Document:

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                                                                  Exhibit 10.41

                  LEASE AGREEMENT           Bldg.:  Westport 15
                                                    Owner :  30
                                                    Prop  :  0115
                                                    Unit  :  1
                                                    Tenant:  Blue01
                                                    Lease :  0115-Blue01-01

         THIS LEASE, made this 15th day of October, 1999 between WESTPORT JOINT
VENTURE, a California joint venture, hereinafter called Landlord, and BLUESTONE
SOFTWARE, INC., a Delaware corporation, hereinafter called Tenant.

                                 WITNESSETH:

         Landlord hereby leases to Tenant and Tenant hereby hires and takes from
Landlord those certain premises (the "Premises") outlined in red on Exhibit "A",
attached hereto and incorporated herein by this reference thereto more
particularly described as follows:

A portion of that certain 48,384+/- square foot, two-story building located at
1300 Bridge Parkway, Suite 101, Redwood City, California 94065, consisting of
approximately 10,847+/- square feet on the first floor of the building. Said
Premises is more particularly shown within the area outlined in Red on EXHIBIT A
attached hereto. The entire parcel, of which the Premises is a part, is shown
within the area outlined in Green on EXHIBIT A attached. The Premises shall be
improved by Landlord as shown on EXHIBIT B to be attached hereto, and is leased
on an "as-is" basis, in its present condition, and in the configuration as shown
in Red on EXHIBIT B to be attached hereto.

         As used herein the Complex shall mean and include all of the land
outlined in Green and described in Exhibit "A", attached hereto, common area
private roads within the Complex, and all of the buildings, improvements,
fixtures and equipment now or hereafter situated on said land.

         Said letting and hiring is upon and subject to the terms, covenants and
conditions hereinafter set forth and Tenant covenants as a material part of the
consideration for this Lease to perform and observe each and all of said terms,
covenants and conditions. This Lease is made upon the conditions of such
performance and observance.

1. USE. Tenant shall use the Premises only in conformance with applicable
governmental laws, regulations, rules and ordinances for the purpose of general
office, light manufacturing, research and development, and storage and other
uses necessary for Tenant to conduct Tenant's business, provided that such uses
shall be in accordance with all applicable governmental laws and ordinances and
for no other purpose. Tenant shall not do or permit to be done in or about the

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Premises or the Complex nor bring or keep or permit to be brought or kept in or
about the Premises or the Complex anything which is prohibited by or will in any
way increase the existing rate of (or otherwise affect) fire or any insurance
covering the Complex or any part thereof, or any of its contents, or will cause
a cancellation of any insurance covering the Complex or any part thereof, or any
of its contents. Tenant shall not do or permit to be done anything in, on or
about the Premises or the Complex which will in any way obstruct or interfere
with the rights of other tenants or occupants of the Complex or injure or annoy
them, or use or allow the Premises to be used for any improper, immoral,
unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit
any nuisance in, on or about the Premises or the Complex. No sale by auction
shall be permitted on the Premises. Tenant shall not place any loads upon the
floors, walls, or ceiling, which endanger the structure, or place any harmful
fluids or other materials in the drainage system of the building, or overload
existing electrical or other mechanical systems. No waste materials or refuse
shall be dumped upon or permitted to remain upon any part of the Premises or
outside of the building in which the Premises are a part, except in trash
containers placed inside exterior enclosures designated by Landlord for that
purpose or inside of the building proper where designated by Landlord. No
materials, supplies, equipment, finished products or semi-finished products, raw
materials or articles of any nature shall be stored upon or permitted to remain
outside the Premises or on any portion of common area of the Complex. No
loudspeaker or other device, system or apparatus which can be heard outside the
Premises shall be used in or at the Premises without the prior written consent
of Landlord. Tenant shall not commit or suffer to be committed any waste in or
upon the Premises. Tenant shall indemnify, defend and hold Landlord harmless
against any loss, expense, damage, attorneys' fees, or liability arising out of
failure of Tenant to comply with any applicable law. Tenant shall comply with
any covenant, condition, or restriction ("CC&R's") affecting the Premises. The
provisions of this paragraph are for the benefit of Landlord only and shall not
be construed to be for the benefit of any tenant or occupant of the Complex.

