Lease between
            Sobrato Development Companies #871 and Komag Incorporated

Section                                                                   Page #
-------                                                                   ------
Parties........................................................................1
Premises.......................................................................1
Use............................................................................1
Term and Rental................................................................2
       Adjustment for Variance in Building Square Footage......................2
Security Deposit...............................................................2
Late Charges...................................................................2
Construction and Possession....................................................3
       Building Shell Construction.............................................3
       Tenant Improvement Plans................................................3
       Preliminary Cost Estimates..............................................3
       Final Pricing...........................................................4
       Change Orders...........................................................5
       Building Shell Costs....................................................5
       Tenant Improvement Costs................................................5
       Construction............................................................6
       Documents...............................................................6
       Landlord Overhead & Profit..............................................6
       Insurance/Indemnity.....................................................7
       Punchlist Items.........................................................7
       Other Work by Tenant....................................................7
       Parking Lot.............................................................7
       Tank Farm...............................................................8
Acceptance of Possession and Covenants to Surrender............................8
Uses Prohibited................................................................8
Alterations and Additions......................................................8
Maintenance of Premises........................................................9
       Tenant's Obligations....................................................9
       Landlord's Obligations.................................................10
Hazard Insurance..............................................................10
       Tenant's Use...........................................................10
       Landlord's Liability Insurance.........................................11

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       Property Insurance.....................................................11
       Tenant's Insurance.....................................................11
       Waiver.................................................................12
Taxes.........................................................................12
Utilities.....................................................................13
Free From Liens...............................................................14
Compliance With Governmental Regulations......................................14
Toxic Waste and Environmental Damage..........................................15
       Landlord's Responsibility..............................................15
       Tenant's Responsibility................................................15
       Tenant's Indemnity Regarding Hazardous Materials.......................16
       Actual Release by Tenant...............................................16
       Environmental Monitoring...............................................17
Indemnity.....................................................................17
Advertisements and Signs......................................................18
Attorney's Fees...............................................................18
Tenant's Default..............................................................18
       Remedies...............................................................19
       Right to Re-enter......................................................19
       Abandonment............................................................20
       No Termination.........................................................20
Surrender of Lease............................................................20
Habitual Default..............................................................21
Landlord's Default............................................................21
Notices.......................................................................21
Entry by Landlord.............................................................21
Destruction of Premises.......................................................22
       Destruction by an Insured Casualty.....................................22
       Destruction by an Uninsured Casualty...................................22
       Damage or Destruction at End of Term...................................23
Assignment or Sublease........................................................23
       Consent by Landlord....................................................23
       Assignment or Subletting Consideration.................................23
       No Release.............................................................24
       Effect of Default......................................................24
       Excluded Transfers.....................................................25
Condemnation..................................................................25
Effects of Conveyance.........................................................25
Subordination.................................................................26
Waiver........................................................................26
Holding Over..................................................................27

                                    Page ii
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Successors and Assigns........................................................27
Estoppel Certificates.........................................................27
Option to Extend the Lease Term...............................................27
       Grant and Exercise of Option...........................................27
       Determination of Fair Market Rental....................................28
       Resolution of a Disagreement over the Fair Market Rental...............29
Tenant's Right of First Refusal...............................................29
       Grant..................................................................29
       Covenants of Landlord..................................................29
       Exercise of Tenant's Right of First Refusal to Purchase................30
       Terms for Right of First Refusal to Purchase...........................30
       Continuing Right.......................................................30
       Exclusive Nature of Option.............................................30
       Successors and Assigns.................................................30
Options.......................................................................31
Quiet Enjoyment...............................................................31
Brokers.......................................................................31
Landlord's  Liability.........................................................31
Authority of Parties..........................................................32
Transportation Demand Management programs.....................................32
Dispute Resolution............................................................32
Miscellaneous Provisions......................................................32
       Rent...................................................................32
       Performance by Landlord................................................33
       Interest...............................................................33
       Rights and Remedies....................................................33
       Survival of Indemnities................................................33
       Severability...........................................................33
       Choice of Law..........................................................33
       Time...................................................................33
       Entire Agreement.......................................................33
       Representations........................................................33
       Headings...............................................................34
       Exhibits...............................................................34
       Approvals..............................................................34
       Recordation............................................................34
EXHIBIT "A" - Premises........................................................35
EXHIBIT "B" - Formula for Determination of Base Monthly Rent..................36
EXHIBIT "C" - Shell Plans and Specifications..................................37
EXHIBIT "D" - Building Shell Definition.......................................38
EXHIBIT "E" - Tenant Improvement Plans and Specifications.....................39

                                    Page iii
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EXHIBIT "F" - Tenant's Trade Fixtures.........................................40
EXHIBIT "G" - Fee Agreement...................................................41



                                    Page iv
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     1.  Parties:  THIS  LEASE,  is entered  into on this 24th day of May,  1996
("Execution  Date"),  between Sobrato  Development  Companies #871, a California
Limited Partnership,  whose address is 10600 North De Anza Boulevard, Suite 200,
Cupertino,  CA 95014 and  Komag  Incorporated,  a  Delaware  corporation,  whose
address  is 275 S.  Hillview  Drive,  Milpitas,  CA  95035,  hereinafter  called
respectively Landlord and Tenant.

     2.Premises:  Landlord  hereby  leases to  Tenant,  and  Tenant  hires  from
Landlord those certain Premises with the appurtenances,  situated in the City of
San Jose,  County of Santa Clara,  State of  California,  and more  particularly
described as follows, to-wit:

A 5.60 acre parcel ("Parcel") on the north side of Automation Parkway, San Jose,
California,  including  all  appurtenances  and buildings now or during the Term
located thereon.  Pursuant to the terms of this Lease,  Landlord is obligated to
construct a single story building of  approximately  81,778 rentable square feet
("Building"),  a parking  lot  consisting  of a minimum  of 303  parking  spaces
expandable to  approximately  341 spaces described as Building 11 on Exhibit "A"
attached  hereto.  Landlord  represents  and warrants  that  Landlord is the fee
simple owner of the Premises. Prior to the Commencement Date, Landlord shall use
its best  efforts  to  record a parcel  map to  subdivide  the  Parcel  into two
parcels,  one for the  Premises  and the  balance  for a second  building  to be
constructed  for Tenant  pursuant to that certain  lease  between the parties of
even date herewith.

     3. Use:  Tenant shall use the Premises only for the following  purposes and
shall not change the use of the Premises  without the prior  written  consent of
Landlord,  which consent shall not be unreasonably withheld or delayed:  Office,
research, development,  testing,  manufacturing,  ancillary warehouse, and other
legal uses.  Landlord makes no  representation or warranty that any specific use
of the Premises  desired by Tenant is permitted  pursuant to any Laws.  Landlord
represents  and warrants to Tenant that, as of the  Commencement  Date,  (i) the
Premises  are in  compliance  with all  municipal,  county,  state  and  federal
statutes,  laws,  ordinances,   including  zoning  ordinances,  and  regulations
governing and relating to the Building  Shell;  (ii) there shall exist no patent
or, to the best of Landlord's  knowledge,  latent  defect in the  Premises;  and
(iii) the Premises  shall be in good  condition  and repair and fit for Tenant's
particular purposes.  Landlord represents and warrants to Tenant that, as of the
Commencement Date, the land is zoned industrial ("I").

                                     Page 1
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     4. Term and Rental: The term ("Lease Term") shall be for one hundred twenty
(120)  months,  commencing  on the date on which the  Building  Shell and Tenant
Improvements  are  Substantially  Complete  as  defined  in  Article  7.H  below
("Commencement  Date"),  and ending one hundred twenty (120) months  thereafter,
("Expiration  Date"). In addition to all other sums payable by Tenant under this
Lease, Tenant shall pay as base monthly rent ("Base Monthly Rent") below for the
Premises in an amount determined  pursuant to Exhibit "B" attached hereto.  Base
Monthly Rent shall  increase at the end of the  forty-second  and eighty  fourth
month of the Lease Term by the product of the Base  Monthly Rent payable for the
preceding month and one and 147/1000 (1.147). The parties agree to enter into an
amendment to this Lease  setting forth the exact amount of the Base Monthly Rent
payable during the Lease Term within fourteen (14) days following  determination
by Landlord.

Base Monthly Rent shall be due on or before the first day of each calendar month
during Lease Term.  All sums payable by Tenant under this Lease shall be paid in
lawful money of the United States of America,  without offset or deduction,  and
shall be paid to Landlord at the address specified in Article 1 of this Lease or
at such place or places as may be designated from time to time by Landlord. Base
Monthly  Rent for any  period  less than a  calendar  month  shall be a pro rata
portion of the monthly installment.

     A.  Adjustment for Variance in Building  Square  Footage:  In the event the
square  footage of the Building is other than 81,778  determined by  measurement
after completion of construction, within thirty (30) days after the Commencement
Date,  Landlord and Tenant shall execute an amendment to the Lease setting forth
the actual  rentable  square feet of the Building,  which  calculation  shall be
consistent  with the BOMA standard for  Industrial  Buildings  (i.e.  outside of
outside wall to outside of outside wall without deduction).

     5. Security Deposit: None required.

     6. Late Charges:  Tenant hereby acknowledges that late payment by Tenant to
Landlord of Base Monthly Rent and other sums due hereunder  will cause  Landlord
to incur costs not contemplated by this Lease, the exact amount of which will be
extremely  difficult to ascertain.  Such costs include,  but are not limited to,
administrative,  processing,  accounting charges, and late charges, which may be
imposed on Landlord by the terms of any contract,  revolving credit, mortgage or
trust deed  covering  the  Premises.  Accordingly,  if any  installment  of Base
Monthly  Rent or any other sum due from Tenant shall not be received by Landlord
or Landlord's  designee  within ten (10) days after Tenant's  receipt of written
notice  from  Landlord  that such  amount  is  delinquent,  Tenant  shall pay to
Landlord a late charge equal to five (5%)  percent of such overdue  amount which
late charge  shall be due and  payable  with the payment  then  delinquent.  The
parties  hereby  agree that such late charge  represents  a fair and  reasonable
estimate of the costs  Landlord  will incur by 

                                     Page 2
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reason of late  payment by Tenant.  Acceptance  of such late  charge by Landlord
shall in no event  constitute a waiver of Tenant's  default with respect to such
overdue amount, nor prevent Landlord from exercising any of the other rights and
remedies granted hereunder.

IT IS FURTHER MUTUALLY AGREED BETWEEN THE PARTIES AS FOLLOWS:

     7. CONSTRUCTION AND POSSESSION:

         A. Building Shell  Construction.  Landlord shall cause the shell of the
Building  ("Building Shell") to be constructed by independent  contractors to be
employed  by and under the  supervision  of  Landlord,  in  accordance  with the
building shell plans prepared by Comprehensive Architectural Services ("Tenant's
Architect")  and approved by Landlord and Tenant and  guideline  specifications,
which are  attached  hereto as Exhibit "C" and are  incorporated  herein by this
reference  ("Shell  Plans and  Specifications").  Landlord  shall  construct the
Building Shell in accordance  with all applicable  municipal,  local,  state and
federal laws, statutes,  rules,  regulations and ordinances.  Landlord shall pay
for all costs and  expenses  associated  with the  construction  of the Building
Shell up to a maximum  amount of Three  Million One Hundred  Thousand and No/100
Dollars ($3,100,000.00)  ("Building Shell Allowance").  The Building Shell shall
include all items  customarily  included  within the definition of a speculative
"building  shell," including  without  limitation,  those items set forth in the
Building  Shell  Definition,  attached  hereto as Exhibit "D", and  incorporated
herein  by this  reference.  Landlord  shall  provide  Tenant  half-size  vellum
as-built  drawings of the  Building  Shell  within  thirty  (30) days  following
completion of construction thereof.

         B. Tenant Improvement Plans. Tenant, at Tenant's sole cost and expense,
has also hired Tenant's Architect,  to prepare plans and outline  specifications
("Tenant  Improvement  Plans and  Specifications")  which are attached hereto as
Exhibit "E" with respect to the  construction  of  improvements  to the interior
premises ("Tenant  Improvements").  The Tenant Improvements shall consist of all
those items not included  within in the scope of the Building  Shell  definition
pursuant to Article 7.A above and Exhibit "D". The Tenant  Improvement Plans and
Specifications  shall be  prepared  in  sufficient  detail to allow  Landlord to
construct  the  Tenant   Improvements.   Landlord  shall  construct  the  Tenant
Improvements in accordance with all Tenant Improvement Plans and Specifications.
Tenant shall pay for all costs and expenses  associated with the construction of
the Tenant Improvements.

         C. Preliminary Cost Estimates. 

                    i. Building Shell.  Within fourteen (14) days after Tenant's
delivery of the Shell 

                                     Page 3
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Plans  and  Specifications  to  Landlord,  Landlord  shall  deliver  to Tenant a
preliminary  cost  estimate of the cost to  construct  the Building  Shell.  The
preliminary  cost  estimate  shall  contain  sufficient  detail  for  Tenant  to
understand the cost element of each portion of the proposed Building Shell.

                    ii.  Tenant  Improvements.  Within  fourteen (14) days after
Tenant's  delivery  of  the  Tenant  Improvement  Plans  and  Specifications  to
Landlord,  Landlord shall also deliver to Tenant a preliminary  cost estimate of
the cost to construct the Tenant  Improvements.  The  preliminary  cost estimate
shall contain  sufficient  detail for Tenant to  understand  the cost element of
each portion of the proposed Tenant Improvements.

