EXHIBIT 10.10








                                      LEASE


                              DATED AUGUST 8, 1996


                                 BY AND BETWEEN


                      Orchard Investment Company Number 901


                                   as Landlord


                                  Clarify Inc.


                                    as Tenant


                      AFFECTING PREMISES COMMONLY KNOWN AS

                                2125 O'Nel Drive
                               San Jose, CA. 95131



                  [12/15/95 MULTI TENANT NET INDUSTRIAL LEASE]


<PAGE>

                                TABLE OF CONTENTS


ARTICLE   1 - DEFINITION                                                   PAGE:
------------------------                                                   ----


         1.1     General                                                     1
         1.2     Additional Rent                                             1
         1.3     Address for Notices                                         1
         1.4     Agents                                                      1
         1.5     Agreed Interest Rate                                        1
         1.6     Base Monthly Rate                                           1
         1.7     Building                                                    1
         1.8     Commencement Date                                           1
         1.9     Common Area                                                 1
         1.10    Common Operating Expense                                    1
         1.11    Consumer Price Index                                        1
         1.12    Effective Date                                              2
         1.13    Event of Tenant's Default                                   2
         1.14    Hazardous Materials                                         2
         1.15    Insured and Uninsured Peril                                 2
         1.16    Law                                                         2
         1.17    Lease                                                       2
         1.18    Lease Term                                                  2
         1.19    Lender                                                      2
         1.20    Permitted Use                                               2
         1.21    Premises                                                    2
         1.22    Project                                                     2
         1.23    Private Restrictions                                        2
         1.24    Real Property Taxes                                         2
         1.25    Scheduled Commencement Date                                 3
         1.26    Security Instrument                                         3
         1.27    Summary                                                     3
         1.28    Tenant's Alterations                                        3
         1.29    Tenant's Share                                              3
         1.30    Trade Fixtures                                              3

ARTICLE   2 - DEMISE, CONSTRUCTION, AND ACCEPTANCE

         2.1     Demise of Premises                                          3
         2.2     Commencement Date                                           3
         2.3     Construction of Improvements                                3
         2.4     Delivery and Acceptance of Possession                       3
         2.5     Early Occupancy                                             4

ARTICLE  3  -  RENT

         3.1     Base Monthly Rent                                           4
         3.2     Additional Rent                                             4
         3.3     Payment of Rent                                             4
         3.4     Late Charge and Interest on Rent in Default                 4
         3.5     Security Deposit                                            5

                                       i

<PAGE>


                                TABLE OF CONTENTS
                                   (CONTINUED)


ARTICLE  4  -  USE OF PREMISES

         4.1     Limitation on Use                                           5
         4.2     Compliance with Regulations                                 5
         4.3     Outside Area                                                6
         4.4     Signs                                                       6
         4.5     Parking                                                     6
         4.6     Rules and Regulations                                       6


ARTICLE  5  -  TRADE FIXTURES AND ALTERATIONS

         5.1     Trade Fixtures                                              6
         5.2     Tenant's Alterations                                        6
         5.3     Alterations Required by Law                                 7
         5.4     Amortization of Certain Capital Improvements                7
         5.5     Mechanic's Liens                                            8
         5.6     Taxes on Tenant's Property                                  8


ARTICLE  6  -  REPAIR AND MAINTENANCE

         6.1     Tenant's Obligation to Maintain                             8
         6.2     Landlord's Obligation to Maintain                           9
         6.3     Control of Common Area                                      9

ARTICLE  7  -  WASTE DISPOSAL AND UTILITIES

         7.1     Waste Disposal                                              10
         7.2     Hazardous Materials                                         10
         7.3     Utilities                                                   11
         7.4     Compliance with Governmental Regulations                    11


ARTICLE  8  -  COMMON OPERATING EXPENSES

         8.1     Tenant's Obligation to Reimburse                            12
         8.2     Common Operating Expenses Defined                           12
         8.3     Real Property Taxes Defined                                 13


ARTICLE  9  -  INSURANCE

         9.1     Tenant's Insurance                                          14
         9.2     Landlord's Insurance                                        14
         9.3     Tenant's Obligation to Reimburse                            15
         9.4     Release and Waiver of Subrogation                           15

                                       ii
<PAGE>

                                TABLE OF CONTENTS
                                   (CONTINUED)


ARTICLE  10  -  LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY

         10.1    Limitation on Landlord's Liability                          15
         10.2    Limitation on Tenant's Recourse                             16
         10.3    Indemnification of Landlord                                 16


ARTICLE  11 -  DAMAGE TO PREMISES

         11.1    Landlord's Duty to Restore                                  16
         11.2    Landlord's Right to Terminate                               17
         11.3    Tenant's Right to Terminate                                 17
         11.4    Abatement of Rent                                           18


ARTICLE  12  -  CONDEMNATION

         12.1    Landlord's Termination Right                                18
         12.2    Tenant's Termination Right                                  18
         12.3    Restoration and Abatement of Rent                           18
         12.4    Temporary Taking                                            18
         12.5    Division of Condemnation Award                              19


ARTICLE  13  -  DEFAULT AND REMEDIES

         13.1    Events of Tenant's Default                                  19
         13.2    Landlord's Remedies                                         19
         13.3    Waiver                                                      21
         13.4    Limitation on Exercise of Rights                            21
         13.5    Waiver by Tenant of Certain Remedies                        21


ARTICLE  14  -  ASSIGNMENT AND SUBLETTING

         14.1    Transfer by Tenant                                          21
         14.2    Transfer by Landlord                                        24


ARTICLE  15  -  GENERAL PROVISIONS

         15.1    Landlord's Right to Enter                                   24
         15.2    Surrender of the Premises                                   25
         15.3    Holding Over                                                25
         15.4    Subordination                                               25
         15.5    Mortgagee Protection and Attornment                         26
         15.6    Estoppel Certificates and Financial Statements              26
         15.7    Reasonable Consent                                          26
         15.8    Notices                                                     26

                                      iii
<PAGE>

                                TABLE OF CONTENTS
                                   (CONTINUED)


         15.9    Attorney's Fees                                             27
         15.10   Corporate Authority                                         27
         15.11   Miscellaneous                                               27
         15.12   Termination by Exercise of Right                            28
         15.13   Brokerage Commissions                                       28
         15.14   Force Majeure                                               28
         15.15   Entire Agreement                                            28


EXHIBITS

         Exhibit A  -        Site  plan of the Project containing a
                             description of the Premises
         Exhibit B  -        Improvement Agreement
         Exhibit C  -        Approved  Specifications
         Exhibit D  -        NOT APPLICABLE
         Exhibit E  -        Description of Private Restrictions
         Exhibit F  -        Sign Criteria
         Exhibit G  -        Form of Subordination Agreement
         Exhibit H  -        Hazardous Materials Questionnaire


                                       iv
<PAGE>

<TABLE>

                                       SUMMARY OF BASIC LEASE TERMS

<CAPTION>

             SECTION                                     TERMS
       (LEASE REFERENCE)


<S>                            <C>    
                A.             Lease Reference Date:   August 8, 1996
         (Introduction)

                B.             Landlord:          Orchard Investment Company Number 901,
         (Introduction)                           a California general partnership

                C.             Tenant:            Clarify Inc.,
         (Introduction)                           a Delaware corporation

                D.             Premises:          That area consisting of 100,375 square feet
             (ss.1.21)                            of gross leasable area the address of which is
                                                  2125  O'Nel  Drive,  San Jose,
                                                  CA,  within  the  Building  as
                                                  Shown on EXHIBIT A.

                E.             Project:           The land and improvements shown on EXHIBIT
             (ss.1.22)                            A consisting of TWO (2) buildings the aggregate
                                                  gross leasable area of which is 195,249 square
                                                  feet.

                F.             Building:          The building in which the Premises are located
             (ss.1.7)                             known as 2125 O'NEL DRIVE, SAN JOSE, CA,
                                                  containing 100,375 square feet of gross leasable
                                                  area.

                G.             Tenants Share:     100%
             (ss.1.29)

                H.             Tenant's Allocated Parking Stalls:       397 stalls.
              (ss.4.5)

                I.             Commencement Date:        November 12, 1996
             (ss.1.26)

                J.             Lease Term:        60 calendar months (plus the partial month
             (ss.1.18)                            following the Commencement Date if such
                                                  date is not the first day of the month.)

                K.             Base Monthly Rent:        Months 1 - 60:  $140,525.00
             (ss.3.1)

                L.             Prepaid Rent:             $140,525.00
             (ss.3.3)

                M.             Security Deposit:         $140,525.00
              (ss.3.5)

                N.             Permitted Use:      Office, marketing, development, storage,
             (ss.4.1)                              and distribution of software systems.

                                        v
<PAGE>


                                       SUMMARY OF BASIC LEASE TERMS
                                               (CONTINUED)

                O.             Permitted Tenant's Alteration Limit:     $10,000.00
             (ss.5.2)

                P.             Tenant's Liability Insurance Minimum:    $3,000,000.00
             (ss.9.1)

                Q.             Landlord's Address:     Suite 300
             (ss.1.3)                                  2290 North First Street
                                                       San Jose, CA  95131

                R.             Tenant's Address:       2702 Orchard Parkway
             (ss.1.3)                                  San Jose, CA  95134

                S.             Retained Real Estate Brokers:    Colliers Parrish
             (ss.15.13)                                         Attn: Jim Abarta

                T.             Lease:    This  lease includes the summary of the
             (ss.1.17)                   Basic  Lease  Terms, the Lease, and the
                                         following  exhibits and addenda:  First
                                         Addendum to Lease, EXHIBIT A (site plan
                                         of the Project  containing  description
                                         of    the    Premises),    EXHIBIT    B
                                         (Improvement   Agreement),   EXHIBIT  C
                                         (Approved  Specifications),  EXHIBIT  D
                                         (acceptance    agreement)   EXHIBIT   E
                                         (description of Private  Restrictions),
                                         EXHIBIT  F (sign  criteria),  EXHIBIT G
                                         (form  of   subordination   agreement),
                                         EXHIBIT    H    (Hazardous    Materials
                                         Questionnaire)
</TABLE>

         The foregoing  Summary is hereby  incorporated  into and made a part of
this Lease.  Each  reference in this Lease to any term of the Summary shall mean
the respective information set forth above and shall be construed to incorporate
all of the terms  provided  under the  particular  paragraph  pertaining to such
information. In the event of any conflict between the Summary and the Lease, the
Summary shall control.



LANDLORD:        TENANT:


ORCHARD INVESTMENT COMPANY NO. 901               Clarify Inc.
a California general partnership                 a Delaware corporation


By:  NELO, a California general partnership      By:  /s/ David A. Stamm
                                                      -------------------
By:  New England Mutual Life Insurance Co.       Title:   President
     a Massachusetts corporations,
     a general partnership                       Date: August 9, 1996

     By: /s/ Thomas J. Lunny
         -------------------
     Date: August 13, 1996


                                       vi
<PAGE>

                                      LEASE

     This Lease is dated as of the lease  reference  date specified in SECTION A
of the Summary and is made by and  between the party  identified  as Landlord in
SECTION B of the Summary and the party  identified as Tenant in SECTION C of the
Summary.


                                    ARTICLE 1
                                   DEFINITIONS

     1.1 GENERAL: Any initially capitalized term that is given a special meaning
by this  Article  1,  the  Summary,  or by any  other  provision  of this  Lease
(including  the exhibits  attached  hereto) shall have such meaning when used in
this  Lease  or any  addendum  or  amendment  hereto  unless  otherwise  clearly
indicated by the context.

     1.2 ADDITIONAL RENT: The term "Additional Rent" is defined in P. 3.2.

     1.3 ADDRESS FOR NOTICES:  The term  "Address  for  notices"  shall mean the
addresses set forth in SECTIONS Q and R of the Summary; provided,  however, that
after the Commencement  Date,  Tenant's Address for Notices shall be the address
of the Premises.

     1.4 AGENTS: The term "Agents" shall mean the following: (i) with respect to
Landlord or Tenant,  the agents,  employees,  contractors,  and invitees of such
party;  and (ii) in addition  with respect to Tenant,  Tenant's  subtenants  and
their respective agents, employees, contractors, and invitees.

     1.5 AGREED  INTEREST RATE: The term " Agreed Interest Rate" shall mean that
interest rate determined as of the time it is to be applied that is equal to the
lesser of (i) 5% in excess  of the  discount  rate  established  by the  Federal
Reserve Bank of San  Francisco as it may be adjusted  from time to time, or (ii)
the maximum interest rate permitted by Law.

     1.6 BASE MONTHLY  RENT:  The term "Base  Monthly Rent" shall mean the fixed
monthly rent payable by Tenant  pursuant to P. 3.1 which is specified in SECTION
K of the Summary.

     1.7  BUILDING:  The term  "Building"  shall mean the  building in which the
Premises are located  which  Building is identified in SECTION F of the Summary,
The gross  leasable area of which is referred to herein as the  "Building  Gross
Leasable Area."

     1.8 COMMENCEMENT DATE: The term  "Commencement  Date" is the date the Lease
Term commences, which term is defined in P. 2.2.

     1.9 COMMON AREA: The term "Common Area" shall mean all areas and facilities
within the Project that are not  designated by Landlord for the exclusive use of
Tenant or any other  lessee or other  occupant  of the  Project,  including  the
parking areas,  access and perimeter  roads,  pedestrian  sidewalks,  landscaped
areas, trash enclosures, recreation areas and the like.

     1.10 COMMON OPERATING  EXPENSES:  The term "Common  Operating  Expenses" is
defined in P. 8.2.

     1.11 CONSUMER PRICE INDEX:  The term "Consumer  Price Index" shall refer to
the Consumer Price Index, All Urban Consumers, subgroup "All Items", for the San
Francisco-Oakland-San  Jose  metropolitan  area (base year 1982-84  equals 100),
which is presently  being published  monthly by the United States  Department of
Labor,  Bureau of Labor  Statistics.  However,  if this Consumer  Price Index is
changed so that base year is altered  from that used as of the  commencement  of
the initial term of this Lease,  the Consumer  Price Index shall be converted in
accordance with the conversion  factor published by the United States Department
of Labor,  

                                       1
<PAGE>

Bureau of Labor  Statistics  to obtain  the same  results  that  would have been
obtained  had the  base  year not  been  changed.  If no  conversion  factor  is
available,  or if the  Consumer  Price Index is  otherwise  changed,  revised or
discontinued for any reason,  there shall be substituted in lieu thereof and the
term "Consumer Price Index" shall thereafter refer to the most nearly comparable
official  price  index of the  United  States  government  in  order  to  obtain
substantially  the same  result as would  have been  obtained  had the  original
Consumer  Price  Index  not  been  discontinued,   revised  or  changed,   which
alternative index shall be selected by Landlord and shall be subject to Tenant's
written approval.

     1.12 EFFECTIVE DATE: The term "Effective Date" shall mean the date the last
signatory  to this Lease whose  execution  is required to make it binding on the
parties hereto shall have executed this Lease.

     1.13 EVENT OF TENANT'S  DEFAULT:  The term  "Event of Tenant's  Default" is
defined in P. 13.1.

     1.14 HAZARDOUS  MATERIALS:  The terms  "Hazardous  Materials" and Hazardous
Materials Laws" are defined in P. 7.2E.

     1.15 INSURED AND UNINSURED  PERIL: The terms "Insured Peril" and "Uninsured
Peril" are defined in P. 11.2E.

     1.16  LAW:  The term  "Law"  shall  mean any  judicial  decision,  statute,
constitution,  ordinance, resolution, regulation, rule, administrative order, or
other requirement of any municipal,  county,  state, federal or other government
agency or authority  having  jurisdiction  over the parties to this Lease or the
Premises, or both, in effect either at the Effective Date or any time during the
Lease Term.

     1.17 LEASE:  The term  "Lease"  shall mean the Summary and all  elements of
this Lease  identified  in SECTION T of the  Summary,  all of which are attached
hereto and incorporated herein by this reference.

     1.18 LEASE TERM:  The Term  "Lease  Term" shall mean the term of this Lease
which  shall  commence  on the  Commencement  Date and  continue  for the period
specified in SECTION J of the Summary.

     1.19  LENDER:  The term  "Lender"  shall mean any  beneficiary,  mortgages,
secured party, lessor, or other holder of any Security Instrument.

     1.20 PERMITTED USE: The term  "Permitted  Use" shall mean the use specified
in SECTION N of the Summary.

     1.21 PREMISES:  The term "Premises" shall mean that building area described
in SECTION D of the Summary that is within the Building.

     1.22  PROJECT:  The term  "Project"  shall mean that real  property and the
improvements  thereon  which are  specified  in  SECTION E of the  Summary,  the
aggregate  gross  leasable  area of which is referred to herein as the  "Project
Gross Leasable Area."

     1.23 PRIVATE RESTRICTIONS:  The term "Private  Restrictions" shall mean all
recorded covenants, conditions and restrictions,  private agreements, reciprocal
easement agreements, and any other recorded instruments affecting the use of the
Premises  which (i) exist as of the Effective  Date, or (ii) are recorded  after
the Effective Date and are approved by Tenant.

     1.24 REAL PROPERTY  TAXES:  The term "Real Property Taxes" is defined in P.
8.3.

                                       2
<PAGE>


     1.25 SCHEDULED COMMENCEMENT DATE: SEE 2.2

     1.26 SECURITY  INSTRUMENTS:  The term "Security  Instrument" shall mean any
underlying  lease,  mortgage or deed of trust which now or hereafter affects the
Project, and any renewal, modification,  consolidation, replacement or extension
thereof.

     1.27  SUMMARY:  The term  "Summary"  shall mean the  summary of Basic Lease
Terms executed by Landlord and Tenant that is part of this Lease.

     1.28 TENANT'S ALTERATIONS:  The term "Tenant's  Alterations" shall mean all
improvements,  additions, alterations, and fixtures installed in the Premises by
Tenant at its expense which are not Trade Fixtures.

     1.29 TENANT'S  SHARE:  The term "Tenant's  Share" shall mean the percentage
obtained by dividing Tenant's Gross Leasable Area by the Building Gross Leasable
Area,  which as of the Effective Date is the percentage  identified in SECTION G
of the Summary.

     1.30 TRADE  FIXTURES:  The term  "Trade  Fixtures  shall mean (i)  Tenant's
inventory,  furniture,  signs, and business equipment, and (ii) anything affixed
to the  Premises by Tenant at its expense  for  purposes of trade,  manufacture,
ornament  or  domestic  use  (except  replacement  of similar  work or  material
originally  installed by Landlord) which can be removed without  material injury
to the  Premises  unless  such thing has,  by the manner in which it is affixed,
become an integral part of the Premises.

                                    ARTICLE 2
                      DEMISE, CONSTRUCTION, AND ACCEPTANCE

     2.1 DEMISE OF PREMISES: Landlord hereby leases to Tenant, and Tenant leases
from  Landlord,  for the Lease Term upon the terms and conditions of this Lease,
the Premises for Tenant's own use in the conduct of Tenant's  business  together
with (i) the non-exclusive right to use the number of Tenant's Allocated Parking
Stalls within the Common Area (subject to the  limitations set forth in P. 4.5),
and (ii) the  non-exclusive  right to use the  Common  Area for  ingress  to the
egress from the Premises.  Landlord  reserves the use of the exterior walls, the
roof and the area  beneath and above the  Premises,  together  with the right to
install,  maintain,  use, and replace ducts,  wires,  conduits and pipes leading
through the  Premises in  locations  which will not  materially  interface  with
Tenant's use of the Premises.

     2.2 COMMENCEMENT DATE: The Commencement Date shall be November 12, 1996.

     2.3  CONSTRUCTION  OF  IMPROVEMENTS:   Landlord  shall  construct   certain
improvements  that shall  constitute  or become part of the Premises if required
by, and then in accordance with, the terms of EXHIBIT B and EXHIBIT C.

     2.4 DELIVERY AND  ACCEPTANCE  OF  POSSESSION:  If this Lease  provides that
Landlord  must deliver  Early  Occupancy  (as provided for in Paragraph 2 of the
First  Addendum To Lease) of the Premises to Tenant on a certain  date,  then if
Landlord is unable to deliver Early Occupancy (as provided for in Paragraph 2 of
the First  Addendum  To Lease) of the  Premises to Tenant on or before such date
for any reason whatsoever, this Lease shall not be void or voidable for a period
of 60 days  thereafter,  and Landlord shall not be liable to Tenant for any loss
or damage  resulting  therefrom.  Tenant shall accept  possession and enter into
good faith  occupancy of the entire  Premises and commence the  operation of its
business therein within 30 days after the Commencement Date. Tenant acknowledges
that it has had an opportunity to conduct,  and has conducted,  such inspections
of the  Premises as it deems  necessary  to evaluate  its  condition.  Except as
otherwise  specifically  provided herein,  Tenant agrees to accept possession of
the Premises in its then existing condition,  "as-is",  including all patent and
latent defects  subject to First Addendum To Lease Paragraph 5 and completion of
Interior  Improvements.  Tenant's taking 

                                       3
<PAGE>

possession  of any part of the Premises  shall be deemed to be an  acceptance by
Tenant of any work of improvement  done by Landlord in such part as complete and
in  accordance  with the terms of this Lease  except for defects of which Tenant
has given  Landlord  written  notice  within 30 days  after  notice to Tenant of
Substantial  Completion  of the  Interior  Improvements  and subject to Tenant's
Early  Occupancy  right as provided for in Paragraph 2 of the First  Addendum To
Lease.

     2.5 EARLY  OCCUPANCY:  If Tenant enters or permits its contractors to enter
the  Premises  prior to the  Commencement  Date with the written  permission  of
Landlord,  it shall do so upon all of the  terms of this  Lease  (including  its
obligations  regarding  indemnity  and  insurance)  except those  regarding  the
obligation to pay rent, which shall commence on the Commencement Date.

                                   ARTICLE 3
                                      RENT

     3.1 BASE MONTHLY RENT:  Commencing on the Commencement  Date and continuing
throughout  the Lease Term,  Tenant  shall pay to Landlord the Base Monthly Rent
set forth in SECTION K of the Summary.

     3.2 ADDITIONAL  RENT:  Commencing on the  Commencement  Date and continuing
throughout  the Lease Term,  Tenant shall pay the following as  additional  rent
(the "Additional  Rent"): (i) any late charges or interest due Landlord pursuant
to P. 3.4; (ii) Tenant's  Share of Common  Operating  Expenses as provided in P.
8.1;  (iii)  Landlord's  share of any Subrent  received  by Tenant upon  certain
assignments  and  sublettings  as required  by P. 14.1;  (iv) any legal fees and
costs due Landlord  pursuant to P. 15.9;  and (v) any other charges due Landlord
pursuant to this Lease.

     3.3 PAYMENT OF RENT:  Concurrently with the execution of this Lease by both
parties,  Tenant  shall pay to Landlord the amount set forth in SECTION L of the
Summary as prepayment  of rent for credit  against the first  installment(s)  of
Base Monthly Rent. All rent required to be paid in monthly installments shall be
paid in advance on the first day of each  calendar  month during the Lease Term.
If  SECTION  K of the  Summary  provides  that  the Base  Monthly  Rent is to be
increased  during the Lease Term and if the date of such  increase does not fall
on the first day of a calendar  month,  such increase shall become  effective on
the first day of the next calendar month. All rent shall be paid in lawful money
of the United  States,  without any  abatement,  deduction or offset  whatsoever
(except as specifically  provided in P. 11.4 and P. 12.3), and without any prior
demand  therefore.  Rent shall be paid to  Landlord  at its address set forth in
SECTION P of the Summary,  or at such other place as Landlord may designate from
time to time. Tenant's obligation to pay Base Monthly Rent and Tenant's Share of
Common  Operating  Expenses shall be prorated at the commencement and expiration
of the Lease Term.

     3.4 LATE CHARGE AND  INTEREST ON RENT IN DEFAULT:  If any Base Monthly Rent
or Additional Rent is not received by Landlord from Tenant within three business
days after Landlord has notified Tenant in writing that payment of such rent has
not been received by Landlord,  then Tenant shall  immediately pay to Landlord a
late  charge  equal to 5% of such  delinquent  rent as  liquidated  damages  for
Tenant's failure to make timely payment.  In no event shall this provision for a
late  charge be deemed to grant to Tenant a grace  period or  extension  of time
within which to pay any rent or prevent  Landlord from  exercising  any right or
remedy  available to Landlord  upon  Tenant's  failure to pay any rent due under
this Lease in a timely  fashion,  including  any right to  terminate  this Lease
pursuant to P. 13.2B.  If any rent remains  delinquent for a period in excess of
30 days then,  in addition  to such late  charge,  Tenant  shall pay to Landlord
interest  on any rent  that is not paid  when due at the  Agreed  Interest  Rate
following the date such amount became due until paid.

                                       4
<PAGE>

     3.5 SECURITY  DEPOSIT:  On the  Effective  Date,  Tenant shall deposit with
Landlord  the amount set forth in SECTION M of the Summary as  security  for the
performance by Tenant of its obligations under this Lease, and not as prepayment
of rent (the  "Security  Deposit").  Landlord  may from time to time  apply such
portion of the Security  Deposit as is  reasonably  necessary  for the following
purposes:  (i) to remedy any default by Tenant in the  payment of rent;  (ii) to
repair damage to the Premises caused by Tenant; (iii) to clean the Premises upon
termination of the Lease;  and (iv) to remedy any other default of Tenant to the
extent  permitted  by  Law  and,  in  this  regard,  Tenant  hereby  waives  any
restriction  on the uses to which the Security  Deposit may be put  contained in
California  Civil Code Section 1950.7.  In the event the Security Deposit or any
portion  thereof is so used,  Tenant  agrees to pay to  Landlord  promptly  upon
demand an amount in cash sufficient to restore the Security  Deposit to the full
original amount. Landlord shall not be deemed a trustee of the Security Deposit,
may use the Security Deposit in business, and shall not be required to segregate
it from its general  accounts.  Tenant  shall not be entitled to any interest on
the Security Deposit.  If Landlord transfers the Premises during the Lease Term,
Landlord may pay the Security  Deposit to any transferee of Landlord's  interest
in conformity with the provisions of California Civil Code Section 1950.7 and/or
any successor statute, in which event the transferring Landlord will be released
from all liability for the return of the Security Deposit.

                                    ARTICLE 4
                                 USE OF PREMISES

     4.1  LIMITATION  ON USE:  Tenant  shall  use the  Premises  solely  for the
Permitted  Use  specified  in  SECTION  N of the  Summary.  Tenant  shall not do
anything in or about the Premises which will (i) cause structural  injury to the
Building,  or (ii) cause damage to any part of the Building except to the extent
reasonably  necessary  for the  installation  of  Tenant's  Trade  Fixtures  and
Tenant's Alterations, and then only in a manner which has been first approved by
Landlord in writing.  Tenant shall not operate any equipment within the Premises
which will (i) materially  damage the Building or the Common Area, (ii) overload
existing  electrical  systems  or  other  mechanical   equipment  servicing  the
Building,  (iii) impair the efficient  operation of the sprinkler  system or the
heating,  ventilating or air conditioning ("HVAC") equipment within or servicing
the  Building,  or (iv) damage,  overload or corrode the sanitary  sewer system.
Tenant shall not attach, hang or suspend anything from the ceiling,  roof, walls
or  columns  of the  Building  or set any load on the floor in the excess of the
load limits for which such items are designed  nor operate hard wheel  forklifts
within the Premises.  Any dust,  fumes, or waste products  generated by Tenant's
use of the  Premises  shall be  contained  and  disposed so that they do not (i)
create an unreasonable fire or health hazard, (ii) damage the Premises, or (iii)
result in the violation of any Law. Except as approved by Landlord, Tenant shall
not change the exterior of the Building or install any  equipment or antennas on
or make any  penetrations of the exterior or roof of the Building.  Tenant shall
not  commit  any waste in or about  the  Premises,  and  Tenant  shall  keep the
Premises  in an neat,  clean,  attractive  and  orderly  condition,  free of any
nuisances.  If Landlord designates a standard window covering for use throughout
the  Building,  Tenant  shall use this  standard  window  covering  to cover all
windows in the Premises. Tenant shall not conduct on any portion of the Premises
or the Project any sale of any kind,  including  any public or private  auction,
fire sale, going-out-of-business sale, distress sale or other liquidation sale.