2. TERM*

   A. The term of this Lease shall be for a period of Five (5) years Seventeen
(17) days (unless sooner terminated as hereinafter provided) and, subject to
Paragraphs 2(B) and 3, shall commence on the 15th day of January 2000 and end on
the 31st day of January of 2005.

   B. Possession of the Premises shall be deemed tendered and the term of this
Lease shall commence when the first of the following occurs:

      (a) One day after a Certificate of Occupancy is granted by the proper
   governmental agency, or, if the governmental agency having jurisdiction over
   the area in

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      * It is agreed in the event said Lease commences on a date other than the
        first day of the month the term of the Lease will be extended to
        account for the number of days in the partial month. The Basic Rent
        during the resulting partial month will be pro-rated (for the number
        of days in the partial month) at the Basic Rent scheduled for the
        projected commencement date as shown in Paragraph 43.

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   which the Premises are situated does not issue certificates of occupancy,
   then the same number of days after certification by Landlord's architect or
   contractor that Landlord's construction work has been completed; or

      (b) Upon the occupancy of the Premises by any of Tenant's operating
   personnel; or

      (c) When the Tenant Improvements have been substantially completed for
   Tenant's use and occupancy, in accordance and compliance with Exhibit B of
   this Lease Agreement; or

      (d) As otherwise agreed in writing.

3. POSSESSION. If Landlord, for any reason whatsoever, cannot deliver possession
of said premises to Tenant at the commencement of the said term, as hereinbefore
specified, this Lease shall not be void or voidable; no obligation of Tenant
shall be affected thereby; nor shall Landlord or Landlord's agents be liable to
Tenant for any loss or damage resulting therefrom; but in that event the
commencement and termination dates of the Lease, and all other dates affected
thereby shall be revised to conform to the date of Landlord's delivery of
possession, as specified in Paragraph 2(b), above. The above is, however,
subject to the provision that the period of delay, of delivery of the premises
shall not exceed 60 days from the commencement date herein (except those delays
caused by Acts of God, strikes, war, utilities, governmental bodies, weather,
unavailable materials, and delays beyond Landlord's control shall be excluded in
calculating such period) in which instance Tenant, at its option, may, by
written notice to Landlord, terminate this Lease.

4. RENT.

   A. BASIC RENT. Tenant agrees to pay to Landlord at such place as Landlord may
designate without deduction, offset, prior notice, or demand, and Landlord
agrees to accept as Basic Rent for the leased Premises the total sum of TWO
MILLION FOUR HUNDRED TWENTY EIGHT THOUSAND EIGHT HUNDRED FIFTY THREE AND 24/100
($2,428,853.24) Dollars in lawful money of the United States of America, payable
as follows:

                    SEE PARAGRAPH 43 FOR BASIC RENT SCHEDULE.

   B. TIME FOR PAYMENT. In the event that the term of this Lease commences on a
date other than the first day of a calendar month, on the date of commencement
of the term hereof Tenant shall pay to Landlord as rent for the period from such
date of commencement to the first day of the next succeeding calendar month that
proportion of the monthly rent hereunder which the number of days between such
date of commencement and the first day of the next succeeding calendar month
bears to thirty (30). In the event that the term of this Lease for any reason
ends on a date other than the last day of a calendar month, on the first day of
the last calendar month

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of the term hereof Tenant shall pay to Landlord as rent for the period from said
first day of said last calendar month to and including the last day of the term
hereof that proportion of the monthly rent hereunder which the number of days
between said first day of said last calendar month and the last day of the term
hereof bears to thirty (30).

   C. LATE CHARGE. Notwithstanding any other provision of this Lease, if Tenant
is in default in the payment of rental as set forth in this Paragraph 4 when
due, or any part thereof, Tenant agrees to pay Landlord, in addition to the
delinquent rental due, a late charge for each rental payment in default ten (10)
days. Said late charge shall equal ten (10%) percent of each rental payment so
in default.