         D. Final Pricing.

                    i.  Building  Shell.  Within  ten (10) days  after  Tenant's
approval of the preliminary cost estimate for the Building Shell, Landlord shall
submit to Tenant competitive bids from a minimum of three (3) subcontractors for
each aspect of the work which is to be performed.  Landlord must utilize the low
bid  in  each  case,   unless  Tenant   approves   Landlord's   use  of  another
subcontractor,  and  the  cost  of  the  Building  Shell  shall  be  based  upon
construction expenses equal to the sum of the bid amounts as approved by Tenant.
Upon Tenant's written  approval of the contract bids,  Landlord and Tenant shall
each be  deemed to have  given  their  approval  of the  final  Shell  Plans and
Specifications  on which the cost estimate was made,  and Landlord shall proceed
with the  construction  of the Building  Shell in  accordance  with the terms of
Article 7.H below.  If Tenant does not  specifically  approve or disapprove  the
bids within seven (7) days, Tenant shall be deemed to have approved the bids.

                    ii. Tenant Improvements. Within ten (10) days after Tenant's
approval of the preliminary cost estimate for the Tenant Improvements,  Landlord
shall  submit  to  Tenant   competitive   bids  from  a  minimum  of  three  (3)
subcontractors  for each aspect of the work which is to be  performed.  Landlord
must utilize the low bid in each case, unless Tenant approves  Landlord's use of
another  subcontractor,  and the cost of the Tenant  Improvements shall be based
upon  construction  expenses  equal to the sum of the bid amounts as approved by
Tenant. Upon Tenant's written approval of the contract bids, Landlord and Tenant
shall  each  be  deemed  to  have  given  their  approval  of the  final  Tenant
Improvement  Plans and  Specifications  on which the cost estimate was made, and
Landlord  shall  proceed with the  construction  of the Tenant  Improvements  in
accordance with the terms of Article 7.H below. If Tenant does not  specifically
approve or disapprove the bids within seven (7) days,  Tenant shall be deemed to
have approved the bids.

                                     Page 4
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         E. Change  Orders.  Tenant shall have the right to order changes in the
manner  and  type  of   construction   of  the  Building  Shell  or  the  Tenant
Improvements.  Any change  orders  which are  submitted by Tenant after the date
which is ten (10) days after the  issuance by the City of San Jose of a building
permit for the  construction  of the  Building  Shell,  which  cause  Landlord's
construction  schedule to be delayed shall cause the Commencement  Date to occur
one (1) day in advance of the date the Building Shell is Substantially Complete,
as defined in Article  7.H,  for each day of delay.  Upon  request  and prior to
Tenant's  submitting any binding change order,  Landlord shall promptly  provide
Tenant with written  statements  of the cost to implement and the time delay and
increased  construction  costs associated with any proposed change order,  which
statements  shall  be  binding  on  Landlord.  If no  time  delay  or  increased
construction  cost amount is noted on the written  statement,  the parties agree
that there shall be no adjustment to the  construction  cost or the Commencement
Date  associated  with such change order.  If ordered by Tenant,  Landlord shall
implement  such  change  order,   and  the  cost  of  constructing   the  Tenant
Improvements shall be increased in accordance with the cost statement previously
delivered by Landlord to Tenant for any such change order.

         F. Building Shell Costs.  Landlord shall pay all costs  associated with
the Building  Shell.  The costs of the Building  Shell shall consist of only the
following costs to the extent  actually  incurred by Landlord in connection with
the construction of the Building Shell: costs of construction, costs of permits,
and the general contractor  overhead described in Article 7.J below.  During the
course of construction of the Building Shell, Landlord may deliver to Tenant not
more than once each  calendar  month a written  request for payment  which shall
include and be accompanied by: (i) Landlord's certified statements setting forth
the amount  requested  certifying  the percentage of completion of each item for
which  reimbursement  is requested  and  certifying  that the  progress  payment
requested is due to a subcontractor  of Landlord  pursuant to a contract between
Landlord and  Landlord's  subcontractor.  Tenant  shall pay to Landlord,  within
fifteen (15) days after Tenant's  receipt of the above items, any costs incurred
by Landlord in excess of the Building  Shell  Allowance in  connection  with the
Building Shell in accordance with the Shell Plans and  Specifications  minus the
retainage set forth below.  Tenant shall be entitled to retain ten percent (10%)
of the amount  invoiced by Landlord until the Building  Shell is  "Substantially
Complete" (defined in Article 7.H below).  Tenant shall pay the retained balance
owing to Landlord  within fifteen (15) days following the date that the Building
Shell is  Substantially  Complete.  All costs for Building  Shell shall be fully
documented  to and  verified by Tenant.  The amounts  charged to Tenant shall be
limited as provided in Article 7.D.i above.

         G. Tenant Improvement Costs. The costs of the Tenant Improvements shall
consist of only the following costs to the extent actually  incurred by Landlord
in  connection  with  the  construction  of the  Tenant  Improvements:  costs of
construction,  costs of permits,  and the Landlord overhead described in Article
7.J  below.  During  the  course of  construction  of the  Tenant  Improvements,
Landlord may deliver to Tenant not more than once each calendar  month a written

                                     Page 5
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request for payment which shall include and be  accompanied  by: (i)  Landlord's
certified   statements  setting  forth  the  amount  requested   certifying  the
percentage of completion of each item for which  reimbursement  is requested and
certifying  that the progress  payment  requested is due to a  subcontractor  of
Landlord  pursuant to a contract between Landlord and Landlord's  subcontractor.
Tenant shall pay to Landlord, within fifteen (15) days after Tenant's receipt of
the above items,  the costs  incurred by Landlord in connection  with the Tenant
Improvements installed in the Building in accordance with the Tenant Improvement
Plans and  Specifications  minus the retainage set forth below.  Tenant shall be
entitled to retain ten percent  (10%) of the amount  invoiced by Landlord  until
the Tenant  Improvements are  "Substantially  Complete"  (defined in Article 7.H
below).  Tenant shall pay the retained  balance owing to Landlord within fifteen
(15) days  following  the date that the Tenant  Improvements  are  Substantially
Complete.  All costs for Tenant  Improvements  shall be fully  documented to and
verified by Tenant.  The amounts  charged to Tenant shall be limited as provided
in Article 7.D.ii above.

         H.  Construction.  Landlord  shall  use its best  efforts  to  obtain a
building  permit  from the City of San Jose as soon as possible  after  Tenant's
approval of the Shell Plans and  Specifications.  The Building  Shell and Tenant
Improvements shall be deemed substantially complete  ("Substantially  Complete")
when  the  Building  Shell  and  Tenant  Improvements  have  been  substantially
completed  in  accordance  with the Shell  Plans and  Specifications  and Tenant
Improvement  Plans  and  Specifications,  as  evidenced  by  the  issuance  of a
certificate  of  occupancy or its  equivalent  by the  appropriate  governmental
authority for the Building Shell and Tenant Improvements,  and the issuance of a
certificate by Tenant's Architect  certifying that the Building Shell and Tenant
Improvements have been completed in accordance with the plans.

         I. Documents.  Landlord shall at all times keep one (1) complete set of
all contract  documents (i.e.,  approved  drawings,  shop and setting  drawings,
specifications, samples, addenda and change orders) current and in good order on
the job site. Such documents shall be available for review by representatives of
Tenant,  its consultants and any public  officials at any time.  Record drawings
marked  with all  changes  made  during the job shall be kept on the job site by
Landlord.  Upon  acceptance of the work, the record  document print set shall be
immediately  forwarded to Tenant's  Architect for changes to the originals.  The
changes shall be noted on the originals  and one (1) mylar  reproducible  set of
the  originals  shall be forwarded to Tenant.  Tenant shall be provided with two
(2) copies of these specifications.

         J.  Landlord  Overhead & Profit.  As  compensation  to Landlord for its
services as general  contractor for the Building Shell and Tenant  Improvements,
Landlord  shall be entitled to a fee as specified in the Fee Agreement  attached
as Exhibit "G".  Except as provided  therein,  Landlord 

                                     Page 6
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shall not be entitled to any other fee or payment from Tenant in connection with
Landlord's services as general contractor.

         K. Insurance/Indemnity.  Landlord shall indemnify,  protect, defend and
hold Tenant harmless from and against all liability,  cost,  expense,  or damage
(including,   without   limitation,   attorneys  fees)  arising  from:  (i)  the
construction  of the  Building  Shell or the  Tenant  Improvements;  or (ii) any
construction  defects,  or (iii) any failure to properly  construct the Building
Shell or Tenant  Improvements  in accordance  with the approved  Shell Plans and
Specifications or Tenant Improvement Plans and  Specifications.  Tenant's review
and  approval of any plans,  specifications,  or any other  documents  shall not
relieve   Landlord   from   Landlord's    obligations    under   the   foregoing
indemnification.  Landlord  shall procure (as a cost of the Building  Shell) and
keep in effect from the execution  date of this Lease until the  termination  of
this  Lease a "Broad  Form"  liability  insurance  policy in the amount of Three
Million  Dollars  ($3,000,000.00),  insuring all of Landlord's  activities  with
respect to the Building and Premises, including Landlord's indemnity obligations
under this Article 7.K. In addition,  Landlord  shall  procure (as a cost of the
Building Shell) builder's risk insurance, insuring the Building Shell and Tenant
Improvements  for their  full  replacement  cost while the  Building  and Tenant
Improvements are under construction,  and until the date that the fire insurance
policy described in Article 12 of the Lease is in full force and effect.

         L. Punchlist  Items.  After the Building Shell and Tenant  Improvements
are Substantially Complete,  Landlord shall immediately correct any construction
defect or other  "punchlist"  item which Tenant brings to Landlord's  attention.
All such  work  shall be  performed  in a manner  designed  to cause  the  least
possible interruption to Tenant and Tenant's activities on the Premises.

         M. Other Work by Tenant. All work not within the scope of work normally
constructed  by the  construction  trades  employed  on  the  Building  and  not
described in the Shell Plans and  Specifications or Tenant Improvement Plans and
Specifications,  such as furniture,  telephone  equipment,  telephone wiring and
office equipment work, shall be furnished and installed by Tenant.

         O. Parking Lot.  Landlord,  at Landlord's sole cost and expense,  shall
construct a parking lot, with a minimum of approximately  303 parking spaces, on
the Premises in the location set forth in Exhibit "C".  Landlord shall cause the
parking lot to comply in all respects with all  applicable  governmental  rules,
regulations,  and orders, and shall create a sufficient number of parking spaces
to comply with all governmental requirements in connection with the Building.

                                     Page 7
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         8.  Acceptance of Possession and Covenants to Surrender:  Tenant agrees
on Expiration Date, or on the sooner termination of this Lease, to surrender the
Premises to Landlord in good  condition  and repair,  reasonable  wear and tear,
actions of Landlord or Landlord's  Parties,  or damage due to casualty excepted.
"Good  Condition" shall mean that the interior walls of all office and warehouse
areas, the floors of all office and warehouse areas, all suspended  ceilings and
carpeting will be cleaned and free of any major defacements. Tenant on or before
the Expiration  Date or sooner  termination of this Lease,  shall remove all its
personal  property and trade  fixtures from the  Premises,  and all property and
fixtures not so removed shall be deemed to be abandoned by Tenant.  Tenant shall
ascertain  from  Landlord  at the time  Tenant  desires  to make any  Alteration
(including  Permitted  Alterations),  whether  Landlord  desires  to  have  such
Alteration  removed at the  Expiration  Date or to cause Tenant to surrender the
Alteration to Landlord. If Landlord so notifies Tenant in writing within fifteen
(15) days after  Tenant's  notice to Landlord  that Tenant  intends to alter the
Building,  then Tenant shall remove such Alteration,  as Landlord may require in
such written notice,  and shall repair and restore said Building or such part or
parts thereof before the Expiration  Date at Tenant's sole cost and expense.  If
Landlord has not provided  Tenant with such written  notice  within said fifteen
(15) day period,  then Tenant shall have no obligation to remove such Alteration
from the Premises upon the Expiration Date or earlier termination of this Lease.
Notwithstanding the terms of this Article 8, Tenant shall not have an obligation
to remove any Tenant  Improvements  installed prior to the first  anniversary of
the Commencement Date from the Premises at any time.


         9. Uses Prohibited: Tenant shall not commit, or suffer to be committed,
any waste upon the said Premises,  or any nuisance, or allow any sale by auction
upon the Premises, or allow the Premises to be used for any unlawful purpose, or
place any loads upon the floor,  walls, or ceiling which endanger the structure,
or use any machinery or apparatus  which will in any manner vibrate or shake the
Premises.  Except for  materials  which may be stored in the enclosed  tank farm
area outside the Building, no materials,  supplies, equipment, finished products
or semi-finished  products, raw materials or articles of any nature or any waste
materials,  refuse,  scrap or debris shall be stored upon or permitted to remain
on any portion of the Premises outside of the Building proper without Landlord's
prior approval, which approval shall not be unreasonably withheld.

         10. Alterations and Additions:  Except for those improvements installed
prior  to  the  first   anniversary  of  the  Commencement  Date  and  Permitted
Alterations (as defined below), Tenant shall not make, or suffer to be made, any
alteration  or  addition  to the  said  Premises  ("Alterations"),  or any  part
thereof,  without (i) the written  consent of Landlord  first had and  

                                     Page 8
<PAGE>

obtained,  which consent shall not be unreasonably withheld or delayed, and (ii)
delivering to Landlord the proposed  architectural and structural plans, if any,
for all such  Alterations.  After having  obtained  Landlord's  consent,  Tenant
agrees  that it shall not  proceed  to make such  Alterations  until  Tenant has
obtained all required governmental approvals and permits.  Tenant further agrees
to provide Landlord (i) written notice of the anticipated  start date and actual
start date of the work,  and (ii) a complete set of half-size (15" X 21") vellum
as-built  drawings.  All  Alterations  shall be constructed  in compliance  with
applicable  buildings codes and laws.  Alterations which are not to be deemed as
trade  fixtures  shall  include  heating,  lighting,   electrical  systems,  air
conditioning,  partitioning,  carpeting,  or any  other  installation  which has
become affixed to the Premises. All Alterations shall be maintained, replaced or
repaired  by Tenant at  Tenant's  sole cost and  expense,  except as provided in
Section  11 below.  Notwithstanding  the above,  Tenant  shall have the right to
remove any trade fixtures,  furniture,  or process  equipment paid for by Tenant
from the Premises at the  expiration  of the Lease,  which items shall  include,
without  limitation,  the items set forth in  Exhibit  "F"  attached  hereto and
incorporated herein by this reference.

