<PAGE>   1
                                                                 EXHIBIT 10.12.3

March 12, 1997

Seagate Technology
Attn: Glenn L. Dyson
920 Disc Drive
Scotts Valley, CA, 95066-4544

Re: Extension of Lease @ 710 Fiero Lane, Unit 25, San Luis Obispo

Dear Glenn:

Thank you for your letter expressing interest in extending the lease on the
above referenced property. Unit (25) twenty-five consist of 1250 square feet and
is currently leased for $1000 per month plus HOA fees, utilities and taxes. This
is equivalent to 0.80 per square foot.

I am willing to extend the lease with the following terms.

Terms: Two years with the existing lease and conditions at the rental rate of
0.84 per square foot starting 5/16/97 to 5/14/99 with the option to cancel at
the end of the first twelve (12) months with three (3) months prior notice.

If you have any questions please call me at 805-543-1794. If these terms are
satisfactory, please sign below and return this document to me.

Sincerely,
/s/Jerry Michael
Jerry Michael
2219 Blvd. Del Campo
San Luis Obispo, CA, 93401

/s/Ellen Chamberlain                                                     3/26/97

Seagate Software Network &                                               Date
Storage Management Group, Inc.


<PAGE>   2



                   ADDENDUM TO LEASE BETWEEN JERRY MICHAEL AND
                 SEAGATE SOFTWARE STORAGE MANAGEMENT GROUP, INC.
                             A DELAWARE CORPORATION

Whereas, Jerry Michael ("Landlord") and Seagate Software Storage Management
Group, Inc., a Delaware Corporation ("Tenant") previously entered into a written
lease agreement on or about May 14, 1995 for the premises known as 710 Fiero
Lane, Unit #25, San Luis Obispo, California; and

WHEREAS, Tenant had an option to extend the term for an additional period and
Tenant desires to exercise said option by this Addendum.

NOW THEREFORE, the parties agree as follows:

         1.       The lease is hereby extended from May 15, 1996 to May 14,
                  1997.

         2.       The parties have agreed that the rent amount contained in the
                  lease agreement shall be continued at the current rate.

         3.       All other terms and provisions of the original lease shall
                  remain in full force and effect.

DATED: MAY 14, 1996                         /s/ Jerry Michael

                                            JERRY MICHAEL
                                            ("LANDLORD")
                      
                                            SEAGATE SOFTWARE, INC., A DELAWARE
                                            CORP. BY:

                                            /s/ Signature Illegible
                                            ("TENANT")


<PAGE>   3



                                 LEASE AGREEMENT

BY THIS LEASE dated May 15, 1995, Jerry Michael, an Individual, herein called
"Lessor", leases to ARCADA SOFTWARE, INC., a Delaware Corporation, herein called
"Lessee", that certain real property, herein called "the Premises", in the
County of San Luis Obispo, State of California, which consists of the property
commonly known as 710 Fiero Lane, Unit #25, consisting of approximately 1,250
square feet as shown on Exhibit "A" attached hereto. Lessee shall also have the
non-exclusive right to the use and enjoyment of all non-designated Common Areas
within the Project of which the Premises are a part. Lessee agrees to be bound
by the Association Rules regarding the use of the Common Areas as adopted by the
Fiero Commerce Park Owner's Association ("Association"), a non-profit, mutual
benefit corporation.

                            ARTICLE 1. TERM OF LEASE

Section 1.01: Original Term

This lease shall be for a term of one (1) year, commencing on May 15, 1995 and
ending on May 14, 1996.

Section 1.02: Extension Term

Should Lessee perform all of the terms and condition of this lease for the full
term specified in Section 1.01 of this lease, Lessee may extend this lease for
one (1) additional two (2) year term, commencing on the expiration of the
original term, by giving Lessor written notice of Lessee's desire to extend the
term hereof not less than one hundred twenty (120) days but not more than one
hundred eighty (180) days prior to the expiration of the original term or any
extension thereof. Should Lessee determine that it will not extend the lease for
the additional two (2) year term set forth above, Lessee must notify Lessor
within the notice period proscribed herein of its intention to terminate the
lease at the end of the initial term. Should Lessee fail to give notice of its
intention to terminate the lease at the end of the initial term, the two year
extension set forth herein will take effect, and Lessee's consent to extend the
lease will conclusively deemed to have been given.

Section 1.03: Hold Over

Should Lessee hold over and continue in possession of the Premises after
expiration of the term of this lease or any extension thereof, Lessee's
continued occupancy of the Premises shall be considered a month-to-month tenancy
subject to all the terms and conditions of this Lease, except that the base
rent, which shall be payable as provided below, shall be one hundred fifty
(150%) percent of the base rent as of the date of expiration. If Lessee fails to
surrender the Premises upon the expiration of this Lease, Lessee shall indemnify
and hold Lessor harmless from all loss or liability, including without
limitation, any claims made by any succeeding tenant founded on or resulting
from such failure to surrender.

Section 1.04: Delivery of Possession

Lessor shall deliver possession to Lessee on or before the commencement of the
term hereof. Lessor agrees to indemnify, defend and hold Lessee, its officers,
directors, employees and agents, and any successors to Lessee,

                                     Page 1


<PAGE>   4



their directors, officers, principals, employees and agents, harmless from and
against any and all liability, including without limitation (1) foreseeable and
unforeseeable consequential damages, directly or indirectly arising from the
use, generation, storage or disposal of hazardous materials by Lessor or any
other occupant or operator of the Premises prior to the term of this lease; and
(2) the cost of any required or necessary repair, cleanup, detoxification or
remediation and the preparation of any closure or other required plans, whether
such action is required or necessary before or after the termination of the term
hereof, to the full extent that such liability is attributable, directly or
indirectly, to the presence or use, generation, storage, release, threatened
release or disposal of hazardous materials by any person on the Premises prior
to the term hereof. This indemnity shall survive the termination of the term
hereof.

                                 ARTICLE 2. RENT

Section 2.01: Base Rent

For the first year of the term hereof, Lessee agrees to pay to Lessor a fixed
minimum rental for the use and occupancy of the Premises of Eighty ($.80) Cents
per square foot per month, payable on the fifteenth (15th) day of each and every
month commencing on May 15, 1995, at the home of the Lessor at 2219 Boulevard
Del Campo, San Luis Obispo, CA 93401, or at such other place or places as Lessor
may from time to time designate by written notice delivered to Lessee. By
execution hereof, Lessor and Lessee stipulate and agree that the Premises
contain 1,250 square feet and that the initial monthly base rate is $1,000.00.