   D. ADDITIONAL RENT. Beginning with the commencement date of the term of this
Lease, Tenant shall pay to Landlord in addition to the Basic Rent and as
Additional Rent the following:

      (a) Tenant's proportionate share of all Taxes relating to the Complex as
   set forth in Paragraph 12, and

      (b) Tenant's proportionate share of all insurance premiums and deductibles
   relating to the Complex, as set forth in Paragraph 15, and

      (c) Tenant's proportionate share of expenses for the operation,
   management, maintenance and repair of the Building (including common areas of
   the Building) and Common Areas of the Complex in which the Premises are
   located as set forth in Paragraph 7, and

      (d) All charges, costs and expenses, which Tenant is required to pay
   hereunder, together with all interest and penalties, costs and expenses
   including attorneys' fees and legal expenses, that may accrue thereto in the
   event of Tenant's failure to pay such amounts, and all damages, reasonable
   costs and expenses which Landlord may incur by reason of default of Tenant or
   failure on Tenant's part to comply with the terms of this Lease. In the event
   of nonpayment by Tenant of Additional Rent, Landlord shall have all the
   rights and remedies with respect thereto as Landlord has for nonpayment of
   rent.

The Additional Rent due hereunder shall be paid to Landlord or Landlord's agent
(i) within five days for taxes and insurance and within thirty days for all
other Additional Rent items after presentation of invoice from Landlord or
Landlord's agent setting forth such Additional Rent and/or (ii) at the option of
Landlord, Tenant shall pay to Landlord monthly, in advance, Tenant's prorata
share of an amount estimated by Landlord to be Landlord's approximate average
monthly expenditure for such Additional Rent items, which estimated amount shall
be reconciled within 120 days of the end of each calendar year or more
frequently if Landlord so elects to do so at Landlord's sole and absolute
discretion, as compared to Landlord's actual expenditure for said Additional
Rent items, with Tenant paying to Landlord, upon demand, any amount of actual

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expenses expended by Landlord in excess of said estimated amount, or Landlord
crediting to Tenant (providing Tenant is not in default in the performance of
any of the terms, covenants and conditions of this Lease) any amount of
estimated payments made by Tenant in excess of Landlord's actual expenditures
for said Additional Rent items (however, if Tenant is in default of said Lease
and the default can be cured by applying the credit or a portion thereof to cure
the default, the remaining balance (if any) of said credit shall be applied to
Tenant's account). Within thirty (30) days after receipt of Landlord's
reconciliation, Tenant shall have the right, at Tenant's sole expense, to audit,
at a mutually convenient time at Landlord's office, Landlord's records relating
to the foregoing expenses. Such audit must be conducted by Tenant or an
independent nationally recognized accounting firm that is not being compensated
by Tenant or other third party on a contingency fee basis. Landlord shall be
provided a complete copy of said audit at no expense to Landlord. If such audit
reveals that Landlord has overcharged Tenant and the audit is not challenged by
Landlord, the amount overcharged shall be credited to Tenant's account within
thirty (30) days after the audit is concluded.

    The respective obligations of Landlord and Tenant under this paragraph shall
survive the expiration or other termination of the term of this Lease, and if
the term hereof shall expire or shall otherwise terminate on a day other than
the last day of a calendar year, the actual Additional Rent incurred for the
calendar year in which the term hereof expires or otherwise terminates shall be
determined and settled on the basis of the statement of actual Additional Rent
for such calendar year and shall be prorated in the proportion which the number
of days in such calendar year preceding such expiration or termination bears to
365.

   E. FIXED MANAGEMENT FEE. Beginning with the Commencement Date of the Term of
this Lease, Tenant shall pay, in addition to the Basic Rent and Additional Rent,
a fixed monthly management fee ("Management Fee") equal to three percent (3%) of
the Basic Rent due for each month during the Lease Term. Said Management Fee
shall be paid by Tenant to A&P Property Management Company at 2560 Mission
College Blvd., Suite 101, Santa Clara, CA 95054.

   F. PLACE OF PAYMENT OF RENT AND ADDITIONAL RENT. All Basic Rent hereunder and
all payments hereunder for Additional Rent shall be paid to Landlord at the
office of Landlord at Westport Joint Venture, 2560 Mission College Blvd., Suite
101, Santa Clara, CA 95054 or to such other person or to such other place as
Landlord may from time to time designate in writing.

