AMENDED AND RESTATED
                             STOCK OPTION AGREEMENT


     Mission West Properties,  a California corporation (the "Company"),  hereby
grants to Michael J.  Anderson  (the  "Optionee"),  an option (the  "Option") to
purchase a total of Two Hundred  Thousand  (200,000) shares of Common Stock (the
"Shares") of the Company, at the price set forth herein.

           1. NATURE OF THE OPTION.  The Option is intended to be a nonstatutory
stock option and not an incentive stock option within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code").

           2. OPTION  PRICE.  The Option  Price is Four  Dollars and Fifty Cents
($4.50) for each Share.

           3. VESTING AND  EXERCISE OF OPTION.  The Option shall vest and become
exercisable  during its term,  subject to the Optionee's  continuous  employment
with the Company, as follows:

                (a)  Vesting and Right to Exercise.

                     (i)  The Option shall vest in accordance with the
following vesting schedule:

                          (A)  as of July 1, 1998, Twelve Thousand Five
Hundred (12,500) shares subject to the Option shall become exercisable;

                          (B) as of January 1, 1999, an additional
Twenty-Five Thousand (25,000) shares subject to the Option shall become
exercisable;

                          (C) Beginning on February 1,1999 and on the first
day of each consecutive  month an additional Four Thousand Five Hundred Fourteen
(4,514) shares subject to the Option shall become  exercisable  until all shares
subject to the option have vested and become exercisable.

                     Notwithstanding the foregoing, but subject to the
provisions of  subparagraph  (ii) below,  at the election of the  Optionee,  the
Option can be  exercised  in whole or in part at any time as to the Shares which
have not vested,  provided  that the  Optionee  shall,  as a  condition  of such
exercise,  execute and deliver the Restricted  Stock  Purchase  Agreement in the
form of Exhibit A hereto (the "Restricted Stock Purchase  Agreement"),  pursuant
to which the Company  shall be granted a  Repurchase  Option as to all  Unvested
Shares (as such term is defined in the Restricted Stock Purchase Agreement).

                     (ii) TERMINATION OF STATUS AS EMPLOYEE.  If Optionee
ceases to be an employee of the Company for any reason other than  permanent and
total  disability  or death,  he may,  but only within 30 days after the date he
ceases to be an employee, exercise his Option to the extent that he was entitled
to exercise it at the date of such termination, subject to the condition that no
Option shall be exercisable after the expiration of the term of the Option.

                     (iii)DISABILITY OF OPTIONEE.  If Optionee ceases to be an
employee due to permanent and total  disability,  and Optionee is, or was within
the  90-day  period  prior  to  such  termination,  an  employee  and who was in
continuous employment as such from the date of the grant of the Option until the
date of  disability  or  termination,  the Option may be  exercised  at any time
within six months  following the date of termination,  but only to the extent of
the  accrued  right to  exercise  at the  time of  termination,  subject  to the
condition  that no option shall be exercised  after the expiration of the Option
period.

                     (iv) DEATH OF OPTIONEE.  In the event of the death during 
the Option period of an Optionee who is at the time of his or her death,  or was
within the 90-day period  immediately prior thereto,  an employee,  non-employee
director  or  consultant  and was such from the date of the grant of the  Option
until the date of death or termination, the Option may be exercised, at any time
within six months following the date of death, by the Optionee's  estate or by a
person who acquired the right to exercise the Option by bequest,  inheritance or
otherwise  as a result of the  Optionee's  death,  but only to the extent of the
accrued  right to exercise at the time of the  termination  or death,  whichever
comes first,  subject to the condition  that no option shall be exercised  after
the expiration of the Option period.

                     (v)  The Option may not be exercised for fractional
shares or for less than ten (10) Shares.

                (b) METHOD OF EXERCISE. In order to exercise any portion of this
Option,  the  Optionee  shall  notify the Company in writing of the  election to
exercise  the  Option,  the  number of shares in  respect of which the Option is
being  exercised by  executing  and  delivering  the Notice of Exercise of Stock
Option in the form  attached as Exhibit B hereto,  and shall execute and deliver
to the Chief  Financial  Officer of the Company the  Restricted  Stock  Purchase
Agreement,  together  with the  Stock  Assignments,  Escrow  Agreement  and,  if
applicable,  the Consent of Spouse,  Promissory  Note,  and Security  Agreement,
forms of which  are  attached  as  exhibits  to the  Restricted  Stock  Purchase
Agreement.  The  Restricted  Stock  Purchase  Agreement  must be  accompanied by
payment in full of the aggregate  purchase price for the Shares to be purchased.
The certificate or certificates  representing Shares as to which this Option has
been exercised shall be registered in the name of the Optionee.