         Notwithstanding the foregoing, Tenant shall have the right, without the
prior written  consent of Landlord,  to make certain  alterations,  additions or
improvements (the "Permitted  Alterations") which (i) do not affect the Building
systems or structural components of the Building and (ii) which cost less, on an
individual basis, than One Hundred Fifty Thousand Dollars  ($150,000),  provided
that each such Permitted  Alteration is otherwise  performed in accordance  with
the  terms  of  this  Section  10.  Ownership  of  any  Alterations,   Permitted
Alterations  or Tenant  Improvements  paid for by Tenant  shall remain in Tenant
throughout  the Term of this Lease,  and Tenant shall be entitled to the benefit
of any  depreciation  or other tax benefits  arising  therefrom,  provided  that
Landlord  shall,  upon the  Expiration  Date or earlier  termination of the Term
hereof,  become the owner of any Alterations or Tenant  Improvements made to the
Premises which, pursuant to the terms of this Lease, are left on the Premises by
Tenant.  Tenant shall give Landlord at least ten (10) days' prior written notice
of any Alteration or Permitted  Alteration so that Landlord can post a notice of
non-responsibility with respect thereto.

     11. Maintenance of Premises:

         A.  Tenant's  Obligations:  Tenant  shall,  at its sole cost,  keep and
maintain and repair and said Premises and  appurtenances  and every part hereof,
including but not limited to, roof membrane, glazing, sidewalks,  parking areas,
telephone,   plumbing,   electrical  and  HVAC  systems,   and  all  the  Tenant
Improvements in good and sanitary  order,  condition,  and repair.  Tenant shall
enter into a service  contract  with a  licensed  air-conditioning  and  heating
contractor  which contract shall provide for maintenance of all air conditioning
and heating  equipment  at the  Premises in  accordance  with  general  industry
practices.  Tenant  shall  pay the  cost of all  air-conditioning  heating,  and
elevator  equipment repairs which are either excluded from such service contract
or any existing equipment warranties. All wall surfaces and floor tile are to be
maintained  in an as good a condition 

                                     Page 9
<PAGE>

as when Tenant took possession free of holes, gouges, or defacements, except for
damage  resulting  from  normal  wear and tear,  casualty  or other acts of God,
Landlord,  Landlord's  agents,  employees,  contractors  or invitees  ("Landlord
Parties") In no event,  however,  shall Tenant's obligation to repair under this
subsection  extend to (i) damage and repairs covered under any insurance  policy
carried by Landlord in connection with the Building; (ii) damage caused in whole
or in part by the  negligence  or willful  misconduct  of Landlord or Landlord's
agents, employees,  invitees or licensees,  (iii) reasonable wear and tear; (iv)
conditions  covered under any warranties of  contractors;  or (v) damage by fire
and other casualties,  or acts of governmental  authorities,  or acts of God and
the elements.

Tenant  shall  also  be  responsible,  at its  sole  cost  and  expense  for the
preventive  maintenance of the membrane of the roof, which  responsibility shall
be deemed  properly  discharged  if (i) Tenant  contracts  with a licensed  roof
contractor  who is  reasonably  satisfactory  to both  Tenant and  Landlord,  at
Tenant's  sole cost, to inspect the roof membrane at least every six (6) months,
with the first inspection due the sixth (6th) month after the Commencement Date,
and (ii) Tenant  performs,  at Tenant's sole cost,  all  preventive  maintenance
recommendations  made by such  contractor  within a  reasonable  time after such
recommendations are made. Such preventive maintenance might include acts such as
clearing  storm  gutters and  drains,  removing  debris from the roof  membrane,
trimming trees overhanging the roof membrane, applying coating materials to seal
roof penetrations,  repairing blisters, and other routine measures.  Tenant make
available for Landlord's  inspection such preventive  maintenance  contracts and
paid invoices for the recommended work. Tenant agrees, at its expense, to water,
maintain and replace,  when necessary,  any shrubbery and  landscaping.  Nothing
herein  shall  require   either   Landlord  or  Tenant  to  replace  any  Tenant
Improvements.

         B. Landlord's  Obligations:  Landlord at its sole cost and expense, and
without  reimbursement of all or any such costs from Tenant,  shall (i) maintain
in good  condition,  order,  and repair,  and replace as and when  necessary the
structural portions of the building including:  the foundation,  exterior walls,
structure and structural members,  and roof structure of the Building;  and (ii)
repair and damage  caused by the acts or  omissions  of Landlord  or  Landlord's
Parties.  Subject to the obligations of Tenant to provide  periodic  inspections
and  perform  maintenance  of the  membrane of the roof in  accordance  with the
provisions  set forth in Article 11.A above,  Landlord shall also replace as and
when necessary, the membrane of the roof. Tenant may give Landlord notice of any
repairs or  replacements  that are required of Landlord  under the terms of this
Lease and Landlord  shall proceed  forthwith to effect the same with  reasonable
diligence.  In the event of an emergency  Tenant shall be empowered to undertake
immediate  repairs  of such  nature as would be  Landlord's  responsibility  and
notify Landlord promptly after such repairs have been undertaken.

     12. Hazard Insurance: 

         A. Tenant's Use: Tenant shall not use, or permit said Premises,  or any
part  thereof,  to 

                                    Page 10
<PAGE>

be used,  for any purpose other than that for which the said Premises are hereby
leased;  and no use shall be made or permitted to be made of the said  Premises,
nor acts done,  which will cause a cancellation of any insurance policy covering
said Building,  or any part thereof, nor shall Tenant sell or permit to be kept,
used or sold, in or about said Premises,  any article which may be prohibited by
the standard  form of fire  insurance  policies.  Tenant  shall  (subject to the
provisions of Article 17 as to  Alterations  required  which are not a result of
Tenant's  specific  use), at its sole cost and expense,  comply with any and all
reasonable   requirements,   pertaining  to  said  Premises,  of  any  insurance
organization  or company,  necessary for the  maintenance of reasonable fire and
public liability insurance, covering said Premises and appurtenances.

         B. Landlord's Liability Insurance.  Landlord shall procure and maintain
during  the Term of this  Lease a policy  of (i)  commercial  general  liability
insurance  having a combined  single limit for bodily injury and property damage
of not less than One Million Dollars ($1,000,000.00) per occurrence;  and (ii) a
general  aggregate  insurance in an amount of not less than Five Million Dollars
($5,000,000.00).  The policy  shall  provide  coverage  for blanket  contractual
liability  (except for the negligence or willful  misconduct of the  non-insured
party) premises and personal injury  coverage.  Landlord shall furnish to Tenant
prior to the Commencement  Date, and thereafter within thirty (30) days prior to
the  expiration of each such policy,  a certificate  of insurance  issued by the
insurance carrier of each policy of insurance carried hereunder.

         C. Property  Insurance:  Landlord  agrees to purchase and keep in force
fire, and extended coverage ("All Risk" excluding earthquake) insurance covering
the Premises  pursuant to the provisions of Article 10) in amounts not less than
the  replacement  cost of said  Premises as mutually  determined by Landlord and
Tenant.  Tenant agrees to pay to the Landlord as additional rent, on demand, the
full cost of said insurance as evidenced by insurance  billings to the Landlord,
and in the event of damage covered by said insurance  which does not result in a
termination  of this  Lease,  the amount of any  deductible  under such  policy,
provided such deductible is not greater than $20,000.00. Payment shall be due to
Landlord within ten (10) days after written invoice to Tenant.  It is understood
and agreed  that  Tenant's  obligation  under this  Article  will be prorated to
reflect the commencement and termination dates of this Lease.

         Notwithstanding  the  forgoing,  Tenant shall have the right to provide
the hazard  insurance  for the  Premises  provided  (i)  Tenant can obtain  such
insurance at a more favorable rate than Landlord;  (ii) the form of coverage and
insurer are  satisfactory  to Landlord  and its lender;  (iii)  Landlord and its
lender are named as additional insured; (iv) such insurance provides that it may
not be subject to  cancellation or change except after at least thirty (30) days
written  notice  to  Landlord;  and (v)  Tenant  has  delivered  to  Landlord  a
certificate  of insurance and additional  insured  endorsement  evidencing  such
policy is in effect.

         E.  Tenant's  Insurance:  In  addition,  Tenant  agrees to  insure  its
personal  property,  the 

                                    Page 11
<PAGE>

Tenant Improvements, any Alterations not owned by Landlord pursuant to the terms
of Article 10 and to obtain  worker's  compensation  and  public  liability  and
property  damage  insurance  for  occurrences  within the Premises with combined
limits for bodily injury and property damage of not less than  $1,000,000.00 per
occurrence and a general aggregate limit of not less than $5,000,000.00.  Tenant
shall name  Landlord  and  Landlord's  lender as an  additional  insured,  shall
deliver a copy of the policies and renewal  certificates  to Landlord.  All such
policies shall provide for thirty (30) days' prior written notice to Landlord of
any cancellation, termination, or reduction in coverage.

         D. Waiver: Landlord and Tenant hereby waive any and all rights each may
have  against  the  other on  account  of any loss or damage  occasioned  to the
Landlord or the Tenant as the case may be, or to the  Premises or its  contents,
and which may arise from any risk covered by their respective insurance policies
(or which would have been covered had such insurance policies been maintained in
accordance with this Lease),  as set forth above.  The parties shall obtain from
their respective  insurance companies a waiver of any right of subrogation which
said insurance  company may have against the Landlord or the Tenant, as the case
may be.

         E. General:  Insurance required hereunder shall be written by companies
licensed to do business in the state in which the  Premises are located and have
a General  Policyholder's rating of at least A8 (or such higher rating as may be
required  by a lender  having a lien on the  Property)  as set forth in the most
current issue of Best's Insurance  Guide. All insurance shall expressly  provide
that such  policies  shall not be cancelable or subject to reduction of coverage
or  otherwise  be subject to  modification  except  after thirty (30) days prior
written notice to any other party named as additional insureds.

     13. Taxes:  Tenant shall be liable for, and shall pay prior to delinquency,
all taxes and assessments levied against personal property and trade or business
fixtures,  and agrees to pay, as  additional  rental,  all real estate taxes and
assessment  installments  (special or general) or other  impositions  or charges
which may be levied on the  Premises,  upon the  occupancy  of the  Premises and
including any substitute or additional  charges which may be imposed during,  or
applicable to the Lease Term  including  real estate tax increases due to a sale
or other  transfer  of the  Premises,  as they appear on the City and County tax
bills during the Lease Term, and as they become due. It is understood and agreed
that  Tenant's  obligation  under this  Article  will be prorated to reflect the
Commencement and Expiration  Dates. If, at any time during the Lease Term a tax,
excise on rents,  business license tax, or any other tax, however described,  is
levied or assessed against Landlord,  as a substitute or addition in whole or in
part for taxes  assessed or imposed on land or  Buildings,  Tenant shall pay and
discharge  his pro rata share of such tax or excise on rents or other tax before
it becomes  delinquent.  In the event that a tax is placed,  levied, or assessed
against  Landlord and the taxing  authority  takes the position  that the Tenant
cannot  pay and  discharge  his pro  rata  share of such  tax on  behalf  of the
Landlord,  then at the sole election of the Landlord,  the Landlord may increase
the rental  charged  hereunder  by the exact amount of such tax and Tenant shall
pay such increase as

                                    Page 12
<PAGE>

additional  rent  hereunder.  Landlord  hereby  grants  to  Tenant  the right to
contest, on behalf and in the name of Landlord,  all taxes and assessments which
are imposed upon the Premises;  Landlord  agrees to cooperate  fully with Tenant
and to execute all documents  requested by Tenant,  in connection  with any such
contest.  If by virtue of any  application  or  proceeding  brought by  Landlord
results a reduction in the assessed value of the Building during the Lease Term,
Tenant agrees to reimburse  Landlord its  reasonable,  actual third party out of
pocket  costs  incurred by  Landlord  in  connection  with such  application  or
proceeding.

         Notwithstanding the foregoing,  the following shall not constitute real
estate taxes for the purposes of this Lease, and nothing  contained herein shall
be deemed to require Tenant to pay any of the following:  (i) any state,  local,
federal,  personal or  corporate  income tax measured by the income of Landlord;
(ii) any  estate or  inheritance  taxes;  (iii)  any  franchise,  succession  or
transfer  taxes;  (iv) interest on taxes or penalties  resulting from Landlord's
failure  to pay  taxes,  except to the extent  such  failure is due to  Tenant's
failure to pay such taxes to Landlord  when provided  under this Lease;  (v) any
assessments for public improvements or any taxes initiated by Landlord which are
essentially payments to a governmental agency for the right to make improvements
to the Building or surrounding  area, to the extent such  assessments are not in
effect as of the Execution Date and have not received the prior written  consent
of Tenant;  and (vi) any environmental tax, surcharge or other fee affecting the
Premises due to Landlord's  activities with respect to Hazardous  Materials,  as
opposed to general, areawide taxes or surcharges with respect to the remediation
or testing for Hazardous  Materials.  If any assessments  affecting the Premises
are payable in  installments  and Landlord  should  prepay such  assessments  in
advance of the date such  installments  would become due, Tenant shall be solely
responsible for the portion of such assessment that would have normally come due
as an installment, unless consented to by Tenant in writing.