   G. SECURITY DEPOSIT. Concurrently with Tenant's execution of this Lease,
Tenant shall deposit with Landlord the sum of EIGHTY FOUR THOUSAND SIX HUNDRED
SIX AND 60/100 ($84,606.60) Dollars. Said sum shall be held by Landlord as a
Security Deposit for the faithful performance by Tenant of all of the terms,
covenants, and conditions of this Lease to be kept and performed by Tenant
during the term hereof. If Tenant defaults with respect to any provision of this
Lease, including, but not limited to, the provisions relating to the payment of
rent and any of the monetary sums due herewith, Landlord may (but shall not be
required to) use, apply or retain all or any part of this Security Deposit for
the payment of any other amount which Landlord may spend by reason of Tenant's
default or to compensate Landlord for any other loss

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or damage which Landlord may suffer by reason of Tenant's default. If any
portion of said Deposit is so used or applied, Tenant shall, within ten (10)
days after written demand therefor, deposit cash with Landlord in the amount
sufficient to restore the Security Deposit to its original amount. Tenant's
failure to do so shall be a material breach of this Lease. Landlord shall not be
required to keep this Security Deposit separate from its general funds, and
Tenant shall not be entitled to interest on such Deposit. If Tenant fully and
faithfully performs every provision of this Lease to be performed by it
(however, if Tenant is in default of said Lease and the default can be cured by
applying the credit or a portion thereof to cure the default, the remaining
balance (if any) of said credit shall be applied to Tenant's account), the
Security Deposit or any balance thereof shall be returned to Tenant (or at
Landlord's option, to the last assignee of Tenant's interest hereunder) at the
expiration of the Lease term and after Tenant has vacated the Premises. In the
event of termination of Landlord's interest in this Lease, Landlord shall
transfer said Deposit to Landlord's successor in interest whereupon Tenant
agrees to release Landlord from liability for the return of such Deposit or the
accounting therefor.

5. RULES AND REGULATIONS AND COMMON AREA. Subject to the terms and conditions of
this Lease and such Rules and Regulations as Landlord may from time to time
prescribe, Tenant and Tenant's employees, invitees and customers shall, in
common with other occupants of the Complex in which the Premises are located,
and their respective employees, invitees and customers, and others entitled to
the use thereof, have the non-exclusive right to use the access roads, parking
areas, and facilities provided and designated by Landlord for the general use
and convenience of the occupants of the Complex in which the Premises are
located, which areas and facilities are referred to herein as "Common Area".
This right shall terminate upon the termination of this Lease. Landlord reserves
the right from time to time to make changes in the shape, size, location, amount
and extent of Common Area. Landlord further reserves the right to promulgate
such reasonable rules and regulations relating to the use of the Common Area,
and any part or parts thereof, as Landlord may deem appropriate for the best
interests of the occupants of the Complex. The Rules and Regulations shall be
binding upon Tenant upon delivery of a copy of them to Tenant, and Tenant shall
abide by them and cooperate in their observance. Such Rules and Regulations may
be amended by Landlord from time to time, with or without advance notice, and
all amendments shall be effective upon delivery of a copy to Tenant. Landlord
shall not be responsible to Tenant for the non-performance by any other tenant
or occupant of the Complex of any of said Rules and Regulations.

    Landlord shall operate, manage and maintain the Common Area. The manner in
which the Common Area shall be maintained and the expenditures for such
maintenance shall be at the discretion of the Landlord.

6. PARKING. Tenant shall have the right to use with other tenants or occupants
of the Complex 36 parking spaces in the common parking areas of the Complex.
Tenant agrees, that Tenant, Tenant's employees, agents, representatives and/or
invitees shall not use parking spaces in excess of said 36 spaces allocated to
Tenant hereunder. Landlord shall have the right, at Landlord's sole discretion,
to specifically designate the location of Tenant's parking spaces