     4.2 COMPLIANCE WITH  REGULATIONS:  Tenant shall not use the Premises in any
manner  which  violates  any  laws or  Private  Restrictions  which  affect  the
Premises.  Tenant shall abide by and  promptly  observe and comply with all Laws
and Private Restrictions.  Tenant shall not use the Premises in any manner which
will cause a cancellation of any insurance policy covering Tenant's Alternations
or any  improvements  installed  by  Landlord  at its  expense or which poses an
unreasonable risk of damage or injury to the Premises. Tenant shall not sell, or
permit to be kept,  used, or sold in or about the Premises any article which may
be prohibited by the standard form of fire insurance policy. Tenant shall comply
with  all  reasonable   requirements   of  any  insurance   company,   insurance
underwriter,  or Board of Fire Underwriters  which are necessary to maintain the
insurance coverage carried by either Landlord or Tenant pursuant to this Lease.

                                       5
<PAGE>

     4.3 OUTSIDE AREAS: No materials, supplies, tanks or containers,  equipment,
finished products or semi-finished products, raw materials,  inoperable vehicles
or articles of any nature shall be stored upon or permitted to remain outside of
the  Premises  except in fully fenced and  screened  areas  outside the Building
which have been  designed for such purpose and have been  approved in writing by
Landlord for such use by Tenant.

     4.4 SIGN:  Tenant  shall not place on any portion of the Premises any sign,
placard,  lettering in or on windows,  banner,  displays or other advertising or
communicative  material  which is  visible  from the  exterior  of the  Building
without the prior written  approval of Landlord.  All such approved  signs shall
strictly conform to all Laws, Private Restrictions, and Landlord's sign criteria
attached as EXHIBIT F, and shall be installed  at the expense of Tenant.  Tenant
shall maintain such signs in good condition and repair.

     4.5 PARKING: Tenant is allocated and shall have the  non-exclusive right to
use not more than the number of  Tenant's  Allocated  Parking  Stalls  contained
within the Project described in SECTION H of the Summary for its use and the use
of Tenant's Agents, the location of which may be designated from time to time by
Landlord.  Tenant shall not at any time use more parking  spaces than the number
so  allocated  to Tenant or park its  vehicles or the  vehicles of others in any
portion of the Project not  designated  by Landlord as a  non-exclusive  parking
area.  Tenant shall not have the  exclusive  right to use any  specific  parking
space except for a total of 10 stalls of Tenant's  Allocated  Parking Stalls may
be  marked  for its  exclusive  use at the main  entrance  to the  Premises.  If
Landlord  grants to any other tenant the exclusive  right to use any  particular
parking space(s), Tenant shall not use such spaces. Landlord reserves the right,
after having  given  Tenant  reasonable  notice,  to have any vehicles  owned by
Tenant or  Tenant's  Agents  utilizing  parking  spaces in excess of the parking
spaces  allowed for Tenant's use to be towed away at Tenant's  cost.  All trucks
and  delivery  vehicles  shall be (i) parked at the rear of the  Building,  (ii)
loaded and unloaded in a manner which does not interfere  with the businesses of
other  occupants  of the Project,  and (iii)  permitted to remain on the Project
only so long as is reasonably  necessary to complete  loading and unloading.  In
the event Landlord  elects or is required by any Law to limit or control parking
in the Project,  whether by validation of parking tickets or any other method of
assessment,  Tenant  agrees to  participate  in such  validation  or  assessment
program under such  reasonable  rules and  regulations  as are from time to time
established by Landlord.

     4.6  RULES  AND  REGULATIONS:  Landlord  may from  time to time  promulgate
reasonable  and  nondiscriminatory  rules  and  regulations  applicable  to  all
occupants of the Project for the care and orderly  management of the Project and
the safety of its  tenants and  invitees.  Such rules and  regulations  shall be
binding upon Tenant upon delivery of a copy thereof to Tenant, and Tenant agrees
to abide by such rules and regulations. If there is a conflict between the rules
and regulations and any of the provisions of this Lease,  the provisions of this
Lease shall prevail.  Landlord shall not be responsible for the violation by any
other tenant of the Project of any such rules and regulations.

                                    ARTICLE 5
                         TRADE FIXTURES AND ALTERATIONS

     5.1 TRADE  FIXTURES:  Throughout  the Lease  Term,  Tenant may  provide and
install,  and shall maintain in good condition,  any Trade Fixtures  required in
the conduct of its business in the  Premises.  All trade  Fixtures  shall remain
Tenant's property.

     5.2 TENANT'S  ALTERATIONS:  Construction by Tenant of Tenant's  Alterations
shall be governed by the following:

                  A. Tenant  shall not  construct  any Tenant's  Alterations  or
otherwise alter the Premises without  Landlord's prior written approval.  Tenant
shall  be  entitled,   without  Landlord's  prior  approval,  to  make  Tenant's
Alterations  (i) which do not affect the  structural or exterior  parts 

                                       6
<PAGE>

or water tight character of the Building, and (ii) the reasonably estimated cost
of  which,  plus  the  original  cost of any  part of the  Premises  removed  or
materially altered in connection with such Tenant's Alterations, together do not
exceed the  Permitted  Tenant  Alterations  Limit  specified in SECTION O of the
Summary  per work of  improvement.  In the  event  Landlord's  approval  for any
Tenant's  Alterations  is required,  Tenant shall not  construct  the  Leasehold
Improvement until Landlord has approved in writing the plans and  specifications
therefor,  and such Tenant's  Alterations shall be constructed  substantially in
compliance with such approved plans and specifications by a licensed  contractor
first approved by Landlord. All Tenant's Alterations constructed by Tenant shall
be  constructed by a licensed  contractor in accordance  with all Laws using new
materials of good quality.

                  B. Tenant  shall not  commence  construction  of any  Tenant's
Alterations until (i) all required governmental  approvals and permits have been
obtained,  (ii) all requirements  regarding insurance imposed by this Lease have
been  satisfied,  (iii)  Tenant has given  Landlord  at least  five days'  prior
written  notice of its  intention  to commence  such  construction,  and (iv) if
reasonably  requested by Landlord,  Tenant has obtained contingent liability and
broad form  builders'  risk insurance in an amount  reasonably  satisfactory  to
Landlord  if there are any perils  relating  to the  proposed  construction  not
covered by insurance carried pursuant to Article 9.

                  C. All  Tenant's  Alterations  shall  remain the  property  of
Tenant  during  the Lease  Term but shall not be  altered  or  removed  from the
Premises.  At the  expiration  or  sooner  termination  of the Lease  Term,  all
Tenant's  Alterations shall be surrendered to Landlord as part of the realty and
shall then become Landlord's property,  and Landlord shall have no obligation to
reimburse Tenant for all or any portion of the value or cost thereof;  provided,
however,  that if at  least  90 days  prior  to the  expiration  of this  Lease,
Landlord  requires  Tenant to remove any Tenant's  Alterations,  Tenant shall so
remove such Tenant's  Alterations prior to the expiration or sooner  termination
of the Lease Term. Notwithstanding the foregoing,  Tenant shall not be obligated
to remove any Tenant's  Alterations with respect to which the following is true:
(i) Tenant was required,  or elected,  to obtain the approval of Landlord to the
installation of the Leasehold  Improvement in question;  (ii) at the time Tenant
requested  Landlord's  approval,  Tenant  requested  of Landlord in writing that
Landlord inform Tenant of whether or not Landlord would require Tenant to remove
such Leasehold Improvement at the expiration of the Lease Term; and (iii) at the
time  Landlord  granted  its  approval,  it did not inform  Tenant that it would
require  Tenant to remove such  Leasehold  Improvement  at the expiration of the
Lease Term.

     5.3 ALTERATIONS REQUIRED BY LAW: Tenant shall make any alteration, addition
or change of any sort to the Premises that is required by any Law because of (i)
Tenant's  particular  use  or  change  of use of  the  Premises;  (ii)  Tenant's
application  for  any  permit  or  governmental   approval;  or  (iii)  Tenant's
construction or installation of any Tenant's Alterations or Trade Fixtures.  Any
other  alteration,  addition,  or  change  required  by Law  which  is  not  the
responsibility  of Tenant  pursuant to the  foregoing  shall be made by Landlord
(subject to Landlord's right to reimbursement from Tenant specified in P. 5.4).

     5.4  AMORTIZATION  OF  CERTAIN  CAPITAL  IMPROVEMENTS:   Tenant  shall  pay
Additional Rent in the event Landlord  reasonably  elects or is required to make
any of the following  kinds of capital  improvements to the Project and the cost
thereof  is  not  reimbursable  as  a  Common  Operating  Expense:  (i)  capital
improvements  required  to be  constructed  in  order  to  comply  with  any Law
(excluding  any  Hazardous  Materials  Law) not in effect or  applicable  to the
Project as of the Effective Date; (ii)  modification of existing or construction
of additional capital improvements or building service equipment for the purpose
of reducing the consumption of utility services or Common Operating  Expenses of
the  Project,  (but only to the  extent  of the cost  savings  realized  by such
improvement of equipment); (iii) replacement of capital improvements or building
service  equipment  existing as of the Effective  Date when required  because of
normal wear and tear; and (iv)  restoration of any part of the Building that has
been  damaged  by any peril to the extent  the cost  thereof  is not  covered by
insurance  proceeds  actually  recovered by Landlord up to a maximum  amount per
occurrence of 10% of the then  replacement  cost of the Building.  The

                                       7
<PAGE>

amount of  Additional  Rent Tenant is to pay with  respect to each such  capital
improvement shall be determined as follows:

                  A. All actual direct costs paid by Landlord to construct  such
improvements (including financing costs) shall be amortized over the useful life
of such  improvement  (as reasonably  determined by Landlord in accordance  with
generally  accepted  accounting  principles)  with  interest on the  unamortized
balance at the then  prevailing  market rate  Landlord  would pay if it borrowed
funds to construct such improvements from an institutional  lender, and Landlord
shall inform Tenant of the monthly  amortization payment required to so amortize
such costs,  and shall also provide Tenant with the information  upon which such
determination is made.

                  B. As additional  Rent,  Tenant shall pay at the same time the
Base Monthly  Rent is due an amount  equal to Tenant's  Share of that portion of
such  monthly   amortization  payment  fairly  allocable  to  the  Building  (as
reasonably  determined by Landlord) for each month after such  improvements  are
completed  until the first to occur of (i) the  expiration of the Lease Term (as
it may be  extended),  or (ii) the end of the term over  which  such  costs were
amortized.

     5.5 MECHANIC'S LIENS: Tenant shall keep the Project free from any liens and
shall  pay when due all  bills  arising  out of any  work  performed,  materials
furnished,  or obligations incurred by Tenant or Tenant's Agents relating to the
Project.  If any claim of lien is recorded  (except  those caused by Landlord or
Landlord's  Agents),  Tenant shall bond against or discharge  the same within 10
days after the same has been  recorded  against the Project.  Should any lien be
filed  against the  Project or any action be  commenced  affecting  title to the
Project,  the party  receiving  notice of such lien or action shall  immediately
give the other party written notice thereof.

     5.6 TAXES ON TENANT'S PROPERTY: Tenant shall pay before delinquency any and
all taxes,  assessments,  license fees and public  charges  levied,  assessed or
imposed  against  Tenant or  Tenant's  estate in this Lease or the  property  of
Tenant  situated  within the Premises which become due during the Lease Term. If
any tax or other charge is assessed by any  governmental  agency  because of the
execution  of this  Lease,  such  tax  shall be paid by  Tenant.  On  demand  by
Landlord,  Tenant shall  furnish  Landlord with  satisfactory  evidence of these
payments.

                                    ARTICLE 6
                             REPAIR AND MAINTENANCE

     6.1 TENANT'S  OBLIGATION  TO MAINTAIN:  Except as otherwise  provided in P.
6.2, P. 11.1, and P. 12.3,  Tenant shall be responsible for the following during
the Lease Term:

                  A. Tenant shall clean and  maintain in good order,  condition,
and repair and replace  when  necessary  the  Premises  and every part  thereof,
through regular  inspections and servicing,  including,  but not limited to: (i)
all plumbing and sewage facilities  (including all sinks,  toilets,  faucets and
drains),  and all ducts,  pipes,  vents or other  parts of the HVAC or  plumbing
system; (ii) all fixtures,  interior walls, floors, carpets and ceilings;  (iii)
all windows, doors,  entrances,  plate glass, showcases and skylights (including
cleaning both interior and exterior  surfaces);  (iv) all electrical  facilities
and all equipment  (including all lighting  fixtures,  lamps, and bulbs,  tubes,
fans,  vents,  exhaust  equipment  and  systems);  and  (v) any  automatic  fire
extinguisher equipment in the Premises.

                  B. With  respect to utility  facilities  serving the  Premises
(including electrical wiring and conduits,  gas lines, water pipes, and plumbing
and sewage fixtures and pipes),  Tenant shall be responsible for the maintenance
and repair of any such facilities  which serve only the Premises,  including all
such  facilities  that are  within  the  walls or  floor,  or on the roof of the
Premises,  and any part of such facility  that is not within the  Premises,  but
only up to the point where such  facilities join a main or other junction (e.g.,
sewer main or  electrical  transformer)  from which such  utility  services  are
distributed  to other  parts of the Project as well as to the  Premises,  Tenant
shall  replace  any  damaged  or broken  glass in the  Premises  (including  all
interior and exterior  doors and windows) with glass of the same kind,  size and
quality. Tenant shall repair

                                       8
<PAGE>

any damage to the Premises  (including  exterior  doors and  windows)  caused by
vandalism or any unauthorized entry.

                  C.  Tenant  shall  (i)  maintain,   repair  and  replace  when
necessary all HVAC equipment  which  services only the Premises,  and shall keep
the same in good condition  through regular  inspection and servicing,  and (ii)
maintain  continuously  throughout  the Lease  Term a service  contract  for the
maintenance  of  all  such  HVAC  equipment  with a  licensed  HVAC  repair  and
maintenance  contractor  approved by Landlord,  which contract  provides for the
periodic  inspection  and servicing of the HVAC equipment at least once every 90
days  during  the  Lease  Term.   Notwithstanding  the  foregoing,  if  Landlord
reasonably determines that Tenant is not properly maintaining the HVAC equipment
within fifteen (15) days after written  notice to Tenant,  Landlord may elect at
any time thereafter to assume  responsibility  for the  maintenance,  repair and
replacement of such HVAC equipment which serves only the Premises.  Tenant shall
maintain  continuously  throughout  the Lease  Term a service  contract  for the
washing of all windows  (both  interior and  exterior  surfaces) in the Premises
with a contractor approved by Landlord, which contract provides for the periodic
washing of all such  windows at least once every 90 days  during the Lease Term.
Tenant shall furnish Landlord with copies of all such service  contracts,  which
shall  provide  that they may not be  cancelled  or changed  without at least 30
days' prior written notice to Landlord.

                  D. All repairs and  replacements  required of Tenant  shall be
promptly made with new  materials of like kind and quality.  If the work affects
the  structural  parts of the Building or if the  estimated  cost of any item of
repair or replacement is in excess of the Permitted Tenant's  Alterations Limit,
then Tenant shall first obtain  Landlord's  written approval of the scope of the
work, plans therefor, materials to be used, and the contractor.  Landlord hereby
assigns to Tenant all  manufacturer  and  installation  warranties  covering the
portion of the  Premises  for which  tenant is obligated to maintain as provided
for in Article 6.1 herein, and agrees to cooperate with Tenant in enforcing such
warranties.

     See First Addendum To Lease Paragraph 5

     6.2 LANDLORD'S OBLIGATION TO MAINTAIN:  Landlord shall repair, maintain and
operate  the  Common  Area and  repair  and  maintain  the  roof,  exterior  and
structural parts of the building(s)  located on the Project so that the same are
kept in good  order  and  repair.  If there is  central  HVAC or other  building
service equipment and/or utility  facilities serving portions of the Common Area
and/or  both the  Premises  and  other  parts of the  Building,  Landlord  shall
maintain and operate (and replace when necessary) such equipment. Landlord shall
not be responsible for repairs  required by an accident,  fire or other peril or
for damage caused to any part of the Project by any act or omission of Tenant or
Tenant's Agents except as otherwise  required by Article 11. Landlord may engage
contractors  of its choice to perform  the  obligations  required  of it by this
Article,  and the necessity of any expenditure to perform such obligations shall
be at the sole discretion of Landlord.  Landlord, at Landlord's sole cost, shall
repair and maintain the structural portions of the Building.

     6.3  CONTROL OF COMMON  AREA:  Landlord  shall at all times have  exclusive
control of the Common  Area.  Landlord  shall have the right,  without  the same
constituting an actual or constructive  eviction and without entitling Tenant to
any  abatement  of rent,  to: (i) close any part of the Common  Area to whatever
extent  required in the opinion of  Landlord's  counsel to prevent a  dedication
thereof or the accrual of any  prescriptive  rights  therein;  (ii)  temporarily
close the Common  Area to perform  maintenance  or for any other  reason  deemed
sufficient by Landlord, (iii) change the shape, size, location and extent of the
Common Area;  (iv) eliminate from or add to the Project any land or improvement,
including  multi-deck  parking  structures;  (v) make changes to the Common Area
including,  without limitation,  changes in the location of driveways entrances,
passageways,  doors and doorways,  elevators,  stairs, restrooms, exits, parking
spaces, parking areas, sidewalks or the direction of the flow of traffic and the
site of the Common  Area;  (vi) remove  unauthorized  persons  from the Project;
and/or (vii) change the name of the Project 

                                       9
<PAGE>

provided,  however, that Tenant shall at all times have reasonable access to and
from the  Premises  and the  parking  rights  granted  hereunder,  and  Tenant's
reasonable use and enjoyment of the Premises shall not be impaired. Tenant shall
keep the Common Area clear of all  obstructions  created or permitted by Tenant.
If in the opinion of Landlord  unauthorized  persons are using any of the Common
Area by reason of the presence of Tenant in the Building, Tenant, upon demand of
Landlord,  shall restrain such unauthorized use by appropriate  proceedings.  In
exercising any such rights  regarding the Common Area, (i) Landlord shall make a
reasonable  effort to minimize any  disruption  to Tenant's  business,  and (ii)
Landlord  shall not  exercise  its rights to control the Common Area in a manner
that would materially  interfere with Tenant's use of the Premises without first
obtaining Tenant's written consent. Landlord shall have no obligation to provide
guard services or other security measures for the benefit of the Project. Tenant
assumes all responsibility for the protection of Tenant and Tenant's Agents from
acts of third parties;  provided,  however,  that nothing contained herein shall
prevent Landlord,  at its sole option,  from providing security measures for the
Project.

                                    ARTICLE 7
                          WASTE DISPOSAL AND UTILITIES

     7.1 WASTE DISPOSAL: Tenant shall store its waste either inside the Premises
or within  outside  trash  enclosures  that are fully  fenced  and  screened  in
compliance  with all Private  Restrictions,  and designed for such purpose.  All
entrances to such outside trash enclosures shall be kept closed, and waste shall
be stored in such manner as not to be visible  from the exterior of such outside
enclosures. Tenant shall cause all of its waste to be regularly removed from the
Premises  at  Tenant's  sole  cost.  Tenant  shall keep all fire  corridors  and
mechanical equipment rooms in the Premises free and clear of all obstructions at
all times.

     7.2 HAZARDOUS MATERIALS:  Landlord and Tenant agree as follows with respect
to the existence or use of Hazardous Materials on the Project:

                  A. Any handling, transportation,  storage, treatment, disposal
or use of Hazardous  Materials by Tenant and Tenant's Agents after the Effective
Date in or about the Project shall strictly comply with all applicable Hazardous
Materials  Laws.  Tenant  shall  indemnify,  defend  upon  demand  with  counsel
reasonably  acceptable to Landlord,  and hold harmless Landlord from and against
any liabilities,  losses, claims, damages, lost profits,  consequential damages,
interest, penalties, fines, monetary sanctions,  attorneys' fees, experts' fees,
court costs,  remediation costs,  investigation  costs, and other expenses which
result  from  or  arise  in any  manner  whatsoever  out of  the  use,  storage,
treatment,  transportation,  release,  or disposal of Hazardous  Materials on or
about the Project by Tenant or Tenant's Agents after the Effective Date.

                  B. If the  presence  of  Hazardous  Materials  on the  Project
caused or  permitted  by Tenant or  Tenant's  Agents  after the  Effective  Date
results in  contamination or deterioration of water or soil resulting in a level
of  contamination  greater  than the levels  established  as  acceptable  by any
governmental  agency having  jurisdiction over such  contamination,  then Tenant
shall promptly take any and all action  necessary to  investigate  and remediate
such  contamination  if  required by Law or as a  condition  to the  issuance or
continuing  effectiveness of any governmental  approval which relates to the use
of the Project or any part thereof.  Tenant shall further be solely  responsible
for, and shall defend,  indemnify and hold Landlord and its agents harmless from
and against,  all claims,  costs and liabilities,  including attorneys' fees and
costs,  arising out of or in connection with any  investigation  and remediation
required  hereunder to return the Project to its condition existing prior to the
appearance of such Hazardous Materials.

                  C.  Landlord and Tenant shall each give written  notice to the
other as soon as reasonably  practicable of (i) any communication  received from
any governmental  authority  concerning Hazardous Materials which relates to the
Project,  and (ii) any contamination of the Project by Hazardous Materials which
constitutes a violation of any  Hazardous  Materials  Law.  Tenant may use small
quantities of household  chemicals such as adhesives,  lubricants,  and 

                                       10
<PAGE>

cleaning  fluids in order to conduct its business at the Premises and such other
Hazardous  Materials as are necessary for the operation of Tenant's  business of
which Landlord  receives notice prior to such Hazardous  Materials being brought
onto the Premises and which Landlord consents in writing may be brought onto the
Premises.  At any time during the Lease  Term,  Tenant  shall,  within five days
after written request therefore received from Landlord,  disclose in writing all
Hazardous Materials that are being used by Tenant on the Project,  the nature of
such use, and the manner of storage and disposal.

                  D.  Landlord  may cause  testing  wells to be installed on the
Project,  and may cause the ground  water to be tested to detect the presence of
Hazardous  Material  by the use of such tests as are then  customarily  used for
such purposes.  If Tenant so requests,  Landlord shall supply Tenant with copies
of  such  test  results.  The  cost  of  such  tests  and of  the  installation,
maintenance,  repair and  replacement  of such wells  shall be paid by Tenant if
such tests  disclose  the  existence  of facts which give rise to  liability  of
Tenant pursuant to its indemnity given in P. 7.2A and/or P. 7.2B.

                  E. As used herein,  the term "Hazardous  Material,"  means any
hazardous or toxic substance,  materials or waste which is or becomes  regulated
by any local  governmental  authority,  the State of  California  or the  United
States Government.  The term "Hazardous Material," includes, without limitation,
petroleum products,  asbestos, PCB's, and any material or substance which is (i)
listed under Article 9 or defined as hazardous or extremely  hazardous  pursuant
to Article 11 of Title 22 of the  California  Administrative  Code,  Division 4,
Chapter 20, (ii) defined as a "hazardous  waste" pursuant to Section 1004 of the
Federal  Resource  Conservation  and  Recovery  Act, 42 U.S.C.  6901 et seq. (42
U.S.C. 6903), or (iii) defined as "hazardous  substance" pursuant to Section 101
of the Comprehensive Environmental Response;  Compensation and Liability Act, 42
U.S.C.  9601 et seq.  (42 U.S.C.  9601).  As used  herein,  the term  "Hazardous
Material  Law" shall mean any statute,  Law,  ordinance,  or  regulation  of any
governmental body or agency (including the U.S. Environmental Protection Agency,
the  California  Regional  Water  Quality  Control  Board,  and  the  California
Department of Health  Services)  which  regulates the use,  storage,  release or
disposal of any Hazardous Material.

                  F. The  obligations  of Landlord and Tenant under this P. 7.2.
shall  survive the  expiration  or earlier  termination  of the Lease Term.  The
rights and obligations of Landlord and Tenant with respect to issues relating to
Hazardous Materials are exclusively  established by this P. 7.2. In the event of
any  inconsistency  between  any other part of this  Lease and this P. 7.2,  the
terms of this P. 7.2 shall control.

     7.3  UTILITIES:  Tenant  shall  promptly  pay, as the same become due,  all
charges for water, gas, electricity, telephone, sewer service, waste pick-up and
any other  utilities,  materials  or services  furnished  directly to or used by
Tenant on or about  the  Premises  during  the Lease  Term,  including,  without
limitation,  (i) meter, use and/or connection fees, hook-up fees, or standby fee
(excluding  any  connection  fees or  hook-up  fees  which  relate to making the
existing electrical,  gas, and water service available to the Premises as of the
Commencement Date), and (ii) penalties for discontinued or interrupted  service.
If any utility  service is not separately  metered to the Premises,  then Tenant
shall pay its pro rata share of the cost of such utility service with all others
served by the service not separately  metered.  However,  if Landlord determines
that  Tenant is using a  disproportionate  amount  of any  utility  service  not
separately  metered,  then Landlord at its election may (i) periodically  charge
Tenant, as Additional Rent, a sum equal to Landlord's reasonable estimate of the
cost of Tenant's excess use of such utility service,  or (ii) install a separate
meter (at  Tenant's  expense)  to measure the  utility  service  supplied to the
Premises.

     7.4 COMPLIANCE  WITH  GOVERNMENTAL  REGULATIONS:  Landlord and Tenant shall
comply with all rules,  regulations  and  requirements  promulgated by national,
state or local governmental  agencies or utility suppliers concerning the use of
utility services,  including any rationing,  limitation or other control. Tenant
shall not be entitled to  terminate  this Lease nor to any  abatement in rent by
reason of such compliance.

                                       11
<PAGE>

                                    ARTICLE 8
                            COMMON OPERATING EXPENSES

     8.1 TENANT'S OBLIGATION TO REIMBURSE:  As Additional Rent, Tenant shall pay
Tenant's Share  (specified in SECTION G of the Summary) of all Common  Operating
Expenses;  provided,  however,  if the Project  contains more than one building,
then Tenant shall pay Tenant's  Share of all Common  Operating  Expenses  fairly
allocable to the Building, including (i) all Common Operating Expenses paid with
respect to the  maintenance,  repair,  replacement and use of the Building,  and
(ii) a  proportionate  share (based on the  Building  Gross  Leasable  Area as a
percentage of the Project Gross Leasable Area) of all Common Operating  Expenses
which  relate to the  Project in general  are not  fairly  allocable  to any one
building that is part of the Project.  Tenant shall pay such share of the actual
Common  Operating  Expenses  incurred  or paid by Landlord  but not  theretofore
billed to Tenant within 30 days after receipt of a written bill  therefore  from
Landlord,  on such periodic basis as Landlord shall  designate,  but in no event
more frequently than once a month. Alternatively, Landlord may from time to time
require that Tenant pay Tenant's Share of Common  Operating  Expenses in advance
in  estimated  monthly  installments,  in  accordance  with the  following:  (i)
Landlord shall deliver to Tenant  Landlord's  reasonable  estimate of the Common
Operating  expenses it  anticipates  will be paid or incurred for the Landlord's
fiscal year in question;  (ii) during such  Landlord's  fiscal year Tenant shall
pay such share of the estimated Common Operating  Expenses in advance in monthly
installments  as required by Landlord due with the  installments of Base Monthly
Rent;  and (iii)  within 90 days after the end of each  Landlord's  fiscal year,
Landlord shall furnish to Tenant a statement in reasonable  detail of the actual
Common  Operating  Expenses  paid or incurred by Landlord  during the just ended
Landlord's  fiscal  year and  thereupon  there  shall be an  adjustment  between
Landlord and Tenant,  with payment to Landlord or credit by Landlord against the
next  installment  of Base  Monthly  Rent or  Additional  Rent,  as the case may
require,  within 30 days after delivery by Landlord to Tenant of said statement,
so that Landlord shall receive the entire amount of Tenant's Share of all Common
Operating  Expenses for such  Landlord's  fiscal year and no more.  Tenant shall
have the right at its expense,  exercisable upon reasonable prior written notice
to Landlord,  to inspect at  Landlord's  office  during  normal  business  hours
Landlord's books and records as they relate to Common Operating  Expenses.  Such
inspection  must be within 90 days of  Tenant's  receipt  of  Landlord's  annual
statement  for the same,  and shall be limited to  verification  of the  charges
contained  in such  statement.  Tenant  may not  withhold  payment  of such bill
pending  completion of such  inspection.  Any credit due to Tenant at the end of
the Lease Term shall be paid with delivery of the final  statement.  If Tenant's
audit  discloses that Landlord  overstated  Tenant's  share of Common  Operating
Expenses by more than 5%,  Landlord  shall pay the  reasonable  cost of Tenant's
audit.