Section 2.02: Rent Adjustment

The monthly rent provided for in Section 2.01 above shall be adjusted at the
beginning of each option term as follows:

The base for computing the adjustment is the Consumer Price Index for All Items
for All Urban Consumers in the Los Angeles-Anaheim-Riverside Metropolitan Area,
published by the United States Department of Labor, Bureau of Labor Statistics
("Index"), which is last published prior to the date of the commencement of term
("Beginning Index"). For the purposes of this section, the Beginning Index shall
be 153.4. If the Index published nearest (and prior to) the adjustment date
("Extension Index") has increased over the Beginning Index, the minimum monthly
rent for the following year (until the next rent adjustment) shall be set by
multiplying the base rent set forth above by a fraction, the numerator of which
is the Extension Index and the denominator of which is the Beginning Index.
Lessor shall notify Lessee in writing of the adjustment to the base rent as soon
as the index figures are available.

Lessee shall pay the adjusted rent to Lessor commencing with the rent payment
due for May 15 of each year of the term hereof and any extension thereof. The
adjusted rent all be subject to similar adjustment on the following adjustment
date.

If the Index is changed so that the base year differs from that used immediately
preceding month in which the term commences, the Index shall be converted in
accordance with the conversion factor published by the United States Department
of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised
during the term, such other government index or computation with which it is
replaced shall be used in order to obtain substantially the same result as would
be obtained if the Index had not been discontinued or revised.

                                     Page 2


<PAGE>   5



In no event shall the minimum rental be less than $1,000.00 per month. In no
event shall the rent adjustment set forth above be less than three (3%) percent
nor more than five (5%) percent for any one (1) year during the term hereof.

Section 2.03: Security Deposit

A. Lessee shall deposit with Lessor, upon execution hereof, receipt of which is
hereby acknowledged subject to collection, a security deposit in the amount of
$3,000.00, as security for the full and faithful performance by Lessee of the
terms, conditions and covenants of this lease.

B. If at any time during the term of this lease Lessee defaults in the payment
of rent, or any portion of the rent, including any additional rent herein
described, Lessor may appropriate and apply any portion of the security deposit
reasonably necessary to remedy any such default.

C. If at any time during the term of this lease Lessee, Lessee's agents, patrons
or employees damages the Premises through want of ordinary care of any greater
degree of culpability, then Lessor may appropriate and apply any portion of the
security deposit reasonably necessary to fund the necessary repair. Lessor
should give Lessee written notice and allow Lessee a ten (10) business day cure
period prior to appropriation of any portion of the security deposit.

D. If on termination of this tenancy, Lessee fails to leave the Premises in a
condition comparable to the condition of the Premises at the time Lessor
delivered possession to Lessee at the commencement of this lease, excepting
ordinary wear and tear, Lessor may appropriate and apply any portion of the
security deposit reasonably necessary to put the Premises in a clean and
sanitary condition.

E. Lessor's obligation with regard to the security deposit are those of a debtor
and not a trustee. Lessor shall maintain the security deposit separate and apart
from Lessor's general funds. The security deposit ($3,000.00) shall be
maintained in an interest bearing account with annual interest accruing through
the term of the lease.

F. If Lessor transfers Lessor's interest in the Premises in any manner, Lessor
or Lessor's agent shall do one of the following acts, either of which shall
relieve Lessor of further liability with respect to the deposit:

         i. Transfer the portion of the security deposit remaining after any
deduction authorized by this section or otherwise authorized by law, if any, to
Lessor's successor in interest, and thereafter notify Lessee by certified mail,
return receipt requested, of that transfer and of the transferee's name and
mailing address. Upon receipt of the security deposit by Lessor's successor in
interest, the successor in interest shall have all of the rights and obligations
of Lessor with respect to the security deposit.

         ii. Return the remaining portion of the security deposit, if any, after
any deductions authorized by this lease or otherwise authorized by law, to
Lessee.

G. Lessor shall return to Lessee the portion of the security deposit remaining
after deductions authorized by this section or by law, if any, in the following
manner:

         i. If a deduction has been made only for the nonpayment of rent, the
remaining portion, if any shall be returned not later than two (2) weeks after
the date Lessor receives possession of the Premises.

         ii. If a deduction has been made for any other reason, the remaining
portion, if any, shall be returned not later than thirty (30) days after the

                                     Page 3


<PAGE>   6



date Lessee returns possession of the Premises to Lessor, unless Lessor needs
more time to determine the cost of curing Lessee's defaults under this lease, in
which case Lessor shall return the remaining portion of the security deposit, if
any, within two (2) weeks after completion of the work necessary to cure
Lessee's defaults.

H. If during the term of this lease, Lessor applies all or any portion of the
security deposit for a purpose authorized by this section or otherwise
authorized by law, Lessee agrees to restore the amount of the security deposit
so applied, plus such additional amount requested by Lessor (not exceeding twice
the amount of the initial security deposit), with the next payment of rent due
under this lease. Lessee's failure to restore said security deposit, plus any
additional sum required by Lessor, shall be a material breach of this lease.
Lessee shall have ten (10) business days from receipt of written notice by
Lessor to restore security deposit.

Section 2.04: Taxes, Utilities, Owner's Association Dues as Additional Rent

In addition to the rent specified in Sections 2.01 and 2.02 above, Lessee shall
pay, as additional rent, the following:

A. Utilities. Lessee shall pay, and hold Lessor harmless and the property of
Lessor including the Premises, free and harmless from all charges for the
furnishing of gas, water, sewer, electricity, telephone service and other public
utilities during the entire term of this lease or any extension thereof. All
such charges shall be paid by Lessee directly to the provider of the service and
shall be paid as they become due and payable but in any event before
delinquency.

B. Personal Property Taxes. Lessee shall pay before they become delinquent all
taxes, assessments and other charges levied or imposed by any governmental
entity on the furniture, trade fixtures, appliances and other personal property
placed by Lessee in, on or about the Premises.

C. Real Property Taxes.

         i. Lessee shall pay all real property taxes and general and special
assessments on the Premises, including any increases in such taxes and
assessments, before they become delinquent.

         ii. The real property taxes and assessments levied against the Premises
for the first and last years of the term hereof shall be prorated between Lessor
and Lessee for purposes of this section as of 12:01 am on the date of
commencement and termination respectively for this lease.

         iii. Lessee shall have the right, at Lessee's sole cost and expense, to
protest or contest in good faith the amount of any tax or assessment. As a
condition precedent to Lessee's right to protest such taxes or assessments,
Lessee shall either pay the disputed amount and file for refund or deposit with
Lessor the disputed amount plus one (1) years interest at the rate then charged
by said county plus any estimated penalty which Lessor may incur by non-payment.
Upon such payment or deposit, Lessor shall cooperate with Lessee in protesting
such dispute.

D. Owner's Association Dues and Assessments. Lessee acknowledges that the
Premises are part of a condominium project and as such are subject to the
imposition of regular, special, infraction and reimbursement assessments levied
by the Association pursuant to the CC&Rs.

