
otherwise established or formed and validly existing under the laws of its state
of incorporation, establishment or formation, (b) Tenant has and is duly
qualified to do business in California, (c) Tenant has full corporate,
partnership, trust, association or other appropriate power and authority to
enter into this Lease and to perform all Tenant's obligations hereunder, and (d)
each person (and all of the persons if more than one signs) signing this Lease
on behalf of Tenant is duly and validly authorized to do so.

     41. NO OFFER:  Submission of this instrument for examination and signature
by Tenant does not constitute a reservation of or option for lease, and is not
effective as a lease or otherwise until execution and delivery by both Landlord
and Tenant.

                                 Page 12 of 13

<PAGE>   16

     42. HAZARDOUS SUBSTANCE DISCLOSURE: California law requires landlords to
disclose to tenants the existence of certain hazardous substances. Accordingly,
the existence of tobacco smoke and asbestos containing materials ("ACM") must be
disclosed. Although smoking is prohibited in public areas of the Building, these
areas may, from time to time, be exposed to tobacco smoke. Landlord covenants to
comply, at Landlord's sole cost and expense, during the Lease Term with all
local, state and federal laws and regulations requiring disclosure to tenants
regarding the existence of hazardous substances within the Building. Tenant may
obtain a copy of the Landlord's written procedures for handling ACM from the
Building office.

     43. REAL ESTATE BROKERS: Each party shall hold the other harmless from and
indemnify and defend the other against any and all claims by any real estate
broker or salesman other than the Real Estate Broker identified in the Basic
Lease Information for a commission, finder's fee or other compensation as a
result of Tenant's entering into this Lease.

     44. COUNTERPARTS; EXHIBITS, RIDERS AND OTHER ATTACHMENTS:

         a. This Lease may be executed in two or more counterparts, but all of
such counterparts taken together shall constitute one and the same instrument.

         b. All Exhibits, Riders and other attachments hereto are hereby
incorporated herein and made a part hereof. Such Exhibits, Riders and other
attachments, if any, affixed to this Lease are a part hereof, and in the event
of variation or discrepancy the duplicate original hereof including such
Exhibits, Riders and attachments, if any, held by Landlord shall control.

     45. JOINT AND SEVERAL LIABILITY: If Tenant is composed of more than one
signatory to this Lease, each signatory shall be jointly and severally liable
with each other signatory for payment and performance according to this Lease.

     46. SQUARE FOOTAGE: Any references or statements of square footage are for
convenience only. This lease, including the Landlord paid Premises and Common
Area utility and service charges, are not dependent on square footage
computations.

     47. CONDOMINIUM CONVERSION: Tenant understands and acknowledges that
Landlord is in the process of finalizing the condominium subdivision for the
entire Real Property. Tenant will cooperate with Landlord as requested by
Landlord to facilitate with said subdivision and the subsequent recordation of
the condominium map, CC&R's, and other necessary documents.

     THIS LEASE IS EXECUTED by Landlord and Tenant as of the date first set
forth above.

                                          TENANT:
                                          Xybernaut Corporation, a Delaware
                                          corporation

                                          By:            [SIG]
                                            ------------------------------------
                                                          VP & CFO

                                          LANDLORD:
                                          South Beach Warehouse LLC, a
                                          California
                                          limited liability company

                                          By:  /s/ PATRICK MCNERNEY
                                            ------------------------------------
                                               PATRICK MCNERNEY, GENL. MGR.

                                 Page 13 of 13

<PAGE>   17

                                   EXHIBIT C

                     RULES AND REGULATIONS FOR THE BUILDING
                   ATTACHED TO AND MADE A PART OF THIS LEASE
                     164 TOWNSEND STREET, SAN FRANCISCO, CA

     1. Except as provided or required by Landlord in accordance with building
standards, no sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed, printed, painted or affixed by Tenant on or to any part of
the Building or exterior of the Premises leased to tenants or to the door or
doors thereof without the written consent of Landlord first obtained and
Landlord shall have the right to remove any such sign, placard, picture,
advertisement, name or notice without notice to and at the expense of Tenant.