     8.2 COMMON OPERATING EXPENSES DEFINED: The term "Common Operating Expenses"
shall mean the following:

                  A. All costs and  expenses  paid or  incurred  by  Landlord in
doing the following  (including  payments to independent  contractors  providing
services related to the performance of the following: (i) maintaining, cleaning,
repairing and resurfacing the roof (including  repair of leaks) and the exterior
surfaces  (including  painting) of all  buildings  located on the Project;  (ii)
maintenance of the liability,  fire and property damage  insurance  covering the
Project  carried by Landlord  pursuant to P. 9.2  (including  the  prepayment of
premiums  for  coverage  of up  to  one  year);  (iii)  maintaining,  repairing,
operating and replacing when necessary HVAC  equipment,  utility  facilities and
other building service  equipment;  (iv) providing  utilities to the Common Area
(including lighting,  trash removal and water for landscaping  irrigation);  (v)
complying with all applicable  Laws and Private  Restrictions;  (vi)  operating,
maintaining,  repairing,  cleaning,  painting,  restriping and  resurfacing  the
Common Area; (vii) replacement or installation of lighting fixtures, directional
or other signs and signals,  irrigation systems, trees, shrubs, ground cover and
other  plant  materials,  and all  landscaping  in the Common  Area;  and (viii)
providing security;

                                       12
<PAGE>

                  B. The Following  costs: (i) Real Property Taxes as defined in
P. 8.3;  (ii) the amount of any  "deductible"  paid by Landlord  with respect to
damage caused by any Insured Peril; (iii) the cost to repair damage caused by an
Uninsured Peril up to a maximum amount in any 12 month period equal to 2% of the
replacement cost of the buildings or other improvements  damaged;  and (iv) that
portion of all  compensation  (including  benefits  and  premiums  for  workers'
compensation  and other insurance) paid to or on behalf of employees of Landlord
but  only to the  extent  they  are  involved  in the  performance  of the  work
described by P. 8.2A that is fairly allocable to the Project;

                  C. Fees for management services rendered by either Landlord or
a third party manager engaged by Landlord (which may be a party  affiliated with
Landlord),  except that the total  amount  charged for  management  services and
included in Tenant's  Share of Common  Operating  Expenses  shall not exceed the
monthly rate of 3% of the Base Monthly Rent.

                  D. All additional costs and expenses incurred by landlord with
respect to the operation, protection, maintenance, repair and replacement of the
Project  which  would  be  considered  a  current  expense  (and  not a  capital
expenditure)  pursuant to generally accepted  accounting  principles;  provided,
however,  that Common Operating Expenses shall not include any of the following:
(i)  payments  on any  loans  or  ground  leases  affecting  the  Project;  (ii)
depreciation of any buildings or any major systems of building service equipment
within  the  Project;  (iii)  leasing  commissions;  (iv) the  costs  of  tenant
improvements  installed  for the  exclusive use of other tenants of the Project;
and (v) any cost incurred in complying  with  Hazardous  Materials  Laws,  which
subject is governed exclusively by P. 7.2. See First Addendum to Lease Paragraph
9.

     8.3 REAL PROPERTY TAXES DEFINED:  The term "Real Property Taxes" shall mean
all  taxes,  assessments,  levies,  and  other  charges  of any  kind or  nature
whatsoever,   general  and  special,  foreseen  and  unforeseen  (including  all
installments  of principal  and interest  required to pay any existing or future
general or special  assessments for public  improvements,  services or benefits,
and any  increases  resulting  from  reassessments  resulting  from a change  in
ownership,  new construction,  or any other cause),  now or hereafter imposed by
any governmental or quasi-governmental  authority or special district having the
direct  or  indirect  power to tax or levy  assessments,  which  are  levied  or
assessed against,  or with respect to the value,  occupancy or use of all or any
portion of the Project (as now  constructed  or as may at any time  hereafter be
construed,  altered, or otherwise changed) or Landlord's  interest therein,  the
fixtures,  equipment and other property of Landlord,  real or personal, that are
an integral part of and located on the Project,  the gross receipts,  income, or
rentals from the Project,  or the use of parking  areas,  public  utilities,  or
energy within the Project,  or Landlord's business of leasing the Project. If at
any time  during the Lease  Term the method of  taxation  or  assessment  of the
Project  prevailing as of the Effective Date shall be altered so that in lieu of
or in addition to any Real Property Tax  described  above there shall be levied,
assessed or imposed  (whether by reason of a change in the method of taxation or
assessment, creation of a new tax or charge, or any other cause) an alternate or
additional  tax or charge (i) on the value,  use or  occupancy of the Project or
Landlord's interest therein, or (ii) on a measured by the gross receipts, income
or rentals from the Project,  on Landlord's  business of leasing the Project, or
computed in any manner with respect to the  operation  of the Project,  then any
such tax or charge,  however  designed,  shall be included within the meaning of
the term "Real Property  Taxes" for purposes of this Lease. If any Real Property
Tax is based upon  property or rents  unrelated to the  Project,  then only that
part of such Real Property Tax that is fairly  allocable to the Project shall be
included within the meaning of the term "Real Property  Taxes".  Notwithstanding
the  foregoing,  the term  "Real  Property  Taxes"  shall  not  include  estate,
inheritance,  transfer,  gift or  franchise  taxes of Landlord or the federal or
state net income tax imposed on  Landlord's  income from all sources.  See First
Addendum To Lease Paragraph 10.

                                       13
<PAGE>


                                    ARTICLE 9
                                    INSURANCE

     9.1 TENANT INSURANCE: Tenant Shall maintain insurance complying with all of
the following:

                  A. Tenant  shall  procure,  pay for and keep in full force and
effect the following:

                           (1) Commercial general liability insurance, including
property damage, against liability for personal injury, bodily injury, death and
damage to property  occurring in or about, or resulting from an occurrence in or
about,  the Premises  with combined  single limit  coverage of not less than the
amount of Tenant's  Liability  Insurance  Minimum  specified in SECTION P of the
Summary,  which  insurance shall contain a "contractual  liability"  endorsement
insuring  Tenant's  performance  of Tenant's  obligation  to indemnify  Landlord
contained in P. 10.3;

                           (2) Fire and property  damage  insurance in so-called
"all risk" form insuring  Tenant's Trade Fixtures and Tenant's  Alterations  for
the full actual replacement cost thereof;

                           (3) Such  other  insurance  that is  required  by any
Lender.

                  B. Where  applicable and required by Landlord,  each policy of
insurance  required to be carried by Tenant  pursuant to this P. 9.1:  (i) shall
name  Landlord  and such  other  parties  in  interest  as  Landlord  reasonably
designates as additional insured; (ii) shall be primary insurance which provides
that the  insurer  shall be  liable  for the full  amount  of the loss up to and
including  the total amount of liability set forth in the  declarations  without
the right to contribution from any other insurance  coverage of Landlord;  (iii)
shall  be in a form  satisfactory  to  Landlord;  (iv)  shall  be  carried  with
companies reasonably acceptable to Landlord;  (v) shall provide that such policy
shall not be subject to  cancellation,  lapse or  reduction  in coverage  except
after  at  least  30 days  prior  written  notice  to  Landlord  so long as such
provision of 30 days notice is reasonably obtainable,  but in any event not less
than 10 days prior written notice;  (vi) shall not have a "deductible" in excess
of such amount as is approved by Landlord; (vii) shall contain a cross liability
endorsement;  and (viii) shall contain a "severability" clause. If Tenant has in
full  force and effect a blanket  policy of  liability  insurance  with the same
coverage for the Premises as described above, as well as other coverage of other
premises and properties of Tenant,  or in which Tenant has some  interest,  such
blanket insurance shall satisfy the requirements of this P. 9.1.

                  C. A copy of each  paid-up  policy  evidencing  the  insurance
required  to be  carried  by  Tenant  pursuant  to  this P.  9.1  (appropriately
authenticated  by the insurer) or a certificate of the insurer,  certifying that
such policy has been issued, providing the coverage required by this P. 9.1, and
containing the provisions specified herein, shall be delivered to Landlord prior
to the time Tenant or any of its Agents  enters the Premises and upon renewal of
such  policies,  but not less than 5 days prior to the expiration of the term of
such coverage.  Landlord may, at any time, and from time to time, inspect and/or
copy any and all insurance  policies  required to be procured by Tenant pursuant
to this P. 9.1. If any Lender or insurance advisor reasonably  determines at any
time that the amount of coverage  required for any policy of insurance Tenant is
to obtain  pursuant to this P. 9.1 is not adequate,  then Tenant shall  increase
such  coverage  for such  insurance  to such amount as such Lender or  insurance
advisor reasonably deems adequate,  not to exceed the level of coverage for such
insurance commonly carried by comparable businesses similarly situated.

     9.2 LANDLORD'S INSURANCE:  Landlord shall have the following obligation and
options regarding insurance:

                  A.  Landlord  shall  maintain a policy or policies of fire and
property  damage  insurance in so-called "all risk" form insuring  Landlord (and
such others as Landlord may 

                                       14
<PAGE>

designate)  against  loss of rents for a period  of not less than 12 months  and
from  physical  damage to the  Project  with  coverage of not less than the full
replacement cost thereof.  Landlord may so insure the Project separately, or may
insure the Project with other property  owned by Landlord which Landlord  elects
to insure  together  under the same policy or  policies.  Such fire and property
damage  insurance  (i) may be endorsed  to cover loss caused by such  additional
perils against which Landlord may elect to insure,  including  earthquake and/or
flood, and to provide such additional coverage as Landlord reasonably  requires,
and (ii) shall contain reasonable "deductibles" which, in the case of earthquake
and flood insurance,  may be up to 15% of the replacement  value of the property
insured or such higher amount as is then commercially reasonable. Landlord shall
not be required to cause such  insurance to cover any Trade Fixtures or Tenant's
Alterations of Tenant.

                  B.  Landlord may  maintain a policy or policies of  commercial
general liability insurance insuring Landlord (and such others as are designated
by Landlord)  against  liability for personal injury,  bodily injury,  death and
damage to property occurring or resulting from an occurrence in, on or about the
Project,  with  combined  single limit  coverage in such amount as Landlord from
time to time determines is reasonably necessary for its protection.

     9.3 TENANT'S OBLIGATION TO REIMBURSE: If Landlord's insurance rates for the
Building  are  increased  at any time  during  the Lease Term as a result of the
nature of Tenant's use of the Premises,  Tenant shall reimburse Landlord for the
full amount of such  increase  immediately  upon receipt of a bill from Landlord
therefor.

     9.4 RELEASE AND WAIVER OF  SUBROGATION:  The parties  hereto  release  each
other, and their respective agents and employees,  from any liability for injury
to any person or damage to property  that is caused by or results  from any risk
insured  against under any valid and  collectible  insurance  policy  carried or
required  hereunder  to be carried  by either of the  parties  which  contains a
waiver of  subrogation by the insurer and is in force at the time of such injury
or damage;  subject to the following  limitations:  (i) the foregoing  provision
shall not apply to the  commercial  general  liability  insurance  described  by
subparagraphs  P. 9.1A and P. 9.2B;  (ii) such release  shall apply to liability
resulting from any risk insured against or covered by self-insurance  maintained
or  provided  by Tenant to  satisfy  the  requirements  of P. 9.1 to the  extent
permitted by this Lease;  and (iii)  Tenant shall not be released  from any such
liability to the extent any damages resulting from such injury or damage are not
covered by the recovery  obtained by Landlord from such  insurance,  but only if
the  insurance  in question  permits  such partial  release in  connection  with
obtaining a waiver of  subrogation  from the insurer.  This release  shall be in
effect only so long as the applicable  insurance policy contains a clause to the
effect  that this  release  shall not affect the right of the insured to recover
under  such  policy.  Each  party  shall use  reasonable  efforts  to cause each
insurance  policy obtained by it to provide that the insurer waives all right of
recovery  by way of  subrogation  against  the other  party and its  agents  and
employees  in  connection  with any  injury or damage  covered  by such  policy.
However,  if any  insurance  policy  cannot  be  obtained  with such a waiver of
subrogation,  or if such waiver of  subrogation  is only available at additional
cost and the party for whose  benefit the waiver is to be obtained  does not pay
such  additional  cost, then the party obtaining such insurance shall notify the
other party of that fact and  thereupon  shall be relieved of the  obligation to
obtain such waiver of  subrogation  rights from the insurer  with respect to the
particular insurance involved.

                                   ARTICLE 10
                            LIMITATION ON LANDLORD'S
                             LIABILITY AND INDEMNITY

     10.1  LIMITATION ON LANDLORD'S  LIABILITY:  Landlord shall not be liable to
Tenant, nor shall Tenant be entitled to terminate this Lease or to any abatement
of rent  (except as  expressly  provided  otherwise  herein),  for any injury to
Tenant or Tenant's Agents,  damage to the property of Tenant or Tenant's Agents,
or loss to  Tenant's  business  resulting  from  any  cause,  including  without
limitation  any: (i) failure,  interruption or installation of any HVAC or other

                                       15
<PAGE>

utility  system or service;  (ii) failure to furnish or delay in furnishing  any
utilities  or  services  when such  failure  or delay is caused by fire or other
peril, the elements, labor disturbances of any character, or any other accidents
or other conditions beyond the reasonable control of Landlord; (iii) limitation,
curtailment, rationing or restriction on the use of water or electricity, gas or
any other form of energy or any services or utility  serving the  Project;  (iv)
vandalism or forcible entry by  unauthorized  persons or the criminal act of any
person;  or (v) penetration of water into or onto any portion of the Premises or
the Building through roof leaks or otherwise.  Notwithstanding the foregoing but
subject to P. 9.4, Landlord shall be liable for any such injury,  damage or loss
which  is  proximately   caused  by  Landlord's  or  Landlord's  agents  willful
misconduct  or active  negligence  of which  Landlord  has  actual  notice and a
reasonable opportunity to cure but which it fails to so cure.

     10.2 LIMITATION ON TENANT'S RECOURSE: If Landlord is a corporation,  trust,
partnership, joint venture, unincorporated association or other form of business
entity:   (i)  the  obligations  of  Landlord  shall  not  constitute   personal
obligations of the officers,  directors,  trustees,  partners,  joint  ventures,
members,  owners,  stockholders,  or other principals or representatives of such
business  entity;  and (ii) Tenant shall not have recourse to the assets of such
officers,  directors,  trustees,  partners,  joint  ventures,  members,  owners,
stockholders,  principals  or  representatives  except  to the  extent  of their
interest in the  Project.  Tenant  shall have  recourse  only to the interest of
Landlord in the Project for the  satisfaction of the obligations of Landlord and
shall not have recourse to any other assets of Landlord for the  satisfaction of
such obligations.

     10.3 INDEMNIFICATION OF LANDLORD: Tenant shall hold harmless, indemnify and
defend  Landlord,  and its  employees,  agents and  contractors,  with competent
counsel  reasonably  satisfactory  to Landlord  (and  Landlord  agrees to accept
counsel  that any insurer  requires  be used),  from all  liability,  penalties,
losses,  damages,  costs,  expenses,  causes of action,  claims and/or judgments
arising by reason of any  death,  bodily  injury,  personal  injury or  property
damage resulting from (i) any cause or causes whatsoever (other than the willful
misconduct  or active  negligence  of  Landlord  or  Landlord's  agents of which
Landlord has had notice and a reasonable  time to cure,  but which  Landlord has
failed to cure)  occurring in or about or  resulting  from an  occurrence  in or
about the  Premises  during  the Lease  Term,  (ii) the  negligence  or  willful
misconduct of Tenant or its agents, employees and contractors, wherever the same
may occur, or (iii) an Event of Tenant's Default. The provisions of this P. 10.3
shall survive the expiration or sooner termination of this Lease.

                                   ARTICLE 11
                               DAMAGE TO PREMISES

     11.1 LANDLORD'S  DUTY TO RESTORE:  If the Premises are damaged by any peril
after the Effective  Date,  Landlord shall restore the Premises unless the Lease
is terminated by Landlord pursuant to P. 11.2 or by Tenant pursuant toP. 11.3 or
P. 2,4. All  insurance  proceeds  available  from the fire and  property  damage
insurance carried by Landlord pursuant to P. 9.2 shall be paid to and become the
property of Landlord.  If this Lease is terminated pursuant to either P. 11.2 or
P. 11.3, then all insurance  proceeds available from insurance carried by Tenant
which  covers  loss to property  that is  Landlord's  property  or would  become
Landlord's property on termination of this Lease shall be paid to and become the
property of Landlord.  If this Lease is not so terminated,  then upon receipt of
the insurance proceeds (if the loss is covered by insurance) and the issuance of
all necessary  governmental  permits,  Landlord  shall  commence and  diligently
prosecute to completion  the  restoration  of the  Premises,  to the extent then
allowed by Law, to  substantially  the same condition in which the Premises were
immediately  prior to such damage.  Landlord's  obligation  to restore  shall be
limited to the  Premises and interior  improvements  constructed  by Landlord as
they existed as of the Commencement  Date,  excluding any Tenant's  Alterations,
Trade Fixtures  and/or personal  property  constructed or installed by Tenant in
the  Premises.  Tenant  shall  forthwith  replace or fully  repair all  Tenant's
Alterations  and Trade Fixtures  installed by Tenant and existing at the time of
such damage or destruction,  and all 

                                       16
<PAGE>

insurance  proceeds received by Tenant from the insurance carried by it pursuant
to P. 9.1A(2) shall be used for such purpose.

     11.2  LANDLORD'S  RIGHT TO  TERMINATE:  Landlord  shall  have the  right to
terminate this Lease in the event any of the following  occurs,  which right may
be  exercised  only by  delivery  to Tenant of a written  notice of  election to
terminate within 30 days after the date of such damage:

                  A. Either the Project or the Building is damaged by an Insured
Peril to such an extent that the  estimated  cost to restore  exceeds 33% of the
then actual replacement cost thereof;

                  B.  Either  the  Project  or the  Building  is  damaged  by an
Uninsured  Peril to such an extent that the estimated cost to restore exceeds 2%
of the then actual replacement cost thereof;  provided,  however,  that Landlord
may not terminate this Lease pursuant to this P. 11.2B if one or more tenants of
the Project  agree in writing to pay the amount by which the cost to restore the
damage  exceeds such amount and  subsequently  deposit such amount with Landlord
within 30 days after  Landlord has notified  Tenant of its election to terminate
this Lease;

                  C. The  Premises  are damaged by any peril within 12 months of
the last day of the Lease  Term to such an  extent  that the  estimated  cost to
restore  equals or exceeds an amount  equal to six times the Base  Monthly  Rent
then due; provided, however, that Landlord may not terminate this Lease pursuant
to this P. 11.2C if Tenant, at the time of such damage, has a then valid express
written  option to extend  the Lease Term and Tenant  exercises  such  option to
extend the Lease Term within 15 days following the date of such damage; or

                  D. Either the Project or the  Building is damaged by any peril
and,  because of the Laws then in force,  (i) cannot be restored  at  reasonable
cost to  substantially  the same condition in which it was prior to such damage,
or (ii) cannot be used for the same use being made thereof before such damage if
restored as required by this Article.

                  E.  As  used  herein,  the  following  terms  shall  have  the
following  meanings:  (i) the term "Insured  Peril" shall mean a peril  actually
insured against for which the insurance  proceeds  actually received by Landlord
are sufficient (except for any "deductible"  amount specified by such insurance)
to restore the  Project  under then  existing  building  codes to the  condition
existing  immediately  prior to the damage;  and (ii) the term "Uninsured Peril"
shall  mean  any  peril  which  is not an  Insured  Peril.  Notwithstanding  the
foregoing,  if the "deductible" for earthquake or flood insurance  exceeds 2% of
the replacement cost of the improvements  insured, such peril shall be deemed an
"Uninsured Peril".

     11.3 TENANT'S RIGHT TO TERMINATE:  If the Premises are damaged by any peril
and  Landlord  does not elect to  terminate  this  Lease or is not  entitled  to
terminate  this  Lease  pursuant  to  P.  11.2,   then  as  soon  as  reasonably
practicable,   Landlord  shall  furnish  Tenant  with  the  written  opinion  of
Landlord's architect or construction  consultant as to when the restoration work
required of Landlord may be completed.  Tenant shall have the right to terminate
this  Lease  in the  event  any of the  following  occurs,  which  right  may be
exercised  only by  delivery  to  Landlord  of a written  notice of  election to
terminate within 10 days after Tenant receives from Landlord the estimate of the
time needed to complete such restoration.

                  A.  The  Premises  are  damaged  by  any  peril  and,  in  the
reasonable  opinion of  Landlord's  architect or  construction  consultant,  the
restoration of the Premises cannot be  substantially  completed  within 180 days
after the date of such damage; or

                  B. The  Premises  are damaged by any peril within 12 months of
the last day of the Lease Term and,  in the  reasonable  opinion  of  Landlord's
architect or construction consultant,  the restoration of the Premises cannot be
substantially  completed  within 90 days after the date of such  damage and such
damage renders unusable more than 30% of the Premises.

                                       17
<PAGE>

     11.4  ABATEMENT OF RENT: In the event of damage to the Premises  which does
not result in the  termination  of this  Lease,  the Base  Monthly  Rent and the
Additional Rent shall not be temporarily abated during the period of restoration
commencing on the date of such damage and  continuing  until the  restoration is
completed  and  possession is delivered to Tenant in proportion to the degree to
which Tenant's use of the Premises is impaired by such damage.  Tenant shall not
be  entitled  to any  compensation  or  damages  from  Landlord  for the loss of
Tenant's  business or property or for any  inconvenience  or annoyance caused by
such damage or  restoration.  Tenant hereby waives the  provisions of California
Civil Code  Sections  1932(2) and 1933(4) and the  provisions of any similar law
hereinafter  enacted.  If this Lease is terminated  pursuant hereto,  this Lease
shall terminate and all of Tenant's obligations  hereunder shall cease as of the
date on which the damage event occurred.

                                   ARTICLE 12
                                  CONDEMNATION

     12.1  LANDLORD'S  TERMINATION  RIGHT:  Landlord  shall  have  the  right to
terminate this Lease if, as a result of a taking by means of the exercise of the
power of eminent domain (including a voluntary sale or transfer by Landlord to a
condemnor under threat of condemnation),  (i) all or any part of the Premises is
so taken, (ii) more than 10% of the Building Leasable Area is so taken, or (iii)
more than 50% of the Common  Area is so taken.  Any such right to  terminate  by
Landlord must be exercised  within a reasonable  period of time, to be effective
as of the date possession is taken by the condemnor.

     12.2 TENANT'S  TERMINATION RIGHT:  Tenant shall have the right to terminate
this Lease if, as a result of any taking by means of the  exercise  of the power
of eminent  domain  (including any voluntary sale or transfer by Landlord to any
condemnor under threat of  condemnation),  (i) 10% or more of the Premises is so
taken and that part of the  Premises  that remains  cannot be restored  within a
reasonable period of time and thereby made reasonably suitable for the continued
operation  of the Tenant's  business,  or (ii) there is a taking  affecting  the
Common Area and, as a result of such taking,  Landlord  cannot  provide  parking
spaces within reasonable  walking distance of the Premises equal in number to at
least 80% of the  number of spaces  allocated  to Tenant by P. 2.1,  whether  by
rearrangement  of the  remaining  parking  area in the  Common  Area  (including
construction  of multi-deck  parking  structures or restriping  for compact cars
where  permitted by Law) or by  alternative  parking  facilities  on other land.
Tenant  must  exercise  such right  within a  reasonable  period of time,  to be
effective on the date that  possession of that portion of the Premises or Common
Area that is condemned is taken by the condemnor.

     12.3  RESTORATION AND ABATEMENT OF RENT: If any part of the Premises or the
Common  Area is taken by  condemnation  and this Lease is not  terminated,  then
Landlord shall restore the remaining portion of the Premises and Common Area and
interior  improvements  constructed  by  Landlord  as  they  existed  as of  the
Commencement  Date,  excluding any Tenant's  Alterations,  Trade Fixtures and/or
personal property constructed or installed by Tenant. Thereafter,  except in the
case of a temporary  taking, as of the date possession is taken the Base Monthly
Rent shall be reduced in the same proportion that the floor area of that part of
the   Premises   so  taken  (less  any   addition   thereto  by  reason  of  any
reconstruction) bears to the original floor area of the Premises.

     12.4 TEMPORARY  TAKING: If any portion of the Premises is temporarily taken
for one year or less,  this Lease shall remain in effect.  If any portion of the
Premises is taken by  condemnation  for a period which exceeds one year or which
extends  beyond  the  natural  expiration  of the  Lease  Term and  such  taking
materially and adversely  affects  Tenant's  ability to use the Premises for the
Permitted  Use,  then  Tenant  shall  have the right to  terminate  this  Lease,
effective on the date possession is taken by the condemnor.

                                       18
<PAGE>

     12.5  DIVISION  OF  CONDEMNATION  AWARD:  Any award made as a result of any
condemnation  of the  Premises or the Common Area shall belong to and be paid to
Landlord,  and Tenant  hereby  assigns to Landlord  all of its right,  title and
interest in any such award; provided,  however, that Tenant shall be entitled to
receive any condemnation award that is made directly to Tenant for the following
so long as the award made to Landlord is not thereby reduced: (i) for the taking
of  personal  property  or  Trade  Fixture  belonging  to  Tenant,  (ii) for the
interruption  of  Tenant's  business  or its  moving  costs,  (iii)  for loss of
Tenant's  goodwill;  or (iv) for any  temporary  taking  where this Lease is not
terminated  as a result of such  taking.  The  rights  of  Landlord  and  Tenant
regarding any condemnation shall be determined as provided in this Article,  and
each party hereby waives the  provisions of California  Code of Civil  Procedure
Section  1265.130  and the  provisions  of any similar law  hereinafter  enacted
allowing  either party to petition the Superior Court to terminate this Lease in
the event of a partial taking of the Premises.

                                   ARTICLE 13
                              DEFAULT AND REMEDIES

     13.1  EVENTS  OF  TENANT'S  DEFAULT:  Tenant  shall  be in  default  of its
obligations under this Lease if any of the following events occurs (an "Event of
Tenant's Default"):

                  A.  Tenant  shall  have  failed  to pay Base  Monthly  Rent or
Additional  Rent when due, and such failure is not cured within 3 business  days
after delivery of written notice from Landlord  specifying  such failure to pay;
or

                  B. Tenant shall have failed to perform any term, covenant,  or
condition of this Lease except those  requiring the payment of Base Monthly Rent
or Additional  Rent,  and Tenant shall have failed to cure such breach within 30
days after  written  notice from Landlord  specifying  the nature of such breach
where such breach could  reasonably  be cured  within said 30 day period,  or if
such breach  could not be  reasonably  cured  within said 30 day period,  Tenant
shall have failed to commence such cure within said 30 day period and thereafter
continue  with due diligence to prosecute  such cure to  completion  within such
time period as is reasonably needed or

                  C.  Tenant  shall have sublet the  Premises  or  assigned  its
interest in the Lease in violation of the provisions contained in Article 14; or

                  D. Tenant shall have abandoned the Premises or

                  E. The occurrence of the  following:  (i) the making by Tenant
of any general  arrangements or assignments  for the benefit of creditors;  (ii)
Tenant  becomes a "debtor" as defined in 11 USC ss.101 or any successor  statute
thereto  (unless,  in the case of a petition filed against  Tenant,  the same is
dismissed  within 60 days);  (iii) the  appointment  of a trustee or receiver to
take possession of substantially  all of Tenant's assets located at the Premises
or of Tenant's  interest  in this Lease,  where  possession  is not  restored to
Tenant  within 30 days;  or (iv) the  attachment,  execution  or other  judicial
seizure of  substantially  all of Tenant's  assets located at the Premises or of
Tenant's interest in this lease,  where such seizure is not discharged within 30
days;  provided,  however, in the event that any provision of this Section 13.1E
is  contrary  to any  applicable  Law,  such  provision  shall be of no force or
effect: or

                  F. Tenant shall have failed to deliver  documents  required of
it pursuant to P. 15.4 or P. 15.6 within the time periods specified therein.