         Notwithstanding  anything  to the  contrary  contained  in this  Lease,
Landlord  shall pay,  and  Tenant  shall have no  responsibility  for,  any real
property taxes  resulting from any change in ownership,  sale, or other transfer
of the  Premises or Building  during the initial Term of the Lease to the extent
that such amount reflects an assessed valuation of the Premises in excess of one
hundred  fifty  percent  (150%)  of  the  "Commencement   Date  Valuation."  The
"Commencement  Date Valuation" shall mean the assessed valuation of the Premises
(as  improved  with the  Building)  as  determined  by the  Santa  Clara  County
Assessor,  as of the first date after the Commencement Date that the Santa Clara
County Assessor  reassesses the Premises based on the completion of construction
of the Building and Tenant Improvements.

         14.  Utilities:  Tenant shall pay directly to the providing utility all
water, gas, heat, light,  power,  telephone and other utilities  supplied to the
Premises.  Except  for  any  damages  resulting  from  the  negligence,  willful
misconduct,  or breach of contract by Landlord,  or its agents,  or  contractors
Landlord  shall not be  liable  for a loss of or  injury  to  property,  however
occurring,  through or in connection with or incidental to furnishing or failure
to furnish any  utilities  to the

                                    Page 13
<PAGE>

Premises  and Tenant  shall not be entitled to  abatement  or  reduction  of any
portion of the Base  Monthly  Rent so long as any failure to provide and furnish
the utilities to the Premises is due to a cause beyond the Landlord's reasonable
control, and is not the result of the negligence,  willful misconduct, or breach
of contract by Landlord, or its agents, or contractors.

         In the  event  of any  interruption  in  utilities  or  services  to be
provided to the Premises,  Tenant's rights and remedies shall be as follows: (i)
if such  interruption is due to a failure of Tenant to pay the providing utility
when due, Base Rent due hereunder shall not be abated and Landlord shall have no
liability to Tenant  whatsoever as a result of such  interruption;  (ii) if such
interruption is due to the actions of Landlord or Landlord's  Parties,  the Base
Rent  hereunder  shall be  equitably  abated  as of the time  such  interruption
commenced and Landlord  shall be liable to Tenant for loss or injury to property
and Tenant's business as a result thereof;  (iii) if such interruption is due to
the failure of the  providing  utility to provide such utility or service to the
Premises and such  interruption  continues for more than ninety (90)  continuous
days,  then  Tenant  shall be entitled  to  terminate  this Lease by delivery of
written notice to Landlord within five (5) days following the expiration of such
ninety  (90) day  period;  and (iv) if such  interruption  is due to an event of
damage or destruction, the rights of the parties hereunder shall be as described
in Section 28 below.

     15. This paragraph intentionally left blank

     16. Free From Liens:  Except for obligations  arising from the construction
of the Building Shell , Tenant Improvements,  and parking lot, Tenant shall keep
the Premises  free from any liens arising out of any work  performed,  materials
furnished,  or obligations incurred by Tenant.  Landlord shall keep the Premises
free from any liens arising out of any work performed,  materials furnished,  or
obligations incurred in connection with the Building Shell, Tenant Improvements,
or parking  lot. In the event  Tenant  fails to  discharge or bond over any such
lien within  thirty  (30) days after  receiving  notice of the filing,  Landlord
shall be entitled to discharge  such lien at Tenant's  expense and all resulting
costs incurred by Landlord,  including  reasonable  attorney's fees shall be due
from Tenant as additional rent.

     17.  Compliance With  Governmental  Regulations:  Tenant shall, at its sole
cost and expense,  comply with all of the  requirements of all Municipal,  State
and Federal  authorities now in force, or which may hereafter be in force, which
are imposed as a result of Tenant's particular and specific use of the Premises,
and shall faithfully observe in the use of the Premises all Municipal ordinances
and State and Federal  statutes now in force or which may hereafter be in force.
The judgment of any court of competent jurisdiction,  or the admission of Tenant
in any action or proceeding against Tenant,  whether Landlord be a party thereto
or not, that Tenant has violated any such ordinance or statute in the use of the
Premises,  shall be conclusive of that fact as between  Landlord and Tenant.  In
the event an  Alteration  is required to the  Building  Shell by any law,  rule,

                                    Page 14
<PAGE>

ordinance  or decision not in effect as of the  Commencement  Date of this Lease
which is not imposed as a result of Tenant's  particular and specific use of the
Premises  (whether pursuant to Article 12 or this Article 17), Tenant shall only
be required  to pay that  portion of the cost equal to the product of such total
cost  multiplied  by a fraction,  the numerator of which is the number of months
remaining  in the Lease Term,  the  denominator  of which is the useful life (in
months) of the Alteration.

     18. Toxic Waste and Environmental Damage:          

         A.  Landlord's  Responsibility:  Landlord  represents  and  warrants to
Tenant that,  except as disclosed in the attached  environmental  studies  dated
June 18, 1990,  July 2, 1990,  July 25, 1994,  and the  Burrowing Owl study from
H.T. Harvey & Associates,  to the best of Landlord's knowledge, the Premises and
the Building,  as of the Commencement Date, do not contain any chemicals,  toxic
or hazardous  gaseous,  liquid or solid  materials or waste,  including  without
limitation,  material  or  substance  having  characteristics  of  ignitability,
corrosivity,  reactivity,  or  extraction  procedure  toxicity or  substances or
materials which are listed on any of the Environmental  Protection Agency's list
of hazardous  wastes or which are  identified  in Section 66680 through 66685 of
Title 22 of the  California  Administrative  Code, 42 U.S.C.  Sections  9601, et
seq., 49 U.S.C.  Sections  1801, et seq., 42 U.S.C.  Sections  6901, et seq., or
California Health and Safety Code Section 25117, as the same may be amended from
time to time ("Hazardous Materials").  Landlord shall indemnify, protect, defend
and hold  Tenant  harmless  from and  against all  liability,  cost,  damage and
expense (including, without limitation attorneys' fees) arising from either: (i)
the failure of the  representation  and warranty  contained  in the  immediately
preceding  sentence;  (ii) the presence of any Hazardous  Materials or Burrowing
Owls on or about the Premises on or prior to the Commencement Date; or (iii) the
presence,  release, storage or use of Hazardous Materials on the Premises during
the Term by any party other than Tenant, Tenant's agents, employees, contractors
or invitees ("Tenant's Parties").

         B. Tenant's Responsibility: Landlord hereby approves Tenant's use on or
about the  Premises of Hazardous  Materials  used by Tenant in  connection  with
Tenant's business. Tenant represents and warrants that Tenant will (i) adhere to
all reporting and inspection  requirements imposed by Federal,  State, County or
Municipal laws, ordinances or regulations and will make available for inspection
by Landlord a copy of any such  reports or agency  inspections,  (ii) obtain and
make  available  for  inspection  by Landlord  copies of all  necessary  permits
required for the use and handling  Hazardous  Materials on the  Premises,  (iii)
enforce  Hazardous  Materials  handling and disposal  practices  consistent with
industry  standards,  (iv)  surrender  the  Premises  free  from  any  Hazardous
Materials  arising  from  Tenant's  bringing,  using,  permitting,   generating,
emitting  or  disposing  of  Hazardous  Materials,  and (v)  properly  close the
facility   with  regard  to  Hazardous   Materials   including  the  removal  or
decontamination  of any  process  piping,  mechanical  ducting,  storage  tanks,
containers,  or trenches  which have come  become  contaminated  with  Hazardous
Materials and obtain a closure certificate from the local  administering  agency
prior to the Expiration

                                    Page 15
<PAGE>

Date to the extent required by Law.

         C.  Tenant's  Indemnity  Regarding  Hazardous  Materials:  Tenant shall
comply,  at its sole cost,  with all laws pertaining to, and shall indemnify and
hold Landlord harmless from any claims, liabilities,  costs or expenses incurred
or  suffered  by  Landlord  arising  from  such  bringing,   using,  permitting,
generating,  emitting or  disposing  of  Hazardous  Materials on the Premises by
Tenant  or  Tenant's  Parties.   Tenant's   indemnification  and  hold  harmless
obligations  include,  without  limitation,  (i)  claims,  liability,  costs  or
expenses  resulting  from or  based  upon  administrative,  judicial  (civil  or
criminal) or other action, legal or equitable,  brought by any private or public
person  under  common  law or under the  Comprehensive  Environmental  Response,
Compensation and Liability Act of 1980 ("CERCLA"), the Resource Conservation and
Recovery Act of 1980 ("RCRA") or any other Federal,  State,  County or Municipal
law,  ordinance  or  regulation,  (ii)  claims,  liabilities,  costs or expenses
pertaining to the identification,  monitoring,  cleanup, containment, or removal
of Hazardous Materials from soils, riverbeds or aquifers including the provision
of an alternative  public drinking water source,  and (iii) all reasonable costs
of defending such claims.

         D. Actual  Release by Tenant:  Tenant  agrees to notify  Landlord  upon
learning  of any  lawsuits  which  relate  to,  or  orders  which  relate to the
remedying  of, the actual  release by Tenant or  Tenant's  Parties of  Hazardous
Materials on or into the soils or groundwater  at or under the Premises.  Tenant
shall also provide to Landlord all notices required by Section 25359.7(b) of the
Health  and Safety  Code and all other  notices  required  by law to be given to
Landlord in connection with Hazardous Materials. Without limiting the foregoing,
Tenant  shall also deliver to Landlord,  within  twenty (20) days after  receipt
thereof,  any written notices from any  governmental  agency alleging a material
violation of, or material  failure to comply with,  any federal,  state or local
laws,  regulations,  ordinances or orders,  the violation of which of failure to
comply with,  poses a  foreseeable  and material  risk of  contamination  of the
groundwater or injury to humans (other than injury solely to Tenant,  its agents
and employees within the Improvements on the Property).

         In the event of any release on or into the Premises or into the soil or
groundwater under the Premises of any Hazardous Materials used, treated,  stored
or disposed of by Tenant, Tenant agrees to comply, at its sole cost and expense,
with all laws, regulations, ordinances and orders of any federal, state or local
agency relating to the monitoring or remediation of such Hazardous Materials. In
the event of any such release of Hazardous Materials,  Tenant agrees to meet and
confer with  Landlord  and its Lender to attempt to  eliminate  and mitigate any
financial  exposure to such  Lender and  resultant  exposure  to Landlord  under
California  Code of Civil  Procedure  section 736(b) as a result of such release
and promptly to take  reasonable  monitoring,  cleanup and remedial steps given,
inter alia,  the  historical  uses to which the Property has and continues to be
used,  the risks to  public  health  posed by the  release,  the then  available
technology and the costs of remediation, cleanup and monitoring, consistent with
acceptable  customary  practices for the type and severity of such contamination
and all applicable  laws.  Nothing in the preceding  sentence  shall  eliminate,

                                    Page 16
<PAGE>

modify or reduce the  obligation  of Tenant under  Article 18.B of this Lease to
indemnify  and hold  Landlord  harmless  from any claims  liabilities,  costs or
expenses  incurred or  suffered by Landlord as provided in Article  18.B of this
Lease.   Tenant  shall  provide  Landlord  prompt  written  notice  of  Tenant's
monitoring, cleanup and remedial steps. Tenant shall have the right, at Tenant's
expense and in Tenant's  name, to contest or object in good faith to any alleged
violation  by Tenant of any  applicable  law  relating  to the use of  Hazardous
Materials  by  appropriate  legal  proceedings  which  are  not  prejudicial  to
Landlord's   rights  if  (i)  Tenant  shall  have   demonstrated  to  Landlord's
satisfaction that such legal proceedings shall  conclusively  operate to prevent
enforcement prior to final  determination of any such proceedings.  In the event
that, by  non-performance of any such items, the Premises is subject to imminent
loss or  forfeiture,  Tenant shall perform any such act required by the relevant
governmental authority.

         In the absence of an order of any federal,  state or local governmental
or  quasi-governmental  agency  relating to the  cleanup,  remediation  or other
response action required by applicable law, any dispute arising between Landlord
and Tenant  concerning  Tenant's  obligation to Landlord under this Article 18.D
concerning  the Level,  method,  and manner of cleanup,  remediation or response
action required in connection  with such a release of Hazardous  Materials shall
be resolved by  mediation  and/or  arbitration  pursuant  to the  provisions  of
Article 45 of this Lease.

         E.  Environmental  Monitoring:  Landlord  and its agents shall have the
right,  at Landlord's  sole cost and expense,  (unless Tenant is in violation of
this Article 18 in which event such monitoring shall be at Tenant's  expense) to
inspect,  investigate,  sample and/or  monitor the Premises,  including any air,
soil,  water,  groundwater  or other  sampling  or any other  testing,  digging,
drilling or analysis to determine  whether Tenant is complying with the terms of
this Article 18. If Landlord discovers that Tenant is not in compliance with the
terms of this  Article  18, any such  reasonable  costs  incurred  by  Landlord,
including attorneys' and consultants' fees shall be due and payable by Tenant to
Landlord within thirty (30) days following Landlord's written demand therefore.

     19.  Indemnity:  As a material part of the  consideration to be rendered to
Landlord, Tenant hereby waives all claims against Landlord for damages to goods,
wares and  merchandise,  and all other personal  property in, upon or about said
Premises and for injuries to persons in or about said  Premises,  from any cause
except to the extent due to the negligence or willful  misconduct of Landlord or
Landlord's  Parties to the fullest  extent  permitted  by law,  and Tenant shall
indemnify and hold Landlord exempt and harmless from any damage or injury to any
person,  or to the goods,  wares and merchandise and all other personal property
of any person, arising from the use of the Premises, Building, and/or Project by
Tenant, its employees,  contractors,  agents and invitees or from the failure of
Tenant to keep the Premises in good  condition and repair,  as herein  provided,
except to the extent due to the negligence or willful  misconduct of Landlord or
Landlord's  Parties.  Further,  in the  event  Landlord  is  made  party  to any
litigation due to the acts or omission of Tenant,  its 

                                    Page 17
<PAGE>

employees,  contractors,  agents and  invitees,  Tenant will  indemnify and hold
Landlord  harmless from any such claim or liability  including  Landlord's costs
and expenses and reasonable attorney's fees incurred in defending such claims.