         Lessee shall pay, before they become delinquent, all such assessments
levied by the Association, and shall hold Lessor and the property of Lessor,
including the Premises, harmless from any and all liability for such
assessments. Lessor shall notify Lessee of the amount of regular monthly

                                     Page 4


<PAGE>   7



assessments levied against the Premises and of any special assessments proposed
or actually levied against the Premises.

E. Payment by Lessor. Should Lessee fail to pay within the time specified in
this Article any utilities, taxes, assessments, or other charges required by
this Section to be paid by Lessee, Lessor may, without notice or demand to
Lessee, pay, discharge, or adjust such tax, assessment or other charge for the
benefit of Lessee.

         In such event, Lessee shall promptly on written demand of Lessor
reimburse Lessor for the full amount paid by Lessor in paying, discharging or
adjusting such tax, assessment or other charge, together with interest thereon
at the maximum rate allowed by law from the date of payment by Lessor until the
date of repayment by Lessee. When no time within which any charge required by
this Article to be paid by Lessee is specified in this Article, such charge must
be paid by Lessee before it becomes delinquent.

Section 2.05: Late Charges

If any installment of rent or other payment required to be paid by Lessee to
Lessor is not paid within ten (10) days of the date on which it is due, a late
charge equal to five (5) percent of the late payment shall be due from Lessee to
Lessor to compensate Lessor for the additional administrative work caused by
such default and to compensate Lessor for the loss of use of such defaulted
payment. The late charge herein shall be in addition to any other remedy which
Lessor may have tenant for such default.

Section 2.06: Interest on Late Payments

If any payment required to be paid by Lessee to Lessor is not paid within ten
(10) days of the date on which it is due, such payment shall bear interest at
the maximum rate permitted by law from the date it became due until it is paid
by Lessee to Lessor.

                           ARTICLE 3. USE OF PREMISES

Section 3.01: Permitted Use

The Premises shall, during the term of this lease and any extensions thereof, be
used for computer software research, design, development and manufacturing,
storage uses and office uses, and other uses related to the manufacturing,
marketing, and distribution of software, and for no other purposes without the
prior written consent of Lessor, which consent Lessor shall not unreasonably
withhold.

Section 3.02: Insurance Hazards

Lessee shall not commit or permit the commission of any acts on the Premises nor
use or permit the use of the Premises in any manner that will increase the
existing rates for or cause the cancellation of any fire, liability, or other
insurance policy insuring the Premises or the improvement on the Premises.

Section 3.03: Waste or Nuisance

Lessee shall not commit or permit the commission by others of any waste on the
Premises; Lessee shall not maintain, commit or permit the maintenance or
commission of any nuisance as defined in Section 3479 of the California Civil
Code on the Premises; and Lessee shall not use or permit the use of the Premises
for any unlawful purpose.

                                     Page 5


<PAGE>   8



Section 3.04: Hazardous Materials

Lessee warrants and represents that during the term hereof, and any extensions
thereof, Lessee shall not use the Premises in any manner that would be in
violation of any federal, state or local law, ordinance or regulation relating
to environmental conditions on, under or about the property, including but not
limited to soil and groundwater conditions.

Lessee shall not use, generate, manufacture, produce, store or dispose of on,
under or about the Premises any hazardous materials, including without
limitation flammable materials, explosives, asbestos, radioactive materials,
hazardous wastes, toxic substances or related injurious materials, whether
injurious by themselves or in combination with other materials, other than such
materials as may be necessary for Lessee's normal operations on the Premises.
Lessee shall not dispose of or permit the disposal of any hazardous materials
into the sewer system serving the Premises. For the purposes of this section,
the "Premises" are defined as those areas for which Lessee has exclusive control
over ingress and egress; specifically, the interior areas of the building
properly specified in the lease. Common areas or such other areas outside of
Lessee's exclusive control are not considered part of the "Premises" for the
purposes of this section.

For purposes of this lease, hazardous materials shall include but not be limited
to substances defined as "hazardous substances", "hazardous materials", or
"toxic substances", and any substances defined as "hazardous waste" in any of
the following laws:

A.       the Comprehensive Environmental Response Compensation and Liability Act
         of 1980, as amended.

B.       the Hazardous Materials Transportation Act, as amended.

C.       the Resource Conservation and Recovery Act of 1976, as amended.

D.       California Health and Safety Code Sections 25117 and 25316 and in the
         regulations promulgated under such laws.

Lessee agrees to indemnify, defend and hold Lessor, its officers, directors,
employees and agents, and any successors to Lessor, their directors, officers,
principals, employees and agents, harmless from and against any and all
liability, including with limitation (1) all foreseeable and unforeseeable
consequential damages, directly or indirectly arising from the use, generation,
storage or disposal of hazardous materials by Lessee or any other occupant or
operator of the Premises; and (2) the cost of any required or necessary repair,
cleanup or detoxification or remediation and the preparation of any closure or
other required plans, whether such action is required or necessary before or
after the termination of the term hereof, to the full extent that such liability
is attributable, directly or indirectly, to the presence or use, generation,
storage, release, threatened release or disposal of hazardous materials by any
person on the Premises during the term hereof. This indemnity shall survive the
termination of the term hereof.

Section 3.05: Compliance with Law

Lessee shall, at Lessee's own cost and expense comply with all statutes,
ordinances, regulations and requirements of all governmental entities, both
federal and state and county or municipal, relating to Lessee's use and
occupancy of the Premises whether such statutes, ordinances, regulations and
requirements be now in force or hereinafter enacted. The judgment of any court
of competent jurisdiction, or the admission by Lessee in a proceeding brought
against Lessee by any government entity, that Lessee has violated any such
statute, ordinance, regulation or requirement shall be conclusive as

                                     Page 6


<PAGE>   9



between Lessor and Lessee and shall be grounds for termination of this lease by
Lessor.

Lessor agrees that any requirements of the municipal, state or federal
authorities which require alteration of Lessor's building shall not be the
responsibility of Lessee, unless required because of an act of Lessee or a use
of the Premises by Lessee.

Section 3.06: Compliance with CC&Rs

Lessee acknowledges receipt of a copy of the Declaration of Covenants,
Conditions and Restrictions (CC&R's) for Tract 712 and a copy of the the
Declaration of Covenants, Conditions and Restrictions, Bylaws and Rules and
Regulations for Fiero Commerce Park Owner's Association applicable to the
Premises and agrees to comply with the terms thereof, including the provisions
contained in the CC&R's pertaining to the power of the Association to allocate
sewer capacity and water allocations among all of the owners of the units within
the project of which the Premises are a part and the restriction on opposing the
formation of special assessment districts. Lessee agrees to indemnify, defend
and hold Lessor harmless from any liability, cost or expense, including
reasonable attorney's fees incurred as a result of Lessee's violation of the
CC&Rs. Any provision of this agreement which conflicts with any provision of the
CC&Rs shall be subordinate to the CC&Rs.