     13.2 LANDLORD'S REMEDIES: If an Event of Tenant's Default occurs,  Landlord
shall have the following remedies,  in addition to all other rights and remedies
provided by any Law or otherwise  provided in this Lease,  to which Landlord may
resort cumulatively or in the alternative:

                  A.  Landlord  may keep this Lease in effect and  enforce by an
action at Law or in equity  all of its  rights and  remedies  under this  Lease,
including (i) the right to recover the rent 

                                       19
<PAGE>

and other sums as they become due by appropriate legal action, (ii) the right to
make  payments  required  of  Tenant  or  perform  Tenant's  obligations  and be
reimbursed by Tenant for the cost thereof with  interest at the Agreed  Interest
Rate from the date the sum is paid by Landlord  until  Landlord is reimbursed by
Tenant, and (iii) the remedies of injunctive relief and specific  performance to
compel  Tenant to perform  its  obligations  under this  Lease.  Notwithstanding
anything  contained in this Lease,  in the event of a breach of an obligation by
Tenant which results in a condition  which poses an imminent danger to safety of
persons or damage to property,  an unsightly condition visible from the exterior
of the Building, or a threat to insurance coverage, then if Tenant does not cure
such breach within 5 business days after  delivery to it of written  notice from
Landlord  identifying the breach,  Landlord may cure the breach of Tenant and be
reimbursed by Tenant for the cost thereof with  interest at the Agreed  Interest
Rate from the date the sum is paid by Landlord  until  Landlord is reimbursed by
Tenant.

                  B.  Landlord  may enter the Premises and release them to third
parties for Tenant's account for any period,  whether shorter or longer than the
remaining  Lease Term.  Tenant shall be liable  immediately  to Landlord for all
reasonable costs Landlord incurs  in releasing the Premises,  including brokers'
commissions,  expenses of altering and  preparing  the Premises  required by the
releasing.  Tenant  shall pay to Landlord the rent and other sums due under this
Lease  on the date the rent is due,  less  the  rent  and  other  sums  Landlord
received from any  releasing.  No act by Landlord  allowed by this  subparagraph
shall  terminate  this Lease  unless  Landlord  notifies  Tenant in writing that
Landlord elects to terminate this Lease.  Notwithstanding  any releasing without
termination,  Landlord  may later elect to terminate  this Lease  because of the
default by Tenant.

                  C. Landlord may terminate  this Lease by giving Tenant written
notice of termination, in which event this Lease shall terminate on the date set
forth for termination in such notice.  Any termination under this P. 13.2C shall
not relieve Tenant from its obligation to pay sums then due Landlord or from any
claim against Tenant for damages or rent previously accrued or then accruing. In
no event  shall any one or more of the  following  actions by  Landlord,  in the
absence of a written election by Landlord to terminate this Lease,  constitute a
termination of this Lease:  (i)  appointment of a receiver or keeper in order to
protect  Landlord's  interest  hereunder;  (ii) consent to any subletting of the
Premises  or  assignment  of this  Lease  by  Tenant,  whether  pursuant  to the
provisions  hereof  or  otherwise;  or (iii) any other  action  by  Landlord  or
Landlord's Agents intended to mitigate the adverse effects of any breach of this
Lease by Tenant,  including without  limitation any action taken to maintain and
preserve  the Premises or any action taken to relet the Premises or any portions
thereof to the extent such actions do not affect a termination of Tenant's right
to possession of the Premises.

                  D. In the event  Tenant  breaches  this Lease and abandons the
Premises,  this Lease shall not terminate  unless  Landlord gives Tenant written
notice of its  election to so  terminate  this Lease.  No act by or on behalf of
Landlord intended to mitigate the adverse effect of such breach, including those
described  by P. 13.C,  shall  constitute  a  termination  of Tenant's  right to
possession  unless Landlord gives Tenant written notice of  termination.  Should
Landlord not terminate this Lease by giving Tenant written notice,  Landlord may
enforce all its rights and  remedies  under this Lease,  including  the right to
recover the rent as it becomes  due under the Lease as  provided  in  California
Civil Code Section 1951.4.

                  E. In the event Landlord terminates this Lease, Landlord shall
be entitled,  at  Landlord's  election,  to damages in an amount as set forth in
California  Civil Code Section  1951.2 as in effect on the Effective  Date.  For
purposes of computing  damages pursuant to California Civil Code Section 1951.2,
(i) an  interest  rate  equal to the  Agreed  Interest  Rate shall be used where
permitted,  and (ii) the term "rent"  includes Base Monthly Rent and  Additional
Rent. Such damages shall include:

                  (1) The worth at the time of award of the  amount by which the
unpaid  rent for the  balance  of the term after the time of award  exceeds  the
amount of such rental  loss that  Tenant 

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<PAGE>

proves could be reasonably  avoided,  computed by discounting such amount at the
discount rate of the Federal  Reserve Bank of San Francisco at the time of award
plus one percent (1%); and

                  (2) Any other amount necessary to compensate  Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this lease,  or which in the ordinary  course of things would be likely to
result therefrom,  including the following: (i) expenses for cleaning, repairing
or restoring the Premises; (ii) reasonable expenses for altering,  remodeling or
otherwise  improving  the  Premises  for the  purpose  of  reletting,  including
installation of leasehold improvements (whether such installation be funded by a
reduction of rent,  direct payment or allowance to a new tenant,  or otherwise);
(iii)  broker's  fees,  advertising  costs and other  expenses of reletting  the
Premises;  (iv)  costs  of  carrying  the  Premises,  such as  taxes,  insurance
premiums, utilities and security precautions; (v) expenses in retaking possesion
of the Premises;  and (vi)  attorneys' fees and court costs incurred by Landlord
in  retaking  possession  of the  Premises  and in  releasing  the  Premises  or
otherwise incurred as a result of Tenant's default.

                  F.  Nothing in this P. 13.2 shall  limit  Landlord's  right to
indemnification  from Tenant as provided in P. 7.2 and P. 10.3. Any notice given
by Landlord in order to satisfy the  requirements  of P. 13.1A or P. 13.1B above
shall also satisfy the notice  requirement of California Code of Civil Procedure
Section 1161  regarding  unlawful  detainer  proceedings  provided  such notices
comply in form content and manner of service with applicable Law.

     13.3  WAIVER:  One  party's  consent to or approval of any act by the other
party  requiring  the first party's  consent or approval  shall not be deemed to
waive or render  unnecessary  the first  party's  consent to or  approval of any
subsequent  similar act by the other party.  The receipt by Landlord of any rent
or payment with or without knowledge of the breach of any other provision hereof
shall not be deemed a waiver of any such breach unless such waiver is in writing
and signed by  Landlord.  No delay or omission  in the  exercise of any right to
remedy  accruing  to either  party upon any breach by the other party under this
Lease shall  impair such right or remedy or be construed as a waiver of any such
breach  theretofore or thereafter  occurring.  The waiver by either party of any
breach of any  provision of this Lease shall not be deemed to be a waiver of any
subsequent breach of the same or of any other provisions herein contained.

     13.4  LIMITATION  ON  EXERCISE  OF  RIGHTS:  At any  time  that an Event of
Tenant's  Default  has  occurred  and  remains  uncured,  (i)  it  shall  not be
unreasonable  for Landlord to deny or withold any consent or approval  requested
of it by Tenant which  Landlord  would  otherwise be obligated to give, and (ii)
Tenant may not exercise any option to extend,  right to terminate this Lease, or
other right  granted to it by this Lease which would  otherwise  be available to
it.

     13.5 WAIVER BY TENANT OF CERTAIN REMEDIES:  Tenant waives the provisions of
Sections 1932(1),  1941 and 1942 of the California Civil Code and any similar or
successor  law  regarding  Tenant's  right to  terminate  this  Lease or to make
repairs  and deduct the  expenses of such  repairs  from the rent due under this
Lease.  Tenant hereby  waives any right of redemption or relief from  forfeiture
under the laws of the State of California,  or under any other present or future
law,  including the provisions of Sections 1174 and 1179 of the California  Code
of Civil Procedure. 

                                   ARTICLE 14
                           ASSIGNMENT AND SUBLETTING

     14.1  TRANSFER  BY TENANT:  The  following  provisions  shall  apply to any
assignment,  subletting or other transfer by Tenant or any subtenant or assignee
or other successor in interest of the original Tenant (collectively  referred to
in this P. 14.1 as "Tenant):

                  A.  Tenant  shall  not do any of the  following  (collectively
referred to herein as a "Transfer"),  whether  voluntarily,  involuntarily or by
operation of law,  without the prior written consent of Landlord,  which consent
shall not be unreasonably withheld or delayed: (i) sublet all or 

                                       21
<PAGE>

any  part of the  Premises  or allow it to be  sublet,  occupied  or used by any
person or entity  other than  Tenant;  (ii)  assign its  interest in this Lease;
(iii)  mortgage or encumber the Lease (or  otherwise use the Lease as a security
device)  in any  manner;  or (iv)  materially  amend or  modify  an  assignment,
sublease or other transfer that has been previously approved by Landlord. Tenant
shall reimburse  Landlord for all reasonable  costs and attorneys' fees incurred
by Landlord in connection with the evaluation,  processing, and/or documentation
of any requested  Transfer,  whether or not Landlord's consent is granted, in an
amount not to exceed $1,000.00 per Transfer unless Tenant challenges  Landlord's
decision.  Landlord's  reasonable  costs shall include the cost of any review or
investigation performed by Landlord or consultant acting on Landlord's behalf of
(i) Hazardous Materials (as defined in Section 7.2E of this Lease) used, stored,
released,  or disposed of by the  potential  Subtenant or Assignee,  and/or (ii)
violations of Hazardous Materials Law (as defined in Section 7.2E of this lease)
by the Tenant or the propsed Subtenant or Assignee.  Any Transfer so approved by
Landlord  shall not be  effective  until  Tenant has  delivered  to  Landlord an
executed  counterpart of the document  evidencing the Transfer which (i) is in a
form  reasonably  approved  by  Landlord,  (ii)  contains  the  same  terms  and
conditions as stated in Tenant's notice given to Landlord  pursuant to P. 14.1B,
and (iii) in the case of an assignment  of the Lease,  contains the agreement of
the proposed  transferee  to assume all  obligations  of Tenant under this Lease
arising  after the  effective  date of such  Transfer and to remain  jointly and
severally liable therefor with Tenant. Any attempted Transfer without Landlord's
consent shall  constitute an Event of Tenant's  Default and shall be voidable at
Landlord's option. Landlord's consent to any one Transfer shall not constitute a
waiver of the  provisions  of this P. 14.1 as to any  subsequent  Transfer  or a
consent  to any  subsequent  Transfer.  No  Transfer,  even with the  consent of
Landlord, shall relieve Tenant of its personal and primary obligation to pay the
rent and to  perform  all of the other  obligations  to be  performed  by Tenant
hereunder.  The  acceptance  of rent by  Landlord  from any person  shall not be
deemed to be a waiver by  Landlord  of any  provision  of this Lease nor to be a
consent to any Transfer.

                  B. At least 15 days  before a proposed  Transfer  is to become
effective,  Tenant shall give Landlord  written  notice of the proposed terms of
such Transfer and request  Landlord's  approval,  which notice shall include the
following: (i) the name and legal composition of the proposed transferee; (ii) a
current  financial  statement of the  transferee,  financial  statements  of the
transferee  covering  the  preceding  three  years  if the same  exist,  and (if
available) an  audited financial statement of the transferee for a period ending
not more than one year prior to the proposed effective date of the Transfer, all
of  which  statements  are  prepared  in  accordance  with  generally   accepted
accounting principles; (iii) the nature of the proposed transferee's business to
be carried on in the Premises;  (iv) all consideration to be given on account of
the  Transfer;  (v) a  current  financial  statement  of  Tenant;  and  (vi)  an
accurately  filled out  response  to  Landlord's  standard  Hazardous  Materials
Questionnaire. Tenant shall provide to Landlord such other information as may be
reasonably  requested by Landlord within seven days after Landlord's  receipt of
such notice from Tenant.  Landlord shall maintain all such information in strict
confidence. Landlord shall respond in writing to Tenant's request for Landlord's
consent to a Transfer within the later of (i) 10 days of receipt of such request
together with the required accompanying  documentation,  or (ii) five days after
Landlord's receipt of all information which Landlord  reasonably requests within
five days after it receives  Tenant's  first  notice  regarding  the Transfer in
question.  If Landlord fails to respond in writing within said period,  Landlord
will  be  deemed  to  have  withheld  consent  to such  Transfer.  Tenant  shall
immediately  notify Landlord of any material  modification to the proposed terms
of such Transfer.

                  C. In the event that Tenant seeks to make any Transfer for the
balance of the Lease Term, Landlord shall have the right to terminate this Lease
or, in the case of a sublease of less than all of the Premises,  terminate  this
Lease as to that part of the  Premises  proposed to be so sublet,  either (i) on
the condition that the proposed transferee immediately enter into a direct lease
of the Premises with Landlord  (or, in the case of a partial  sublease,  a lease
for the  portion  proposed  to be so sublet)  on the same  terms and  conditions
contained in Tenant's  notice,  or (ii) so that Landlord is  thereafter  free to
lease the Premises (or, in the case of a partial sublease,  the portion proposed
to be so sublet) to  whomever  it pleases on whatever  terms are  acceptable  to

                                       22
<PAGE>

Landlord  unless,  in either  case,  Tenant,  within 10 days  after  receipt  of
Landlord's election to terminate,  gives Landlord written notice withdrawing its
proposal to assign or sublet.  In the event Landlord elects to so terminate this
Lease, then (i) if such termination is conditioned upon the execution of a lease
between  Landlord and the proposed  transferee,  Tenant's  obligation under this
Lease shall not be terminated  until such  transferee  executes a new lease with
Landlord,  enters into possession and commences the payment of rent, and (ii) if
Landlord  elects  simply to  terminate  this Lease (or, in the case of a partial
sublease,  terminate  this Lease as to the portion to be so  sublet),  the Lease
shall so  terminate  in its  entirety (or as to the space to be so sublet on the
proposed  effective  date of such  Transfer,  as  specified  in Tenant's  notice
thereof, or, if no effective date is specifically stated in such notice, 30 days
after  Landlord  has  notified  Tenant in  writing of such  election.  Upon such
termination,  Tenant shall be released  from any further  obligation  under this
Lease if it is terminated in its entirety, or shall be released from any further
obligation  under the Lease with  respect to the space  proposed to be sublet in
the case of a proposed partial sublease. In the case of a partial termination of
the Lease,  the Base  Monthly  Rent and  Tenant's  share  shall be reduced to an
amount which bears the same  relationship  to the original amount thereof as the
area of that part of the Premises  which  remains  subject to the Lease bears to
the  original  area  of the  Premises.  Landlord  and  Tenant  shall  execute  a
cancellation and release with respect to the Lease to effect such termination.

                  D. If  Landlord  consent  to a  transfer  proposed  by Tenant,
Tenant may enter into such Transfer,  and if Tenant does so, the following shall
apply:

                  (1) Tenant  shall not be  released  of its  liability  for the
performance of all of its obligations under the Lease.

                  (2) If Tenant assigns its interest in this Lease,  then Tenant
shall pay to Landlord 50% of all Subrent (as defined in P. 14.1D(5)) received by
Tenant over and above (i) the assignee's  agreement to assume the obligations of
Tenant under this Lease,  and (ii) all Permitted  Transfer Costs related to such
assignment.  In the case of assignment,  the amount of Subrent owned to Landlord
shall be paid to Landlord on the same  basis,  whether  periodic or in lump sum,
that such Subrent is paid to Tenant by the assignee.

                  (3) If  Tenant  sublets  any part of the  Premises,  then with
respect  to the  space so  sublease,  Tenant  shall pay to  Landlord  50% of the
positive  difference,  if any,  between (i) all Subrent paid by the subtenant to
Tenant, less (ii) the sum of all Base Monthly Rent and Additional Rent allocable
to the space sublet and all Permitted  Transfer  Costs related to such sublease.
Such amount shall be paid to Landlord on the same basis,  whether periodic or in
lump sum, that such Subrent is paid to Tenant by its  subtenant.  In calculating
Landlord's share of any periodic payments, all Permitted Transfer Costs shall be
first recovered by Tenant.

                  (4) Tenant's obligations under this P. 14.1D shall survive any
Transfer,  and Tenant's failure to perform its obligations hereunder shall be an
Event of  Tenant's  Default.  At the time  Tenant  makes any payment to Landlord
required by this P. 14.1D,  Tenant  shall  deliver an itemized  statement of the
method by which  the  amount  to which  Landlord  is  entitled  was  calculated,
certified  by  Tenant  as true and  correct.  Landlord  shall  have the right at
reasonable  intervals  to inspect  Tenant's  books and  records  relating to the
payments due hereunder. Upon request therefore, Tenant shall deliver to Landlord
copies of all bills, invoices or other documents upon which its calculations are
based.  Landlord may  condition  its approval of any Transfer  upon  obtaining a
certification  from both Tenant and the proposed  transferee  of all Subrent and
other amounts that are to be paid to Tenant in connection with such Transfer.

                  (5) As used in this P. 14.1D,  the term  "Subrent"  shall mean
any consideration of any kind received, or to be received, by Tenant as a result
of the Transfer,  if such sums are related to Tenant's interest in this Lease or
in the  Premises,  including  payments from or on behalf of the  transferee  (in
excess of the book value  thereof)  for  Tenant's  assets,  fixtures,  leasehold
improvements,  inventory, accounts, goodwill, equipment,  furniture, and general
intangibles. As

                                       23
<PAGE>

used in this P. 14.1D,  the term  "Permitted  Transfer Costs" shall mean (i) all
reasonable leasing  commissions paid to third parties not affiliated with Tenant
in order to obtain the Transfer in question,  (ii) all reasonable attorneys' and
consultants  fees  incurred by Tenant with  respect to the Transfer in question,
(iii) all marketing  costs, and (iv) all costs of preparing the Premises for the
transferee.

                  E. If Tenant is a corporation, the following shall be deemed a
voluntary  assignment of Tenant's  interest in this Lease:  (i) any dissolution,
merger,  consolidation,  or other reorganization of or affecting Tenant, whether
or not Tenant is the  surviving  corporation;  and (ii) if the capital  stock of
Tenant is not publicly  traded, the sale or transfer to one person or entity (or
to any group of related persons or entities)  stock  possessing more than 50% of
the total combined voting power of all classes of Tenant's capital stock issued,
outstanding  and entitled to vote for the election of directors.  If Tenant is a
partnership,  any withdrawal or substitution (whether voluntary,  involuntary or
by operation of law, and whether occurring at one time or over a period of time)
or any partner owning 25% or  more(cumulatively)  of any interest in the capital
or profits of the partnership,  or the dissolution of the partnership,  shall be
deemed a voluntary assignment of Tenant's interest in this Lease.

                  F.  Notwithstanding  anything contained in P. 14.1, so long as
Tenant  otherwise complies with the provisions of P. 14.1, Tenant may enter into
any of the following transfers (a "Permitted Transfer") without Landlord's prior
written  consent,  and  Landlord  shall not be entitled to  terminate  the Lease
pursuant to P. 14.1C or to receive any part of any subrent  resulting  therefrom
that would otherwise be due it pursuant to P. 14.1D.

                           (1) Tenant may  sublease  all or part of the Premises
or assign its  interest  in this Lease to any  corporation  which  controls,  is
controlled by, or is under common control with the original Tenant to this Lease
by means of an ownership interest of more than 50%;

                           (2) Tenant may assign its  interest in the Lease to a
corporation which results from a merger,  consolidation or other  reorganization
whether or not Tenant is the  surviving  corporation,  so long as the  surviving
corporation  has a net worth at the time of such  assignment that is equal to or
greater than the net worth of Tenant immediately prior to such transaction; and

                           (3)  Tenant may  assign  this Lease to a  corporation
which purchases or otherwise  acquires all or substantially all of the assets of
Tenant,  so long as such  acquiring  corporation  has a net worth at the time of
such  assignment  that is  equal to or  greater  than  the net  worth of  Tenant
immediately prior to such transaction.

     14.2 TRANSFER BY LANDLORD:  Landlord and its  successors in interest  shall
have the right to transfer  their  interest in this Lease and the Project at any
time and to any  person  or  entity.  In the  event of any  such  transfer,  the
Landlord  originally named herein (and, in the case of any subsequent  transfer,
the  transferror)  from  the  date  of such  transfer,  shall  be  automatically
relieved,  without any further act by any person or entity, of all liability for
the  performance of the  obligations of the Landlord  hereunder which may accrue
after the date of such  transfer;  provided  that the  transferee  of Landlord's
interest shall have assumed and agreed to observe and perform,  in writing,  all
of Landlord's  obligations under this Lease for the benefit of Tenant. After the
Date of any such  transfer,  the term  "Landlord"  as used herein shall mean the
transferee of such interest in the Premises.

                                   ARTICLE 15
                               GENERAL PROVISIONS

     15.1  LANDLORD'S  RIGHT TO ENTER:  Landlord  and its  agents  may enter the
Premises at any reasonable  time after giving at least 24 hours' prior notice to
Tenant  (and  immediately  in the case of  emergency)  for the  purpose  of: (i)
inspecting the same; (ii) posting notices of non-

                                       24
<PAGE>

responsibility;  (iii)  supplying  any  service to be  provided  by  Landlord to
Tenant;  (iv)  showing the Premises to  prospective  purchasers,  mortgagees  or
during  the last four (4)  months of the Term,  tenants;  (v)  making  necessary
alterations,  additions or repairs;  (vi) performing  Tenant's  obligations when
Tenant has failed to do so after  written  notice from  Landlord;  (vii) placing
upon the Premises  ordinary "for lease" signs during the last four (4) months of
the Term, or "for sale" signs; and (viii)  responding to an emergency.  Landlord
shall have the right to use any and all means  Landlord may deem  necessary  and
proper to enter the  Premises  in an  emergency.  Any  entry  into the  Premises
obtained by Landlord in accordance  with this P. 15.1 shall not be a forcible or
unlawful entry into, or a detainer of, the Premises,  or an eviction,  actual or
constructive, of Tenant from the Premises.

     15.2 SURRENDER OF THE PREMISES:  Upon the expiration or sooner  termination
of this Lease, Tenant shall vacate and surrender the Premises to Landlord in the
same condition as existed at the  Commencement  Date,  except for (i) reasonable
wear and  tear,  (ii)  damage  caused by any  peril or  condemnation,  and (iii)
contamination  by  Hazardous  Materials  for  which  Tenant  is not  responsible
pursuant to P. 7.2A or P. 7.2B.  In this  regard,  normal wear and tear shall be
construed  to mean wear and tear caused to the  Premises  by the  natural  aging
process which occurs in spite of prudent  application of the best but reasonable
standards for maintenance, repair and janitorial practices, and does not include
items of neglected or deferred maintenance. In any event, Tenant shall cause the
following to be done prior to the  expiration or the sooner  termination of this
Lease:  (i) all  interior  walls shall be cleaned (ii) all tiled floors shall be
cleaned and waxed;  (iii) all carpets shall be cleaned and  shampooed;  (iv) all
broken,  marred,  stained  or  nonconforming  acoustical  ceiling tiles shall be
replaced;  (v) all  windows  shall be  washed;  (vi) the  HVAC  system  shall be
serviced by a reputable  and licensed  service  firm and left in good  operating
condition  and repair as so certified  by such firm;  and (vii) the plumbing and
electrical  systems  and  lighting  shall be  placed in good  order  and  repair
(including  replacement  of any burned out,  discolored  or broken  light bulbs,
ballasts, or lenses). If Landlord so requests not less than 90 days prior to the
expiration  of this  Lease,  Tenant  shall,  prior to the  expiration  or sooner
termination of this Lease, (i) remove any Tenant's  Alterations  which Tenant is
required  to remove  pursuant  to P. 5.2 and repair  all  damage  caused by such
removal,  and (ii)  return the  Premises  or any part  thereof  to its  original
configuration  existing as of the time the  Premises  were  delivered  to Tenant
except to the extent of  alterations  previously  approved by  Landlord.  If the
Premises are not so surrendered at the  termination of this Lease,  Tenant shall
be liable to  Landlord  for all costs  incurred by  Landlord  in  returning  the
Premises  to required  condition,  plus  interest  on all costs  incurred at the
Agreed Interest Rate. Tenant shall indemnify  Landlord against loss or liability
resulting  from  delay by Tenant in so  surrendering  the  Premises,  including,
without  limitation,  any  claims  made by any  succeeding  tenant  or losses to
Landlord due to lost opportunities to lease to succeeding tenants.

     15.3 HOLDING OVER: This Lease shall terminate without further notice at the
expiration of the Lease Term. Any holding over by Tenant after expiration of the
Lease Term shall not  constitute  a renewal  or  extension  of the Lease or give
Tenant any rights in or to the  Premises  except as  expressly  provided in this
Lease.  Any  holding  over after such  expiration  with the  written  consent of
Landlord  shall be  construed  to be a tenancy  from  month to month on the same
terms and conditions  herein  specified  insofar as applicable  except that Base
Monthly  Rent shall be  increased to an amount equal to 150% of the Base Monthly
Rent payable during the last full calendar month of the Lease Term.

     15.4 SUBORDINATION:  The following provisions shall govern the relationship
of this Lease to any Security Instrument:

                  A. The  Lease  is  subject  and  subordinate  to all  Security
Instruments  existing  as of the  Effective  Date.  However,  if any  Lender  so
requires,  this Lease  shall  become  prior and  superior  to any such  Security
Instrument.  Landlord  represents  and  warrants  to Tenant  that to  Landlord's
knowledge  each such  Security  Instrument  is in full force and effect  without
default.  At Tenant's  request,  Landlord  shall use its  reasonable  efforts to
obtain a non-disturbance agreement from the 

                                       25
<PAGE>

holder of any Security Instrument on the holders standard form. Tenant shall pay
the cost, if any, in obtaining such agreement.

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

                  C.  Tenant  shall  upon   request   execute  any  document  or
instrument  reasonably required by any Lender to make this Lease either prior or
subordinate  to a Security  Instrument,  which may include such other matters as
the  Lender  customarily  and  reasonably   requires  in  connection  with  such
agreements,  including  provisions  that the  Lender  not be liable  for (i) the
return of any security deposit unless the Lender receives it from Landlord,  and
(ii) any defaults on the part of Landlord occurring prior to the time the Lender
takes  possession  of the  Project in  connection  with the  enforcement  of its
Security Instrument. Tenant's failure to execute any such document or instrument
with 15 days  after  written  demand  therefore  shall  constitute  an  Event of
Tenant's  Default.  Tenant  approves  as  reasonable  the form of  subordination
agreement attached to this Lease as EXHIBIT G.

     15.5 MORTGAGEE  PROTECTION AND  ATTORNMENT:  In the event of any default on
the part of the Landlord,  Tenant will use reasonable  efforts to give notice by
registered mail to any Lender whose name and address has been provided to Tenant
and shall  offer  such  Lender a  reasonable  opportunity  to cure the  default,
including time to obtain possession of the Premises by power of sale or judicial
foreclosure  or  other  appropriate  legal  proceedings,  if such  should  prove
necessary to effect a cure. Tenant shall attorn to any purchaser of the Premises
at any  foreclosure  sale or private  sale  conducted  pursuant to any  Security
Instrument  encumbering the Premises, or to any grantee or transferee designated
in any deed given in lieu of foreclosure.