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within the common parking areas of the Complex in the event of a dispute among
the tenants occupying the building and/or Complex referred to herein, in which
event Tenant agrees that Tenant, Tenant's employees, agents, representatives
and/or invitees shall not use any parking spaces other than those parking spaces
specifically designated by Landlord for Tenant's use. Said parking spaces, if
specifically designated by Landlord to Tenant, may be relocated by Landlord at
any time, and from time to time. Landlord reserves the right, at Landlord's sole
discretion, to rescind any specific designation of parking spaces, thereby
returning Tenant's parking spaces to the common parking area. Landlord shall
give Tenant written notice of any change in Tenant's parking spaces. Tenant
shall not, at any time, park, or permit to be parked, any trucks or vehicles
adjacent to the loading areas so as to interfere in any way with the use of such
areas, nor shall Tenant at any time park, or permit the parking of Tenant's
trucks or other vehicles or the trucks and vehicles of Tenant's suppliers or
others, in any portion of the common area not designated by Landlord for such
use by Tenant. Tenant shall not park nor permit to be parked, any inoperative
vehicles or equipment on any portion of the common parking area or other common
areas of the Complex. Tenant agrees to assume responsibility for compliance by
its employees with the parking provision contained herein. If Tenant or its
employees park in other than such designated parking areas, then Landlord may
charge Tenant, as an additional charge, and Tenant agrees to pay, ten ($10.00)
Dollars per day for each day or partial day each such vehicle is parked in any
area other than that designated. Tenant hereby authorizes Landlord at Tenant's
sole expense to tow away from the Complex any vehicle belonging to Tenant or
Tenant's employees parked in violation of these provisions, or to attach
violation stickers or notices to such vehicles. Tenant shall use the parking
areas for vehicle parking only, and shall not use the parking areas for storage.

7. EXPENSES OF OPERATION, MANAGEMENT, AND MAINTENANCE OF THE COMMON AREAS OF THE
COMPLEX AND BUILDING IN WHICH THE PREMISES ARE LOCATED. As Additional Rent and
in accordance with Paragraph 4D of this Lease, Tenant shall pay to Landlord
Tenant's proportionate share (calculated on a square footage or other equitable
basis as calculated by Landlord) of all expenses of operation, management,
maintenance and repair of the Common Areas of the Complex including, but not
limited to, license, permit, and inspection fees; security; utility charges
associated with exterior landscaping and lighting (including water and sewer
charges); all charges incurred in the maintenance and replacement of landscaped
areas, lakes, private roads within the Complex and roads with reciprocal
easement areas; parking lots; and paved areas (including repairs, replacement,
resealing and restriping), sidewalks, driveways; maintenance, repair and
replacement of all fixtures and electrical, mechanical, and plumbing systems;
structural elements and exterior surfaces of the buildings; salaries and
employee benefits of personnel and payroll taxes applicable thereto; supplies,
materials, equipment and tools; the cost of capital expenditures which have the
effect of reducing operating expenses, provided, however, that in the event
Landlord makes such capital improvements, Landlord may amortize its investment
in said improvements (together with interest at the rate of fifteen (15%)
percent per annum on the unamortized balance) as an operating expense in
accordance with standard accounting practices,

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provided, that such amortization is not at a rate greater than the anticipated
savings in the operating expenses.

    "Additional Rent" as used herein shall not include Landlord's debt
repayments; interest on charges; expenses directly or indirectly incurred by
Landlord for the benefit of any other tenant; cost for the installation of
partitioning or any other tenant improvements; cost of attracting tenants;
depreciation; interest, or executive salaries.

    As Additional Rent and in accordance with paragraph 4D of this Lease, Tenant
shall pay its proportionate share (calculated on a square footage or other
equitable basis as calculated by Landlord) of the cost of operation (including
common utilities), management, maintenance, and repair of the building
(including common areas such as lobbies, restrooms, janitor's closets, hallways,
elevators, mechanical and telephone rooms, stairwells, entrances, spaces above
the ceilings and janitorization of said common areas) in which the Premises are
located. The maintenance items herein referred to include, but are not limited
to, all windows, window frames, plate glass, glazing, truck doors, main plumbing
systems of the building (such as water and drain lines, sinks, toilets, faucets,
drains, showers and water fountains), main electrical systems (such as panels
and conduits), heating and airconditioning systems (such as compressors, fans,
air handlers, ducts, boilers, heaters), store fronts, roofs, downspouts,
building common area interiors (such as wall coverings, window coverings, floor
coverings and partitioning), ceilings, building exterior doors, skylights (if
any), automatic fire extinguishing systems, and elevators; license, permit, and
inspection fees; security; salaries and employee benefits of personnel and
payroll taxes applicable thereto; supplies, materials, equipment and tools; the
cost of capital expenditures which have the effect of reducing operating
expenses, provided, however, that in the event Landlord makes such capital
improvements, Landlord may amortize its investment in said improvements
(together with interest at the rate of fifteen (15%) percent per annum on the
unamortized balance) as an operating expense in accordance with standard
accounting practices, provided, that such amortization is not at a rate greater
than the anticipated savings in the operating expenses. Tenant hereby waives all
rights under, and benefits of, subsection 1 of Section 1932 and Sections 1941
and 1942 of the California Civil Code and under any similar law, statute or
ordinance now or hereafter in effect.