         Landlord  shall  defend,  indemnify  by counsel  acceptable  to Tenant,
protect Tenant, its officers, employees and agents harmless from and against any
liabilities,  loss,  cost,  damage,  injury  or  expense  (including  reasonable
attorneys'  fees and court  costs)  arising  out of or  related  to the  willful
misconduct or negligence of Landlord or Landlord's Parties.

     20. Advertisements and Signs: Tenant will not place or permit to be placed,
in, upon or about the exterior of the Building any signs which are prohibited by
the city or other governing  authority.  The Tenant will not place, or permit to
be placed,  upon the  exterior of the  Building,  any signs,  advertisements  or
notices  without the written consent of the Landlord as to type,  size,  design,
lettering,  coloring and  location,  and such  consent will not be  unreasonably
withheld.  Any sign so placed on the exterior of the Building shall be so placed
upon the  understanding  and  agreement  that  Tenant  will  remove  same at the
termination of the tenancy herein created and repair any damage or injury to the
exterior of the Building  caused  thereby,  and if not so removed by Tenant then
Landlord may have same so removed at Tenant's expense.

     21.  Attorney's  Fees:  In  case a suit  or  alternative  form  of  dispute
resolution  should  be  brought  for the  possession  of the  Premises,  for the
recovery  of any sum due  hereunder,  or  because  of the  breach  of any  other
covenant herein, the losing party shall pay to the prevailing party a reasonable
attorney's fee including the expense of expert witnesses,  depositions and court
testimony  as part of its costs  which  shall be deemed to have  accrued  on the
commencement of such action. In addition, the prevailing party shall be entitled
to recover all costs and expenses including reasonable  attorney's fees incurred
by the  prevailing  party in enforcing  any judgment or award  against the other
party. The foregoing provision relating to post-judgment costs is intended to be
severable from all other provisions of this Lease.

     22.  Tenant's  Default:  The  occurrence  of  any of  the  following  shall
constitute a material default and breach of this Lease by Tenant: a) Any failure
by Tenant to pay the rental or to make any other payment  required to be made by
Tenant hereunder,  where such failure continues for ten (10) days after Tenant's
receipt of written notice thereof by Landlord to Tenant;  b) A failure by Tenant
to observe  and  perform  any other  provision  of this Lease to be  observed or
performed  by Tenant,  where such failure  continues  for thirty (30) days after
Tenant's receipt of written notice thereof by Landlord;  provided, however, that
if the nature of such default is such that the same cannot  reasonably  be cured
within such thirty (30) day period  Tenant  shall not be deemed to be in default
if Tenant shall within such period commence such cure and thereafter  diligently
prosecute  the same to  completion;  c) The  making  by  Tenant  of any  general
assignment  for the benefit of creditors;  the filing by or against  Tenant of a
petition to have Tenant adjudged a bankrupt or of a 

                                    Page 18
<PAGE>

petition for  reorganization or arrangement under any law relating to bankruptcy
(unless,  in the case of a petition filed against Tenant,  the same is dismissed
after the filing);  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 ninety
(90)  days;  or  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 ninety (90)
days.  The  notice  requirements  set  forth  herein  are in  lieu of and not in
addition to the notices  required by California Code of Civil Procedure  Section
1161. Any notice given by Landlord to Tenant  pursuant to California  Civil Code
1161 with  respect  to any  failure by Tenant to pay rent under this Lease on or
before the date the rent is due shall  provide  Tenant  with a period of no less
than ten (10) days to pay such rent or quit.

         A.  Remedies:  In the  event of any such  default  by  Tenant,  then in
addition  to any other  remedies  available  to  Landlord  at law or in  equity,
Landlord shall have the immediate  option to terminate this Lease and all rights
of Tenant hereunder by giving written notice of such intention to terminate.  In
the event that Landlord shall elect to so terminate this Lease then Landlord may
recover from Tenant:  a) the worth at the time of award of any unpaid rent which
had been earned at the time of such  termination;  plus b) the worth at the time
of award of the amount by which the unpaid  rent  which  would have been  earned
after termination until the time of award exceeds the amount of such rental loss
for the same period that Tenant proves could have been reasonably avoided;  plus
c) the worth at the time of award of the amount by which the unpaid rent for the
balance  of the Lease Term  after the time of award  exceeds  the amount of such
rental loss that Tenant  proves could be reasonably  avoided;  plus d) any other
amount necessary to compensate Landlord for all the detriment proximately caused
by Tenant's failure to perform its obligations  under this Lease or which in the
ordinary  course of  things  would be  likely  to  result  therefrom,  and e) at
Landlord's  election,  such  other  amounts  in  addition  to or in  lieu of the
foregoing as may be permitted  from time to time by applicable  California  law.
The term "rent",  as used herein,  shall be deemed to be and to mean the minimum
monthly installments of Base Monthly Rent and all other sums required to be paid
by Tenant pursuant to the terms of this Lease,  all other such sums being deemed
to be additional rent due hereunder. As used in (a) and (b) above, the "worth at
the time of award" is to be  computed  by  allowing  interest at the rate of the
discount  rate of the  Federal  Reserve  Bank of San  Francisco  plus  five (5%)
percent per annum. As used in (c) above,  the "worth at the time of award" is to
be  computed by  discounting  such  amount at the  discount  rate of the Federal
Reserve Bank of San Francisco at the time of award plus one (1%) percent.

         B.  Right to  Re-enter:  In the event of any such  default  by  Tenant,
Landlord shall also have the right,  with or without  terminating this Lease, to
re-enter the Premises  and remove all persons and  property  from the  Premises;
such  property  may be removed and stored in a public  warehouse or elsewhere at
the cost of and for the  account of Tenant and  disposed  of by  Landlord in any
manner permitted by law.

                                    Page 19
<PAGE>

         C.  Abandonment:  In the event of the  vacation or  abandonment  of the
Premises  by Tenant or in the event that  Landlord  shall  elect to  re-enter as
provided in Article 22.B above or shall take possession of the Premises pursuant
to legal  proceeding or pursuant to any notice provided by law, then if Landlord
does not elect to terminate  this Lease as provided in Article 22.A above,  then
the provisions of California  Civil Code Section 1951.4,  (Landlord may continue
the lease in effect after Tenant's breach and abandonment and recover rent as it
becomes  due,  if  Tenant  has a right to sublet  and  assign,  subject  only to
reasonable  limitations) as amended from time to time,  shall apply and Landlord
may from time to time, without terminating this Lease, either recover all rental
as it becomes  due or relet the  Premises  or any part  thereof for such term or
terms and at such rental or rentals and upon such other terms and  conditions as
Landlord  in its sole  discretion  may  deem  advisable  with the  right to make
alterations and repairs to the Premises.  In the event that Landlord shall elect
to so relet,  then rentals  received by Landlord  from such  reletting  shall be
applied:  first, to the payment of any indebtedness other than Base Monthly Rent
due  hereunder  from Tenant to Landlord;  second,  to the payment of any cost of
such reletting; third, to the payment of the cost of any alterations and repairs
to the  Premises;  fourth,  to the payment of Base  Monthly  Rent due and unpaid
hereunder;  and the  residue,  if any,  shall be held by Landlord and applied in
payment of future  Base  Monthly  Rent as the same may  become  due and  payable
hereunder.  Landlord shall have no obligation to relet the Premises  following a
default if Landlord  has other  available  space within the Building or Project.
Should that  portion of such rentals  received  from such  reletting  during any
month, which is applied by the payment of rent hereunder,  be less than the rent
payable  during  that  month by Tenant  hereunder,  then  Tenant  shall pay such
deficiency  to Landlord  immediately  upon demand  therefor  by  Landlord.  Such
deficiency  shall be  calculated  and paid  monthly.  Tenant  shall  also pay to
Landlord, as soon as ascertained, any costs and expenses incurred by Landlord in
such  reletting  or in making  such  alterations  and repairs not covered by the
rentals received from such reletting.

         D. No Termination:  No re-entry or taking possession of the Premises by
Landlord  pursuant to 22.B or 22.C of this  Article 22 shall be  construed as an
election to terminate  this Lease unless a written  notice of such  intention be
given to Tenant or unless  the  termination  thereof  be  decreed  by a court of
competent  jurisdiction.  Notwithstanding  any reletting without  termination by
Landlord  because of any default by Tenant,  Landlord may at any time after such
reletting elect to terminate this Lease for any such default.

     23.  Surrender of Lease:  The voluntary or other surrender of this Lease by
Tenant,  or a mutual  cancellation  thereof,  shall not  automatically  effect a
merger of the Lease with Landlord's  ownership of the Premises.  Instead, at the
option  of  Landlord,  Tenant's  surrender  may  terminate  all or any  existing
sublease or subtenancies,  or may operate as an assignment to Landlord of any or
all such subleases or subtenancies,  thereby  creating a direct  Landlord-Tenant
relationship between Landlord and any subtenants.

                                    Page 20
<PAGE>

     24. Habitual Default: Deleted.


     25. Landlord's  Default:  In the event of Landlord's failure to perform any
of its  covenants or  agreements  under this Lease,  Tenant shall give  Landlord
written notice of such failure and shall give Landlord  thirty (30) days to cure
such failure; provided, however, that if the nature of such default is such that
the same cannot  reasonably be cured within such thirty (30) day period Landlord
shall not be deemed to be in  default  if  Landlord  shall  within  such  period
commence such cure and thereafter  diligently  prosecute the same to completion.
In  addition,  upon any such  failure by  Landlord,  Tenant shall give notice by
registered or certified mail or national overnight courier service to any person
or entity  with a  security  interest  in the  Premises  ("Mortgagee")  that has
provided Tenant with written notice (including such Mortgagee's  address) of its
interest in the Premises,  and shall  provide such  Mortgagee a period of thirty
(30) days  beyond  the cure  period  provided  Landlord  hereunder  to cure such
failure. Tenant shall not make any prepayment of rent more than one (1) month in
advance without the prior written  consent of such Mortgagee.  Tenant waives any
right under  California Civil Code Section 1950.7 or any other present or future
law to the  collection  of any  payment or deposit  from such  Mortgagee  or any
purchaser  at a  foreclosure  sale  of such  Mortgagee's  interest  unless  such
Mortgagee or such  purchaser  shall have actually  received (or have credited to
it) and not refunded the applicable payment or deposit.

     26. Notices:  All notices,  demands,  requests,  or consents required to be
given under this Lease shall be sent in writing by U.S.  certified mail,  return
receipt  requested,  national  overnight courier service or by personal delivery
addressed to the party to be notified at the address for such party specified in
Article 1 of this Lease,  or to such other place as the party to be notified may
from  time to time  designate  by at least  five (5) days  prior  notice  to the
notifying party.

     27.  Entry by  Landlord:  Upon 24 hours prior  notice,  Tenant shall permit
Landlord and his agents to enter into and upon said  Premises at all  reasonable
times  subject to any  security  regulations  of Tenant for the  purposes of (i)
inspecting  the same,  (ii)  maintaining  the  Premises,  (iii) making  repairs,
alterations or additions to the Premises,  (iv) erecting additional  building(s)
and  improvements  on the land where the Premises are  situated,  or on adjacent
land owned by Landlord,  or (v) performing any obligations of the Landlord under
the Lease including  remediation of hazardous  materials if determined to be the
responsibility  of  Landlord,  without any  abatement  or  reduction  of rent or
without any liability to Tenant for any loss of occupation or quiet enjoyment of
the Premises  thereby  occasioned.  Tenant shall permit  Landlord and Landlord's
Parties,  at any  time  within  one  hundred  eighty  (180)  days  prior  to the
Expiration  Date,  unless  Tenant  has  exercised  its option to extend the term
pursuant  to  Section  37.A (or at any time  during  the  Lease if  Tenant is in
default hereunder beyond the applicable cure period), to place upon the Premises
"For  Lease"  signs  and  exhibit  the  Premises  to  real  estate  brokers  and
prospective  tenants at  reasonable  hours.  Landlord  agrees that  Landlord and
Landlord's  Parties shall conduct all of their  activities under this 

                                    Page 21
<PAGE>

Section 27 in a manner which  minimizes the  interruption  to Tenant or Tenant's
activities on the Premises.

     28. Destruction of Premises: 
         A.  Destruction  by an  Insured  Casualty:  In the  event of a  partial
destruction  of the  Premises  by a casualty  for which  Landlord  has  received
insurance  proceeds  sufficient to repair the damage or  destruction  during the
Lease  Term from any  cause,  Landlord  shall  forthwith  repair the same to the
extent of such  proceeds,  provided  such repairs can be made within twelve (12)
months from the date of  destruction  as reasonably  determined by the architect
responsible for the  reconstruction  such  determination to be made within sixty
(60) days of the date of destruction,  and such partial  destruction shall in no
way  annul or void  this  Lease,  except  that  Tenant  shall be  entitled  to a
proportionate  reduction of Base Monthly Rent while such repairs are being made,
such proportionate  reduction to be based upon the extent to which the making of
such  repairs  shall  interfere  with the  business  carried on by Tenant in the
Premises.  For  purposes  of  this  Article  "partial  destruction"  shall  mean
destruction of no greater than one-third  (1/3) of the  replacement  cost of the
Premises,  including the replacement cost of the Tenant Improvements paid for by
Landlord.  In the event the Premises (i) are more than partially  destroyed,  or
(ii) the  repairs  cannot be made  within  twelve  (12)  months from the date of
destruction  as  reasonably  determined  by the  architect  responsible  for the
reconstruction  such determination to be made within sixty (60) days of the date
of destruction. Landlord shall not be required to restore Alterations or replace
Tenant's fixtures or personal  property.  In respect to any partial  destruction
which  Landlord is obligated to repair or may elect to repair under the terms of
this Article, the provision of Section 1932, Subdivision 2, and of Section 1933,
Subdivision  4, of the  Civil  Code of the  State of  California  and any  other
similarly  enacted  statute  are  waived by Tenant  and the  provisions  of this
Article 28 shall govern in the case of such  destruction.  Any disputes  between
Landlord and Tenant with respect to the degree of damage or  destruction  of the
Premises or the time  necessary  to rebuild  shall be  resolved  by  arbitration
pursuant to Section 47 of this Lease.