                       ARTICLE 4. ALTERATIONS AND REPAIRS

Section 4.01: Condition of Premises

Lessee shall have ten (10) days after the date of delivery of possession to
notify Lessor of any defects in the Premises as if Lessee fails to so notify
Lessor of any defects, it shall be conclusively presumed that Lessee accepts the
Premises, as well as the improvements thereon and the facilities appurtenant
thereto, and stipulates with Lessor that the Premises as well as the
improvements thereon and the facilities appurtenant thereto are in good, clean,
safe and tenantable condition. By acceptance of possession, Lessee further
agrees with and represents to Lessor that the Premises have been inspected by
Lessee and that they have been assured by means independent of Lessor or any
agent of Lessor of the truth of all facts material to this lease and that the
Premises are being leased by Lessee as a result of their inspection and
investigation and not as a result of any representations made by Lessor or any
agent of Lessor.

Section 4.02: Maintenance

With the exception of those portions of the Premises which are the obligation of
the Association to maintain, Lessee shall at its own cost and expense keep and
maintain all portions of the Premises, as well as all improvements on the
Premises and all facilities appurtenant thereto, including but not limited to
electrical, plumbing, heating and air conditioning and sewage systems in good
order and repair and in as safe and clean a condition as they were when received
by Lessee from Lessor, reasonable wear and tear excepted. Notwithstanding the
above, Lessor shall maintain the unexposed electrical, unexposed plumbing and
sewage systems, as well as the foundations, bearing and exterior walls. Lessor
will not have the responsibility for repairing the foregoing if such damage is
caused by negligent or intentional act of Lessee, in which event Lessee will
promptly repair such damage.

Should Lessee fail to maintain the Premises as set forth above, Lessor may, at
Lessor's option, perform or contract for the performance of such maintenance for
any on behalf of Lessee. In such event, Lessee shall

                                     Page 7


<PAGE>   10



promptly on written demand from Lessor reimburse Lessor for all cost and expense
incurred by Lessor in performing Lessee's obligation hereunder plus interest at
the maximum rate permitted by law from the date expended by Lessor to the date
of repayment by Lessee.

Section 4.03: Alterations and Liens

Lessee shall not make or permit any other person to make any alterations to the
Premises or to any improvement thereon or facility appurtenant thereto without
the written consent of Lessor first obtained, which consent shall not be
unreasonably withheld. Lessee shall submit detailed plans and specifications for
any proposed alteration or improvement to the Premises for Lessor's review.
Lessor shall have fifteen (15) days from the time of submission of plans to
respond in writing to Lessee if he disapproves of such plans. Lessee has the
right to terminate this lease if those plans are not approved by the Lessor. In
addition, Lessee shall have the right to terminate this lease if Lessee is
unable to acquire the necessary governmental approvals within sixty (60) days of
submission of plans to the appropriate governmental authorities. Plans shall be
submitted to the appropriate governmental agencies no later than thirty (30)
days from execution of the lease.

Any and all approved alterations or improvements to the Premises shall be at
Lessee's sole cost and expense. Lessee shall keep the Premises free and clear
from any and all liens, claims and demands for work performed, materials
furnished or operations conducted on the Premises at the instance or request of
Lessee. Lessee shall give Lessor not less than ten (10) days prior written
notice of the commencement of construction of any alterations or improvements
exceeding $1,000.00 so that Lessor may post and maintain on the Premises, and to
record as required by law, any notice or notices of non-responsibility provided
for under the mechanics lien laws of the State of California. Lessee will be
required to obtain Lessor's written approval only on alterations exceeding
$10,000.00 in value.

Furthermore, any and all alterations, additions, improvements and fixtures,
except furniture, trade fixtures, and all security devices and measures, made or
placed in or on the Premises by Lessee or any other person shall on expiration
or sooner termination of this lease become the property of Lessor and remain on
the Premises; provided, however, that Lessor shall have the option on expiration
or sooner termination of this lease of requiring Lessee, at Lessee's sole cost
and expense, to remove any or all such alterations, additions, improvements or
fixtures from the Premises by providing Lessee written notice within ten (10)
business days following the expiration or termination of this lease.

Section 4.04: Inspection by Lessor

Lessee shall permit Lessor or his agents to enter into and upon the Premises
during business hours by Lessor giving Lessee twenty-four (24) hour notice for
the purpose of inspecting the same, or for the purpose of posting notices of
non-responsibility for alterations, additions or repairs or for the purpose of
placing upon the property in which the Premises are located any usual or
ordinary "for sale" signs, without any rebate of rent and without any liability
to Lessee for any loss of occupation or quiet enjoyment of the Premises thereby
occasioned. Lessee shall permit Lessor, at any time within one hundred twenty
(120) days prior to the expiration of this lease, to place upon the Premises any
usual or ordinary "to let" or "to lease" signs, provided that such entries made
by Lessor hereunder shall not unreasonably interfere with the conduct of
Lessee's business.

                                     Page 8


<PAGE>   11



Section 4.05: Surrender of Premises

On-expiration or sooner termination of this lease, or any extensions or renewals
of this lease, Lessee shall promptly surrender and deliver the Premises to
Lessor in as good condition as they are at the date of possession, reasonable
wear and tear excepted.

                       ARTICLE 5. INDEMNITY AND INSURANCE

Section 5.01: Hold Harmless Clause

Lessee agrees to indemnify and hold Lessor and the property of Lessor, including
the Premises, free and harmless from any and all claims, liability, loss,
damage, or expense resulting from Lessee's occupation and use of the Premises,
specifically including, without limitation, any claim, liability, loss or damage
arising by reason of:

A. The death or injury of any person or persons, including Lessee or any person
who is any employee or agent of Lessee, or by reason of the damage to or
destruction of any property, including property owned by Lessee or any person
who is an employee or agent of Lessee, and caused or allegedly caused by either
the condition of the Premises, or some act or omission of Lessee or of some
agent, contractor, employee, servant, sublessee, or concessionaire of Lessee on
the Premises;

B. Any work performed on the Premises or materials furnished to the Premises at
the instance or request of Lessee or any agent or employee of Lessee;

C. Lessee's failure to perform any provision of this lease or to comply with any
requirement imposed on Lessor or the leased Premises by any duly authorized
governmental agency or political subdivision.

In the event any claim, liability, loss or damage arises as a result of the
gross negligence or willful misconduct of Lessor, Lessee shall not be
responsible for any such claim, liability, loss or damage, and that Lessor shall
indemnify Lessee for any such claim, liability, loss or damage.

Section 5.02: Liability Insurance

Lessee shall, prior to the date Lessee takes possession of the Premises and at
its own cost and expense, obtain and maintain during the entire term of this
lease and any renewals or extensions thereof, a broad form comprehensive
coverage policy of public liability insurance issued by an insurance company
acceptable to Lessor and authorized to conduct insurance business in the State
of California and insuring Lessee and Lessor against loss or liability caused by
or connected with Lessee's occupation and use of the Premises under this lease
in amounts not less than:

A. $1,000,000 for injury to or death of one person and, subject to that
limitation for the injury or death of one person, of not less than $3,000,000
for injury to or death of two or more persons as a result of any one accident or
incident.