8. ACCEPTANCE AND SURRENDER OF PREMISES. By entry hereunder, Tenant accepts the
Premises as being in good and sanitary order, condition and repair and accepts
the building and improvements included in the Premises in their present
condition and without representation or warranty by Landlord as to the condition
of such building or as to the use or occupancy which may be made thereof. Any
exceptions to the foregoing must be by written agreement executed by Landlord
and Tenant. Tenant agrees on the last day of the Lease term, or on the sooner
termination of this Lease, to surrender the Premises promptly and peaceably to
Landlord in good condition and repair (damage by Acts of God, fire, normal wear
and tear excepted), with all interior walls painted, or cleaned so that they
appear freshly painted, and repaired and replaced, if damaged; all floors
cleaned and waxed; all carpets cleaned and shampooed; the airconditioning and
heating equipment serviced by a reputable and licensed

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service firm and in good operating condition (provided the maintenance of such
equipment has been Tenant's responsibility during the term of this Lease)
together with all alterations, additions, and improvements which may have been
made in, to, or on the Premises (except movable trade fixtures installed at the
expense of Tenant) except that Tenant shall ascertain from Landlord within
thirty (30) days before the end of the term of this Lese whether Landlord
desires to have the Premises or any part or parts thereof restored to their
condition and configuration as when the Premises were delivered to Tenant and if
Landlord shall so desire, then Tenant shall restore said Premises or such part
or parts thereof before the end of this Lease at Tenant's sole cost and expense.
Tenant, on or before the end of the term or sooner termination of this Lease,
shall remove all of Tenant's personal property and trade fixtures from the
Premises, and all property not so removed on or before the end of the term or
sooner termination of this Lease shall be deemed abandoned by Tenant and title
to same shall thereupon pass to Landlord without compensation to Tenant.
Landlord may, upon termination of this Lease, remove all moveable furniture and
equipment so abandoned by Tenant, at Tenant's sole cost, and repair any damage
caused by such removal at Tenant's sole cost. If the Premises be not surrendered
at the end of the term or sooner termination of this Lease, Tenant shall
indemnify Landlord against loss or liability resulting from the delay by Tenant
in so surrendering the Premises including, without limitation, any claims made
by any succeeding tenant founded on such delay. Nothing contained herein shall
be construed as an extension of the term hereof or as a consent of Landlord to
any holding over by Tenant. The voluntary or other surrender of this Lease or
the Premises by Tenant or a mutual cancellation of this Lease shall not work as
a merger and, at the option of Landlord, shall either terminate all or any
existing subleases or subtenancies or operate as an assignment to Landlord of
all or any such subleases or subtenancies.

9. ALTERATIONS AND ADDITIONS. Tenant shall not make, or suffer to be made, any
alteration or addition to the Premises, or any part thereof, without the written
consent of Landlord first had and obtained by Tenant (which consent shall not be
unreasonably withheld), but at the cost of Tenant, and any addition to, or
alteration of, the Premises, except moveable furniture and trade fixtures, shall
at once become a part of the Premises and belong to Landlord. Landlord reserves
the right to approve all contractors and mechanics proposed by Tenant to make
such alterations and additions. Tenant shall retain title to all moveable
furniture and trade fixtures placed in the Premises. All heating, lighting,
electrical, airconditioning, floor to ceiling partitioning, drapery, carpeting,
and floor installations made by Tenant, together with all property that has
become an integral part of the Premises, shall not be deemed trade fixtures.
Tenant agrees that it will not proceed to make such alteration or additions,
without having obtained consent from Landlord to do so, and until five (5) days
from the receipt of such consent, in order that Landlord may post appropriate
notices to avoid any liability to contractors or material suppliers for payment
for Tenant's improvements. Tenant will at all times permit such notices to be
posted and to remain posted until the completion of work. Tenant shall, if
required by Landlord, secure at Tenant's own cost and expense, a completion and
lien indemnity bond, satisfactory to Landlord, for such work. Tenant further
covenants and agrees that any mechanic's lien filed against the Premises or
against the Complex for work claimed to have been done for, or materials claimed
to have been furnished to Tenant, will be discharged by Tenant, by bond or