     15.6 ESTOPPEL  CERTIFICATES AND FINANCIAL  STATEMENTS:  At all times during
the Lease Term,  each party  agrees,  following  any request by the other party,
promptly to execute and deliver to the requesting party within 15 days following
delivery of such request an estoppel certificate: (i) certifying that this Lease
is unmodified  and in full force and effect or, if modified,  stating the nature
of such modification and certifying that this Lease, as so modified,  is in full
force and effect,  (ii) stating the date to which the rent and other charges are
paid in  advance,  if any,  (iii)  acknowledging  that  there  are  not,  to the
certifying  party's  knowledge,  any  uncured  defaults on the part of any party
hereunder  or, if there are  uncured  defaults,  specifying  the  nature of such
defaults,  and (iv) certifying such other  information about the Lease as may be
reasonably  required by the  requesting  party. A failure to deliver an estoppel
certificate  within 15 days after  delivery  of a request  therefore  shall be a
conclusive admission that, as of the date of the request for such statement: (i)
this Lease is unmodified except as may be represented by the requesting party in
said request and is in full force and effect, (ii) there are no uncured defaults
in the requesting party's performance, and (iii) no rent has been paid more than
30 days in  advance.  At any time during the Lease Term  Tenant  shall,  upon 15
days' prior written notice from Landlord, provide Tenant's most recent financial
statement  and  financial  statements  covering the 24 month period prior to the
date of such most recent  financial  statement to any existing  Lender or to any
potential Lender or buyer of the Premises.  Such statements shall be prepared in
accordance  with generally  accepted  accounting  principles and, if such is the
normal practice of Tenant,  shall be audited by an independent  certified public
accountant.

     15.7  REASONABLE  CONSENT:  Whenever  any  party's  approval  or consent is
required by this Lease  before an action may be taken by the other  party,  such
approval or consent shall not be unreasonably withheld or delayed.

     15.8 NOTICES:  Any notice  required or desired to be given  regarding  this
Lease shall be in writing and may be given by personal  delivery,  by  facsimile
telecopy,  by courier service, or by

                                       26
<PAGE>

mail. A notice shall be deemed to have been given (i) on the third  business day
after mailing if such notice was deposited in the United States mail,  certified
or  registered,  postage  prepaid,  addressed  to the  party to be served at its
Address  for  Notices  specified  in SECTION Q or SECTION R of the  Summary  (as
applicable), (ii) when delivered if given by personal delivery, and (iii) in all
other cases when actually  received at the party's  Address for Notices.  Either
party may change its  address by giving  notice of the same in  accordance  with
this P. 15.8, provided,  however,  that any address to which notices may be sent
must be a California address.

     15.9  ATTORNEYS'  FEES: In the event either  Landlord or Tenant shall bring
any action or legal  proceeding  for an alleged  breach of any provision of this
Lease, to recover rent, to terminate this Lease or otherwise to enforce, protect
or establish any term or covenant of this Lease,  the prevailing  party shall be
entitled  to recover as a part of such  action or  proceeding,  or in a separate
action brought for that purpose,  reasonable  attorneys'  fee, court costs,  and
experts' fees as may be fixed by the court.

     15.10 CORPORATE  AUTHORITY:  If Tenant is a corporation  (or  partnership),
each individual executing this Lease on behalf of Tenant represents and warrants
that he is duly  authorized  to execute and deliver this Lease on behalf of such
corporation in accordance  with the by-laws of such  corporation (or partnership
in accordance with the partnership  agreement of such partnership) and that this
Lease is binding upon such  corporation (or  partnership) in accordance with its
terms.  Each of the persons executing this Lease on behalf of a corporation does
hereby  covenant and warrant that the party for whom it is executing  this Lease
is a duly  authorized  and  existing  corporation,  that it is  qualified  to do
business in California, and that the corporation has full right and authority to
enter into this Lease.

     15.11 MISCELLANEOUS: Should any provision of this Lease prove to be invalid
or illegal,  such  invalidity  or illegality  shall in no way affect,  impair or
invalidate  any other  provision  hereof,  and such remaining  provisions  shall
remain in full force and  effect.  Time is of the  essence  with  respect to the
performance  of every  provision of this Lease in which time of performance is a
factor.  The captions used in this Lease are for convenience  only and shall not
be considered in the construction or interpretation of any provision hereof. Any
executed copy of this Lease shall be deemed an original for all  purposes.  This
Lease shall, subject to the provisions regarding  assignment,  apply to and bind
the  respective  heirs,  successors,  executors,  administrators  and assigns of
Landlord  and Tenant.  "Party"  shall mean  Landlord  or Tenant,  as the context
implies.  If Tenant consists of more than one person or entity, then all members
of Tenant shall be jointly and severally liable  hereunder.  This Lease shall be
construed and enforced in accordance  with the laws of the State of  California.
The  language  in all parts of this Lease shall in all cases be  construed  as a
whole  according to its fair  meaning,  and not  strictly for or against  either
Landlord or Tenant.  When the context of this Lease requires,  the neuter gender
includes the  masculine,  the feminine,  a partnership  or  corporation or joint
venture,  and the singular  includes the plural.  The terms "shall",  "will" and
"agree" are mandatory. The term "may" is permissive. When a party is required to
do something by this Lease,  it shall do so at its sole cost and expense without
right of  reimbursement  from the other party  unless a provision  of this Lease
expressly requires  reimbursement.  Landlord and Tenant agree that (i) the gross
leasable area of the Premises  includes any atriums,  depressed  loading  docks,
covered  entrances or egresses,  and covered loading areas, (ii) each has had an
opportunity to determine to its  satisfaction the actual area of the Project and
the  Premises,  (iii)  all  measurements  of area  contained  in this  Lease are
conclusively  agreed to be  correct  and  binding  upon the  parties,  even if a
subsequent  measurement of any one of these areas  determines that it is more or
less  than  the  amount  of area  reflected  in this  Lease,  and  (iv) any such
subsequent  determination that the area is more or less than shown in this Lease
other  than  a  result  of  a  reconstruction   of  the  Premises   following  a
damage/destruction or condemnation  affecting the Premises shall not result in a
change in any of the  computations  of rent,  improvement  allowances,  or other
matters described in this Lease where area is a factor.  Where a party hereto is
obligated not to perform any act,  such party is also  obligated to restrain any
others within its control from performing said act, including the Agents of such
party.

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<PAGE>

Landlord shall not become or be deemed a partner or a joint venturer with Tenant
by reason of the provisions of this Lease.

     15.12  TERMINATION  BY  EXERCISE  OF  RIGHT:  If this  Lease is  terminated
pursuant  to  its  terms  by  the  proper  exercise  of  a  right  to  terminate
specifically  granted to Landlord or Tenant by this Lease, then this Lease shall
terminate 30 days after the date the right to  terminate  is properly  exercised
(unless  another date is specified in that part of the Lease creating the right,
in which event the date so specified for termination  shall  prevail),  the rent
and all  other  charges  due  hereunder  shall  be  prorated  as of the  date of
termination,  and neither  Landlord nor Tenant shall have any further  rights or
obligations  under this Lease  except for those that have  accrued  prior to the
date of termination or those obligations which this Lease specifically  provides
are to survive  termination.  This P. 15.12 does not apply to a  termination  of
this Lease by Landlord as a result of an Event of Tenant's Default.

     15.13 BROKERAGE COMMISSIONS:  Each party hereto (i) represents and warrants
to the other  that it has not had any  dealings  with any real  estate  brokers,
leasing agents or salesmen,  or incurred any obligations for the payment of real
estate  brokerage  commissions or finder's fees which would be earned or due and
payable by reason of the  execution  of this Lease,  other than to the  Retained
Real Estate  Brokers  described in SECTION S of the Summary,  and (ii) agrees to
indemnify, defend, and hold harmless the other party from any claim for any such
commission  or fees which  result  from the actions of the  indemnifying  party.
Landlord  shall be  responsible  for the payment of any  commission  owed to the
Retained Real Estate Brokers.

     15.14 FORCE  MAJEURE:  Any  prevention,  delay or stoppage  due to strikes,
lock-outs,  inclement  weather,  labor  disputes,  inability  to  obtain  labor,
materials, fuels or reasonable substitutes therefor,  governmental restrictions,
regulations,  controls,  action or inaction, civil commotion, fire or other acts
of God, and other causes beyond the reasonable control of the party obligated to
perform (except financial inability) shall excuse the performance,  for a period
equal to the period of any said prevention, delay or stoppage, of any obligation
hereunder  except  the  obligation  of Tenant to pay rent or any other  sums due
hereunder.

     15.15 ENTIRE AGREEMENT: This Lease constitutes the entire agreement between
the parties, and there are no binding agreements or representations  between the
parties except as expressed  herein.  Tenant  acknowledges that neither Landlord
nor Landlord's Agents has made any legally binding representation or warranty as
to any matter except those expressly set forth herein, including any warranty as
to (i) whether the Premises may be used for Tenant's intended use under existing
Law,  (ii) the  suitability  of the  Premises  or the Project for the conduct of
Tenant's business, or (iii) the condition of any improvements. There are no oral
agreements  between  landlord and Tenant  affecting  this Lease,  and this Lease
supersedes  and  cancels  any  and  all  previous  negotiations,   arrangements,
brochures, agreements and understandings, if any, between Landlord and Tenant or
displayed  by  Landlord to Tenant  with  respect to the  subject  matter of this
Lease. This instrument shall not be legally binding until it is executed by both
Landlord  and Tenant.  No  subsequent  change or addition to this lease shall be
binding unless in writing and signed by Landlord and Tenant.


                                       28
<PAGE>



     IN WITHNESS WHEREOF,  Landlord and Tenant have executed this Lease with the
intent to be legally bound thereby, to be effective as of the Effective Date.


LANDLORD:

ORCHARD INVESTMENT COMPANY NO. 901
a California general partnership

By:        NELO, a California general partnership

By:        New England Mutual Life Insurance Co.
           a Massachusetts corporation,
           a general partnership

           By: /s/ Thomas J. Lunny

           Date:  August 13, 1996

TENANT:

Clarify Inc.
a Delaware corporation

By: /s/ David A Stamm

Title:  President

Date:  August 9, 1996



                                       29
<PAGE>

                             FIRST ADDENDUM TO LEASE

     THIS FIRST ADDENDUM is dated for reference  purposes as August 8, 1996, and
is made a part of that Lease  Agreement  (the "Lease")  dated August 8, 1996, by
and  betwen  ORCHARD   INVESTMENT  COMPANY  NUMBER  901,  a  California  general
partnership  ("Landlord")  and CLARIFY  INC. a Delaware  corporation  ("Tenant")
affecting  certain real property  commonly known as 2125 O'Nel Drive,  San Jose,
California, with reference to the following facts:

     1. OPTION TO EXTEND LEASE TERM: Landlord hereby grants to Tenant one option
to extend  the Lease  Term for a five (5) year term on the  following  terms and
conditions:

         A. Tenant must give Landlord  notice in writing of its  exercise of the
option in question no earlier  than one hunderd  eighty  (180) days and no later
than one hundred  twenty (120) days before the date the Lease Term would end but
for said exercise.

         B. Tenant may not extend the Lease Term pursuant to any option  granted
by this paragraph if Tenant is materially in default beyond any applicable  cure
period as of the date of  exercise  of the option in  question or as of the date
this Lease would have been terminated but for said exercise.

         C. All terms and conditions of this Lease shall apply during the option
period,  except  that  the Base  Monthly  Rent for the  option  period  shall be
determined as provided in Paragraph D.

         D. The Base Monthly Rent for the Option  Period shall be greater of (i)
one hundred  percent  (100%) of the Base  Monthly Rent due the last month of the
previous Lease Term, or (ii) one-hundred  percent (100%) of the then fair market
monthly rent determined as of the  commencement of the option period in question
based upon like buildings with like improvements in the San Jose area within the
boundaries of Highways 237, 101 and 880. If the parties are unable to agree upon
the fair market  monthly rent for the Premises for the option period in question
at least  seventy-five  (75) days prior to the commencement of the option period
in question,  then the fair market monthly rent shall be determined by appraisal
conducted pursuant to subparapgraph E.

         E. In the event it becomes necessary to determine by appraisal the fair
market rent of the  Premises  for the purpose of  establishing  the Base Monthly
Rent  during the Option  Period,  then such fair  market  monthly  rent shall be
determined by three (3) real estate  appraiser,  all of whom shall be members of
the  American  Institue  of Real Estate  Appraisers  with not less than five (5)
years   experience   appraising  real  property   (other  than   residential  or
agricultural property) located in Santa Clara County,  California, in accordance
with the following procedures:

                  (1) The party demanding an appraisal (the  "Notifying  Party")
shall notify the other party (the "Non-Notifying Party") thereof by delivering a
written demand for appraisal, which demand, to be effective, must give the name,
address,  and  qualifications  of an appraiser  selected by the Notifying Party.
Within ten (10) days of receipt of said demand,  the  Non-notifying  Party shall
select its appriaser and notify the Notifying  Party,  in writing,  of the name,
address,  and  qualifications  of an  appraiser  selected by it.  Failure by the
Non-Notifying  Party to select a  qualified  appraiser  within said ten (10) day
period shall be deemed a waiver of its right to select a second appraiser on its
own behalf and the Notifying Party shall select a second  appraiser on behalf of
the  Non-Notifying  Party within five (5) days after the  expiration of said ten
(10) day period.  Within ten (10) days from the date the second  appraiser shall
have been  appointed,  the two (2)  appraisers so selected shall appoint a third
appraiser. If the two appraisers fail to select a third qualified appraiser, the
third appraiser shall be selected by the American Arbitrations Association or if
it shall refuse to perform this function, then at the request of either Landlord
or  Tenant,  such  third  appraiser  shall  be  promptly  appointed  by the then
Presiding  Judge of the Superior Court of the State of California for the County
of Santa Clara.

                                       1
<PAGE>

                  (2) The three (3)  appraisers  so  selected  shall meet in San
Jose, California, not later than twenty (20) days following the selection of the
third  appriaser.  At said meeting the  appraisers so selected  shall attempt to
determine the fair market  monthly rent of the Premises for the option period in
question (including the timing and amount of periodic increases).

                  (3) If the appraisers so selected are unable to complete their
determinations  in one  meeting,  they may  continue to consult at such times as
they deem  necessary  for a fifteen  (15) day period  from the date of the first
meeting,  in an  attempt  to have at least  two (2) of them  agree.  If,  at the
initial  meeting or at any time during said fifteen (15) day period,  two (2) or
more of the  appraisers so selected  agree on the fair market rent of the Leased
Premises,  such  agreement  shall be  determinative  and  binding on the parties
hereto, and the agreeing appraisers shall, in simple letter form executed by the
agreeing appraisers, forthwith notify both Landlord and Tenant of the amount set
by such agreement.

                  (4) If two (2) or more  appraisers do not so agree within said
fifteen (15) day period,  then each appraiser shall,  within five (5) days after
the expiration of said fifteen (15) day period, submit his independent appraisal
in simple letter form to Landlord and Tenant  stating his  determination  of the
fair market rent of the Premises for the option period in question.  The parties
shall then  determine the fair market rent for the Premises by  determining  the
average of the fair market rent set by each of the appraisers.  However,  if the
lowest appraisal is less than eighty-five  percent (85%) of the middle appraisal
then such lowest appraisal shall be disregarded  and/or if the highest appraisal
is greater than one hundred fifiteen percent (115%) of the middle appraisal then
such highest appraisal shall be disregarded.  If the fair market rent set by any
appraisal is so  disregarded,  then the average shall be determined by computing
the average set by the other appraisals that have not been disregarded.

                  (5) Nothing contained herein shall prevent Landlord and Tenant
from jointly  selecting a single  appraiser to determine the fair market rent of
the  Premises,  in which  event the  determination  of such  appraisal  shall be
conclusively deemed the fair market rent of the Premises.

                  (6)  Each  party  shall  bear the  fees  and  expenses  of the
appraiser  selected  by or for it,  and  the  fees  and  expenses  of the  third
appraiser (or the joint appraiser if one joint appraiser is used) shall be borne
fifty percent (50%) by Landlord and fifty percent (50%) by Tenant.

     2.  EARLY OCCUPANCY:

         A. As consideration  for Tenant's  performance of all obligations to be
performed by Tenant under the Lease,  and upon receipt of (i) the first  month's
Base  Monthly  Rent  and  Security  Deposit  totaling  $281,050.00,  and  (ii) a
certificate  of  insurance  as provided by Article  9.1C of the Lease,  Landlord
shall  permit  Tenant to enter and use the Premises  commencing  upon full Lease
execution  until the  Commencement  Date (the "Early  Occupancy  Period").  Such
occupancy  during  the Early  Occupancy  Period  shall be  subject to all of the
terms,  covenants and conditions of the Lease provided,  however,  that the rent
and Additional Rent payable during the Early  Occupancy  Period shall be waived.
Tenant's Early Occupancy shall not advance the Commencement Date.

         B. In the event either party shall bring any action or legal proceeding
for damages for alleged  breach of any provision of this  agreement,  to recover
rent, to terminate tenancy of the Premises, or to enforce,  protect or establish
any term or covenant of this agreement or the Lease or right of remedy of either
party,  the  prevailing  party  shall be  entitled  to recover as a part of such
action or proceeding, reasonable attorney's fees and court costs as may be fixed
by the court or jury.

         C. In consideration of executing this Early Occupancy Agreement, Tenant
agrees  to  indemnify  and  save  Landlord  harmless  of and  from  any  and all
liability,  damage,  expense,  cause of  action,  suits or claims  or  judgments
resulting from injury to person or property arising from the

                                       2
<PAGE>

use of the Premises by Tenant during the Early Occupancy Period,  including loss
or damage to Tenant, its equipment, materials or supplies.

         D. Tenant agrees to cooperate with  construction  personnel  completing
the  Interior  Improvements  in the  Premises  and not  cause  any  delay in the
completion of these improvements.

         E. During the Early  Occupancy  Period,  Tenant shall pay fifty percent
(50%) of all utility services, including but not limited to gas, electric, water
and trash.

     3.  TENANT IMPROVEMENT ALLOWANCE:

         A. The term  "Tenant  Improvement  Allowance"  shall  mean the  maximum
amount Landlord is required to spend toward the payment of Interior  Improvement
Costs for all Interior Improvements constructed in the Premises, which amount is
$803,000.00 total (i.e.,  $8.00 per square foot for Tenant's Gross Leasable Area
within the entire Premises).

         B. Landlord shall not be obligated to provide  future use of any Tenant
Improvement Allowance not spent within eight (8) months after the effective Date
of this Lease.

     4. ADJUSTMENTS TO THE BASE MONTHLY RENT: No credit in the Base Monthly Rent
shall be made if any of the Tenant Improvement Allowance is not spent.

     5. WARRANTY OF EXISTING CONDITION:

         A. Landlord  shall provide the Premises to Tenant with all  mechanical,
electrical, plumbing, HVAC, and roof systems in good working condition as of the
Commencement Date.

         B.  Additionally,  subject to  Tenant's  obligation  to  maintain  such
systems in accordance  with the Lease,  Landlord agrees to repair or replace any
failure in said  systems  which may occur during the first two (2) months of the
Lease Term.

         C.  Additionally,  Landlord,  at  Landlord's  sole cost and  reasonable
judgment,  shall trim the trees around the Premises to allow more light  through
the first and second floor windows.

     6. SIGNAGE: Tenant shall have the right to install its name on the existing
street monument sign and glass entrance to the Premises.  Additionally,  subject
to (i) Landlord's  prior written  approval of the specifics,  which shall not be
unreasonably  withheld,  and (ii) approval by the  appropriate  local  governing
authority, Tenant may place its name on the freeway side of the Building.

     7. DELIVERY AND ACCEPTANCE OF POSSESSION:  If Early  Occupancy (as provided
for in Paragraph 2 of the First  Addendum To Lease) of Premises is not delivered
to Tenant within 60 days after the Effective  Date,  Tenant shall have the right
to terminate  this Lease by giving  written  notice of  termination  to Landlord
within ten days after such 60 day period. If the Lease is terminated pursuant to
the foregoing  sentence,  then Landlord shall  immediately  refund to Tenant all
prepaid rent, security deposits and all other sums theretofore paid by Tenant to
Landlord under this Lease.

     8. HAZARDOUS  MATERIALS:  Landlord  represents without prior  investigation
that it has no  actual  knowledge  of any  Hazrdous  Materials  on or under  the
Premises in violation of any Hazardous  Materials Law other than as disclosed in
the "Updated  Environmental  Site Assessment for Orchard Properties Project 901"
report  dated  April  1995  by  Applied  Geosciences,   and  the  "Follow-up  to
Environmental Site Assessment for Orchard Properties #901 San Jose,  California"
report by ATC  Environmental  Inc. dated June 12, 1996, both of which Tenant has
been provided copies.

                                       3
<PAGE>

     9.  COMMON  OPERATING  EXPENSES  DEFINED:  Notwithstanding  anything to the
contrary  in the  Lease,  Common  Operating  Expenses  (and any terms of similar
meaning in the Lease) shall not include, and Tenant shall have no liability for,
the following expense items:

         a.  The  construction  costs,  purchase  price or  depreciation  of the
Building or Project.

         b. Costs  incurred for the repair,  maintenance  or  replacement of the
structural components of the Building or Project, including,  without limitation
the  structural  portions of the beams,  columns,  foundations,  footings,  load
bearing and  exterior  walls,  structural  slabs,  and the roof,  but  excluding
utility  systems  within  such  structural  components  and  excluding  the roof
membrane.

         c. Costs  incurred for the repair,  maintenance  or  replacement of the
Building or Project,  or any portion thereof, to the extent: (a) of the proceeds
of insurance  which Landlord is required to maintain under the Lease or actually
maintains  (whichever is greater),  (b) of any  reimbursement  which Landlord is
entitled to receive under any  warranties or from any third party (other than on
account of a tenant's  proportionate  share of Common Operating  Expenses),  (c)
caused by the active neglect or misconduct of Landlord or Landlord's  Agents; or
(d) caused by other tenants or occupants of the Project or their Agents.

         d.  Rentals and other  payments by Landlord  under any ground  lease or
other lease underlying this Lease, and interest,  principal,  points,  penalties
and  fees on any  Security  Instrument  encumbering  all or any  portion  of the
Building or Project.

         e. Expenses and penalties  (including,  without  limitation,  attorneys
fees) incurred due to Landlord's  violation of any lease,  Security  Instrument,
Law or Private Restriction.

         f. Leasing  commissions,  attorney's fees, tenant improvement costs and
other  costs and  expenses  incurred  in  connection  with the  leasing,  or the
improvement for leasing, of any premises.

         g. Any cost incurred in furnishing items or services not made available
to Tenant.

         h. Advertising, marketing, media and promotional expenditures regarding
the  Building  or  Project,  and costs of signs in or on the Project or Building
identifying the owner, lender or any contractor thereof.

         i.  Salaries,  wages and  benefits  paid or  provided  to  persons  not
employed  full-time in the  management  and  operation of the Project;  costs of
automobiles and travel expenses;  professional, civic or recreational membershp;
costs of seminars,  conventions,  educational programs and the like;  charitable
and political  contributions;  and any other  administrative cost or expense not
directly related to the management and operation of the Project.

         j. No cost item shall be  included  more than once or  allocated  under
more than one expense category.

     10. REAL PROPERTY TAXES DEFINED:  Notwithstanding  anything to the contrary
to the Lease, "Real Property Taxes" shall not include,  and Tenant shall have no
liability for, the following charges:

         (1) Interest or penalties imposed as a result of Landlord's  failure to
pay taxes or assessments when due;

         (2) Landlord's income, transfer, gift, estate, succession, franchise or
excess profits tax, or fees,  taxes or  assessments  imposed on Landlord for the
privilege or right to conduct its business

                                       4
<PAGE>

in general (including, for example, fees for Landlord's business license) rather
than for a permit or license to operate the Project or any equipment or facility
therein in particular.

All assessments which can be paid by Landlord in installments  shall be included
as  a  reimbursable  expense  item  as  if  paid  over  the  maximum  number  of
installments   permitted,   regardless  of  when  Landlord  actually  pays  such
assessments.  Real Property  Taxes shall be prorated for the portion of the year
in which the Lease Term commences or ends.


LANDLORD:                                            TENANT:


ORCHARD INVESTMENT COMPANY NO. 901                   Clarify Inc.
a California general partnership                     a Delaware corporation


By:  NELO, a California general partnership          By:  /s/ David A. Stamm
                                                        ---------------------

By:  New England Mutual Life Insurance Co.           Title:   President
     a Massachusetts corporation,
     a general partnership


     By: /s/Thomas J. Lunny                          Date: August 9, 1996
         ------------------



     Date: August 13, 1996


                                       5
<PAGE>

                                    EXHIBIT A

SITE PLAN

     All that certain real property  situate in the City of San Jose,  County of
Santa Clara, State of California, described as follows:

     Parcels  1, 2 and 3 as shown on that  certain  Parcel  Map filed for record
July  25,  1984 in  Book  532 of Maps at  pages  5, 6 and 7 Santa  Clara  County
Records.




                                       1


<PAGE>


                                    EXHIBIT B

     THIS IMPROVEMENT AGREEMENT is made part of that Lease dated August 8, 1996,
(the "Lease") by and between ORCHARD INVESTMENT COMPANY NUMBER 901 ("Landlord"),
and CLARIFY INC. ("Tenant").  Landlord and Tenant agree that the following terms
are part of the Lease:

     1.  PURPOSE OF  IMPROVEMENT  AGREEMENT:  The  purpose  of this  Improvement
Agreement is to set forth the rights and obligations of Landlord and Tenant with
respect to the construction of Interior  Improvements  within the Premises prior
to the Commencement Date.

     2.  DEFINITIONS:  As used  in  this  Interior  Improvement  Agreement,  the
following  terms  shall have the  following  meanings,  and terms  which are not
defined  below,  but which are  defined  in the Lease and which are used in this
Interior Improvement Agreement,  shall have the meanings ascribed to them by the
Lease:

         A. APPROVED  SPECIFICATIONS:  The Term "Approved  Specifications" shall
mean those  specification  for the Interior  Improvements  to be  constructed by
Landlord which are described by EXHIBIT "C" to the Lease.

         B. INTERIOR IMPROVEMENTS:  The term "Interior  Improvements" shall mean
all interior  improvements  to be constructed by Landlord in accordance with the
Approved Specifications (e.g., HVAC equipment and distribution,  transformer and
power  distribution,  partitions,  floor,  wall, and window  covering,  lighting
fixtures).

         C. INTERIOR  IMPROVEMENT  COSTS: The term "Interior  Improvement Costs"
shall mean the  following:  (i) the total  amount due  pursuant  to the  general
construction  contract  entered  into by  Landlord  to  construct  the  Interior
Improvements;  (ii)  the  cost  of  all  governmental  approvals  required  as a
condition  to the  construction  of the  Interior  Improvements  (including  all
construction  taxes  imposed  by the City of San  Jose) in  connection  with the
issuance of a building permit for the Interior  Improvements;  (iii) all utility
connection  or use fees;  (iv) fees of  architects  or  engineers  for  services
rendered  in  connection  with  the  design  and  construction  of the  Interior
Improvements; (v) the cost of payment and performance bonds obtained by Landlord
or Prime Contractor to assure completion of the Interior  Improvement,  and (vi)
all  consultant  fees (of which up to $60,000.00 of fees for  consultants  hired
separately  by  Tenant  may be paid out of the  Tenant  Improvement  Allowance).
Interior Improvement Costs shall not include the cost: (a) to place the Building
systems  in good  operating  condition,  (b) to  investigate,  test,  remove  or
otherwise  remediate any Hazardous  Materials  contamination in, on or about the
Premises prior to Tenants  occupancy.  The parties  acknowledge that the City of
San Jose  imposes  certain  taxes as a  condition  to the  issuance  of building
permits  in  certain  circumstances,   including  the  "Building  and  Structure
Construction Tax" imposed by Chapter 4.46 of the City of San Jose Municipal Code
(the "BSC Tax") and the  "Commercial-Residential-Mobile  Home Park Building Tax"
imposed by Chapter 4.47 of the City of San Jose  Municipal Code (the "CRM Tax").
The parties further  acknowledge that the rate for these two taxes is higher for
a structure designed or intended to be used for "industrial purposes".  However,
the parties  acknowledge  and agree that (i) an  additional  BSC Tax will be due
upon the issuance of a building permit for all Interior Improvements if the City
of  San  Jose  determines  that  the  Interior  Improvements  are  intended  for
"industrial  purposes" or (ii) a BSC Tax and a CRM Tax based on the value of the
Interior  Improvements,  plus an  additional  BSC Tax and a CRM Tax based on the
value of the  shell,  will be due if the City of San  Jose  determines  that the
Building is intended for "commercial purposes", and (iii) any of such taxes that
must be paid in order to obtain building  permits for the Interior  Improvements
shall be "Interior Improvement Costs".