B. $500,000 for damage to or destruction of any property of others.

Such public liability insurance, and property damage insurance shall insure
performance by Lessee of the indemnity provisions of Section 5.01 above. Both
parties shall be named as co-insured, and the policy shall contain cross
liability endorsements, if available. No policy shall be cancelable or

                                     Page 9


<PAGE>   12



subject to reduction of coverage except after thirty (30) days prior written
notice to Lessor.

During the term of this lease, Lessor may require an increase in the amount of
public liability and property damage insurance coverage required hereunder, if
at that time the existing coverage is not adequate in the reasonable opinion of
Lessor's insurance broker or lender(s).

Section 5.03: Lessee's Personal Property

A. Lessee shall, at all times during the term of this lease and any extensions
thereof, maintain at Lessee's sole cost and expense an insurance policy issued
by a company acceptable to Lessor and authorized to conduct insurance business
in the State of California insuring for their full insurable value all furniture
and equipment, and tenant improvements made to the Premises by Lessee against
loss or destruction by fire and the perils commonly covered under the standard
extended coverage endorsement to the fire policies in San Luis Obispo County.
Insurance proceeds will be payable to Lessor and Lessee based upon their
respective claims for damage to personal property or tenant improvements. The
proceeds shall be used by Lessor and Lessee to repair or replace such furniture
and equipment, and tenant improvements. In no event shall Lessor receive
insurance proceeds under the insurance required by this paragraph in excess of
the amount agreed to in an addendum to be attached to the lease as described in
Section 5.03(B). Such policies shall not be cancelable or subject to reduction
of coverage except after thirty (30) days prior to written notice by Lessor.

B. Lessor and Lessee shall agree to execute an addendum to this agreement
listing the dollar value of the fixtures and permanent improvements made to the
Premises by Lessee which permanent improvements to the Premises shall be deemed
"tenant improvements". In the event Lessor and Lessee fail, for any reason, to
execute the addendum called for in this subparagraph, then the value of the
tenant improvements for purposes of capping Lessor's claim to insurance proceeds
under the insurance provided for in this Section 5.03 shall be deemed to be the
price calculated by taking the average of those bids for construction of tenant
improvements received by Lessee in connection with Lessee's construction of the
tenant improvements.

Section 5.04: Deposit of Insurance with Lessor

Lessee shall, prior to taking possession of the Premises and promptly thereafter
when any such policy is replaced, rewritten or renewed, deliver to Lessor a true
and correct copy of each insurance policy required by this Article or a
certificate executed by the insurance company or companies or their authorized
agent evidencing such policy or policies.

                       ARTICLE 6. SIGNS AND TRADE FIXTURES

Section 6.01: Installation and Removal of Trade Fixtures

Lessee shall have the right at any time and from time to time during the term of
this lease and any renewal or extension of such term, at Lessee's sole cost and
expense, to install and affix in, to or on the Premises, such items, herein
called "trade fixtures", for use in Lessee's trade or business as Lessee may, in
its sole discretion, deem advisable. Any and all such trade fixtures that can be
removed without structural damage to the Premises or any building or improvement
on the Premises shall remain the property of the Lessee and may be removed by
Lessee at any time or times prior to the expiration or sooner termination of
this lease.

                                     Page 10


<PAGE>   13



Section 6.02: Unremoved Trade Fixtures

Any trade fixtures described in this Article that are not removed from the
Premises by Lessee within ten (10) days after the expiration or sooner
termination, regardless of cause, of this lease shall be deemed abandoned by
Lessee and shall automatically become the property of Lessor as owner of the
real property to which they are affixed, unless Lessor notifies Lessee in
writing, of Lessor's election to have Lessee remove such trade fixtures and to
repair any damages caused thereby. Upon such election by Lessor to require
Lessee to remove such trade fixtures, Lessee shall have fifteen (15) days from
the date of such notice in which to remove such trade fixtures and repair any
damage caused by such removal. If Lessee fails to remove such trade fixtures and
repair any such damage, Lessor may do so at Lessee's sole cost and expense,
including any costs of storing such property. Such costs and expenses, if
incurred by Lessor for Lessee's benefit, shall be promptly, upon written demand
therefor, reimbursed to Lessor by Lessee, together with interest at the maximum
rate permitted by law from the date expended by Lessor to the date of
reimbursement by Lessee.

Section 6.03: Signs

Lessee may place and maintain, or permit any other person to place and maintain
any sign on the Premises providing such sign is in compliance with then existing
governmental regulations and is in compliance with the restrictions on signs
contained in the CC&R's. Lessee may not place any decoration, lettering, or
advertising matter on the glass of any exterior show window of the Premises.
Lessee shall maintain such sign at all times during this lease in good
appearance and repair. On expiration or sooner termination of this lease, all
such signs not removed from the Premises by Lessee may, without liability, be
destroyed by Lessor.

                 ARTICLE 7. DAMAGE, DESTRUCTION OR CONDEMNATION

Section 7.01: Partial Destruction

Should the Premises or the building of which the Premises is a part be partially
destroyed by any cause not the fault of Lessee or any person in or about the
Premises with the consent, express or implied of Lessee, the provisions of the
CC&R's shall determine the responsibility for repair or restoration of the
building of which the Premises are part. If the Association is required or
elects to repair the building, this lease shall continue in full force and
effect subject to the provisions below regarding abatement of the rent.

Section 7.02: Total Destruction

Should the Premises or the building of which the Premises is a part be so far
destroyed by any cause not the fault of Lessee or any person in or about the
Premises with the consent, express or implied, of Lessee, that the Association
is not required to repair or replace the building or if the Association elects
not to repair the building, this lease shall terminate effective the date of the
damage or destruction.

Section 7.03: Insurance Proceeds

In the event the Association is required to repair or replace the Premises or
the building of which the Premises are a part, the insurance proceeds described
in Section 5.03 above, received by Lessor for repair and/or replacement of the
tenant improvements and the insurance proceeds described in Section 5.03 above,
received by the Lessee for the repair and/or

                                     Page 11


<PAGE>   14



replacement of its personal property shall be applied to the repair and
replacement of the tenant improvements and Lessee's personal property, as the
case may be. Insurance proceeds, if any, which are payable to Lessor on account
of damage or destruction to the "tenant improvements" shall not exceed the
amount as described in the addendum to this lease. Insurance proceeds for tenant
improvements shall be the sole property of Lessor, free of any claims of Lessee.
All other insurance proceeds in excess of the amount set forth in the addendum
for tenant improvements and all amounts which are attributable to Lessee's
personal property shall be the sole property of the Lessee free of all claims of
Lessor. In the event the Association is not required to repair or replace the
Premises or the building of which the Premises are a part, or elects not to so
repair or replace the Premises or the building of which the Premises are a part,
any insurance proceeds described in Section 5.03 above shall be divided in the
same manner as set forth in this provision, with the Lessor being entitled to
such proceeds attributable to tenant improvements up to the valuation as set
forth in the addendum, and the Lessee being entitled to all proceeds
attributable to Lessee's personal property and all other proceeds above the
amount set forth in the addendum, each free of the claims of the other party.