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otherwise, within ten (10) days after the filing thereof, at the cost and
expense of Tenant. Any exceptions to the foregoing must be made in writing and
executed by both Landlord and Tenant. Notwithstanding anything to the contrary
herein, under no circumstances shall Tenant be authorized to penetrate the soil
to a depth that exceeds three and one-half feet from the uppermost surface of
the soil.

10. TENANT MAINTENANCE. Tenant shall, at its sole cost and expense, keep and
maintain the Premises (including appurtenances) and every part thereof in a high
standard of maintenance and repair, and in good and sanitary condition. Tenant's
maintenance and repair responsibilities herein referred to include, but are not
limited to, janitorization, plumbing systems within the non-common areas of the
Premises (such as water and drain lines, sinks), electrical systems within the
non-common areas of the Premises (such as outlets, lighting fixtures, lamps,
bulbs, tubes, ballasts), heating and airconditioning controls within the
non-common areas of the Premises (such as mixing boxes, thermostats, time
clocks, supply and return grills), all interior improvements within the premises
including but not limited to: wall coverings, window coverings, acoustical
ceilings, vinyl tile, carpeting, partitioning, doors (both interior and
exterior, including closing mechanisms, latches, locks), and all other interior
improvements of any nature whatsoever. Tenant agrees to provide carpet shields
under all rolling chairs or to otherwise be responsible for wear and tear of the
carpet caused by such rolling chairs if such wear and tear exceeds that caused
by normal foot traffic in surrounding areas. Areas of excessive wear shall be
replaced at Tenant's sole expense upon Lease termination.

11. UTILITIES OF THE BUILDING IN WHICH THE PREMISES ARE LOCATED. As Additional
Rent and in accordance with paragraph 4D of this Lease, Tenant shall pay its
proportionate share (calculated on a square footage or other equitable basis as
calculated by Landlord) of the cost of all utility charges such as water, gas,
electricity, telephone, telex and other electronic communications service, sewer
service, waste pick up and any other utilities, materials or services furnished
directly to the building in which the Premises are located, including, without
limitation, any temporary or permanent utility surcharge or other exactions
whether or not hereinafter imposed.

    Landlord shall not be liable for and Tenant shall not be entitled to any
abatement or reduction of rent by reason of any interruption or failure of
utility services to the Premises when such interruption or failure is caused by
accident, breakage, repair, strikes, lockouts, or other labor disturbances or
labor disputes of any nature, or by any other cause, similar or dissimilar,
beyond the reasonable control of Landlord.

    Provided that Tenant is not in default in the performance or observance of
any of the terms, covenants or conditions of this Lease to be performed or
observed by it, Landlord shall furnish to the Premises between the hours of 8:00
AM and 6:00 PM, Mondays through Fridays (holidays excepted) and subject to the
rules and regulations of the Complex hereinbefore referred to, reasonable
quantities of water, gas and electricity suitable for the intended use of the
Premises and heat and air conditioning required in Landlord's judgment for the
comfortable use and