         B.  Destruction  by an Uninsured  Casualty:  In the event of a total or
partial  destruction  of the Premises by a casualty  for which  Landlord has not
received  insurance  proceeds  sufficient  to repair the  damage or  destruction
during  the Lease  Term and which  would  cost in  excess of Two  Hundred  Fifty
Thousand and No/100  Dollars  ($250,000.00)  to repair,  Landlord shall have the
option to terminate this Lease, unless Tenant agrees to contribute the amount of
such uninsured loss beyond the initial $250,000 to repair, which amount shall be
the sole  obligation  of Landlord.  Further if the  uninsured  damage can not be
repaired  within twelve (12) months from the date of  destruction  as reasonably
determined   by  the  architect   responsible   for  the   reconstruction   such
determination  to be made  within  sixty  (60) days of the date of  destruction,
either Landlord or Tenant shall have the option to terminate this lease.

                                    Page 22
<PAGE>

         C. Damage or Destruction at End of Term: If the Building or Premises is
damaged or destroyed  during the last twenty-four (24) months of the Term of the
Lease,  and the  Premises  or Building  cannot be fully  repaired or restored by
Landlord  within  ninety (90) days after the date of the damage or  destruction,
either  Landlord  or Tenant may  terminate  this Lease upon notice to the other,
provided,  that Tenant may prevent  Landlord's  termination  of this Lease under
this  Section  28.C by  exercising  Tenant's  right to extend  the Lease Term as
described in Section 37.

     29. Assignment or Sublease: 
         A.  Consent by  Landlord:  In the event  Tenant  desires to assign this
Lease or any interest therein including,  without limitation, a pledge, mortgage
or other hypothecation, or sublet the Premises or any part thereof, Tenant shall
deliver to  Landlord  executed  counterparts  of any such  agreement  and of all
ancillary  agreements with the proposed assignee or subtenant,  such assignee or
subtenant's most recent financial statements,  and any additional information as
reasonably  required  by Landlord to  determine  whether it will  consent to the
proposed  assignment  or  sublease.  The notice  shall give the name and current
address of the proposed assignee/subtenant, proposed use of the Premises, rental
rate and current financial statement; and upon request to Tenant, Landlord shall
be given additional  information as reasonably required by Landlord to determine
whether it will consent to the proposed  assignment or sublease.  Landlord shall
then  have  a  period  of ten  (10)  days  following  receipt  of the  foregoing
agreement,  statements and additional  information within which to notify Tenant
in writing that  Landlord  elects (i) to permit  Tenant to assign or sublet such
space to the named  assignee/subtenant  on the terms and conditions set forth in
the notice,  or (ii) to refuse consent,  which consent shall not be unreasonably
withheld or delayed. If Landlord should fail to notify Tenant in writing of such
election  within  said ten (10) day  period,  Landlord  shall be  deemed to have
elected  option (i) above.  Landlord's  consent (which must be in writing and in
form reasonably satisfactory to Landlord) to the proposed assignment or sublease
shall not be  unreasonably  withheld or delayed.  Tenant shall not  advertise or
publicize the availability of the Premises without prior notice to Landlord.

         B.  Assignment  or  Subletting  Consideration:  If Tenant shall assign,
sublease or  otherwise  transfer  all or any portion of the  Premises to a party
other than Tenant  Affiliate  (as defined in 29.E  below),  Landlord  and Tenant
shall evenly divide any rent or other consideration paid to Tenant in connection
with such assignment,  sublease or other transfer which is in excess of the base
rent due under this Lease,  after first  deducting out for the Tenant's  account
the cost of (i) broker's commissions paid by Tenant with regard to the transfer;
(ii) legal fees; (iii) the cost of improvements made to the Premises at Tenant's
expense  to the  extent  such  improvements  increase  the rent  paid  under the
sublease  over that which would have been paid without such  improvements;  (iv)
any tenant  improvements  made by Tenant at Tenant's  expense for the purpose of
transfer; (v) all rent paid by Tenant to Landlord while the Premises were vacant
prior to such  transfer;  and (vi) any  other  expenses  incurred  by  Tenant in
effectuating  the  transfer.  The  terms  of  this  section  shall  survive  the

                                    Page 23
<PAGE>

expiration or earlier  termination of the Lease. The above provision relating to
the allocation of bonus rent are  independently  negotiated  terms of the Lease,
constitute a material  inducement for the Landlord to enter into the Lease,  and
are agreed as between the parties to be commercially  reasonable.  No assignment
or subletting by Tenant shall relieve Tenant of any obligation under this Lease.
Any assignment or subletting which conflicts with the provisions hereof shall be
void.

         C. No Release:  Any  assignment  or sublease  shall be made only if and
shall  not  be  effective   until  the  assignee  or  subtenant  shall  execute,
acknowledge  and  deliver  to  Landlord  an  agreement,  in form  and  substance
satisfactory to Landlord,  whereby the assignee or subtenant shall assume all of
the  obligations of this Lease on the part of Tenant to be performed or observed
and shall be subject to all of the covenants,  agreements, terms, provisions and
con[ditions  contained in this Lease,  except as expressly provided for therein.
Notwithstanding  any such sublease or assignment  and the  acceptance of rent by
Landlord from any subtenant or assignee, Tenant and any guarantor shall and will
remain  fully  liable  for the  payment  of the  rent  and  additional  rent due
hereunder,  and to  become  due  hereunder,  for the  performance  of all of the
covenants,  agreements, terms, provisions and conditions contained in this Lease
on the part of  Tenant to be  performed  and for all acts and  omissions  of any
licensee,  subtenant, assignee or any other person claiming under or through any
subtenant  or  assignee  that  shall be in  violation  of any of the  terms  and
conditions  of this  Lease,  and any  such  violation  shall be  deemed  to be a
violation by Tenant.  Tenant shall further  indemnify,  defend and hold Landlord
harmless from and against any and all losses,  liabilities,  damages,  costs and
expenses (including reasonable attorney fees) resulting from any claims that may
be made against  Landlord by the  proposed  assignee or subtenant or by any real
estate brokers or other persons claiming a commission or similar compensation in
connection with the proposed assignment or sublease.

         D. Effect of Default:  In the event of Tenant's default,  Tenant hereby
assigns all rents due from any  assignment or subletting to Landlord as security
for  performance  of its  obligations  under this Lease and Landlord may collect
such rents, except that Tenant may collect such rents unless a default occurs as
described  in  Article  22 and 24 above.  The  termination  of this Lease due to
Tenant's  default shall not  automatically  terminate any assignment or sublease
then in  existence;  at the election of Landlord,  such  assignment  or sublease
shall  survive  the  termination  of this Lease  and,  upon such  election,  the
assignee or subtenant  shall attorn to Landlord and Landlord shall undertake the
obligations  of the  Tenant  under the  sublease  or  assignment;  provided  the
Landlord shall not be liable for prepaid rent, or security deposits not received
by Landlord or other defaults of the Tenant to the subtenant or assignee, or any
acts or omissions of Tenant,  its agents,  employees,  contractors  or invitees.
Notwithstanding  anything to the  contrary  in this  Lease,  no event of default
shall be  deemed  to have  occurred  by  virtue  of any act or  omission  of any
subtenant or assignee of Tenant, unless Landlord has delivered to Tenant written
notice of such act or  omission,  and has given  Tenant  the  period(s)  of time
specified in Article 22 to cure such default.

                                    Page 24
<PAGE>

         E.  Excluded  Transfers:  Tenant  may  assign  this Lease or sublet any
portion of the Premises without  Landlord's  consent to any of the following (i)
any corporation  which  controls,  is controlled by or under common control with
Tenant;  (ii) any  corporation  resulting  from the merger or  consolidation  of
Tenant if (a) the  successor to Tenant has a net worth,  computed in  accordance
with generally accepted accounting principles,  at least equal to the greater of
(1) the net worth of Tenant  immediately  prior to such  transfer or (2) the net
worth  of  Tenant  herein  named  on the  date of  this  Lease,  and  (b)  proof
satisfactory to Landlord of such net worth shall have been delivered to Landlord
at least  ten (10) days  prior to the  effective  date of any such  transaction;
(iii) any person or entity which acquires all of the assets of Tenant as a going
concern of the business that is being  conducted on the Premises  (collectively,
"Tenant Affiliate"), provided that such assignee assumes in full the obligations
of Tenant under the Lease.

     30. Condemnation: If any part of the Premises shall be taken for any public
or quasi-public  use, under any statute or by right of eminent domain or private
purchase in lieu thereof,  and only a part thereof  remains which is susceptible
of occupation hereunder,  this Lease shall as to the part so taken, terminate as
of the day before  title  shall vest in the  condemnor  or  purchaser  ("Vesting
Date"),  and the Base Monthly Rent payable  hereunder  shall be adjusted so that
the Tenant  shall be  required to pay for the  remainder  of the Lease Term only
such portion of such Base Monthly Rent as the value of the part remaining  after
such taking bears to the value of the entire Premises prior to such taking;  but
in such event  Landlord and Tenant shall have the option to terminate this Lease
as of the Vesting Date. If all of the Premises, or such part thereof be taken so
that the  remaining  portion is  unusable  for  Tenant's  business  therein,  as
reasonably  determined by Tenant,  Tenant may terminate this Lease as of Vesting
Date. Landlord shall be entitled to any award paid for if the Premises is wholly
or partially condemned,  except that Tenant shall have the right to receive from
either the condemning  authority or Landlord,  as  applicable,  all proceeds and
other  compensation  received in connection with condemnation to the extent paid
for (i) any Tenant  Improvements  or  Alterations  made by or at the  expense of
Tenant;  (ii) Tenant's loss of goodwill;  (iii) Tenant's  relocation  costs; and
(iv) Tenant's loss of business and business  interruption.  Tenant hereby waives
the provisions of California Code of Civil  Procedures  Section 1265.130 and any
other  similarly  enacted statue are waived by Tenant and the provisions of this
Article 30 shall govern in the case of such destruction.

     31. Effects of Conveyance: The term "Landlord" as used in this Lease, means
only the owner for the time being of the  Premises so that,  in the event of any
sale or other  conveyance of the Premises,  or in the event of a master lease of
the Premises, the Landlord shall be and hereby is entirely freed and relieved of
all covenants and obligations of the "Landlord"  hereunder,  but only so long as
the new Landlord  expressly  assumes in writing all the  obligations of Landlord
under this Lease,  and  delivers to Tenant a written  agreement by which the new
Landlord assumes such obligations, and it shall be deemed and construed, without
further agreement between the parties

                                    Page 25
<PAGE>

and the purchaser at any such sale,  or the master tenant of the Premises,  that
the  purchaser or master  tenant of the Premises has assumed and agreed to carry
out any and all  covenants and  obligations  of the Landlord  hereunder  arising
after the effective  date of the transfer to the new Landlord.  Such  transferor
shall  transfer and deliver  Tenant's  security  deposit to the purchaser at any
such  sale  or the  master  tenant  of the  Premises,  and  thereupon  the  such
transferor shall be discharged from any further liability in reference thereto.

     32.  Subordination:  Simultaneously  with  the  execution  of  this  Lease,
Landlord shall deliver to Tenant a  non-disturbance  agreement  from  Landlord's
existing lender or lenders, if any, in form and substance  acceptable to Tenant,
by which such lender or lenders agree not to disturb Tenant's  possession of the
Premises so long as Tenant is not in material default of the terms of this Lease
beyond any applicable  cure period at the time such lender or lenders  foreclose
on the  Premises.  This Lease shall be  subordinate  to any future ground lease,
deed of trust,  or other  hypothecation  for  security  only so long as Landlord
delivers  to  Tenant  prior to the  effective  of such  subordination  a written
non-disturbance  agreement, in form and substance acceptable to Tenant, by which
such  Lender or other party  agrees not to disturb  Tenant's  possession  of the
Premises if Tenant is not in material default of Tenant's obligations under this
Lease beyond any  applicable  cure period at the time such party becomes the fee
owner of the  Premises.  Subject to the above,  in the event  Landlord  notifies
Tenant in writing,  this Lease shall be subordinate to any ground Lease, deed of
trust, or other hypothecation for security now or hereafter placed upon the real
property of which the Premises  are a part and to any and all  advances  made on
the security thereof and to renewals, modifications, replacements and extensions
thereof.  Tenant agrees to promptly  execute and deliver any documents which may
be required to effectuate such subordination.

     33.  Waiver:  The waiver by  Landlord  or Tenant 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. The subsequent acceptance of
rent  hereunder by Landlord  shall not be deemed to be a waiver of any preceding
breach by Tenant of any term,  covenant or condition  of this Lease,  other than
the failure of Tenant to pay the  particular  rental so accepted,  regardless of
Landlord's  knowledge of such preceding breach at the time of acceptance of such
rent.  No payment by Tenant or receipt by Landlord  of a lesser  amount than any
installment  of rent due shall be deemed to be other than  payment on account of
the amount due.  No delay or omission in the  exercise of any right or remedy by
Landlord or Tenant shall impair such right or remedy or be construed as a waiver
thereof by the non-defaulting  party. No act or conduct of Landlord,  including,
without  limitation,  the acceptance of keys to the Premises,  shall  constitute
acceptance of the surrender of the Premises by Tenant before the Expiration Date
(only written notice from Landlord to Tenant of acceptance shall constitute such
acceptance of surrender of the Premises).  Landlord's  consent to or approval of
any act by Tenant which  require  Landlord's  consent or approvals  shall not be
deemed to waive or render  unnecessary  Landlord's consent to or approval of any
subsequent act by Tenant.