Section 7.04: Abatement of Rent

Should the Association elect to repair or replace the building or be required to
repair and replace the building of which the Premises are a part following
partial or total destruction:

A. Lessee shall not be entitled to any damages for any loss or inconvenience
sustained by Lessee by reason of the making of such repairs and restoration;

B. The Association shall have full right to enter the Premises and take
possession of so much of the Premises, including the whole of the Premises, as
may be reasonably necessary to enable the Association to promptly and
efficiently carry out the work of such repair and restoration; and

C. The rent payable by Lessee to Lessor pursuant to Article 2 of this lease
shall be abated to the extent and for the time Lessee is prevented from using
the whole of the Premises.

In the event Lessee is prohibited from using a portion of the floor space of the
Premises, rent shall be abated by that proportionate amount of space from the
whole.

Section 7.05: Total Condemnation

Should, during the term of this lease or any renewal or extension thereof, title
and possession of all of the Premises be taken under the power of eminent domain
by any public or quasi-public agency or entity, this lease shall terminate as of
12:01 am on the date actual physical possession of the Premises is taken by the
agency or entity exercising the power of eminent domain and both Lessor and
Lessee shall thereafter be released from all obligations, except those specified
in Section 7.09 of this lease, under this lease.

Section 7.06: Termination Option for Partial Condemnation

Should, during the term of this lease or any renewal or extension thereof, title
and possession of only a portion of the Premises be taken under the power of
eminent domain by any public or quasi-public agency or entity, Lessee may, at
Lessee's option, terminate this lease if more than 35 percent of the floor space
or more than 55 percent in value of the Premises is taken under the power of
eminent domain, or if Lessee us unable to continue its full operation in the
portion of the Premises which remain, Lessee shall

                                     Page 12


<PAGE>   15



exercise its option by giving written notice to Lessor within thirty (30) days
after actual physical possession of the portion subject to eminent domain power
is taken by the agency or entity exercising that power. This lease shall
terminate as of 12:01 am on the date the notice is deemed given to Lessor but
the rent specified in Article 2 of this lease shall be reduced in the manner
specified in Section 7.07 below from the date of taking to the date of
termination of the lease. Lessee shall be able to terminate the lease if the
remaining portion of the Premises is not suitable for Lessee's continued use of
the Premises.

Section 7.07: Partial Condemnation Without Termination

Should Lessee fail to exercise the option described in Section 7.06 of this
lease, or should the portion of the Premises taken under the power of eminent
domain be insufficient to give rise to the option described in Section 7.06 of
this lease, then, in that event:

A. This lease shall terminate as to the portion of the Premises taken by eminent
domain as of 12:01 am on the day, herein called the "date of taking", actual
physical possession of that portion of the Premises is taken by the agency or
entity exercising the power of eminent domain.

B. The rent specified in Article 2 of this lease shall, after the date of
taking, be reduced by an amount that bears the same ratio to the rent specified
in Article 2 of this lease as the square footage floor space of the prior of
said premise taken under the power of eminent domain bears to the total square
footage floor space of the Premises as of the date of this lease; and

C. Lessor, at Lessor's own cost and expense, will remodel and reconstruct the
building remaining on the portion of the Premises not taken by eminent domain
into a single efficient architectural unit as soon after the date of taking, or
before, as can be reasonable done; provided, however, that the rent specified in
this lease shall not be abated or reduced, except as provided in subparagraph
(B) of this section, during such remodeling or reconstruction.

Section 7.08: Condemnation Award

Should, during the term of this lease or any renewal or extension thereof, title
and possession of all or any portion of the Premises be taken under the power of
eminent domain by any public or quasi-public agency or entity, the portion of
the compensation or damages for the taking awarded to each of the parties to
this lease, Lessor and Lessee, shall belong to and be the sole property of the
party to whom it is awarded. Lessee shall be entitled to that portion of the
compensation or damages awarded for the eminent domain taking that represents
(1) reasonable value of Lessee's rights under this lease for the unexpired term
of this lease and (2) the cost or loss sustained by Lessee because of the
removal of Lessee's trade fixture, equipment and furnishings from the portion of
the Premises taken by eminent domain.

Section 7.09: Arbitration of Condemnation Award

Should separate award not be made to Lessor and Lessee for the taking by eminent
domain of all or any portion of the Premises, and should Lessor and Lessee be
unable to agree on the manner the total award is to be divided between them
pursuant to Section 7.08 of this lease, the proper division of the award between
Lessor and Lessee shall be settled by arbitration. Each party shall appoint an
arbitrator and the two arbitrators so appointed shall, within a month after both
have been appointed, select a third arbitrator. The decision of any two of these
three arbitrators in writing shall be binding on both Lessor and Lessee.

                                     Page 13


<PAGE>   16



Should not two arbitrators be able to agree within one month after appointment
of the third arbitrator, the report of the arbitrator most favorable to Lessor
and the report of the arbitrator most favorable to Lessee shall both be
disregarded and the report of the remaining arbitrator shall be binding upon
both Lessor and Lessee. Should either Lessor or Lessee fail to appoint an
arbitrator within 15 days after receiving written notice from the other to do
so, the arbitrator selected by the other party shall act for both and his
decision in writing shall be binding upon both Lessor and Lessee.

                 ARTICLE 8. DEFAULT, ASSIGNMENT AND TERMINATION

Section 8.01: Subleasing or Assigning as Breach

Lessee shall not encumber, assign or otherwise transfer this lease, any right or
interest in this lease, or any right or interest in the Premises or any of the
improvements that may now or hereafter be constructed or installed on the
Premises without the express written consent of Lessor first obtained.

Neither shall Lessee sublet the Premises or any part thereof or allow any other
person, other than Lessee's patrons, agents, servants, and employees to occupy
the Premises or any part thereof without the prior written consent of Lessor. A
consent by Lessor to one assignment, one subletting or one occupation of the
Premises by another person shall not be deemed to be a consent to any subsequent
assignment, subletting or occupation of the Premises by another person. Any
encumbrance, assignment, transfer or subletting without the prior written
consent of Lessor, whether it be voluntary or involuntary, by operation of law
or otherwise, is void and shall, at the option of Lessor, terminate this lease.