                (c)  RESTRICTIONS ON EXERCISE.  This Option may not be exercised
if the  issuance  of the Shares  upon such  exercise or the method of payment of
consideration  for such shares would  constitute  a violation of any  applicable
Federal or state  securities  law or other law or regulation.  Furthermore,  the
method and  manner of  payment of the Option  Price will be subject to the rules
under Part 207 of Title 12 of the Code of Federal  Regulations  ("Regulation G")
as promulgated  by the Federal  Reserve Board if such rules apply to the Company
at the date of exercise.  As a condition  to the  exercise of this  Option,  the
Company may require the Optionee to make any  representation  or warranty to the
Company  at the time of  exercise  of this  Option  as in the  opinion  of legal
counsel for the Company may be  required by any  applicable  law or  regulation,
including the execution and delivery of an appropriate representation statement.
Accordingly,  the stock certificates for the Shares issued upon exercise of this
Option may bear appropriate legends restricting transfer.

           4. NON-TRANSFERABILITY OF OPTION. This Option may be exercised during
the lifetime of the Optionee only by the Optionee and may not be  transferred in
any manner other than by will or by the laws of descent and distribution, except
that  Optionee  may  transfer  this  Option  solely  by gift to  members  of the
Optionee's  immediate family. The terms of this Option shall be binding upon the
executors, administrators, heirs and successors of the Optionee.

           5.   METHOD OF PAYMENT.  Payment of the exercise price shall be by
any of the following, or a combination thereof, at the election of the
Optionee:

                (a)  cash; or

                (b)  certified or bank cashier's check; or

                (c) full  recourse  promissory  note  secured  by the  Shares or
equivalent collateral; or

                (d) in the event there exists a public  market for the Company's
Common  Stock on the date of  exercise,  by delivery of a sell order to a broker
for the shares being purchased and an agreement to pay (or have the broker remit
payment for) the purchase  price of the shares being  purchased on or before the
settlement date for the sale of such shares to the broker; or

                (e) in the event there exists a public  market for the Company's
Common  Stock on the date of exercise,  by surrender of shares of the  Company's
Common  Stock,  provided  that if such shares were  acquired upon exercise of an
incentive  stock  option,  the Optionee  must have first  satisfied  the holding
period  requirements  under Section  422(a)(1) of the Code. In this case payment
shall be made as follows:

                     (i)  In addition to the execution and delivery of the
Restricted Stock Purchase Agreement,  Optionee shall deliver to the Secretary of
the Company a written  notice  which shall set forth the portion of the purchase
price the Optionee wishes to pay with Common Stock,  and the number of shares of
such Common Stock the Optionee intends to surrender  pursuant to the exercise of
this Option, which shall be determined by dividing the aforementioned portion of
the purchase  price by the average of the last reported bid and asked prices per
share of Common  Stock of the  Company,  as reported in THE WALL STREET  JOURNAL
(or, if not so reported,  as  otherwise  reported by Nasdaq or, in the event the
Common  Stock is listed on a  national  securities  exchange,  or on the  Nasdaq
National Market System (or any successor  national  market system),  the closing
price of Common  Stock of the  Company on such  exchange as reported in THE WALL
STREET  JOURNAL),  for  the day on  which  the  notice  of  exercise  is sent or
delivered;

                     (ii) Fractional shares shall be disregarded and the
Optionee  shall pay in cash an amount equal to such  fraction  multiplied by the
price determined under subparagraph (i) above;

                     (iii)The written notice shall be accompanied by a duly
endorsed blank stock power with respect to the number of Shares set forth in the
notice,  and the  certificate(s)  representing said Shares shall be delivered to
the Company at its principal offices within three (3) working days from the date
of the notice of exercise;

                     (iv) The Optionee hereby authorizes and directs the
Secretary of the Company to transfer so many of the Shares  represented  by such
certificate(s) as are necessary to pay the purchase price in accordance with the
provisions herein;