         D.  SUBSTANTIAL   COMPLETION  AND  SUBSTANTIALLY   COMPLETE:  The  term
"Substantial  Completion" and "Substantially  Complete" shall each mean the date
when  all  of  the 

                                       1
<PAGE>

following have occurred with respect to the Interior  Improvements  in question:
(i)  the  construction  of  the  Interior  Improvements  in  question  has  been
substantially  completed in accordance with the requirements of this Lease; (ii)
the  architect  responsible  for  preparing  the plans  shall  have  executed  a
certificate or statement representing that the Interior Improvements in question
have  been   substantially   completed   in   accordance   with  the  plans  and
specifications  therefor;  and (iii) the Building  Department of the City of San
Jose has completed its final  inspection  of such  improvements  and has "signed
off" the building inspection card approving such work as complete.

     3. SCHEDULE OF  PERFORMANCE:  Set forth in this  paragraph is a schedule of
certain   critical  dates   relating  to  Landlord's  and  Tenant's   respective
obligations  regarding  the  construction  of  the  Interior  Improvements  (the
"Schedule of  Performance").  Landlord and Tenant shall each be obligated to use
reasonable  efforts  to perform  their  respective  obligations  within the time
periods set forth in the Schedule of Performance  and elsewhere in this Interior
Improvement Agreement. The Schedule of Performance is as follows:


             Action                                               Responsible
             Items                   Due Date                        Party
             -----                   --------                        -----

     A.      Delivery to          Prior to Lease                    Tenant
             Landlord of          Execution
             Tenant's
             Preliminary
             Plans
             for Landlord's
             approval

     B.      Development          Within fourteen (14) days         Landlord
             of the Final         after Landlord's approval
             Interior Plans       of Tenant's Preliminary
             for Tenant's         Plans as provided for in
             approval             Subparagraph A herein.


     C.      Approval of          Within five (5) days after        Landlord
             Final Interior       Landlord receives Final
             Plans by             Interior Plans
             Landlord

     D.      Commence-            Within five (5) days after        Landlord
             ment of              issuance of all necessary
             construction         governmental approvals
             of Interior
             Improvement

     E.      Substantial          Within thirty to forty-nine       Landlord
             Completion           (30-49) days after issuance
             of Interior          of building permit for
             Improvements         the Interior Improvements


     4. CONSTRUCTION OF INTERIOR IMPROVEMENTS:  Landlord shall, at its sole cost
and  expense,  construct  the  Interior  Improvements  in  accordance  with  the
following:

         A. DEVELOPMENT AND APPROVAL OF PRELIMINARY INTERIOR PLANS: On or before
the due date specified in the Schedule of  Performance,  Tenant shall  authorize
Landlord's 

                                       2
<PAGE>

architect to deliver to Landlord for  Landlord's  approval a proposed floor plan
identifying its  requirements for the Interior  Improvements  that is consistent
with  the  Approved  Specifications   ("Tenant's  Interior   Requirements",   or
"Preliminary  Interior  Plans").  Within  five  business  days after  receipt of
Tenant's  Preliminary  Interior Plans,  Landlord shall approve or disapprove the
same. If Landlord disapproves,  then Landlord and Tenant shall promptly meet and
resolve all of Landlord's objections.

         B.  DEVELOPMENT  AND  APPROVAL  OF  FINAL  INTERIOR  PLANS:   Once  the
Preliminary  Interior  Plans have been  approved  by  Landlord,  Landlord  shall
complete and submit to Tenant for its approval  final  working  drawings for the
Interior  Improvements by the due date specified in the Schedule of Performance.
Tenant  shall  approve the final plans for the Interior  Improvements  or notify
Landlord in writing of its specific  objections by the due date specified in the
Schedule of  Performance.  If Tenant so objects,  the parties  shall  confer and
reach agreement upon final working drawings for the Interior Improvements within
five (5) business days after Tenant has notified Landlord of its objections.  In
the event Tenant and Landlord do not resolve all of Tenant's  objections  within
such five (5) business day period,  Landlord and Tenant shall  immediately cause
the architect to meet and confer with both parties, who shall attempt to resolve
the parties  objections and incorporate  such resolution into the Final Interior
Plans, which process Landlord and Tenant shall cause to be completed within five
(5)  business  days  after the  conclusionof  the five (5)  business  day period
referred to in the immediately preceding sentence. The final working drawings so
approved by Landlord and Tenant  (including all changes made to resolve Tenant's
objections) are referred to herein as the "Final Interior Plans".

         C.  BUILDING  PERMIT:  As soon as the Final  Interior  Plans  have been
approved by Landlord and Tenant,  Landlord shall apply for a building permit for
the Interior  Improvements,  and shall  diligently  prosecute to completion such
approval process.

         D. CONSTRUCTION CONTRACT:  Landlord and Tenant shall cooperate to cause
the Interior  Improvements  to be  constructed  by a general  contractor  who is
engaged by Landlord in accordance  with the procedures set forth in subparagraph
4D (1) hereof.

                  (1) The job of constructing the Interior Improvements shall be
offered for  "competitive  bid",  on a fixed price  basis,  to three (3) general
contractors  selected  by Landlord  and  approved  by Tenant.  The  construction
contract  shall be awarded to the bidder  submitting the lowest bid for the job.
Landlord  shall  submit to Tenant a list of general  contractors  acceptable  to
Landlord to whom the job may be bid,  and Tenant shall  notify  Landlord  within
three (3)  business  days  after  receipt of such list of its  objection  to any
proposed contractor. Tenant's failure to object within such period of time shall
be  deemed  to be its  approval  of all  bidders  on the  list so  submitted  by
Landlord.  Landlord shall promptly notify Tenant,  in writing,  of the amount of
the lowest bid, including a comprehensive, detailed line-item budget, and Tenant
shall have the right to propose modifications to the Final Interior Plans within
five (5) business days after Tenant's receipt of Landlord's  notice,  subject to
Landlord's approval of such changes.  Landlord shall not exceed the approved bid
for any line item without Tenant's prior written approval.  Such revision of the
final Interior Plans shall be completed as expeditiously as possible;  provided,
however, that the job shall nonetheless be awarded to the low bidder whose price
shall be adjusted  based upon the changes  requested  by Tenant and  approved by
Landlord made to the Final Interior Plans.

                  (2)  Landlord  and  Tenant  shall use their  best  efforts  to
approve the general  contractor and all  subcontractors so that the construction
contract may be executed as soon as possible.

         E.  COMMENCEMENT  OF INTERIOR  IMPROVEMENTS:  On or before the due date
specified in the Schedule of Performance,  Landlord shall commence  construction
for the Interior  Improvements and shall diligently  prosecute such construction
to completion, using all reasonable efforts to achieve Substantial Completion of
the  Interior  Improvements  by  the  due  date  specified  in the  Schedule  of
Performance.

                                       3
<PAGE>

     5. PAYMENT OF INTERIOR  IMPROVEMENT  COSTS:  Landlord and Tenant shall have
the following  obligations  with respect to the payment of Interior  Improvement
Costs:

         A.  Landlord  shall be  obligated  to pay an amount equal to the Tenant
Improvement  Allowance as provided  for in Paragraph 3 of the First  Addendum To
Lease for the Payment of Interior  Improvement  costs.  If the total of Interior
Improvement Costs exceeds the amount of Landlord's required contribution, Tenant
shall be  obligated to pay the entire  amount of such excess.  In no event shall
Landlord be  obligated to pay for  Interior  Improvement  Costs in excess of the
allowances provided for in Paragraph 3 of the First Addendum To Lease. If Tenant
becomes  obligated  to  contribute  toward  paying  Interior  Improvement  Costs
pursuant to this  subparagraph  5A, then Landlord shall estimate  amount of such
excess prior to commencing  construction of the Interior Improvements and Tenant
shall pay to Landlord a proportionate  share of each progress payment due to the
general  contractor which bears the same relationship to the total amount of the
progress  payment in question as the amount Tenant is obligated to contribute to
the payment of Interior  Improvement Costs bears to the total estimated Interior
Improvement  Costs.  Tenant shall pay Tenant's share of any progress  payment to
Landlord  within five (5) business  days after  receipt of a statement  therefor
from Landlord. At the time the final accounting is rendered by Landlord pursuant
to subparagraph  5C hereof,  there shall be an adjustment  between  Landlord and
Tenant  such that each shall only be required  to  contribute  to the payment of
Interior  Improvement Costs in accordance with the obligations set forth in this
subparagraph  5A,  which  adjustment  shall be made  within  five (5) days after
Landlord  notifies Tenant of the required  adjustment.  If Tenant is required to
make a payment to Landlord, Tenant shall make such payment even if Tenant elects
to audit the statement submitted by Landlord pursuant to subparagraph 5C. In the
event Tenant's audit discloses that an overpayment or  underpayment  was made by
Tenant,  there shall be an  adjustment  between  Landlord  and Tenant as soon as
reasonably  practicable  such that each shall only be required to  contribute to
the  payment  of costs in  accordance  with the  obligations  set  forth in this
subparagraph 5A.

         B. If  Tenant  fails  to pay  any  amount  when  due  pursuant  to this
Paragraph 5, then (i) Landlord may (but without the obligation to do so) advance
such funds on  Tenant's  behalf,  and Tenant  shall be  obligated  to  reimburse
Landlord  for the amount of funds so  advanced  on its  behalf,  and (ii) Tenant
shall be liable for the payment of a late charge and interest in the same manner
as if Tenant  had  failed to pay Base  Monthly  Rent  when due as  described  in
paragraph 3.4 of the Lease.  Any amounts paid to Landlord by Tenant  pursuant to
this subparagraph  shall be held by Landlord as Tenant's agent, for disbursal to
the  general  contractor  in payment  for work  costing in excess of  Landlord's
required contribution.

         C. Construction of the Interior  Improvements shall be done on an "open
book" basis. Tenant shall have the right to review Landlord's construction costs
at any time upon at least 2 days prior  notice.  When the Interior  Improvements
are  Substantially  Completed,  Landlord  shall  submit  to  Tenant a final  and
detailed  accounting  of  all  Interior  Improvement  Costs  paid  by  Landlord,
certified as true and correct by  Landlord's  financial  officers.  Tenant shall
have the right to audit the books, records, and supporting documents of Landlord
to the extent  necessary to determine  the  accuracy of such  accounting  during
normal  business hours after giving Landlord at least two (2) days prior written
notice.  Tenant shall bear the cost of such audit,  unless such audit  discloses
that  Landlord has  overstated  the total of such costs by more than two percent
(2%) of the actual amount of such costs,  in which event  Landlord shall pay the
cost of Tenant's  audit.  Any such audit must be  conducted,  if at all,  within
ninety (90) days after Landlord delivers such accounting to Tenant.

     6.  CHANGES TO  APPROVED  PLANS:  Once the Final  Interior  Plans have been
approved by Landlord  and  Tenant,  neither  shall have the right to order extra
work  or  change  orders  with  respect  to the  construction  of  the  Interior
Improvements  without the prior written consent of the other.  All extra work or
change orders  requested by either  Landlord or Tenant shall be made in writing,
shall  specify any added or reduced  cost  and/or  construction  time  resulting
therefrom,  and shall become  effective and a part of the Final  Interior  Plans
once approved in writing by both

                                       4
<PAGE>

parties.  If a change order  requested  by Tenant  results in an increase in the
cost of constructing the Interior  Improvements,  Tenant shall pay the amount of
such  increase  caused by the change  order  requested by Tenant at the time the
change  order is approved by both  Landlord and Tenant if and to the extent such
change order causes the Interior Improvement Costs to exceed Landlord's required
contribution thereto described in subparagraph 5A. Subject to Article 2.2 of the
Lease,  if a change  order  requested  by Tenant  results in an  increase in the
amount of  construction  time  needed  by  Landlord  to  complete  the  Interior
Improvements, paragraph 7 hereof may apply.

     7.  DELIVERY  OF  POSSESSION  AND  PUNCH  LIST:  As  soon  as the  Interior
Improvements  are  Substantially  Completed,  Landlord and Tenant shall together
walk through the Premises and inspect all Interior  Improvements  so  completed,
using reasonable  efforts to discover all uncompleted or defective  construction
in the Interior  Improvements.  After such inspection has been  completed,  each
party shall sign a "punch list",  which shall include a list of all "punch list"
items which the parties  agree are to be corrected by Landlord.  As soon as such
inspection has been completed, Landlord shall deliver possession of the Premises
to Tenant.  Landlord shall use reasonable efforts to complete and/or repair such
"punch list" items within  thirty (30) days after  executing  the  "punch-list".
Tenant shall have the right to update the punchlist  with any  additional  items
discovered  within 30 days after the Tenant's  receipt of notice of  Substantial
Completion of the Interior Improvements.

     8. STANDARD OF  CONSTRUCTION  AND WARRANTY:  Landlord here by warrants that
the Interior Improvements shall be constructed  substantially in accordance with
the Final Interior Plans (as modified by change orders  approved by Landlord and
Tenant),  all  Private  Restrictions  and all  Laws,  in a good and  workmanlike
manner,  and all materials and equipment  furnished  shall conform to such Final
Interior  Plans and shall be new and  otherwise of good  quality.  The foregoing
warranty shall be subject to, and limited by, the following:

         A.  Once  Landlord  is  notified  in  writing  of  any  breach  of  the
above-described  warranty,  Landlord  shall  promptly  commence the cure of such
breach  and  complete  such  cure with  diligence  at  Landlord's  sole cost and
expense.

         B. Landlord's  liability  pursuant to such warranty shall be limited to
the cost of correcting the defect or other matter in question. In no event shall
Landlord be liable to Tenant for any damages or liability  incurred by Tenant as
a result of such defect or other matter,  including without  limitation  damages
resulting from any loss of business by Tenant or other consequential damages.

         C.  Notwithstanding  anything  contained herein,  Landlord shall not be
liable for any defect in design,  construction,  or equipment furnished which is
discovered and of which Landlord  receives  written notice from Tenant after the
first (1st)  anniversary  of the  recordation  of a notice of completion for the
work of improvement affected by the defect.

         D. With  respect  to  defects  for which  Landlord  is not  responsible
pursuant to subparagraph  9C, Tenant shall have the benefit of any  construction
or equipment  warranties  existing in favor of Landlord that would assist Tenant
in  correcting  such defect and in  discharging  its  obligations  regarding the
repair and maintenance of the Premises.  Upon request by Tenant,  Landlord shall
inform Tenant of all written  construction and equipment  warranties existing in
favor of  Landlord  which  affect  the  Interior  Improvements.  Landlord  shall
cooperate with Tenant in enforcing such warranties and in bringing any suit that
may be  necessary  to  enforce  liability  with  regard to any  defect for which
Landlord is not  responsible  pursuant to this  paragraph so long as Tenant pays
all costs reasonably incurred by Landlord in so acting.

         E. Landlord makes no other express or implied  warranty with respect to
the design, construction or operation of the Interior Improvements except as set
that forth in this paragraph.

                                       5
<PAGE>


     9. CONDITION TO LANDLORD'S  PERFORMANCE:  Landlord's  obligations under the
Lease are subject to the  satisfaction  or waiver of the condition that Landlord
obtain all building permits and other  governmental  approvals required in order
to commence construction of the Interior Improvements by the due dates specified
in the Schedule of  Performance.  If such  condition is not  satisfied or waived
within the applicable time period, Landlord shall have the option of terminating
the Lease; provided,  however, that Landlord shall have the option to extend the
time period for the  satisfaction  of such condition for a period of up to sixty
(60) days to enable  Landlord to continue its efforts to cause such condition to
be  satisfied.  If any such option to extend the time for  satisfaction  of this
condition is exercised, (i) Landlord shall continue to use reasonable efforts to
cause the  condition to be satisfied;  (ii) all other time periods  contained in
the  Schedule  of  Performance  which are  impacted by such  extension  shall be
appropriately  adjusted;  and (iii) such extension  shall not constitute a delay
caused by Tenant  pursuant to Paragraph 7 hereof,  nor shall Landlord in any way
be penalized for exercising  such option to obtain  additional time to cause the
condition  to be  satisfied.  If Landlord  becomes  entitled to and elects to so
terminate the Lease, the Lease shall terminate on the date notice is so given to
Tenant.  Landlord  shall  be  under  an  obligation  of  good  faith  to use all
reasonable efforts to cause the condition to be satisfied.

     10. EFFECT OF  AGREEMENT:  In the event of any  inconsistency  between this
Improvement  Agreement and the Lease,  the terms of this  Improvement  Agreement
shall prevail.


LANDLORD:                                            TENANT:


ORCHARD INVESTMENT COMPANY NO. 901                   Clarify Inc.
a California general partnership                     a Delaware corporation


By:   NELO, a California general partnership         By:  /s/ David A. Stamm
                                                         -------------------

By:   New England Mutual Life Insurance Co.          Title:   President
      a Massachusetts corporation,                   Date: August 9, 1996
      a general partnership


      By: /s/Thomas J. Lunny
         -------------------
      Date: August 13, 1996


                                       6
<PAGE>


                                    EXHIBIT C

Approved Specifications





                                       1
<PAGE>

                                    EXHIBIT D

Not applicable




                                       1
<PAGE>

                                    EXHIBIT E

WHEN RECORDED RETURN TO :

ELINORA S. MANTOVANI, ESQ.
WILSON, SONSINI, GOODRICH & ROSATI
Two Palo Alto Square, Suite 900
Palo Alto, California 94306
(415) 493-9300


                      DECLARATION OF COVENANTS, CONDITIONS
                               AND RESTRICTIONS OF
                             ORCHARD BAYSHORE CENTRE

     THIS DECLARATION is made on January 25, 1985, by NELO, a California general
partnership,  and ORCHARD  INVESTMENT  COMPANY NUMBER 901, a California  general
partnership (hereinafter  collectively called "Declarant") as the owners of that
certain real property  situated in the City of San Jose,  County of Santa Clara,
State  of  California   described  in  Exhibit  "A"  hereto,  which  exhibit  is
incorporated herein by this reference.

                                    ARTICLE 1
                                   DEFINITIONS

     1.1 Unless the context otherwise  specifies or requires,  the terms defined
in this Article shall, for all purposes of this  Declaration,  have the meanings
herein specified.

     1.2  ARCHITECT:  The  term  "Architect"  shall  mean  a  person  holding  a
certificate to practice  architecture in the State of California under authority
of the Business and Professions Code of the State of California.

     1.3  DECLARATION:  The term  "Declartion"  shall mean this  Declaration  of
Covenants, Conditions and Restrictions.

     1.4 DEED OF TRUST:  The term "Deed of Trust" or "Trust  Deed"  shall mean a
mortgage as well as a deed of trust.

     1.5  APPROVING  AGENT:  The  term  "Approving  Agent"  shall  mean,  in the
following order or precedence:

         A. ORCHARD  PROPERTIES,  a California  corporation  ("Orchard"),  whose
address  is 1914  Junction  Avenue,  San Jose,  California  95131,  shall be the
Approving  Agent  until  Orchard  shall  have  resigned  as  Approving  Agent by
executing a written  resignation and causing an original of same to be recorded,
and by giving  written notice of such  resignation  to each Owner of record,  as
shown on the most recent county  assessor's  roll, of real property then subject
to this  Declaration;  provided that  Declarant may remove  Orchard as Approving
Agent by  delivering a "Notice of Removal" to Orchard and causing an original of
the same to be recorded  and by giving  written  notice of such  removal to each
Owner of record,  as shown on the most recent  county  assessor's  roll, of real
property then subject to this Declaration;  provided,  that in the event of such
resignation or removal,  Declarant shall once again become  Approving Agent with
the right and power to appoint another  Approving  Agent, by executing a written
assignment to a third party (the  "Appointed  Approving  Agent") of  Declarant's
duties as Approving Agent, which assignment shall have been accepted in writing,
and causing an original of such assignment to be recorded, and by giving written
notice of such  assignment to each Owner of record,  as shown on the most recent
county  assessor's roll, of real property then subject to this  Declaration,  in
which event such Appointed  Approving  Agent shall be the Approving  Agent until
the  resignation  or removal of such  Appointed  Approving  Agent,  as  provided
herein.

                                       1
<PAGE>

         B. If at any time  during  which  Declarant  shall  serve as  Approving
Agent,  or if  Declarant  shall  re-acquire  the  right  to  serve  pursuant  to
subparagraph  A above,  any  corporation,  association  or trust  controlled  by
Declarant, or with which Declarant has been merged or consolidated,  or by which
Declarant  has  been   acquired   (hereinafter   referred  to  as   "Declarant's
Successor"),  is  certified of record by  Declarant  as  Approving  Agent,  then
Declarant's  Successor shall be the Approving Agent provided it has been granted
of record by Declarant the exclusive right to act as Approving Agent pursuant to
this Declaration,  in which event  Declarant's  Successor shall be the Approving
Agent until  Declarant's  Successor  shall have  resigned as Approving  Agent by
executing  a written  resignation  and  causing  an  original  of the same to be
recorded,  and by giving  written  notice of such  resignation  to each Owner of
record,  as shown on the most recent  county  assessor's  roll, of real property
then subject to this Declaration.

         C. Any  association  (whether  or not  incorporated)  organized  by the
Owners of sixty-six and two-thirds percent (66-2/3%) of the land area (exclusive
of portions  dedicated to a public  agency or  authority  for a public use) then
subject to this Declaration,  in which membership is available to all Owners and
decisions  are made on the basis of majority vote with one (1) vote assigned for
each square foot of land owned by each Owner, but only if the Owners  organizing
such association, within not less than six (6) months from the date that Orchard
or Declarant or Declarant's Successor,  as the case may be, shall have ceased to
be the Approving  Agent,  shall have (i)  organized  such  association  and (ii)
executed  and  recorded  a  statement  in  the  form  of an  amendment  to  this
Declaration  as described in Paragraph 8.2 setting forth that such  organization
has been formed for the purpose of acting as and  assuming  the  funcitons of an
Approving Agent pursuant to this Declaration,  and (iii) given written notice to
all Owners of record of real property then subject to this Declaration that such
association has been formed.

         D. If Orchard or Declarant or  Declarant's  Successor,  as the case may
be, shall cease to be the Approving  Agent and no association is formed pursuant
to and  satisfying  all the conditions  precedent  contained in Paragraph  1.5.C
within the  specified  time period,  there shall be no  Approving  Agent for the
remainder of the life of this Declaration.

     1.6  STRUCTURES:  The Term  "structure(s)"  shall  include all  structures,
buildings,  outbuildings,  sheds, fences and screening walls over three (3) feet
in height, barriers or retaining walls.

     1.7 MORTGAGEE:  The term  "Mortgagee"  shall mean a beneficiary  under or a
holder of a Deed of Trust as well as a mortgagee under a mortgage.

     1.8 THE ORCHARD BAYSHORE CENTRE:  The term "Orchard  Bayshore Centre" shall
mean all of the real property described in Exhibit "A" hereto.

     1.9  RESTRICTIONS:  The  term  "Restrictions"  shall  mean  the  Covenants,
Conditions and Restriction set forth in this Declaration, as it may from time to
time be amended or supplemented.

     1.10 OWNER:  The term "Owner"  shall mean and refer to any person  owning a
fee estate in the land,  or any portion  thereof,  contained  within the Orchard
Bayshore Centre,  but excluding either (i) any person who holds such interest as
security  for the  payment  of an  obligation,  or (ii)  any  person  holding  a
leasehold estate.

     1.11 RECORD,  RECORDED:  The terms "record" or "recorded"  shall mean, with
respect to any document,  the  recordation of said document in the office of the
County Recorder of the County of Santa Clara, State of California.

     1.12 SIGN: The term "sign" shall mean any structure, device or contrivance,
electric or  non-electric,  and all parts thereof,  which is erected or used for
advertising purposes, upon or within

                                       2
<PAGE>

which any poster, bill, bulletin, printing, lettering, painting, device or other
advertising of any kind whatsoever is used, placed, posted or otherwise fastened
or affixed to ground or structures.

     1.13 STREETS: The term "street(s)" shall mean any publicly dedicated street
or highway, or other publicly dedicated thorough-fare, within or adjacent to the
Orchard Bayshore Centre and shown on any recorded  subdivision or parcel map, or
record of survey,  whether  designated  thereon as a publicly  dedicated street,
boulevard, place, drive, road, terrace, way, lane, circle or court.

     1.14 VISIBLE FROM NEIGHBORING PROPERTY:  The term "visible from neighboring
property"  shall mean,  with respct to any given object,  that such object is or
would be visible to a person six (6) feet tall having  20/20 vision and standing
on any part of such  neighboring  property at an  elevation  no greater than the
elevation of the base of the object being viewed.

     1.15  PERSON:  The  term  "person"  shall  mean  an  individual,  group  of
individuals,    corporation,   partnership,   trust,   unincorporated   business
association or such other legal entity as the context in which such term is used
may imply.

     1.16 LOT: The term "lot" shall mean any parcel of land contained within the
Orchard Bayshore Centre as divided or subdivided on subdivision or parcel map(s)
recorded in the official records of Santa Clara County, California, as they from
time to time become current.

     1.17 FRONT: The term "front" shall mean, with respect to any structure, any
wall facing a street.

                                    ARTICLE 2
                      PROPERTY SUBJECT TO THE RESTRICTIONS

     2.1 GENERAL DECLARATION CREATING THE MUTUAL RESTRICTIONS:  Declarant hereby
declares  that all of the real  property  located in the County of Santa  Clara,
State of California as described in Exhibit "A" attached hereto and incorporated
herein by this reference  (sometimes  hereinafter  called the "Orchard  Bayshore
Centre"), is and shall be conveyed , hypothecated, encumbered, leased, occupied,
build upon or  otherwise  used,  improved or  transferred,  in whole or in part,
subject  to the  Restrictions,  and that all of said  Restrictions,  and all the
covenants,  conditions and agreements herein contained,  are declared and agreed
to be in furtherance of a general plan for the subdivision, improvement and sale
of said real  property,  and are  established  for the purpose of enhancing  and
perfecting the value,  desirability and attractiveness of said real property and
every part thereof.  Declarant  further  declares that (i) the  Restrictions and
each of the covenants,  conditions and agreements  herein contained are made for
the direct, mutual and reciprocal benefit of each and every lot contained within
the Orchard Bayshore Centre,  and that such Restricitons are and shall be mutual
equitable servitudes burdening each lot for the benefit of all other lots within
the  Orchard  Bayshore  Centre,  and  (ii)  the  Restricitons  and  each  of the
covenants,  conditions  and  agreements  herein  contained  shall be  "covenants
running with the land" burdening each lot within the Orchard Bayshore Centre for
the benefit of all other lots within the Orchard Bayshore Centre, the burdens of
which shall be binding upon each Owner,  lessee,  licensee,  occupant or user of
each lot within the Orchard Bayshore Centre, his successors and assigns, for the
benefit of each Owner of all other lots within the Orchard Bayshore Centre,  his
successors and assigns.

                                    ARTICLE 3
                        APPROVAL OF PLANS FOR STRUCTURES

     3.1 APPROVAL REQUIRED:  So long as there is a then serving Approving Agent,
no structure shall be erected,  placed,  constructed,  substantially  remodeled,
rebuilt  or  reconstructed  on any land  subject to this  Declaration  until the
following  procedures  have been fully complied with and the Approving Agent has
approved in writing the Preliminary Plans (as defined below) and the Final Plans
(as defined below):

                                       3
<PAGE>

         A. The  Owner,  lessee,  licensee  or other  occupant  of the lot to be
improved  or his  authorized  agent  (the  "Applicant")  shall  deliver  written
preliminary plans and specifications (the "Preliminary  Plans") to the Approving
Agent, in duplicate, over the authorized signature of Applicant. The Preliminary
Plans shall be in such form and containing  such  information as may be required
by the Approving Agent for the following:

                  (1)      A site  development  plan showing the location of all
                           proposed   driveways,    parking   areas,   walkways,
                           landscaped  areas,  storage  and  refuse  areas,  and
                           building areas;

                  (2)      A landscaping plan for the particular lot;

                  (3)      A sign and lighting plan;

                  (4)      A  building   elevation   plan  showing   dimensions,
                           materials and exterior color schemes;

                  (5)      A grading plan.