                                    Page 26
<PAGE>

     34.  Holding  Over:  Any holding over after the  termination  or Expiration
Date,  shall be  construed to be a tenancy  from month to month,  terminable  on
thirty (30) days  written  notice from either  party,  and Tenant shall pay Base
Monthly  Rent to  Landlord at a rate equal to one  hundred  twenty five  percent
(125%) of the Base Monthly Rent due in the month  preceding the  termination  or
Expiration  Date for the first two (2)  months of any hold over and one  hundred
fifty percent (150%) of the Base Monthly Rent  thereafter plus all other amounts
payable by Tenant under this Lease.  Any holding over shall  otherwise be on the
terms and conditions herein specified,  except those provisions  relating to the
Lease Term and any options to extend or renew,  which  provisions shall be of no
further force and effect  following the  expiration of the  applicable  exercise
period.

     35.  Successors and Assigns:  The covenants and conditions herein contained
shall,  subject to the  provisions  of Article 29,  apply to and bind the heirs,
successors, executors, administrators and assigns of all the parties hereto; and
all of the parties hereto shall be jointly and severally liable hereunder.

     36. Estoppel Certificates:  Tenant shall at any time during the Lease Term,
within ten (10) days following receipt of written notice from Landlord,  respond
to any request by Landlord for a statement in writing  certifying  (i) that this
Lease is unmodified  and in full force and effect (or, if modified,  stating the
nature of such modification);  (ii) the date to which the rent and other charges
are paid in advance, if any; (iii) acknowledging that there are not, to Tenant's
knowledge,  any uncured defaults on the part of Landlord hereunder or specifying
such defaults if they are claimed;  and (iv) such other  information as Landlord
may reasonably  request.  Any such statement may be conclusively  relied upon by
any prospective purchaser or encumbrancer of the Premises. Tenant also agrees to
provide the most current three (3) years of audited financial  statements within
five (5) days of a request by  Landlord  for  Landlord's  use in  financing  the
Premises with commercial lenders.

     37. Option to Extend the Lease Term: 
         A. Grant and Exercise of Option: Landlord hereby grants to Tenant, upon
and subject to the terms and  conditions  set forth in this  Article 37 four (4)
options (the  "Options")  to extend the Lease Term for an  additional  term (the
"Option  Term"),  each Option  Term shall be for a period of sixty (60)  months.
Each such Option shall be exercised, if at all, by written notice to Landlord no
earlier  than the date that is twenty four (24) months  prior to the  Expiration
Date  but no later  than  the  date  that is  twelve  (12)  months  prior to the
Expiration  Date.  Thirteen  (13) months prior to the  Expiration  Date Landlord
shall  provide  Tenant  with a written  notice of the fact that the Option  will
expire in thirty (30) days. If Tenant  exercises the Option,  each of the terms,
covenants  and  conditions  of this Lease except this Article shall apply during
the Option  Term as though the  expiration  date of the Option Term was the date
originally  set forth  herein as the  Expiration  Date,  provided  that the Base
Monthly Rent to be paid by Tenant during the Option Term shall be the greater of
(i) the Base 

                                    Page 27
<PAGE>

Monthly Rent payable on the Commencement Date, or (ii) ninety five percent (95%)
of the Fair Market  Rental,  as  hereinafter  defined,  for the Premises for the
Option  Term.  Anything  contained  herein to the contrary  notwithstanding,  if
Tenant is in monetary or material  non-monetary  default  beyond any  applicable
cure period under any of the terms, covenants or conditions of this Lease either
at the time Tenant  exercises the Option or at any time thereafter  prior to the
commencement date of the Option Term, Landlord shall have, in addition to all of
Landlord's  other  rights and  remedies  provided  in this  Lease,  the right to
terminate the Option upon notice to Tenant,  in which event the expiration  date
of this Lease shall be and remain the  Expiration  Date or the expiration of the
then relevant Option Term. As used herein, the term "Fair Market Rental" for the
Premises  shall mean the rental and all other  monetary  payments  including any
escalations and adjustments thereto (including without limitation Consumer Price
Indexing) then being obtained for leases of space  comparable in age and quality
to the  Premises in the  locality of the  Building  that  Landlord  could obtain
during the Option Term from a third party desiring to lease the Premises for the
Option Term based upon the current use and other potential uses of the Premises.
The appraisers shall be instructed that the foregoing five percent (5%) discount
is intended to reduce comparable rents which include (i) brokerage  commissions,
(ii) tenant improvement allowances,  and (iii) vacancy costs, to account for the
fact that Landlord will not suffer such costs in the event Tenant  exercises its
Option. The Fair Market Rental shall specifically  exclude any additional rental
attributable to the value of the Tenant  Improvements or Alterations paid for by
Tenant.

         B. Determination of Fair Market Rental: If Tenant exercises the Option,
Landlord  shall send to Tenant a notice setting forth the Fair Market Rental for
the Premises for the Option Term within thirty (30) days of Tenant's exercise of
the  Option.  If Tenant  disputes  Landlord's  determination  of the Fair Market
Rental for the Option Term, Tenant shall, within thirty (30) days after the date
of Landlord's  notice  setting forth the Fair Market Rental for the Option Term,
send to Landlord a notice stating that Tenant either (i) elects to terminate its
exercise  of the Option,  in which  event the Option  shall lapse and this Lease
shall  terminate on the  Expiration  Date,  or (ii)  disagrees  with  Landlord's
determination  of Fair  Market  Rental for the Option Term and elects to resolve
the  disagreement  as provided in Article 37.C below. If Tenant does not send to
Landlord a notice as provided in the previous sentence, Landlord's determination
of the Fair Market  Rental shall be the basis for  determining  the Base Monthly
Rent to be paid by Tenant  hereunder during the Option Term. If Tenant elects to
resolve the  disagreement  as provided in Article 37.C below and such procedures
shall not have been concluded prior to the commencement date of the Option Term,
Tenant shall pay as Base Monthly Rent to Landlord the rent due hereunder  during
the month preceding the Expiration  Date. If the amount of Fair Market Rental as
finally  determined  pursuant to Article 37.C below is greater  than  Landlord's
determination,  Tenant shall pay to Landlord the  difference  between the amount
paid by Tenant  and the he rent due  hereunder  during the month  preceding  the
Expiration  Date within  thirty (30) days after the  determination.  If the Fair
Market  Rental  as  finally  determined  in  Article  37.C  below  is less  than
Landlord's  determination,  the difference between the amount paid by Tenant and
the Fair Market Rental as so determined in

                                    Page 28

<PAGE>

Article 37.C below shall be credited  against the next  installments of rent due
from Tenant to Landlord hereunder.

         C.  Resolution  of a  Disagreement  over the Fair  Market  Rental:  Any
disagreement regarding the Fair Market Rental shall be resolved as follows:

                    1.  Within  thirty  (30) days  after  Tenant's  response  to
Landlord's notice to Tenant of the Fair Market Rental, Landlord and Tenant shall
meet no less than two (2) times,  at a  mutually  agreeable  time and place,  to
attempt to resolve any such disagreement.

                    2. If within the thirty  (30) day period  referred to in (i)
above, Landlord and Tenant can not reach agreement as to the Fair Market Rental,
they shall each select one appraiser to determine the Fair Market  Rental.  Each
such  appraiser  shall arrive at a  determination  of the Fair Market Rental and
submit their  conclusions  to Landlord and Tenant  within thirty (30) days after
the  expiration  of the thirty (30) day  consultation  period  described  in (i)
above.

                    3. If only one  appraisal is submitted  within the requisite
time period, it shall be deemed to be the Fair Market Rental. If both appraisals
are submitted  within such time period,  and if the two  appraisals so submitted
differ by less than ten percent  (10%) of the higher of the two,  the average of
the two shall be the Fair Market Rental.  If the two  appraisals  differ by more
than ten percent (10%) of the higher of the two, then the two  appraisers  shall
immediately select a third appraiser who shall within thirty (30) days after his
or her selection shall select one of the two (2) existing determinations of Fair
Market Rental as correct.  This third  appraiser's  conclusion shall be the Fair
Market Rental.

                    4. All appraisers  specified  pursuant to this Article shall
be members of the  American  Institute of Real Estate  Appraisers  with not less
than five (5) years experience  appraising  office and industrial  properties in
the Santa Clara Valley.  Each party shall pay the cost of the appraiser selected
by such party and one-half of the cost of the third appraiser.

     38. Tenant's Right of First Refusal:

         A. Grant.  Landlord  hereby  grants to Tenant a right of first  refusal
during the Term of this Lease and any extension thereof to purchase the Premises
("Right of First Refusal to Purchase").

         B.  Covenants of Landlord.  Landlord  hereby  covenants and agrees with
Tenant that if, during the Term of the Lease,  Landlord shall receive or solicit
a bona fide offer from a  prospective  buyer to  purchase  either the  Premises,
Landlord  shall furnish  Tenant with a copy of the proposed  contract and notify
Tenant of the intention of Landlord to accept the same (the "Notice of Intention
to Sell").  Such Notice of Intention to Sell shall contain all material business
terms on which

                                    Page 29
<PAGE>


Landlord  intends  to sell the  Premises.  Landlord  shall not sell the space in
question  to anyone  other  than  Tenant  without  first  providing  Tenant  the
opportunity  to buy the space in  question  upon the same  terms and  conditions
described in the Notice of Intention to Sell.

         C. Exercise of Tenant's  Right of First  Refusal to Purchase.  Provided
that  Tenant is not in  default  under the terms and  conditions  of this  Lease
beyond any applicable grace periods, Tenant may exercise Tenant's Right of First
Refusal to Purchase by providing  Landlord with written  notice  thereof  within
fifteen (15) days of Tenant's  receipt of the Notice of Landlord's  Intention to
Sell.  If Tenant does not exercise  its Right of First Offer to Purchase  within
said  fifteen (15) day period,  then  Landlord  shall be relieved of  Landlord's
obligation  to offer the space  identified in the Notice of Intention to Sell to
Tenant, except as provided for in Section 38.E below.

         D.  Terms for Right of First  Refusal  to  Purchase.  In the event that
Tenant exercises Tenant's Right of First Refusal to Purchase,  Tenant's purchase
shall be on all of the same terms and  conditions  as are offered to a bona-fide
third-party  purchaser  of the space  identified  in the Notice of  Intention to
Sell.

         E. Continuing Right. In no event shall Tenant's failure to exercise its
Right of First  Refusal  to  Purchase  be deemed a waiver or  relinquishment  by
Tenant of  Tenant's  Right of First  Refusal  to  Purchase  should (i) the space
identified in the Notice of Intention to Sell be offered for sale to a potential
purchaser  other  than the  purchaser  specified  in the  Notice  of  Landlord's
Intention  to Sell during the Term of this Lease or any  extension  thereof,  or
(ii) the space  identified  in the  Notice of  Landlord's  Intention  to Sell be
offered for sale to any purchaser on terms different than those specified in the
Notice of  Landlord's  Intention  to Sell  during  the Term of this Lease or any
extension thereof.

         F.  Exclusive  Nature of Option.  Landlord  represents  and warrants to
Tenant that no party  other than Tenant has any option,  right of first offer or
right of first refusal to purchase the Premises.  Landlord  hereby  covenants to
Tenant that Landlord shall not grant an option to purchase, right of first offer
or right of first refusal to purchase the Premises during the Term of this Lease
or any extension thereof

         G.  Successors and Assigns.  Except as provided in this paragraph 38.G,
this Right of First Refusal to Purchase  shall be binding on the  successors and
assigns  of  Landlord  and  Tenant.  This  Right  of  First  Refusal  shall  not
specifically  not apply to (but shall  survive the same and be binding  upon any
purchaser  or  successor  of such  sale or  foreclosure)  (i)  any  transfer  of
ownership of the Premises by a judicial  foreclosure  sale or sale pursuant to a
power  of  sale  provision  in any  relevant  deed of  trust  or  mortgage  lien
,transfers  of the  Building,  or (ii) a "Sobrato  Family  Transfer".  A Sobrato
Family  Transfer  shall be a transfer  of the  Premises  to (i) John A.  Sobrato
and/or John M.  Sobrato  (individually  and  collectively  "Sobrato"),  (ii) any
immediate family member of Sobrato, (iii)

                                    Page 30
<PAGE>

any trust  established,  in whole or in part,  for the benefit of Sobrato and/or
any immediate family member of Sobrato, (iv) any partnership in which Sobrato or
any immediate  family member,  either  directly or indirectly  (e.g.,  through a
partnership or corporate entity or a trust) retains a general partner  interest,
and/or (v) any corporation under the control, either directly or indirectly,  by
Sobrato or any immediate family member of Sobrato.

         39. Options:  Except with respect to any Tenant Affiliate,  all Options
provided  Tenant in this Lease are personal  and granted to original  Tenant and
are not  exercisable  by any third party should Tenant assign or sublet  (except
for any  assignment  permitted by the third to last paragraph of Article 29) all
or a portion of its rights under this Lease,  unless Landlord consents to permit
exercise  of any  option  by any  assignee  or  subtenant,  in  Landlord's  sole
discretion.  In the event that  Tenant  hereunder  has any  multiple  options to
extend this Lease, a later option to extend the Lease cannot be exercised unless
the prior option to extend has been so exercised.

         40.  Quiet  Enjoyment:  Landlord  covenants  with Tenant for itself and
Landlord's  successors that so long as no Event of Default on the part of Tenant
has occurred  hereunder,  (i) Tenant shall and may  peaceably  and quietly have,
hold and enjoy the  Premises  for the Term of this  Lease,  and any  renewals or
extensions thereof;  and (ii) neither Landlord,  nor any party claiming under or
through  Landlord,  shall  disturb the use or the  occupancy  of the Premises by
Tenant.