                     (v) If any such transfer of Shares requires the consent
of the California Commissioner of Corporations or of some other agency under the
securities  laws of any other state, or an opinion of counsel for the Company or
Optionee that such transfer may be effected under  applicable  Federal and state
securities  laws, the time periods  specified  herein shall be extended for such
periods as the necessary  request for consent to transfer is pending before said
Commissioner or other agency,  or until counsel renders such an opinion,  as the
case may be. All parties agree to cooperate in making such request for transfer,
or in  obtaining  such  opinion of counsel,  and no  transfer  shall be effected
without such consent or opinion if required by law; and

                     (vi) Notwithstanding any other provision herein, the
Optionee  shall only be permitted  to pay the purchase  price with Shares of the
Company's  Common Stock owned by him as of the  exercise  date in the manner and
within the time periods allowed under 17 CFR ss.240.16b-3  promulgated under the
Securities  Exchange  Act of 1934,  as amended  (the  "Exchange  Act"),  as such
regulation is presently constituted,  as it is amended from time to time, and as
it is interpreted now or hereafter by the Securities and Exchange Commission.

           6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION  OR MERGER.  Subject to
any required  action by the  shareholders  of the Company,  the number of Shares
covered by this Option,  and the per share exercise price of such Option,  shall
be proportionately adjusted for any increase or decrease in the number of issued
shares of Common  Stock  resulting  from a stock  split,  reverse  stock  split,
recapitalization, combination, reclassification, the payment of a stock dividend
on the Common  Stock or any other  increase  or  decrease  in the number of such
shares of Common Stock effected without receipt of consideration by the Company;
provided,  however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected  without  receipt of  consideration".
Such  adjustment  shall be made by the board of  directors or a committee of the
board of cirectors,  whose determination in that respect shall be final, binding
and conclusive.  Except as expressly provided herein, no issue by the Company of
shares of stock of any class, or securities  convertible into shares of stock of
any class,  shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.

           7. TERM OF OPTION. This Option may not be exercised more than six (6)
years  from the date of grant of this  Option,  as set forth  below,  and may be
exercised during such term only in accordance with the terms of this Option.

           8.  REPURCHASE  RIGHTS.  The Optionee  hereby  agrees that any Shares
acquired  upon the exercise of this Option shall be subject to the rights of the
Company to repurchase  such Shares to the extent such Shares have not yet vested
and to certain  restrictions  on  transfer  specified  in the  Restricted  Stock
Purchase Agreement.

           9. NOT  EMPLOYMENT  CONTRACT.  Nothing in this shall  confer upon the
Optionee  any right to continue in the employ of the Company or shall  interfere
with  or  restrict  in any way the  rights  of the  Company,  which  are  hereby
expressly  reserved,  to  discharge  the  Optionee  at any time  for any  reason
whatsoever,  with or without cause, subject to the provisions of applicable law.
This is not an employment contract.

           10.  INCOME TAX WITHHOLDING.

                (a)  The  Optionee   authorizes   the  Company  to  withhold  in
accordance with applicable law from any  compensation  payable to him or her any
taxes required to be withheld by Federal, state or local laws as a result of the
exercise of this Option.  The Optionee agrees to notify the Company  immediately
in the event of any  disqualifying  disposition  (within  the meaning of Section
421(b) of the Code) of the shares  acquired upon exercise of an incentive  stock
option.  Furthermore,  in the event of any  determination  that the  Company has
failed  to  withhold  a sum  sufficient  to pay  all  withholding  taxes  due in
connection with the exercise of this Option,  or a disqualifying  disposition of
the shares  acquired  upon exercise of an incentive  stock option,  the Optionee
agrees to pay the Company the amount of such  deficiency in cash within five (5)
days after  receiving a written demand from the Company to do so, whether or not
Optionee is an employee of the Company at that time.