         B. At such time as the Approving Agent shall have approved, in writing,
the  Preliminary  Plans and prior to the  submission of the Final Plans (as that
term is defined herein) to the appropriate  governmental  body,  Applicant shall
submit to the Approving Agent complete and detailed final plans,  specifications
and  working   drawings  (the  "Final   Plans")  with  regard  to  the  proposed
improvements,  which Final Plans will be in such form as may then be required by
the City of San Jose or County of Santa Clara, as the case may be, for review by
said City or County and which shall contain such  additional  information as may
be required by the  Approving  Agent;  provided,  that such Final Plans need not
include  detailing  with  regard  to  interior  improvements  such  as  interior
partitioning walls.

         C. No prior approval of any  Preliminary  Plans or Final Plans shall be
required  if there is no then  serving  Approving  Agent to approve  such plans.
Changes in approved  Preliminary  Plans or approved Final Plans which materially
affect landscaping,  signing,  building size,  placement or external apprearance
must be similarly submitted to and approved by the Approving Agent.

     3.2  ADDITIONAL  APPROVAL  REQUIRED:  So long as  there  is a then  serving
Approving Agent, no exterior surface of any structure or improvement existing on
any lot subject to this  Declaration  shall be painted,  texturized or otherwise
changed,  no alterations,  additions or changes of any type whatsoever  shall be
made to any landscaping  placed on any lot subject to this  Declaration,  and no
additions  or  alterations  to  any  paved  area  on any  lot  subject  to  this
Declaration,  shall  be  made  until  plans  for  such  painting,   texturizing,
alterations,  additions  or  changes,  including  samples of colors,  materials,
landscaping plans and/or plans and specifications  with regard to paving, as the
case may require,  together with such other  information as shall be required by
the Approving  Agent,  shall have been submitted to the Approving  Agent and the
Approving Agent shall have approved, in writing, such requested change.

     3.3 BASIS FOR APPROVAL:  The approval by the  Approving  Agent of any plans
and  specifications  as provided in this  Declaration  shall not be unreasonably
withheld.  However,  the Approving  Agent shall have the right to disapprove any
plans and  specifications  submitted  hereunder for any reason including but not
limited to any of the following:

         A. Failure to comply with any of the Restrictions;

         B. Failure to include  information in such plans and  specifications as
may have been reasonably requested by the Approving Agent:

                                       4
<PAGE>

         C. Objections to the exterior design of the proposed structures,  or if
the  appearance  of  materials  to be used in the  construction  of any proposed
structure  are found by the  Approving  Agent to be  incompatible  with existing
structures in the Orchard Bayshore Centre;

         D. Objections based upon the inadequacy of the number of onsite parking
spaces,  considering  (i) the  contemplated  use or future  possible  use of the
structures proposed, and (ii) the availability of additional parking offsite;

         E. Objections to the location of any proposed structure upon any lot as
it relates to other lots within the Orchard Bayshore Centre;

         F. Objections to the grading plan for any lot;

         G.  Objections  to the  color  scheme,  finish,  proportions,  style of
architecture,  height, bulk or appropriateness of any structure as it relates to
other structures within the Orchard Bayshore Centre;

         H.  Objections  to the  landscaping  materials  as they relate to other
landscaping  materials  then used or  contemplated  for use within  the  Orchard
Bayshore Centre; and

         I. Any other  matter  which,  in the judgment of the  Approving  Agent,
would render the proposed  structure or structures or use inharmonious  with the
general plan for improvement of Orchard Bayshore  Centre,  or with structures or
landscaping then located upon or proposed to be located upon other lots or other
properties within Orchard Bayshore Centre.

     3.4  APPROVAL:  Upon  approval  by the  Approving  Agent of any  plans  and
specifications submitted hereunder, a copy of such plans and specifications,  as
approved,  shall be deposited for permanent record with the Approving Agent, and
a copy of such plans and specifications bearing such approval, in writing, shall
be returned to the Applicant submitting the same.

     3.5 RESULT OF INACTION:  If the Approving  Agent fails either to approve or
to disapprove the  Preliminary  Plans or the Fianl Plans within thirty (30) days
after  such  Preliminary  Plans or Final  Plans,  as the case may be,  have been
submitted to it, it shall be conclusively  presumed that the Approving Agent has
approved said Preliminary or Final Plans; provided, however, that if within said
thirty (30) day period,  the Approving  Agent gives  written  notice of the fact
that more time is  required  for the  review of such  plans,  there  shall be no
presumption  that the plans are approved  until the  expiration  of a reasonable
period of time as set forth in said notice, not to exceed thirty (30) days. Such
presumption  shall not apply if the review fee required by Paragraph 3.9 was not
paid at the time the plans were first submitted to the Approving Agent.

     3.6 PROCEEDING WITH WORK: Upon receipt of approval from the Approving Agent
pursuant to this  Article 3, the  Applicant to whom the approval is given shall,
as soon as  practicable,  satisfy all  conditions of the approval and diligently
proceed with the  commencement  and  completion  of all  approved  construction,
refinishing,  alterations and excavations.  In all cases work shall be commenced
within  one (1) year  from  the date of such  approval.  If  Applicant  fails to
commence  construction  of the structures  within one (1) year from date of such
approval,  then the  approval  given  pursuant to this Article 3 shall be deemed
revoked unless the Approving Agent, upon request made prior to the expiration of
said one (1) year period,  extends in writing the time for  commencing  work. In
all cases work shall be completed in accordance with the  Preliminary  Plans and
the Final Plans within two (2) years from the date of issuance of the first ( or
only) building permit with regard to such work.

     3.7 LIMITATION ON APPROVING  AGENT:  In no event shall the Approving  Agent
disapprove  any plans  and  specifications  solely by reason of the  Applicant's
proposed  use of the lot if  such  use is  specifically  permitted  pursuant  to
Paragraph 5.1 of this Declaration.

                                       5
<PAGE>

     3.8  LIABILITY:  Neither the  Declarant  nor the  Approving  Agent shall be
liable for any damage, loss or prejudice suffered or claimed on account of:

         A.  The   approval  or   disapproval   of  any  plans,   drawings   and
specifications, whether or not defective;

         B. The  construction  or performance  of any work,  whether or not done
pursuant to approved plans, drawings and specifications; or

         C. The development of any property within Orchard Bayshore Centre.

     3.9 REVIEW FEE: An architectural  review fee shall be paid to the Approving
Agent as follows:

         A. At such time as any  Preliminary  Plans  pertaining to the erection,
placement,  construction,  remodeling or reconstruction of structures within the
Orchard  Bayshore  Centre are  submitted  for  approval  based on the  following
schedule:

                  (1) When the plans submitted are prepared by an architect, the
architectural review fee shall be Three Hundred Fifty Dollars ($350.00);

                  (2) In all other cases the  architectural  review fee shall be
Four Hundred Dollars ($400.00).

         B. At such time as  documents  required  to be  submitted  pursuant  to
Paragraph 3.2 above are submitted for  approval,  the  architectural  review fee
shall be the sum of One Hundred Dollars ($100.00).

     3.10  CERTIFICATE  OF COMPLIANCE:  So long as there is an Approving  Agent,
such  Approving  Agent shall,  within  twenty-one  (21) days  following  written
request  therefor by an Owner,  execute and deliver to such  requesting  Owner a
"Certificate of Compliance"  stating that the lot specified by such Owner in the
request is in compliance with Article 3 of these Restrictions or, if such lot is
not in compliance with Article 3 of these Restrictions,  then stating the nature
of such  noncompliance  and the specific  paragraph of this Article 3 with which
said lot does not comply.

                                    ARTICLE 4
                           LIMITATIONS ON IMPROVEMENTS

     4.1 UTILITY LINES:  All onsite utility  transmission  lines shall be placed
underground.

     4.2  COVERAGE:  No more than  thirty-five  percent (35%) of the square foot
area of any lot shall be occupied by structures.

     4.3 MINIMUM  SETBACK LINES: No structures,  nor any part thereof,  shall be
placed  closer than forty (40) feet from a property  line fronting on any street
("frontage setback area");  provided,  however, no structure or any part thereof
shall be placed closer than twenty (20) feet from any property line not fronting
on any street ("interior setback area").

     4.4 PARKING AREAS: No parking spaces shall be located, and no parking shall
be permitted,  within a frontage setack area adjacent to any street, except that
parking shall be permitted  within said setback area if such parking is screened
from view from the street by a screen  wall,  shrubbery  or berms  extending  at
least  forty-two  (42)  inches  above the high  point of the  finished  adjacent
pavement in said parking area. In no case shall such parking area be closer than
twenty-five (25) feet from a property line fronting on any street or closer than
ten (10) feet from any property line not fronting on any street.

                                       6
<PAGE>

     4.5 STORAGE AND LOADING  AREAS:  No loading dock,  truck loading or storage
area or other such  facility  shall be located in the front of any  building  or
structure,  or within  any  frontage  setback  area,  or  between a front of any
building or structure and the street which said front faces.

                                    ARTICLE 5
                        RESTRICITONS ON OPERATION AND USE

     5.1 PERMITTED  USES:  Subject to compliance  with these  Restrictions,  the
following uses shall be permitted in the Orchard Bayshore Centre:

         A.  Manufacture  (including  storage  of  raw  materials  and  finished
products therefrom) of the following:

                  (1) Pharmaceutical and cosmetic products;

                  (2) Optical, electronic,  timing and measuring instruments for
use in research, development, business and professional facilities; and

                  (3)  Industrial,  communication,  transportation  and  utility
equipment;

         B. Wholesaling,  warehousing and distribution establishments and public
utility  facilties  (excluding  storing  and  warehousing  of acids,  chemicals,
cement, plaster, petroleum products or explosive materials);

         C. Research, experimental and engineering laboratories;

         D. Catalog sales and mail order establishments;

         E. Establishments for the repair,  cleaning and servicing of commercial
or industrial equipment or products;

         F.  Construction   firms,  but  only  such  construction   firms  whose
activities are carried on entirely within an enclosed building and which have no
construction yard on said lot;

         G. So long as there  is an  Approving  Agent,  any  commercial  use not
specifically  prohibited by Paragraph 5.3 which is first  approved in writing by
the Approving Agent;

         H.  So  long  as  there  is  an  Approving  Agent,  any  industrial  or
manufacturing  use not  specifically  prohibited by Paragraph 5.3 which is first
approved in writing by the Approving Agent;

         I. If there is no Approving  Agent,  any industrial,  manufacturing  or
commercial use permitted by the then existing  zoning or other  applicable  land
use  regulations as promulgated by requisite  governmental  authorities,  except
those uses specifically prohibited by Paragraph 5.3.

     5.2 CONDUCT OF PERMITTED  USES:  All  permitted  uses shall be performed or
carried out entirely within a building that is designed and constructed for such
uses.  Certain  activities  which  cannot be carried on within a building may be
permitted,  but only (i) if there is then  serving an  Approving  Agent,  if the
Approving Agent specifically  consents,  in writing, to the use and the location
for such  activity,  or (ii) if there is no then  serving  Approving  Agent,  if
allowed under then existing  zoning or other  applicable  land use  regulations,
except for uses which are  specifically  prohibited  pursuant to Paragraph  5.3;
provided,  however, that in either of the foregoing situations such use shall be
permitted  ONLY IF (x) such  activity is  screened so as not to be visible  from
neighboring  property and streets, and (y) all lighting required for such use is
shielded from adjacent streets.

     5.3  PROHIBITED  USES:  The  following  operations  and uses  shall  not be
permitted on any property subject to these Restrictions:

                                       7
<PAGE>

         A. Residential use of any type;

         B.  Trailer  courts,   mobile  home  parks  or   recreational   vehicle
campgrounds;

         C. Junk yards or recycling facilities;

         D.  Drilling  for  and/or  removal  of oil,  gas or  other  hydrocarbon
substances  (except that this provision shall not be deemed to prohibit entry on
the property below a depth of five hundred (500) feet for such purposes);

         E. Commercial excavation except in the course of approved construction;

         F. Distillation of bones;

         G.  Dumping,  diposal,  incineration  or reduction of garbage,  sewage,
offal, dead animals or refuse;

         H. Fat rendering;

         I. Stockyards or slaughter of animals;

         J. Cemetaries;

         K Refining of petroleum or its products;

         L. Smelting of iron, tin, zinc or other ores;

         M. Jail or honor farms;

         N. Labor or migrant worker camps;

         O. Truck or bus terminals;

         P. Petroleum storage yards;

         Q. Auto wrecking, auto repair or auto painting establishment.

     5.4  EMISSIONS:  No use shall be  permitted  to exist or operate on any lot
which use:

         A. Emits dust,  sweepings,  dirt,  cinders,  fumes,  odors,  radiation,
gases, vapors,  discharges,  liquid or solid wastes or other harmful matter into
the  atmosphere  or into any  stream,  river or other  body of water  which  may
adversely  affect (i) the health or safety of persons  within the area,  or (ii)
the use of property  within the Orchard  Bayshore  Centre,  or (iii)  vegetation
within  the  Orchard  Bayshore  Centre,  nor  shall  waste or any  substance  or
materials of any kind be  discharged  into any public sewer  serving the Orchard
Bayshore  Centre or any part  thereof,  in violation of any  regulations  of any
public body having jurisdiction;

         B.  Produces  intense  glare or heat unless such use is performed  only
within an enclosed or screened  area and then only in such manner that the glare
or heat emitted will not be discernible from any exterior lot line;

         C. Creates a sound pressure level in violation of any regulation of any
public body having jurisdiction;

                                       8
<PAGE>

         D. Allows the visible  emissions of smoke  outside any building  (other
than the exhausts emitted by motor vehicles or other transportation  facilities)
in  violation of any  regulation  of any public body having  jurisdiction.  This
requirement  shall  also be  applicable  to the  disposal  of  trash  and  waste
materials;

         E. Creates a ground vibration that is perceptible, without instruments,
at any point along any of the exterior lot lines.

     5.5 SIGNS:  The approving Agent may, from time to time, enact sign criteria
setting  forth  such  requirements  for signs to be erected  within the  Orchard
Bayshore Centre as the Approving  Agent may deem desirable,  which sign criteria
shall become effective upon recordation thereof in the official records of Santa
Clara  County.  All signs  erected  by any  Owner on a lot  within  the  Orchard
Bayshore Centre  subsequent to the recordation of said sign criteria shall be in
conformance with those criteria. Except as specifically otherwise allowed in any
then existing sign  criteria,  no sign shall be installed,  erected or placed on
any lot then subject to this Declaration  other than those signs identifying the
name,  business and products of the person or firm  occupying  the lot and those
offering the lot for sale or lease.

     5.6 LANDSCAPING CRITERIA: The approving agent may, from time to time, enact
landscaping  criteria  setting forth such  requirements  for  landscaping  to be
placed on or in lots located within the Orchard Bayshore Centre as the Approving
Agent may deam desirable including, without limitation, the amount of area to be
planted  in sod  lawns or  other  plantings,  type of  plantings,  placement  of
irrigation  systems and requirements  for trees and raised planter boxes,  which
landscape  criteria  shall  become  effective  upon  recordation  thereof in the
official records of Santa Clara County. All landscaping placed by any Owner on a
lot within the Orchard  Bayshore  Centre  subsequent to the  recordation of said
landscape criteria shall be in conformance with those criteria.

     5.7 STORAGE AND REFUSE COLLECTION AREAS:

         A. No  materials,  supplies or  equipment,  including  company owned or
operated trucks or motor  vehicles,  shall be stored in any area on a lot except
inside a closed  building,  or behind a visual  barrier  screening such areas so
that they are not visible from the neighboring properties or streets. No storage
areas  shall be  maintained  between  a street  and the  front of the  structure
nearest such street.

         B. All outdoor refuse collection areas shall be visually screened so as
not to be visible from streets and neighboring  property.  No refuse  collection
areas  shall be  maintained  between  a street  and the  front of the  structure
nearest such street.

     5.8  CONDITION OF  PROPERTY:  The owner of each lot shall at all times keep
and  properly  maintain the  premises,  structures,  improvements,  landscaping,
paving and  appurtenances  on the lot in a safe,  clean,  sightly and  wholesome
condition  and in a good state of repair,  shall comply in all respects with all
governmental,  health, fire and police requirements and regulations, shall cause
to be regularly removed at its own expense any rubbish of any charcter whatsover
which may accumulate on such lot, and in particular and without limitation shall
perform its obligations under this Paragraph 5.8 as follows:

         A. All  areas of each lot not  used  for  structures,  walkways,  paved
driveways,  parking  or storage  areas  shall at all times be  maintained,  by a
professional landscape engineer or gardener, in a fully and well kept landscaped
condition  utilizing  ground cover and/or shrub and tree materials.  Undeveloped
areas  proposed  for  future  expansion  shall  be  maintained  in  a  weed-free
condition.  An  automatic  underground  landscape  irrigation  system  shall  be
provided by the Owner of each lot sufficient to irrigate properly all landscaped
areas within such lot.

         B. Parking areas shall be paved so as to provide all-weather  surfaces.
Each parking space shall be  designated  by lines painted on the paved  surfaces
and shall be adequate in area. All

                                       9
<PAGE>

parking areas shall provide,  in addition to parking spaces,  adequate driveways
and space for the movement of vehicles.

     5.9 EXCAVATION:  No excavation shall be made on, and no sand, gravel,  soil
or other material  shall be removed from, any lot except in connection  with the
construction  of  structures.  Upon  completion  of such  construction,  exposed
openings  shall be  backfilled to grade,  and  disturbed  ground shall be graded
level  and paved or  landscaped  in  conformity  with the  requirements  of this
Declaration.

                                    ARTICLE 6
                                    VARIANCES

     6.1  VARIANCE BY  APPROVING  AGENT:  So long as there shall be an Approving
Agent then serving,  it shall have the exclusive  right to grant  variances from
the  requirements  set forth in Article 4, or to waive entirely the restrictions
set forth in Article 4 with respect to any given lot, as the Approving Agent, in
its sole discretion, shall determine is necessary for the successful development
of the Orchard Bayshore Centre.

     6.2 GRANTING OF VARIANCE: Any variance granted hereunder shall be effective
upon,  and only upon, the  recordation  of a Notice of Variance  executed by the
Approving Agent.

                                    ARTICLE 7
                                   ENFORCEMENT

     7.1 REMEDY:  So long as there is a then serving  Approving  Agent, it shall
have the  exclusive  right to enforce the  provisions of this  Declaration,  but
without  any  liability  for  failure to do so. In the event that the  Approving
Agent  fails to take action  respecting  any breach or  violation  of any of the
provisions of this  Declaration  within thirty (30) days from the written demand
by any Owner within the Orchard Bayshore Centre to take such action,  or if such
breach or  violation  of this  Declaration  occurs when there is no then serving
Approving  Agent,  then any Owner of a lot within the  Orchard  Bayshore  Centre
shall have the right to enforce the provisions contained in this Declaration.

     7.2 RIGHT TO ENTER

         A. So long as Orchard serves as the Approving  Agent,  Orchard and only
Orchard,  in addition to any other  remedy  available,  may,  with  respect to a
violation or breach of the covenants to maintain as set forth in Paragraph  5.8,
and only with respect to a breach or  violation of the  covenants to maintain as
contained in Paragraph 5.8, enter upon the lot on which such violation or breach
shall then be occurring and take whatever action it may deem necessary to effect
compliance  with  the  provisions  of  said  Paragraph  5.8,  including  without
limitation  making such repairs and performing such required  maintenance as may
be necessary to conform to the requirements  imposed by these  Restrictions,  at
the expense of the Owner of said lot,  provided  that  Orchard  shall have first
given to the Owner of such lot at least sixty (60) days prior written  notice of
its  intention  to do so,  and then only if said  Owner of such lot  shall  have
failed to correct said  violation or breach within said sixty (60) day period if
such  violation or breach was curable  within sixty (60) days, or if not curable
within sixty (60) days then only if such Owner shall have failed to commence and
then  diligently  sought to cure such  violation  or  breach.  In the event that
Orchard,  after having complied with the above notice requirements,  enters upon
such lot and remedies such breach or  violation,  the Owner of such lot shall be
obligated to reimburse  Orchard forthwith upon demand for all costs and expenses
incurred by Orchard in connection with such remedy  ("Non-Compliance  Expenses")
in accordance  with the  provisions of this Paragraph 7.2. Each Owner of any lot
within the Orchard Bayshore Centre,  by acceptance of a deed or other conveyance
whether or not it shall be so expressed in any such deed or other conveyance, is
and shall be deemed to covenant  and agree to pay to Orchard an  assessment  for
any Non-Compliance  Expenses incurred by Orchard in connection with such Owner's
lot.

                                       10
<PAGE>

         B. Orchard shall  maintain  accurate  books and records  reflecting any
Non-Compliance  Expenses, and shall provide each owner of an affected lot with a
statement in respect thereto.  Each affected Owner shall pay all  Non-Compliance
Expenses incurred applicable to such Owner's lot within ten (10) days of receipt
of a statement.  If such statement is deposited in the United States mail,  duly
certified  or  registered,  with  postage  prepaid  and  addressed  to the Owner
affected  thereby at his lot, the same shall be deemed received by such Owner on
the fifth (5th) business day after such deposit.

         C. Any  Non-Compliance  Expenses  assessments,  together  with interest
thereon  and costs of  collection  thereof as provided  hereinbelow,  shall be a
charge on the lot and shall be  continuing  lien upon the lot against which such
assessment  are made.  The lien shall become  effective  upon  recordation  of a
notice of claim of lien as  provided  herein.  Such  assessment,  together  with
interest and costs,  shall also be the personal  obligation of the person who is
the Owner of such lot at the time when the assessment,  or any portion  thereof,
fell  due but in no  event  shall  the  person  who is the  Owner of such lot be
personally obligated for a sum in excess of Two Thousand Dollars ($2,000.00) for
any single  violation  (but  without  limiting the amount that may become a lien
upon  such  lot  for  any  given  violation  or the  aggregate  of the  personal
obligations of the Owner for  successive  violations).  Any personal  obligation
created  hereunder shall not pass to such Owner's  successors in title unless it
is  expressly  assumed by them,  but any lien created  hereunder  shall remain a
charge against the lot except as to "bona fide purchasers or  encumbrancers  for
value" without notice of same. No Owner may waive or otherwise  escape  personal
liability for the  assessment  provided  herein by non-use or abandonment of his
lot.

         D. If any Non-Compliance  Expenses assessment or any portion thereof is
not paid  within ten (10) days after the date due, it shall bear  interest  from
the date of  deliquency  at the then legal rate and,  in  addition  to all other
legal and  equitable  rights or remedies,  Orchard may, at its option,  bring an
action at law against the Owner who is personally  obligated to pay the same, or
upon compliance with the notice provisions set forth hereinbelow,  foreclose the
lien  against the  affected  lot, and there shall be added to the amount of such
assessment or any portion thereof the interest thereon,  all costs and expenses,
including  reasonable  attorney's  fees,  incurred by Orchard in collecting  the
delinquent  assessment.  In lieu of judicially foreclosing the lien, Orchard, at
its  option,  may  foreclose  such lien by  proceeding  under a power of sale as
provided hereinbelow, such a power of sale being given to Orchard as to each and
every lot for the purpose of collecting assessments.

         E. No action  shall be brought  to  foreclose  the lien,  or to proceed
under the power of sale, less than thirty (30) days after the date that a notice
of claim of lien, executed by Orchard, is recorded, which notice shall state the
amount  claimed (which may include  interest and costs of collection,  including
reasonable  attorneys' fees), a good and sufficient legal description of the lot
being assessed,  the name of the record Owner or reputed Owner thereof,  and the
name and address of Orchard as claimant. A copy of said notice of claim shall be
deposited in the United  States  mail,  certified  or  registered,  with postage
prepaid, addressed to the Owner of said lot.

         F. Any sale  provided for above shall be conducted in  accordance  with
Section  2924,  2924b,  and 2924c of the Civil Code of the State of  California,
applicable to the exercise of powers of sale in mortgages and deeds of trust, or
in any other  manner  permitted or provided by law.  Orchard or Declarant  shall
have the power to bid on the lot at the  foreclosure  sale,  and to acquire  and
hold, mortgage and convey the same.

         G. Upon the timely curing of any default for which a notice of claim of
lien was recorded by Orchard,  it is hereby authorized to file or record, as the
case  may be,  an  appropriate  release  of such  notice,  upon  payment  by the
defaulting  Owner of a fee to be  determined  by Orchard but not to exceed Fifty
Dollars  ($50.00),  to cover the costs of preparing and filing or recording such
release together with the payment of such other costs, interest or fees as shall
have been incurred.

                                       11
<PAGE>

         H. The assessment lien and the rights to foreclosure and sale hereunder
shall  be in  addition  to and not in  substitution  for all  other  rights  and
remedies which Declarant may have hereunder, at law or in equity.

     7.3 RESULT OF VIOLATION: The result of every action or omission whereby the
provisions  of this  Declaration  are  violated  in whole  or in part is  hereby
declared to be and to constitute a nuisance,  and every remedy allowed by law or
equity shall be  available  to any Owner of any lot within the Orchard  Bayshore
Centre.

     7.4 ATTORNEY'S FEES: In any legal or equitable action or proceeding for the
enforcement of the provisions of this  Declaration,  whether it be an action for
damages,  declaratory  relief or injunctive  relief, the losing party or parties
shall  pay the  attorneys'  fees of the  prevailing  party or  parties,  in such
reasonable  amount  as may be fixed by the  court  in such  proceedings  or in a
separate action brought for that purpose. The prevailing party shall be entitled
to said  attorneys'  fees even  though  the action or  proceeding  is settled or
compromised prior to judgment.

     7.5 REMEDIES  CUMULATIVE:  All remedies  provided  herein,  or at law or in
equity, shall be cumulative and not exclusive.

     7.6 WAIVER:  Failure by the  Approving  Agent to enforce the  provisions of
this  Declaration  shall  in no event be  deemed  a waiver  of the  right to the
Approving  Agent to do so  thereafter,  nor of the  right to  enforce  any other
covenants or restrictions  herein, nor of the rights of other Owners of property
within the Orchard Bayshore Centre to enforce same.

                                    ARTICLE 8
                        DURATION, MODIFICATION AND REPEAL

     8.1 DURATION OF RESTRICTIONS:  These Restrictions shall continue and remain
in full  force and effect at all times with  respect to all  property,  and each
part  thereof,  now or hereafter  made subject to these  Restrictions  (subject,
however,  to the right to amend and repeal as provided  herein) until January 1,
2015.

     8.2  TERMINATION  AND  MODIFICATION:  This  Declaration  or  any  provision
thereof,  or any covenant,  condition or restriction  contained  herein,  may be
terminated,  extended,  modified  or  amended,  as to the  whole of the  Orchard
Bayshore  Centre,  upon the  written  consent  of the  Owners of  sixty-six  and
two-thirds  percent  (66-2/3%)  of the  totoal  square  footage of the land area
contained  within the Orchard  Bayshore  Centre  (exclusive of dedicated  public
streets); provided, however, that so long as Orchard or Declarant or Declarant's
Successor  (as  defined in  paragraph  1.5.A) is the  Approving  Agent,  no such
termination, extension, modification or amendment shall be effective without the
written approval of Orchard or Declarant or Declarant's  Successor,  as the case
may be. No such  termination,  extension,  modification  or  amendment  shall be
effective  until a proper  instrument in writing  describing  such  termination,
extension,  modification or amendment has been executed by the requisite  number
of Owners and by Orchard or Declarant or Declarant's Successor,  if so required,
and recorded.

                                    ARTICLE 9
                            MISCELLANEOUS PROVISIONS

     9.1 CONSTRUCTIVE  NOTICE AND ACCEPTANCE:  Every person who now or hereafter
owns,  occupies or acquires any right, title or interest in or to any portion of
the property subject to these  Restrictions shall conclusively be deemed to have
consented  and agreed to every  covenant,  condition and  restriciton  contained
herein,  whether or not any  reference to this  Declaration  is contained in the
instrument by which such person acquired an interest in said property.