         41.  Brokers:  Landlord and Tenant each warrants and represents for the
benefit of the other that it has had no dealings  with any real estate broker or
agent in connection with the  negotiation of this Lease,  except for CB Madison,
and that it knows of no other  real  estate  broker  or agent who is or might be
entitled to a real estate  brokerage  commission  or finder's fee in  connection
with this Lease. Each party shall indemnify and hold harmless the other from and
against any and all  liabilities  or expenses  arising out of claims made by any
broker (other than CB Madison) or individual  for  commissions or fees resulting
from the actions of the indemnifying party in connection with this Lease.

         42.  Landlord's  Liability:  If Tenant should  recover a money judgment
against  Landlord  arising in connection with this Lease,  the judgment shall be
satisfied  only  out of  Landlord's  interest  in  the  Premises  including  the
improvements  and real  property  and neither  Landlord or any of its  partners,
officers, directors, agents, trustees, shareholders or employees shall be liable
personally for any deficiency. And furthermore,  Tenant expressly waives any and
all rights to proceed against the individual partners or the officers, directors
or shareholders of any corporate partner, except to the extent of their interest
in said limited partnership.

         Notwithstanding  the foregoing,  the following shall apply with respect
to claims by Tenant  directly  resulting  from any and all  defaults by Landlord
with  respect to any of its  obligations  under

                                    Page 31
<PAGE>

(i) Section 18 with  respect to  Hazardous  Materials,  or (ii)  Section 28 with
respect to destruction to the Premises  (collectively,  the "Special Defaults").
In the event of any Special Defaults,  Tenant shall be entitled to seek recourse
against any assets of Landlord,  and the recourse of Tenant against Landlord for
any Special Default shall not be limited to Landlord's  interest in the Premises
and the rents and other forms of income originating therefrom.

     43.  Authority of Parties:  Landlord and Tenant  represents and warrants to
each other that it is duly formed and in good standing and is duly authorized to
execute and deliver this Lease on behalf of said corporation or partnership,  as
relevant, in accordance with a duly adopted resolution of the Board of Directors
of said corporation or in accordance with the by-laws of said  corporation,  and
that this Lease is binding upon said corporation or partnership,  as relevant in
accordance  with its terms.  At either  party's  request,  the other party shall
provide the requesting party with corporate resolutions or other proof in a form
acceptable to the requesting party, authorizing the execution of the Lease.

     44. Transportation  Demand Management Programs:  Should a government agency
or  municipality  require  Landlord  to  institute  TDM  (Transportation  Demand
Management) facilities and/or program, Tenant hereby agrees that the cost of TDM
imposed  facilities  required  on the  Premises,  including  but not  limited to
employee showers, lockers, cafeteria, or lunchroom facilities, shall be included
as Tenant Improvement Costs (unless such costs qualify for amortization pursuant
to Article 17) and any ongoing costs or expenses  associated with a TDM program,
such as an on-site TDM coordinator,  which are required for the Premises and not
provided by Tenant shall be provided by Landlord with such costs being  included
as additional rent and reimbursed to Landlord by Tenant.

     45. DISPUTE RESOLUTION:  Except for the failure by Tenant to timely pay the
Base Monthly Rent, any controversy, dispute, or claim of whatever nature arising
out of, in connection with, or in relation to the interpretation, performance or
breach of this  agreement,  including  any claim  based on  contract,  tort,  or
statute, shall be resolved at the request of any party to this agreement through
a two-step dispute resolution  process  administered by JAMS or another judicial
and  mediation  service  mutually  acceptable  to the  parties  involving  first
mediation, followed, if necessary, by final and binding arbitration administered
by and in accordance  with the then existing  rules and practice of the judicial
and mediation  service  selected,  and judgment  upon any award  rendered by the
arbitrator(s)  may be entered by any State or Federal Court having  jurisdiction
thereof.

     46. Miscellaneous Provisions:

         A. Rent:  All  monetary  sums due from  Tenant to  Landlord  under this
Lease,  including,  without  limitation those referred to as "additional  rent",
shall be deemed to be rent.

                                    Page 32
<PAGE>

         B.  Performance by Landlord:  If Tenant fails to perform any obligation
required under this Lease or by law or governmental regulation and Tenant is not
disputing such law or  governmental  regulation in accordance  with the terms of
this Lease,  Landlord,  in its sole  discretion  may without  notice and without
releasing  Tenant  from its  obligations  hereunder  or  waiving  any  rights or
remedies,  perform such obligation,  in which event Tenant shall pay Landlord as
additional  rent all sums  reasonably  paid by Landlord in connection  with such
substitute  performance  including  interest as  provided in Article  48.C below
within thirty (30) days following Landlord's written notice for such payment.

         C. Interest:  All rent due hereunder (but not late charges thereon), if
not paid when due,  shall bear interest at the reference rate of Union Bank plus
two percent (2%) accruing from the date due until the date paid to Landlord.

         D.  Rights  and  Remedies:   All  rights  and  remedies  hereunder  are
cumulative  and  not  alternative  to the  extent  permitted  by law  and are in
addition to all other rights and remedies in law and in equity.

         E. Survival of  Indemnities:  All  indemnification,  defense,  and hold
harmless  obligations  of Landlord and Tenant under this Lease shall survive the
expiration or sooner termination of the Lease for a period of four (4) years.

         F.  Severability:  If any  term  or  provision  of this  Lease  is held
unenforceable or invalid by a court of competent jurisdiction,  the remainder of
the  Lease  shall  not be  invalidated  thereby  but  shall  be  enforceable  in
accordance with its terms, omitting the invalid or unenforceable term.

         G. Choice of Law:  This Lease shall be  governed  by and  construed  in
accordance with California law. Venue shall be Santa Clara County.

         H. Time: Time is of the essence hereunder.

         I. Entire Agreement: This instrument contains all of the agreements and
conditions  made between the parties hereto and may not be modified orally or in
any other  manner  other than by an  agreement  in writing  signed by all of the
parties hereto or their respective successors in interest.

         J.  Representations:  Tenant acknowledges that neither Landlord nor any
of its employees or agents have made any agreements, representations, warranties
or promises  with respect to the demised  Premises or with respect to present or
future rents,  expenses,  operations,  tenancies or any other matter.  Except as
herein expressly set forth herein,  Tenant relied on no

                                    Page 33
<PAGE>

statement of Landlord or its employees or agents for that purpose.

         K.  Headings:  The headings or titles to the Articles of this Lease are
not a part of this  Lease and  shall  have no effect  upon the  construction  or
interpretation of any part thereof.

         L.  Exhibits:  All exhibits  referred to are attached to this Lease and
incorporated by reference.

         M. Approvals:  With respect to any consent of Landlord which Tenant may
request  pursuant  to the  terms  of  this  Lease,  such  consent  shall  not be
unreasonably  withheld or delayed by  Landlord.  If  Landlord  fails to grant or
withhold such  requested  consent within five (5) business days after request by
Tenant, such consent shall be deemed granted.

         N. Recordation. Within twenty (20) days following the execution of this
Lease,  both  Landlord and Tenant  shall  execute,  acknowledge  and cause to be
recorded in the Official  Records of County of Santa  Clara,  California a short
form  memorandum  of this Lease in form  reasonably  acceptable  to Landlord and
Tenant.

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

Landlord:  Sobrato Development Cos. #871    Tenant:  Komag Incorporated
a California Limited Partnership            a Delaware Corporation


By:  _____________________________          By:  _____________________________

Its:  _____________________________         Its:  _____________________________

                                    Page 34
<PAGE>


                             EXHIBIT "A" - Premises


                                    Page 35
<PAGE>


          EXHIBIT "B" - Formula for Determination of Base Monthly Rent



After  receipt of the final  pricing  for the  Building  Shell,  Landlord  shall
determine  Total Project  Costs (as defined  below) based on  competitive  bids.
During  this  period  Landlord  shall also  solicit  permanent  loan quotes from
institutional lenders to determine the best available financing.  Based on these
inputs  Landlord  shall then apply the  following  formula to determine the Base
Monthly Rent due under this Lease.

Base Monthly Rent shall be equal to one hundred twenty percent of the product of
the (i) Total Project Costs as defined below and (ii) the best non-participating
ten (10) year fixed rate permanent loan constant available prior to the start of
construction of the Option Building.  The  determination of which loan comprises
the best  available  financing  shall be made in good faith by both Landlord and
Tenant.  The parties  acknowledge  that it is their current  intention that such
amortization  schedule  shall be for a minimum  period of twenty  (20) years and
Landlord shall use its best efforts to obtain such financing.

Total Project Costs shall be equal to the sum of (i) the value of the land based
on a value of Nine and 90/100  Dollars  ($9.90) per land square  foot,  (ii) the
Building Shell Allowance, (iii) fees for building permits, licenses, inspection,
utility  connections or extensions,  and any other fees imposed by  governmental
entities, (iv) fees of engineers,  architects,  consultants and others providing
professional  services in connection with the construction of the Building,  (v)
construction  loan  interest paid by Landlord  including  interest on Landlord's
equity with  respect to the  construction  of the  Building,  calculated  at the
reference  rate  charged by Union  Bank plus one  percent  (1%),  (vi) loan fees
payable for the  construction  and/or permanent loan for the Building (vii) real
property taxes and assessments levied against the Property during the period the
Building is constructed,  (viii) liability and builders risk insurance  premiums
paid by Landlord with respect to the construction of the Building, and (ix) real
estate  leasing  commissions  or fees  payable by Landlord  with  respect to the
Building.

For example,  if Total  Project  Costs are  $6,600,000,  and Landlord is able to
obtain a 7.75% loan with a 20 year amortization,  the Base Monthly Rent would be
120% X ($6,600,000 X .008209), or $65,015.28.

                                    Page 36
<PAGE>


                  EXHIBIT "C" - Shell Plans and Specifications
                        (sheet references to be attached)


                                    Page 37
<PAGE>


                     EXHIBIT "D" - Building Shell Definition

The Building Shell includes the following items:

1.     Site Work

       a. Asphalt concrete paving, wheel stops, and striping.

       b. Concrete sidewalks,  curbs, gutter, driveway,  approaches, and planter
walls.

       c. Landscaping, landscape lighting, waterscape, and irrigation.

       d.  Underground   utilities  -  water,  gas,  fire  line,  sanitary  line
(including pump station if required),  site storm drainage system,  transformers
and primary and secondary electrical lines stubbed into building. The routing of
the  under  slab  utilities  shall  be  done  as  part  of  the  Building  Shell
construction if the location of the lines are determined prior to the pouring of
the floor slab.

       e. Offsite  improvement  work  required by the City of San Jose to obtain
building permits.

2.     Building Structure

Includes all elements necessary to provide for a completely  waterproof Building
Shell including but not limited to:

       a. Concrete  foundation and slab on grade including all reinforcing steel
and wire mesh including four loading docks.

       b. Structural steel columns and beams.

       c. Steel joist and girder  second  floor  system with  concrete and metal
deck (if multi-story building).

       d. Wood  panelized  glulam roof  structure or steel frame with metal deck
and rigid insulation with fiberglass  built-up  roofing  including roof drainage
plumbing.

       e. Glass,  glazing and perimeter roll up or hollow metal doors  including
normal passage hardware.

       f. Concrete tilt up or plaster on metal stud framed exterior walls.

       g. Exterior painting.

       h. All city permits,  fees, and taxes,  connection charges related to the
Building Shell construction.

       i. Main fire sprinkler grid.

       j. All  architectural  and engineering costs related to the design of the
Building Shell.

                                    Page 38
<PAGE>


            EXHIBIT "E" - Tenant Improvement Plans and Specifications
                        (sheet references to be attached)


                                    Page 39
<PAGE>


                      EXHIBIT "F" - Tenant's Trade Fixtures

                                    Page 40
<PAGE>


                           EXHIBIT "G" - Fee Agreement


Tenant shall pay to Sobrato Construction Corporation,  an affiliate of Landlord,
a fee of Four Hundred Thousand and No/100 Dollars  ($400,000.00) as compensation
to Landlord for its services as general  contractor  for the Building  Shell and
Tenant Improvements ("Construction Fee").

The Construction Fee shall be paid in monthly installments of Forty Thousand and
No/100 Dollars ($40,000.00).  In no event, however,  shall the final installment
of the Construction Fee be due from Tenant until  Substantial  Completion of the
Premises has occurred.

The  Construction  Fee  includes  the  general  conditions  associated  with the
construction of the Building Shell and Tenant Improvements.  It is agreed by the
parties that the general conditions  included in the Construction Fee consist of
the following costs: (i) all project management and scheduling  personnel costs,
(ii) field office expenses including set-up and rent,  janitorial,  security and
furniture, (iii) general office expenses including supplies, computers, postage,
telephone,  reproduction  and copying,  travel expenses,  subsistence,  drinking
water,  etc.,  (iv)  management  vehicles  and fuel,  (v) general  safety  costs
including a safety  engineer,  flagman/traffic  control,  barricades  and signs,
protective equipment and first aid supplies, and fire protection, (vi) temporary
services including temporary  electrical (light strings,  tempower boxes, cords,
trailer   office   connection,   light   stands   and   transformer),    utility
costs/generator, water (installation,  connection and utility), heating, ladders
and stairs,  and chemical  toilets,  (vii) field  services  such as  janitorial,
security,  interim clean-up,  debris boxes, project sign, (viii) worker/employee
parking and drinking water,  (ix) insurance  (liability and building risk),  (x)
City  Gross  Receipts  Tax,  (xi) gas,  oil,  diesel  fuel and  lubrication  for
equipment  owned by  general  contractor,  and (xii) site  conditions  including
temporary roads,  staging and storage areas, site dewatering,  winter protection
and  maintenance,  site  fencing,  tree  protection,  dust  control,  tool shed,
walkietalkies, etc.


                                    Page 41