                (b) At  such  time as the  Optionee  is  required  to pay to the
Company an amount with respect to tax  withholding  obligations  as set forth in
paragraph  (a),  the  Optionee  may elect  prior to the date the  amount of such
withholding  tax is determined  (the "Tax Date") to make such  payment,  or such
increased  payment as the  Optionee  elects to make up to the  maximum  federal,
state and local  marginal  tax rates  (including  any related  FICA  obligation)
applicable to the Optionee and the  particular  transaction  by: (i)  delivering
cash; (ii)  delivering part or all of the payment in previously  owned shares of
Common Stock (whether or not acquired  through the prior exercise of an Option);
and/or (iii) irrevocably  directing the Company to withhold from the Shares that
would  otherwise  be issued  upon  exercise  of the Option  that number of whole
Shares having a fair market value equal to the amount of tax required or elected
to be withheld (a "Withholding Election"). If an Optionee's Tax Date is deferred
beyond the date of exercise and the Optionee makes a Withholding  Election,  the
Optionee will  initially  receive the full amount of Optioned  Shares  otherwise
issuable upon exercise of the Option, but will be  unconditionally  obligated to
surrender  to the  Company  on the Tax Date the  number of Shares  necessary  to
satisfy his or her minimum withholding  requirements,  or such higher payment as
he or she may have elected to make,  with  adjustments  to be made in cash after
the Tax Date.

                (c)  Any  adverse  consequences  incurred  by an  Optionee  with
respect to the use of shares of Common Stock to pay any part of the Option Price
or of any tax in connection with the exercise of an Option,  including,  without
limitation,  any adverse tax consequences arising as a result of a disqualifying
disposition  within the  meaning of Section  422 of the Code,  shall be the sole
responsibility of the Optionee.

           11.  TERMINATION.

                (a) Should  optionee  voluntarily  terminate  for Good Cause (as
defined  below) or be  involuntarily  terminated  for  other  than Bad Cause (as
defined below) more than twelve (12) months from  Optionee's  date of employment
with the Company,  then any portion of this option that would have vested in the
six (6) months following  Optionee's  termination date, shall vest on Optionee's
termination date.

                (b)  GOOD  CAUSE  shall  be  defined  as any  of  the  following
condition,  which  condition(s)  remain(s) in effect ten (10) days after written
notice  to the  Board  of  Directors  of  the  Company  from  Optionee  of  such
condition(s):

                     (i)  a  decrease  in  Optionee's   base  salary  and/or  a
material  decrease in  Optionee's  standard  management  bonus plan or employee
benefits;

                     (ii) a material reduction in Optionee's title, authority,
responsibilities  or duties, as measured against  Optionee's  title,  authority
or responsibility or duties immediately prior to such reduction;

                     (iii)Optionee is not  promoted to President of the Company
within eighteen (18) months following his date of employment;

                     (iv)  the relocation of the Optionee's  work place for the
Company to a location outside Santa Clara County, California; or

                     (v)  the Company is in breach of the employment  agreement
(attached) with Optionee.

                (b)  BAD CAUSE shall be defined as:

                     (i)  theft,  dishonesty,  or intentional  falsification of
any employment or Company records;

                     (ii) intentional and improper  disclosure of the Company's
confidential or proprietary information; or

                     (iii)Optionee's  conviction  for any  criminal  act  which
materially impairs Optionee's ability to perform his duties.


DATE OF GRANT:  January 1, 1998


                                    MISSION WEST PROPERTIES

                                    By: /S/ CARL E.  BERG
                                        ---------------------
                                       Title:  PRESIDENT  
  
     The  Optionee  acknowledges  receipt  of  copies  of the  Restricted  Stock
Purchase Agreement and the exhibits referred to therein,  and represents that he
or she is familiar with the terms and  provisions  thereof,  and hereby  accepts
this Option subject to all of the terms and provisions thereof.

Dated:  January 1, 1998

                                      /s/ Michael J. Anderson
                                    -----------------------------
                                        Michael J. Anderson






<PAGE>


                                    EXHIBIT B

                       NOTICE OF EXERCISE OF STOCK OPTION

TO:        Mission West Properties
           10050 Bandley Drive
           Cupertino, California   95014

ATTN:      President

SUBJECT:   Notice of Exercise of Stock Option
           (Payment in cash or check)

           In  respect  to  the  stock  option  granted  to the  undersigned  on
____________,  19__, to purchase an aggregate of _________  shares of the Common
Stock of Mission West Properties, a California corporation (the "Company"), this
is official notice that the undersigned hereby elects to exercise such option to
purchase shares as follows:

                Number of Shares:                     

                Date of Purchase:  ___________________, 19    

                Mode of Payment:                      
                              (Certified Check, Cash, Other Consideration as
                             permitted by the terms of the Option Agreement)

           The shares should be issued as follows:

                Name:                                 

                Address:                                 



           Signed:                        

           Date:                          

           Please send this notice of exercise to:

           Mission West Properties
           10050 Bandley Drive
           Cupertino,  California  95014

           Attention:  President