     2. Except as provided or required by Landlord in accordance with Building
standards, no draperies, curtains, blinds, shades, screens or other devices
shall be hung at or used in connection with any window or exterior door or doors
of the Premises.

     3. The bulletin board or directory of the Building shall be used primarily
for display of the name and location of Tenants and Landlord reserves the right
to exclude any other names therefrom, to limit the number of names associated
with Tenants to be placed thereon and to charge for names associated with
Tenants to be placed thereon at rates applicable to all Tenants.

     4. The sidewalks, halls, passages, exits, entrances, elevators and
stairways of the Building shall not be obstructed by Tenants or used by them for
any purpose other than for ingress and egress from their respective Premises.
The halls, passages, exits, entrances, elevators, stairways, balconies and roof
of the Building are not for the use of the general public and Landlord in all
cases reserves the right to control the same and prevent access thereto by all
persons whose presence, in the judgment of the Landlord, is or may be
prejudicial to the safety, character, reputation or interests of the Building
and its Tenants; provided however, that Landlord shall not prevent such access
to persons with whom Tenants deal in the ordinary course of business unless such
persons are engaged in illegal activities. No person shall go upon the roof of
the Building unless expressly so authorized by Landlord.

     5. Tenants shall not alter any lock nor install any new or additional locks
or any bolts on any interior or exterior door of any Premises leased to Tenant.

     6. The doors, windows, light fixtures and any lights or skylights that
reflect or admit light into halls or other places of the Building shall not be
covered or obstructed. The toilet rooms, toilets, urinals, wash bowls or other
apparatus shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown or
placed therein. The expense of any breakage, stoppage or damage resulting from
the violation of this rule shall be borne by the Tenant who, or whose employees
or invitees, cause such expense.

     7. Tenants shall not mark, drive nails, screw or drill into the walls,
woodwork, brick, concrete or plaster or in any way deface the Building or any
Premises leased Tenant.

     8. Furniture, freight or equipment of every kind shall be moved into or out
of the Building only at such times and in such manner as Landlord shall
designate. Landlord may prescribe and limit the weight, size and position of all
equipment to be used by Tenants, other than standard office desks, chairs and
tables and portable office machines. Safes and other heavy equipment shall, if
considered necessary by Landlord, stand on wood strips of such thickness as
Landlord deems necessary to distribute properly the weight thereof. All damage
to the Building or Premises occupied by Tenants caused by moving or maintaining
any property of a Tenant shall be repaired at the expense of such Tenant.

     9. No Tenant shall employ any person, other than the janitor provided by
Landlord, for the purposes of cleaning the Premises occupied by such Tenant
unless otherwise agreed to by Landlord. Except with the written consent of
Landlord, no person shall be permitted to enter the Building for the purpose of
cleaning the same. Tenants shall not cause any unnecessary labor by carelessness
or indifference in the preservation of good order and cleanliness. Landlord
shall not be responsible to any Tenant for loss of property on the Premises,
however occurring, or for any damage to the property of any Tenant caused by the
employees or independent contractors of Landlord or by any other person. Janitor
service will not be furnished when rooms are occupied during the regular hours
when janitor service is provided. Window cleaning shall be done only at the
regular and customary times determined by Landlord for such services.

     10. No tenant shall sweep or throw or permit to be swept or thrown any dirt
or other substance into any of the corridors, halls or elevators or out of the
doors or stairways of the Building; use or keep or permit to be used or kept any
foul or noxious gas or substance; permit or suffer the Premises occupied by such
Tenant to be occupied or used in a manner offensive or objectionable to Landlord
or other Tenants by reason of noise, odors or vibrations; interfere in any way
with other Tenants or persons having business in the Building; or bring or keep
or permit to be brought or kept in the Building any animal life form, other than
human, except seeing-eye dogs when in the company of their masters.