The consent of Lessor to any assignment of Lessee's interest in this lease or
the subletting by Lessee of the Premises or parts of the Premises shall not be
unreasonably withheld. Notwithstanding the above, Lessee may assign or sublease
the Premises, or portions thereof, to a subsidiary, affiliate or parent of
Lessee. Such permitted assignment shall not relieve Lessee from any liability
under this lease.

Lessor must respond to written notices from Lessee under the terms of this
section within thirty (30) days, else consent of Lessor will conclusively deemed
to have been given. Lessor also agrees to exempt from this assignment clause the
Lessee's duty to obtain Lessor's approval for mergers, consolidations, takeovers
and sales of the business. Transfers or assignments of this lease, the Premises
of the improvements thereon rising from such mergers, consolidations, takeovers
or sales of the business will not constitute a breach under the terms of this
section.

Section 8.02: Abandonment by Lessee

Should Lessee breach this lease and abandon the Premises prior to the natural
expiration of the term of this lease, Lessor may:

A. Continue this lease in effect by not terminating Lessee's right to possession
of the Premises, in which event Lessor shall be entitled to enforce all his
rights and remedies under this lease, including the right to recover the rent
specified in this lease as it become due under this lease; or

B. Terminate this lease and recover from Lessee:

         i.       The worth at the time of award of the unpaid rent which had
                  been earned at the time of termination of the lease;

                                     Page 14


<PAGE>   17



         ii. The worth at the time of award of the amount by which the unpaid
rent which would have been earned after termination of the lease until the time
of award exceeds the amount of rental loss that Lessee proves could have been
reasonably avoided;

         iii. The worth at the time of award of the amount by which the unpaid
rent for the balance of the term of this lease after the time of award exceeds
the amount of rental loss that Lessee proves could be reasonably avoided; and

         iv. Any other amount necessary to compensate Lessor for all detriment
proximately caused by Lessee's failure to perform Lessee's obligations under
this lease.

As used in this section, "Abandonment" shall be defined as Lessee's failure to
conduct business at the Premises for any period of fifteen (15) consecutive
days. Such failure to use the Premises shall conclusively be deemed abandonment
of the Premises.

The term "rent" as used in this section shall mean the base rent, as adjusted to
the date of default, additional rent as defined above, and any other sums
required to be paid by Lessee pursuant to the terms of this lease. As used in
subsection (1) and (ii) above, the "worth at the time of award" shall be
computed by allowing interest at the rate of ten (10%) percent per annum. As
used in subsection (iii) above, the "worth at the time of award" shall be
computed by discounting that amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of the award, plus one (1%) percent.

Section 8.03: Default by Lessee

Should Lessee default in the payment of any rent, additional rent or other sum
to be paid by Lessee hereunder, and if such default shall continue for a period
of five (5) business days after written notice thereof from Lessor to Lessee, or
if Lessee shall default in the performance or observance of any other term,
covenant, obligation or agreement to be performed or observed by Lessee, and if
such default shall continue for a period of ten (10) days after written notice
thereof from Lessor to Lessee, or if more than four (4) of any of the foregoing
defaults, or any combination thereof shall occur in any single twelve (12) month
period during the term hereof, whether or not the same shall be cured, Lessor
shall have, in addition to any other remedies provided for herein or by law, the
option to terminate this lease, reenter the Premises by process of law and shall
have the right to recover from Lessee all of the sums described in Section
8.02(B) above.

Section 8.04: Insolvency of Lessee

The insolvency of Lessee as evidences by a receiver being appointed to take
possession of all or substantially all of the property of Lessee, or the making
of a general assignment for the benefit of creditors by Lessee or the filing by
or against Lessee of a petition in bankruptcy, shall terminate this lease and
entitle the Lessor to reenter and regain possession of the Premises.

Section 8.05: Right of Entry on Default

Without limitation of Lessor's rights contained elsewhere in this lease or at
law, in the event of Lessee's default, any and all of Lessee's fixtures then
remaining on the Premises, with the exception of personal property, Lessor shall
have the right to take exclusive possession of same and shall be entitled to
obtain a writ of attachment of same, with notice to Lessee.

                                     Page 15


<PAGE>   18



Alternatively, Lessor may remove all or any portion thereof and place such
property in storage for the account of Lessee and at the expense of Lessee.
Lessor shall have no duty to pay rent or other costs of storage and shall have
no liability to Lessee if the property is sold at auction or otherwise. Upon
such entry, Lessor may, at Lessor's option, relet the Premises or any part
thereof to a third party or third parties for any term, at any rental, and on
any other terms and conditions that Lessor, in its sole discretion may deem
advisable, and shall have the right to make alterations and repairs to the
Premises.

Lessee shall be liable for all of Lessor's costs of reletting, including but not
limited to remodeling costs required for the reletting. In the event Lessor
relets the Premises, Lessee shall pay all rent due under this lease at the times
specified herein, less any amounts actually received by Lessor from the
reletting.

Section 8.06: Cumulative Remedies

The remedies given to Lessor in this Article shall not be exclusive but shall be
cumulative and in addition to all remedies no or hereafter allowed by law or
elsewhere provided in this lease.

Section 8.07: Waiver of Breach

The waiver by Lessor of any breach by Lessee of any of the provisions of this
lease shall not constitute a continuing waiver or a waiver of any subsequent
breach by Lessee whether of the same or another provision of this lease. Lessor
shall be in default of this lease if Lessor does not perform any provision of
this lease that Lessor is obligated to perform within thirty (30) days after
written notice thereof has been given by Lessee to Lessor. If the nature of
Lessor's obligation is such that more than thirty (30) days are required for
performance, Lessor shall not be in default of this lease if Lessor commences
performance within the thirty (30) day period and diligently and in good faith
continues the same until completion.

Lessee, at any time after Lessor commits the default, may cure the detail at
Lessor's expense. If Lessee, by reason of Lessor's default, at any time pays any
sum or does any act that requires the payment of any sum, this sum paid by
Lessee shall be due immediately from Lessor to Lessee at the time the sum is
paid, and if paid at a later date shall bear interest at the maximum rate
allowed by law from the date the sum was paid by Lessee until Lessee is
reimbursed by Lessor.

                            ARTICLE 9. MISCELLANEOUS

Section 9.01: Force Majeure - Unavoidable Delays

Should the performance of any act required by this lease to be performed by
either Lessor or Lessee be prevented or delayed by reason of an act of God,
strike, lockout, labor troubles, inability to secure materials, restrictive
governmental laws or regulations, or any other cause except financial inability,
not the fault of the party required to perform the act, the time for performance
of the act will be extended for a period equivalent to the period of delay and
performance of the act during the period of delay will be excused; provided,
however, that nothing contained in this section shall excuse the prompt payment
of rent or other sums by Lessee as required by this lease or the performance of
any act rendered difficult solely because of the financial condition of the
party, Lessor or Lessee, required to perform the act.

                                     Page 16


<PAGE>   19



Section 9.02: Parking Spaces

In addition to the Premises herein described, Lessor shall have exclusive use of
all parking spots controlled by Lessor for the premises.