     9.2 WAIVER OF LIABILITY:  Neither the  Declarant  nor the  Approving  Agent
shall be liable to any Owner,  lessee,  licensee or occupant of any land subject
to  this  Declaration  by  reason  of  any 

                                       12
<PAGE>

mistake in judgment, negligence,  nonfeasance, action or inaction on the part of
the  Declarant or the  Approving  Agent,  or for the  enforcement  or failure to
enforce any  provision of this  Declaration.  Every Owner,  lessee,  licensee or
occupant of any of said property, by acquiring his interest therein, agrees that
he will not bring any action or suit against Orchard or Declarant or Declarant's
Successor,  as the case may be, or any other Approving Agent to recover any such
damages from or to seek equitable  relief against the Declarant or the Approving
Agent by reason of the same.

     9.3 RIGHTS OF MORTGAGEE: No breach of the Restrictions and other provisions
contained herein, or any enforcement thereof, shall defeat or render invalid the
lien of any  mortgage or deed of trust now or hereafter  executed  upon any land
subject to these Restrictions;  provided,  however,  that if any portion of said
property is sold under a foreclosure  of any mortgage or under the provisions of
any deed of trust,  any  purchaser at such sale and his  successors  and assigns
shall hold any and all property so purchased  subject to all of the Restrictions
and other provisions of this  Declaration.  Any notice of claim of lien recorded
pursuant  to  Paragraph  7.2 hereof  shall  take its  priority  vis-a-vis  other
encumbrances as of the date of its recordation.

     9.4 PARAGRAPH HEADINGS: Paragraph headings, where used herein, are inserted
for convenience only and are not intended to be a part of this Declaration or in
any way to define,  limit or  describe  the scope and  intent of the  particular
paragraphs to which they refer.

     9.5 EFFECT OF INVALIDATION: If any provision of this Declaration is held to
be  invalid  by any court of  competent  jurisdiction,  the  invalidity  of such
provision shall not effect the validity of the remaining provisions hereof.

     9.6 ASSIGNMENT AND DELEGATION:  Declarant (or an Appointed  Approving Agent
or Declarant's  Successor as defined in Paragraphs 1.5.A and 1.5.B respectively)
and  Orchard  shall  have no right to assign  its rights  granted  hereunder  as
Approving Agent nor to delegate its duties imposed  hereunder as Approving Agent
except as specifically set forth in Article 1 of this Declaration.

                                       13
<PAGE>

     IN WITNESS WHEREOF,  the undersigned have executed this Declaration the day
and year first above written.

                                  NELO, a California general partnership
                                  By   /s/ David J. Brown
                                  General Partner

                                  By NEW ENGLAND MUTUAL LIFE INSURANCE
                                  COMPANY, a Massachusetts corporation
                                  General Partner

                                  By  COPLEY  REAL  ESTATE   ADVISORS,
                                  INC.,   asset  manager  and  advisor
                                  hereunto duly authorized


                                  By   /s/ Joseph W. O'Conner
                                  President


                                  ORCHARD INVESTMENT COMPANY NUMBER 901,
                                  a California general partnership

                                  By   /s/ David J. Brown
                                  General Partner



                                       14

<PAGE>

STATE OF CALIFORNIA        )
                           )       SS.
COUNTY OF SANTA CLARA      )



     On January 25, 1985,  before me, /s/ BETTY M. EILER a Notary  Public in and
for said State,  personally appeared David J. Brown, known to me or proved to me
on the basis of satisfactory evidence to be one of the general partners of NELO,
the partnership that executed the within instrument, and acknowledged to me that
such partnership executed the same.

     WITNESS my hand and official seal

                               /s/ BETTY M. EILER
                               ------------------


STATE OF CALIFORNIA        )
                           )       SS.
COUNTY OF SANTA CLARA      )


     On January 25, 1985,  before me, /s/ BETTY M. EILER a Notary  Public in and
for said State,  personally appeared David J. Brown, known to me or proved to me
on the basis of  satisfactory  evidence  to be one of the  general  partners  of
ORCHARD  INVESTMENT COMPANY NUMBER 901, the partnership that executed the within
instrument, and acknowledged to me that such partnership executed the same.

     WITNESS my hand and official seal

                               /s/ BETTY M. EILER
                               ------------------




<PAGE>

STATE OF CALIFORNIA        )
                           )       SS.
COUNTY OF SANTA CLARA      )





     On January 25, 1985,  before me, Betty M. Eiler, a Notary Public in and for
said State,  personally  appeared JOSEPH W. O'CONNOR known to me or proved to me
on the basis of  satisfactory  evidence to be the President,  of the corporation
that executed the within  instrument,  known to me on the basis of  satisfactory
evidence to be the person who  executed the within  instrument  on behalf of the
corporation therein named, and acknowledged to me that such corporation executed
the within  instrument  pursuant to its by-laws or a resolution  of its board of
directors.

           WITNESS my hand and official seal.



                  /S/   Betty M. Eiler


<PAGE>

                                    EXHIBIT F


WHEN RECORDED RETURN TO:
Elinora S. Mantovani, Esq.
WILSON, SONSINI, GOODRICH & ROSATI
Two PaloAlto Square, Suite 900
Palo Alto, California 94306
(415) 493-9300


                               FIRST SIGN CRITERIA
                     OF DECLARATION OF COVENANTS, CONDITIONS
                   AND RESTRICTIONS OF ORCHARD BAYSHORE CENTRE


     THESE  FIRST  SIGN  CRITERIA  are made on the 25th day of  January  1985 by
ORCHARD PROPERTIES, a California corporation. ("Orchard").

                                R E C I T A L S:
                                ----------------

     WHEREAS,  NELO, a California  general  partnership,  and ORCHARD INVESTMENT
COMPANY NUMBER 901, a California general partnership  (collectively  referred to
herein as  "Declarant"),  as the owners of all that real property located in the
City of San Jose,  County of Santa  Clara,  California  described in Exhibit "A"
attached hereto  ("Orchard  Bayshore  Centre"),  have executed,  effective as of
8319764 January 25, 1985, that certain Declaration of Covenants,  Conditions and
Restrictions of Orchard  Bayshore Centre (the "CC&Rs") and caused the same to be
recorded  on  February 5, 1985 in the  official  records of Santa Clara  County,
California, as Instrument Number ______________; and

     WHEREAS, the CC&Rs provide,  among other things, that from time to time the
"Approving  Agent",  as defined in  Paragraph  1.5 of the CC&Rs,  may enact sign
criteria to affect all property located in Orchard Bayshore Centre; and

     WHEREAS,  Orchard is the  Approving  Agent  under the CC&Rs and  desires to
enact these First Sign Criteria in order (i) to assist lot owners in preparation
of their graphic design and (ii) to set forth minimum  requirements for signs to
be  placed  on or in lots  located  within  Orchard  Bayshore  Centre,  with the
understanding  that these First Sign Criteria are minimum  requirements only and
that so long as there exists an Approving  Agent, as defined in the CC&Rs,  then
prior to  installation  or  placement  of any sign upon any  lot(s)  in  Orchard
Bayshore  Centre,  the then  serving  Approving  Agent must  approve a sign plan
related thereto, as more specifically provided in the CC&Rs.

     NOW, THEREFORE, Orchard, as Approving Agent, herein enacts these First Sign
Criteria.

                                    ARTICLE I
                                   DEFINITIONS

     1.1  DEFINITIONS:  For purposes of these First Sign  Criteria the following
terms shall have the following definitions:

         A.    "Frontage  Setback  Area" shall be as defined in Paragraph 4.3 of
               the CC&Rs.

         B.    "Street" shall be as defined in Paragraph 1.13 of the CC&Rs.

         C.    "Structures" shall be as defined in Paragraph 1.6 of the CC&Rs.

         D.    "Owner" shall be as defined in Paragraph 1.10 of the CC&Rs.

                                       1
<PAGE>

         E.    "Sign" shall be as defined in Paragraph 1.12 of the CC&Rs.

         F.    "Visible from a public  street"  shall mean,  with respect to any
               given sign, that such sign is or would be visible to a person six
               (6) feet tall  having  20/20  vision and  standing on any part of
               such public  street at an elevation no greater than the elevation
               of the base of the sign being viewed.

                                    ARTICLE 2
                           MINIMUM CRITERIA FOR SIGNS

     2.1  LOCATION:  Any sign  permitted to be placed upon a lot within  Orchard
Bayshore  Centre shall be located in the frontage  setback area of such lot, and
only in such  frontage  setback  area;  provided,  that no part of any such sign
shall be less  than ten (10)  feet  from  the  public  street  right of way line
adjacent to such frontage setback area. In determining the location of such sign
within a frontage setback area, the location of any meandering sidewalk, jogging
path and  landscaping  contained  within  said  frontage  setback  area shall be
considered.  No signs shall be permitted to be placed upon any structure located
on a lot within Orchard Bayshore Centre; provided, that if multiple users occupy
such  structure  then the  location  of each such user in the  structure  may be
designated by means of a master sign plan which has been previously  approved by
the then serving Approving Agent.

     2.2  NUMBER OF SIGNS:  The  number of signs  permitted  on any site  within
Orchard Bayshore Centre shall be as follows:

(a)  One (1) User                           One (1) sign face not to exceed
     One (1) Building                       Forty (40) square feet in area,
     One (1) Street Frontage

(b)  One (1) User                           One (1) sign face not to exceed
     One (1) Building                       forty (40) square feet in area,
     More than one (1) Street               or one (1) sign face per street
         Frontage                           frontage  not to exceed  twenty (20)
                                            square feet in area.

(c)  One (1) User                           One (1) sign face not to exeed
     More than one (1) Building             forty (40) square feet in area per
     More than one (1) Street               street frontage, or one (1)
         Frontage                           sign  per   building  not  to  exeed
                                            twenty  (20)  square  feet in  area,
                                            with an  aggregate  of not more than
                                            forty (40)  square feet of sign face
                                            area per street frontage.

(d)  One (1) User                           One (1) sign  face not to exceed  
     More  than one (1)  Building           forty (40)  square  feet in area, 
     One (1) Street  Frontage               or one (1) sign face per building
                                            not to exceed twenty (20) square
                                            feet in area.

(e)  More  than one (1) User                One (1) sign face not to  exceed
     One (1)  Building                      forty (40)  square  feet in area, 
     One (1) Street  Frontage               with spaces of equal sizes for
                                            multiple identificaiton, or one (1)
                                            sign face per tenant not to exceed
                                            (20) square feet in area.

                                       2
<PAGE>

(f)  More  than  one (1) User               One (1) sign  face  per  street 
     One (1)  Building                      frontage  not to exceed  forty (40)
     More than one (1)                      square  feet in area  with spaces of
         Street Frontage                    equal  size  for  multiple
                                            identificaiton, or one (1) sign face
                                            per tenant per street  frontage  not
                                            to exceed twenty (20) square feet in
                                            area.

     2.3 DIMENSION OF PERMITTED  SIGNS:  No sign face permitted  hereunder shall
have a total  area in excess of forty  (40)  square  feet,  nor shall any single
dimension in any such sign exceed  twelve (12) feet. No portion of any such sign
shall  extend  more  than six (6)  feet  above  the  ground  level  as  measured
perpendicular from the high point of any such sign.

     2.4 MECHANICAL DEVICES:

         A. All portions of any sign installed  within Orchard  Bayshore  Centre
shall be stationary,  and no sign nor any portion thereof shall revolve,  rotate
or move, or create the illusion of revolution, rotation or movement.

         B. Any sign  installed  in Orchard  Bayshore  Centre may be  internally
illuminated or may be illuminated by fixtures  concealed within the structure of
such sign; provided,  however,  that any such internal illumination or concealed
fixtures shall first be approved by the Approving Agent, in its sole discretion.
There shall not be any exterior  spotlighting or other  illumination on any sign
installed in Orchard Bayshore Centre.

     2.5 CONTENTS OF SIGN: Any sign located on any lot within  Orchard  Bayshore
Centre shall contain the business name of the entity occupying said lot, and, in
the case of buildings  occupied by a single tenant, may also contain the logo of
said  tenant;  and no other name,  lettering,  logo,  trademark or copy shall be
permitted on any such sign.  Copy shall be permitted  only upon two sides of any
sign permitted  hereunder.  In the event more than one business occupies any lot
within Orchard  Bayshore  Centre,  then the location of such multiple  occupants
shall be  designated by means of a master sign plan approved by the then serving
Approving Agent.

     2.6 SIGN  MATERIAL:  Each sign  placed upon a lot  located  within  Orchard
Bayshore Centre shall be constructed of materials which will:

         A.  Complement  and harmonize  with the materials used in any structure
located on such lot and with structures located on adjacent lots; and

         B. Resist the impact of weather elements.

     2.7 TEMPORARY SIGNS: The foregoing notwithstanding,  during the period from
commencement of construction of a structure on any lot contained  within Orchard
Bayshore Centre until  completion of such  structure,  Declarant will provide at
its sole cost and expense one standard project  identification sign (of a design
substantially as described in Exhibit "B" hereto) of sufficient size to describe
the proposed occupant of the structure under construction, the architect of such
structure,  the contractor,  the developer and the lender (or any portion of the
above named as  selected by the owner).  The owner of such lot shall pay for all
the graphic work and copy to place the above described information upon the sign
either (i) by installing his own copy,  subject to previous approval by the then
serving  Approving Agent, or (ii) by request to Declarant that Declarant prepare
and  install  such sign copy,  in which event such owner  shall  promptly,  upon
request  therefor by Declarant,  reimburse  Declarant for all costs and expenses
incurred for such preparation and installation.  The copy, size,  dimensions and
location of such project  identification sign shall be subject to prior approval
by the Approving Agent in its sole  discretion.  No other sign of any type 

                                       3
<PAGE>

shall be permitted on any lot located  within  Orchard  Bayshore  Centre  during
construction of a structure on any such lot.

                                    ARTICLE 3
                             COMPLIANCE AND APPROVAL

     It is the  intention of Orchard,  as Approving  Agent,  in preparing  these
First Sign Criteria to assist  owners of lots located  within  Orchard  Bayshore
Centre  in  the  preparation  of  their  graphic  designs  and  to  set  minimum
requirements for signs to be located in Orchard  Bayshore Centre.  The Approving
Agent is not bound or required  to approve  signs  which meet the  criteria  set
forth  herein,  it being  understood  that such  criteria  merely  set forth the
minimum acceptable  standards and that the Approving Agent has the right, in its
sole  discretion,   to  require  any  proposed  signs  to  meet  more  stringent
requirements  than  those  contained  herein.  All sign plans  submitted  to the
Approving  Agent,  in  addition to  complying  with the  requirements  contained
herein, must be approved in accordance with the terms of the CC&Rs and must meet
the requirements of applicable governmental authorities prior to installation on
any lot located within Orchard Bayshore Centre.

                                    ARTICLE 4
                                  MISCELLANEOUS

     4.1  DURATION:  These First Sign  Criteria  shall  remain in full force and
effect until the first to occur of (i)  amendment  hereof  pursuant to Paragraph
4.2  below,  or (ii) at such  time as no  Approving  Agent  exists  for  Orchard
Bayshore Centre, or (iii) January 1, 2015.

     4.2 AMENDMENT:  These First Sign Criteria,  or any provision hereof, may be
terminated, modified or amended from time to time upon execution and recordation
by the then serving Approving Agent of an instrument in writing  describing such
termination, modification or amendment.

     IN WITNESS WHEREOF,  Orchard,  as Approving Agent, has executed these First
Sign Criteria on the day first above written.

                                     ORCHARD PROPERTIES
                                     a California corporation

                                     By: /s/ David J. Brown
                                         ------------------
                                     Its: President
                                          ---------


                                       4
<PAGE>

                                    EXHIBIT G

                         SUBORDINATION, NON-DISTURBANCE
                            AND ATTORNMENT AGREEMENT


     THIS  AGREEMENT is entered  into as of the  _________  day of  ___________,
_____, by and between  __________________,  a _____________ (the "Beneficiary"),
________________,  a  __________  (the  "Tenant")  and  ____________________,  a
____________________ (the "Landlord").


                               W I T N E S S E T H


     A. Tenant has entered  into a certain  lease dated  __________,_____,  (the
"Lease") with Landlord  covering certain space (the  "Premises")  located in and
upon the real property described in SCHEDULE 1 attached hereto (the "Property");

     B. Beneficiary is the holder of a mortgage loan (the "Loan") to Landlord in
the  amount  of  __________   Dollars   ($_________)   which  is  secured  by  a
_____________________ (the "Deed of Trust") covering the property;

     C. The parties hereto desire expressly to confirm the  subordination of the
Lease to the lien of the Deed of  Trust it being a  requirement  by  Beneficiary
that the  lien and  charge  of the Deed of Trust be  unconditionally  and at all
times prior and superior to the leasehold  interests and estates  created by the
Lease; and

     D. Tenant has  requested  that  Beneficiary  agree not to disturb  Tenant's
possessory rights in the Premises in the event Beneficiary  should foreclose the
Deed of  Trust,  provided  that  Tenant  is not in  default  under the Lease and
provided that Tenant attorns to Beneficiary or the purchaser at any  foreclosure
of Trustee's sale of the Property.

     NOW,  THEREFORE,  in consideration of the mutual covenants contained herein
and of other good and  valuable  consideration  the receipt and  sufficiency  of
which is hereby acknowledged, the parties hereby agree as follows:

     1.  Notwithstanding  anything to the contrary  set forth in the Lease,  the
Lease and the  leasehold  estate  created  thereby  and all of  Tenant's  rights
thereunder  shall be and shall at all times remain  subject,  subordinate to the
Deed of Trust and the lien thereof and all rights of Beneficiary  thereunder and
to  any  and  all  renewals,  modifications,  consolidations,  replacements  and
extensions thereof.

     2. Tenant hereby declares, agrees and acknowledges that:

         A.  Beneficiary  would not have agreed to recognize  the Lease  without
this Agreement; and

         B.  Beneficiary,  in making  disbursements  pursuant to the  agreements
evidencing  and securing the Loan,  is under no obligation or duty to oversee or
direct the application of the proceeds of such  disbursements  and such proceeds
may be used by Landlord for purposes other than improvement of the Premises.


<PAGE>

     3. In the event of foreclosure of the Deed of Trust,  or upon a sale of the
Property  pursuant to the Trustee's power of sale contained  therein,  or upon a
transfer of the Property by deed in lieu of foreclosure,  then so long as Tenant
is not in default under any of the terms, covenants, or conditions of the Lease,
the Lease shall  continue in full force and effect as a direct lease between the
succeeding  owner of the  Property  and  Tenant,  upon and subject to all of the
terms,  covenants and conditions of the Lease for the balance of the term of the
Lease.  Tenant hereby agrees to attorn to and accept any such successor owner as
landlord under the Lease,  and to be bound by and perform all of the obligations
imposed  by the  Lease,  and  Beneficiary  or any  such  successor  owner of the
Property will not disturb the possession of Tenant,  and will be bound by all of
the  obligations  imposed by the Lease upon the landlord  thereunder;  provided,
however, that the Beneficiary, or any purchaser at a trustee's or sheriff's sale
or any successor owner of the Property shall not be:

         A.  liable  for any act or  omission  of a  prior  landlord  (including
Landlord); or

         B.  subject to any  offsets  or  defenses  which the Tenant  might have
against any prior landlord (including Landlord); or

         C. bound by any rent or  additional  rent  which the Tenant  might have
paid in  advance  to any prior  landlord  (including  Landlord)  for a period in
excess of one month; or

         D. bound by any agreement or modification of the Lease made without the
written consent of the Beneficiary, or

         E.  liable  or  responsible  for or  with  respect  to  the  retention,
application  and/or  return to Tenant or any security  deposit paid to any prior
lessor  (including  Landlord),  whether or not still held by such prior  lessor,
unless and until  Beneficiary or such other purchaser has actually  received for
its own account as lessor the full amount of such security deposit; or

         F. bound by or liable under any representations,  warranties, covenants
or  indemnities  made to  Tenant  by any  prior  landlord  (including  Landlord)
regarding Hazardous Materials (as defined in the Lease); or

         G.  obligated  to  construct  the  building in which the  Premises  are
located or any improvements for Tenant's use.

     4. Upon the written  request of  Beneficiary  at the time of a foreclosure,
Trustee's  sale or deed in lieu thereof or at any time  thereafter,  the parties
agree to execute a lease of the Premises  upon the same terms and  conditions as
the Lease  between  Landlord and Tenant,  which lease shall cover any  unexpired
term  of the  Lease  existing  prior  to  such  foreclosure.  Trustee's  sale or
conveyance in lieu of foreclosure.

     5. Tenant agrees to give to Beneficiary,  by registered mail, a copy of any
notice or  statement  served upon  Landlord.  Tenant  agrees not to exercise any
rights of termination available by virtue of a default unless (i) Landlord shall
have  failed  to  cure  such  default,  and  (ii)  following  expiration  of the
applicable  period under the Lease for cure by Landlord of such default.  Tenant
shall have  furnished to Beneficiary  notice of Landlord's  failure to cure such
default and  afforded  Beneficiary  an  additional  thirty  (30) days  following
receipt of such notice  within  which to cure such  default,  or if such default
cannot be cured within that time,  then such additional time as may be necessary
if within such thirty (30) days  Beneficiary  has  commenced  and is  diligently
pursuing the remedies necessary to cure such default (including, but not limited
to,  commencement of foreclosure  proceedings if necessary to effect such cure),
in which event such right,  if any, as Tenant might  otherwise have to terminate
the Lease shall not be exercised  while such  remedies  are being so  diligently
pursued.


<PAGE>

     6.  Landlord,  as landlord  under the Lease and  trustor  under the Deed of
Trust, agrees for itself and its heirs,  successors and assigns,  that: (i) this
Agreement does not constitute a waiver by Beneficiary of any of its rights under
the Deed of Trust, or in any way release  Landlord from its obligation to comply
with the terms, provisions, conditions, covenants, agreements and clauses of the
Deed of Trust; and (ii) the provisions of the Deed of Trust remain in full force
and effect and must be complied with by Landlord,  if  Beneficiary  so requires.

     7. Tenant  acknowledges  that it has notice that the Lease and the rent and
all other  sums due  thereunder  have been  assigned  or are to be  assigned  to
Beneficiary as security for the Loan secured by the Deed of Trust.  In the event
that  Beneficiary  notifies  Tenant  of a  default  under  the Deed of Trust and
demands  that  Tenant  pay its rent and all  other  sums due  under the Lease to
Beneficiary,  Tenant  agrees that it will honor such demand and pay its rent and
all other sums due under the Lease  directly to the  Beneficiary or as otherwise
required pursuant to such notice.

     8. All notices  hereunder shall be deemed to have been duly given if mailed
by United States  registered or certified mail,  with return receipt  requested,
postage  prepaid,  to  Beneficiary  at the  following  address (or at such other
address as shall be given in writing by  Beneficiary to the Tenant) and shall be
deemed complete upon any such mailing:



                  _____________________.
                  _____________________.
                  _____________________.
                  _____________________.


                  Attention:   _____________________.

                  with a copy to:    _____________________.
                                     _____________________.
                                     _____________________.
                                     _____________________.


     9. This Agreement supersedes any inconsistent provision of the Lease.

     10. This agreement shall insure to the benefit of the parties hereto, their
successors and permitted  assigns;  provided  however,  that in the event of the
assignment  or transfer of the  interest of  Beneficiary,  all  obligations  and
liabilities of Beneficiary  under this Agreement shall terminate,  and thereupon
all such obligations and liabilities shall be the responsibility of the party to
whom Beneficiary's interest is assigned or transferred.

     11.  Tenant  agrees  that  this   Agreement   satisfies  any  condition  or
requirement  in  the  Lease  relating  to  the  granting  of  a  non-disturbance
agreement.

     12. This  Agreement  shall be governed by and construed in accordance  with
the laws of the State of California.


<PAGE>


IN WITNESS  WHEREOF,  the parties have executed  this  Agreement on the date and
year first set forth above.




"Beneficiary":                                "Landlord":


________________________,                     ___________________________,
a  _____________________                      a  ________________________


By:_____________________                      By:________________________

Printed                                       Printed

Name:___________________                      Name:______________________

Title:__________________                      Title:_____________________



"Tenant"

_______________________________,  
a _____________________________

By:____________________________

Printed

Name:_____________________

Title:____________________


<PAGE>

                                    EXHIBIT H


Orchard Plaza
2290 North First Street, Suite 300
San Jose, California 95131
(408) 922-0400
FAX (408) 922-0157


TO:               PROSPECTIVE TENANT

FROM:             ORCHARD PROPERTIES

SUBJECT:          HAZARDOUS MATERIALS QUESTIONNAIRE AS IT RELATES
                  CALIFORNIA HEALTH AND SAFETY CODE
                  SECTIONS 25503.5 AND 25503.6



California  Health and Safety Code Section  25503.5  requires any business which
handles Hazardous  Materials in excess of certain limits to establish a business
plans for  emergency  response to a release or  threatened  release of Hazardous
Materials.  Health and Safety Code Section  25503.6  specifies that any business
which is required  under  Section  25503.5 to establish and implement a business
plan and is  located  on leased  property  is  required  to notify  the owner in
writing that the business is subject to Section 25503.5 and to provide a copy of
the  business  plan to the owner  within  five  working  days after  receiving a
request from the owner or owner's agent for a copy.

The purpose of this letter is to request that you either verify that you are not
subject to Health and  Safety  Code  Sections  25503.5  and  25503.6 or that you
provide the information required to be provided by those Sections by:

                  1.  Completing the attached acknowledgment;

                  2.  Completing the attached questionnaire;

                  3.  If you are a reporting company, attaching a copy
                      of your hazardous materials management plan.

If you have questions as to your own specific  requirements,  please contact the
local fire department to assess your use.

Sincerely,

ORCHARD PROPERTIES

/s/ Byron/MG

R. Byron Woodworth
Vice President
Marketing


<PAGE>

                                 ACKNOWLEDGMENT



THE UNDERSIGNED HEREBY ACKNOWLEDGES THAT IT (Mark One):

      x           Does not use any hazardous  materials other than minor amounts
   -------        of  reproduction  and  janitorial  chemicals  consistent  with
                  routine  office  uses.  (No  need  to fill  out  the  attached
                  Hazardous Materials Questionnaire.)

                  Does not use hazardous  Materials in a manner or in a quantity
   -------        requiring the preparation of a hazardous  material  management
                  plan or any other documents under California Health and Safety
                  Code Section 25503.5.  (Please fill out the attached Hazardous
                  Materials Questionnaire.)

                  Uses  only  those   chemicals   identified   in  the  attached
   -------        questionnaire   in  accordance  with  the  provisions  of  the
                  attached hazardous  materials  management plan, which has been
                  approved by the Fire  Department of the City of __________ and
                  is in full force and  effect.  (Please  fill out the  attached
                  Hazardous  Materials  Questionnaire  and  attach  copy of your
                  Hazardous Materials Management Plan.)



THE UNDERSIGNED FURTHER ACKNOWLEDGES THAT IT HAS COMPLIED IN ALL RESPECTS TO THE
PROVISIONS  OF  LOCAL,  STATE  AND  FEDERAL  LAW  AND  THE  HAZARDOUS  MATERIALS
MANAGEMENT PLAN ATTACHED HERETO IN CONNECTION WITH ITS STORAGE, USE AND DISPOSAL
OF HAZARDOUS  MATERIALS AND THAT IT HAS DISPOSED OF HAZARDOUS  MATERIALS ONLY BY
(1) DISCHARGE TO APPROPRIATELY  TREATED WASTE TO A PUBLICLY OWNED TREATMENT WORK
IN  ACCORDANCE  WITH A VALID AND  ENFORCEABLE  WASTE  DISCHARGE  PERMIT  AND (2)
DELIVERY OF HAZARDOUS WASTES TO A PROPERLY LICENSED WASTE DISPOSAL AGENT.

IN WITNESS WHEREOF, the undersigned, an authorized officer of the aforementioned
company has executed this acknowledgment as of the date written below.


Clarify Inc.                        
------------------------------
(Company Name)

a Delaware corporation    
------------------------------


By: /s/ Ray M. Fritz                
------------------------------


Chief Financial Officer and Vice President of Finance
-----------------------------------------------------
(Title)