     11. No Tenant shall use or keep in the Premises or the Building any
kerosene, gasoline or flammable or combustible fluid or material other than
limited quantities thereof reasonably necessary for the operation or maintenance
of customary office equipment, or, without Landlord's, prior written approval,
use any method of heating or air-conditioning other than that supplied by
Landlord. No Tenant shall use or keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises to be

                                  Page 1 of 2

<PAGE>   18

used in a manner offensive or objectionable to Landlord or other occupants of
the Building by reason of noise, odors or vibrations, or interfere in any way
with other Tenants or those having business therein. Tenant must comply with any
government imposed codes and regulations concerning the use or storage of any
substances on the Premises.

     12. No boring or cutting for telephone or electric wires shall be allowed
without the consent of Landlord and any such wires permitted shall be introduced
at the place and in the manner described by Landlord. The location of
telephones, speakers, fire extinguisher and all other office equipment affixed
to Premises occupied by Tenants shall be subject to the approval of Landlord.
Each Tenant shall pay all expenses incurred in connection with the installation
of its equipment, including any telephone and electricity distribution
equipment.

     13. No Tenant shall affix any floor covering in any manner except as
approved by the Landlord. The expense of repairing any damage caused by removal
of any such floor covering shall be borne by the Tenant by whom, or by whose
contractors, employees or invitees, the damage shall have been caused.

     14. No mail, furniture, packages, supplies, equipment, merchandise or
deliveries of any kind will be received in the building or carried up or down in
the elevators except between such hours and in such elevators as shall be
designated by Landlord.

     15. The exterior, general entrance doors to the Building shall remain
locked from the outside at all times, unless otherwise determined by the
Landlord. No Tenant shall cause the doors to remain in the unlocked or open
position, thereby sacrificing the general security of the building.

     16. Landlord may exclude or expel from the Building any person who, in the
judgment of Landlord, is intoxicated or under the influence of liquor or drugs,
or who shall in any manner do any act in violation of any of the rules and
regulations of the Building.

     17. The word "Building" as used in these rules and regulations means the
Building of which a part of the Premises are leased pursuant to the Lease to
which these rules and regulations are attached. Each Tenant shall be liable to
Landlord and to each other Tenant of the Building for any loss, cost, expense,
damage or liability, including attorneys' fees, caused or occasioned by the
failure of such first named Tenant to comply with these rules, but Landlord
shall have no liability for such failure or for failing or being unable to
enforce compliance therewith by any Tenant and such failure by Landlord or
non-compliance by any other Tenant shall not be a ground for termination of the
Lease to which these rules and regulations are attached by the Tenant
thereunder.

     18. Each Tenant shall maintain the portions of its Premises which are
visible from outside of the Building or from hallways or other public areas of
the Building, in a neat, clean and orderly condition.

     19. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed in, or
used in connection with any window of the Building without prior written consent
of Landlord. In any event, with the prior written consent of Landlord, such
items shall be installed on the office side of the Landlord's standard window
covering and shall in no way be visible from the exterior of the Building.

     20. No Tenant shall install any radio or television antenna, loudspeaker or
other device on the roof or exterior walls of the Building without prior written
consent of Landlord.

     21. There shall not be used in any space, or in the public halls of the
Building, either by any Tenant or others, any hand trucks except those equipped
with rubber tires and side guards or such other material handling equipment as
Landlord may approve. No other vehicles of any kind shall be brought by any
Tenant into the Building or kept in or about the Premises.

     22. Each Tenant shall store all its trash and garbage within its Premises.
No material shall be placed in the trash boxes or receptacles if such material
is of such nature that it may not be disposed of in the ordinary and customary
manner of removing and disposing of trash and garbage in the City of San
Francisco without being in violation of any law or ordinance governing such
disposal. All garbage and refuse disposal shall be made only through entryways
and elevators provided for such purpose and at such times as Landlord shall
designate.

     23. Canvassing, peddling, soliciting, and distribution of handbills or any
other written materials in or about the Building are prohibited, and each Tenant
shall cooperate to prevent same.

     24. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular Tenant or Tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations against any or all
of the Tenants of the Building.

     25. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of Premises in the Building.

     26. Landlord reserves the right to make such other reasonable rules and
regulations as in its judgment may from time to time be needed for the safety,
care and cleanliness of the Building and for the preservation of good order
therein.

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