Section 9.04: Attorney's Fees

Should any litigation, arbitration or other proceeding be commenced between the
parties to this lease concerning the Premises, this lease, or the rights and
duties of either in relation thereto, the party, Lessor or Lessee, prevailing in
such litigation shall be entitled, in addition to such other relief as may be
granted in the litigation, to a reasonable sum as and for his attorney's fees in
such litigation, together with any costs and expenses of such proceeding,
including such fees, costs and expenses on appeal and required to enforce any
final judgment.

Section 9.05: Arbitration of Disputes

If any dispute arises between Lessor and Lessee concerning the Premises, any
provision of this lease or the rights and duties of either in regard thereto,
the dispute shall be settled by arbitration as provided in this section. Each
party shall appoint an arbitrator and give the other party written notice of the
name and address of arbitrator within five (5) days after written demand to do
so has been served on the party making the appointment by the other party to
this lease. To two appointed arbitrators shall within ten (10) days after their
appointment, appoint a third arbitrator. The written decision of any two of the
three arbitrators shall be binding and conclusive on both parties to this lease.
The arbitrators may apportion the costs and expenses of the arbitration
proceeding, including attorney's fees and arbitration fees, between the parties
to this agreement in any manner deemed reasonable by two of the three
arbitrators. The arbitration shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.

NOTICE: By initialing in the space below you are agreeing to have any dispute
arising out of the matters included in the "Arbitration of Disputes" provision
above decided by neutral arbitration as provided by California law and you are
giving up any rights you may have to have the dispute litigated in a court or
jury trial. By initialing in the space below you are giving up your judicial
rights to discovery and appeal, unless those rights are specifically included in
the "Arbitration of Disputes" provision. If you refuse to submit to arbitration
after agreeing to this provision, you may be compelled to arbitrate under the
authority of the California Code of Civil Procedure. Your agreement to this
arbitration provision is voluntary.

We have read and understand the foregoing and agree to submit disputes arising
out of the matters included in the "Arbitration of Disputes" provision to
neutral arbitration.

Lessor's Initials Lessee's Initials ______________

Section 9.06: Notices

All notices to be given to Lessee shall be given in writing personally or by
depositing the same in the United States mail, postage prepaid, and addressed to
Lessee at: Arcada Software, Inc., 708 Fiero Lane, Suite 5, San Luis Obispo,
California 93401, or such other place as may be designated from time to time by
Lessee. All notices to be given to Lessor shall be given in writing personally
or by depositing the same in the United States mail, postage prepaid, and
addressed to the Lessor at: 2219 Boulevard de Campo, San

                                     Page 17


<PAGE>   20



Luis Obispo, CA 93401 or such other place or places as may be designated from
time to time by Lessor.

Section 9.07: No Merger

The voluntary or other surrender of this lease by Lessee, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Lessor, terminate any existing subleases or subtenancies or may, at the option
of Lessor, operate as an assignment to it of any such subleases or subtenancies.

Section 9.08: Binding on Heirs and Successors

This lease shall be binding on and shall inure to the benefit of the heirs,
executors, administrators, successors, and assigns of the parties hereto, Lessor
and Lessee, but nothing in this section contained shall be construed as a
consent by Lessor to any assignment of this lease or any interest therein by
Lessee except as provided in Article 8 of this lease.

Section 9.09: Partial Invalidity

Should any provision of this lease be held by a court of competent jurisdiction
to be either invalid, void, or unenforceable, the remaining provisions of this
lease shall remain in full force and effect unimpaired by the holding.

Section 9.10: Sole and Only Agreement

This instrument constitutes the sole and only agreement between Lessor and
Lessee respecting the Premises, the leasing of the Premises to Lessee, or the
lease term herein specified, and correctly sets for the obligations of Lessor
and Lessee to each other as of its date. Any agreements or representations
respecting the Premises or their leasing by Lessor to Lessee not expressly set
forth in this instrument are null and void.

Section 9.11: Waiver

The waiver by Lessor of any breach of any term, covenant or condition herein
contained shall not be deemed to be a waiver of such term, covenant or condition
or any subsequent breach of the same or any other term, covenant or condition
herein contained.

Section 9.12: Subordination and Non-Disturbance

A. This lease is subject and subordinate to all mortgages and deeds of trust
which may hereafter be placed and recorded on the property of which the Premises
are a part, and to all renewal, modifications, replacements, and extensions
thereof.

B. The subordination provided for above is conditioned on the following:

         i. For each mortgage or deed of trust, lessor shall obtain from the
mortgagee or beneficiary a non- disturbance agreement in writing that, in the
event of foreclosure, or any sale thereunder, this lease shall not be terminate
and lessee's right of possession under this lease shall not be disturbed,
provided lessee is not then in default under this lease;

         ii. In consideration of the mortgagee's or beneficiary's agreement not
to disturb lessee's possession as above provided, lessee hereby agrees to attorn
to the purchaser at any foreclosure, sale or other action or proceeding.

                                     Page 18


<PAGE>   21



         iii. The subordination described in this section shall be effective
without necessity of having any further instruments executed by Lessee, but
Lessee agrees to execute on demand any such further instruments evidencing
subordination that lessor or mortgagee or beneficiary may reasonably request.

Section 9.13: Time of Essence

Time is expressly declared to be of the essence of this lease.

Section 9.14: Accord and Satisfaction

No payment by Lessee or receipt by Lessor of a lesser amount than the monthly
rent stipulated herein or any other sum due hereunder from Lessee to Lessor
shall be deemed to be anything other than a payment on account of the earliest
sum then due and owing to Lessor.

No endorsement or statement on any check or any letter accompanying any check or
payment or payment of any sums due from Lessee to Lessor hereunder shall be
deemed to be an accord and satisfaction, and Lessor may accept and negotiate any
such payment without prejudice to Lessor's right to recover the balance of such
rent or other sum or to pursue any other remedy provided for in this lease or by
law.

Section 9.15: Law Governing

The laws of the state and county wherein the Premises are located shall govern
the validity, performance and enforcement of this lease.

Executed the 17 day of May, 1995, at San Luis Obispo, California.

LANDLORD                                            TENANT

JERRY MICHAEL                                       ARCADA SOFTWARE, INC.
A Single Person                                     A Delaware Corporation


By: /s/ Jerry Michael                               By: /s/ Kevin Azzouz
Jerry Michael                                       Kevin Azzouz
Authorized Representative                           President

                                     Page 19


<PAGE>   22



                                   EXHIBIT "A"

                                LEGAL DESCRIPTION

The property described as:

Unit 25 of Tract No. 1636, in the County of San Luis Obispo, State of
California, as shown on the Condominium Plan recorded November 21, 1989 in Book
3418, Page 215 of Official Records, in the office of the County Recorder of said
County.

                                     Page 20