<PAGE>

occupation of the Premises for such purposes. Tenant agrees that at all times it
will cooperate fully with Landlord and abide by all regulations and requirements
that Landlord may prescribe for the proper functioning and protection of the
building heating, ventilating and air conditioning systems. Whenever heat
generating machines, equipment, or any other devices (including exhaust fans)
are used in the Premises by Tenant which affect the temperature or otherwise
maintained by the air conditioning system, Landlord shall have the right to
install supplementary air conditioning units in the Premises and the cost
thereof, including the cost of installation and the cost of operation and
maintenance thereof, shall be paid by Tenant to Landlord upon demand by
Landlord. Tenant will not, without the written consent of Landlord, use any
apparatus or device in the Premises (including, without limitation), electronic
data processing machines or machines using current in excess of 110 Volts which
will in any way increase the amount of electricity, gas, water or air
conditioning usually furnished or supplied to premises being used as general
office space, or connect with electric current (except through existing
electrical outlets in the Premises), or with gas or water pipes any apparatus or
device for the purposes of using electric current, gas, or water. If Tenant
shall require water, gas, or electric current in excess of that usually
furnished or supplied to premises being used as general office space, Tenant
shall first obtain the written consent of Landlord, which consent shall not be
unreasonably withheld and Landlord may cause an electric current, gas, or water
meter to be installed in the Premises in order to measure the amount of electric
current, gas or water consumed for any such excess use. The cost of any such
meter and of the installation, maintenance and repair thereof, all charges for
such excess water, gas and electric current consumed (as shown by such meters
and at the rates then charged by the furnishing public utility); and any
additional expense incurred by Landlord in keeping account of electric current,
gas, or water so consumed shall be paid by Tenant, and Tenant agrees to pay
Landlord therefor promptly upon demand by Landlord.

12. TAXES. A. As Additional Rent and in accordance with Paragraph 4D of this
Lease, Tenant shall pay to Landlord Tenant's proportionate share of all Real
Property Taxes, which pro rata share shall be allocated to the leased Premises
by square footage or other equitable basis, as calculated by Landlord. The term
"Real Property Taxes", as used herein, shall mean (i) all taxes, assessments,
levies and other charges of any kind or nature whatsoever, general and special,
foreseen and unforeseen (including all installments of principal and interest
required to pay any general or special assessments for public improvements and
any increases resulting from reassessments caused by any change in ownership of
the Complex) nor or hereafter imposed by any governmental or quasi-governmental
authority or special district having the direct or indirect power to tax or levy
assessments, which are levied or assessed against, or with respect to the value,
occupancy or use of, all or any portion of the Complex (as now constructed or as
may at any time hereafter be constructed, altered, or otherwise changed) or
Landlord's interest therein; any improvements located within the Complex
(regardless of ownership); the fixtures, equipment and other property of
Landlord, real or personal, that are an integral part of and located in the
Complex; or parking areas, public utilities or energy within the Complex; (ii)
all charges, levies or fees imposed by reason of environmental regulation or
other governmental control of the Complex; and (iii) all costs and fees
(including attorneys' fees) incurred by Landlord in contesting any Real Property
Tax and in negotiating with public authorities as to any real

<PAGE>

Property Tax. If at any time during the term of this Lease the taxation or
assessment of the Complex prevailing as of the commencement date of this Lease
shall be altered so that in lieu of or in addition to any Real Property Tax
described above there shall be levied, assessed or imposed (whether by reason of
a change in the method of taxation or assessment, creation of a new tax or
charge, or any other cause) an alternate or additional tax or charge (i) on the
value, use or occupancy of the Complex or Landlord's interest therein or (ii) on
or measured by the gross receipts, income or rentals form the Complex, on
Landlord's business of leasing the Complex, or computed in any manner with
respect to the operation of the Complex, then any such tax or charge, however,
designated, shall be included within the meaning of the term "Real Property
Taxes" for purposes of this Lease. If any Real Property Tax is based upon
property or rents unrelated to the Complex, then only that part of such real
Property Tax that is fairly allocable to the Complex shall be included within
the meaning of the term "Real Property Taxes." Notwithstanding the foregoing,
the term "Real Property Taxes" shall not include estate, inheritance, gift or
franchise taxes of Landlord or the federal or state net income tax imposed on
Landlord's income from all sources. The term "Real Estate Taxes" shall also
include supplemental taxes related to the period of Tenant's Lease Term whenever
levied, including any such taxes that may be levied after the Lease Term has
expired.

   B. TAXES ON TENANT'S PROPERTY.

(a) Tenant shall be liable for and shall pay ten days before delinquency, taxes
levied against any personal property or trade fixtures placed by Tenant in or
about the Premises. If any such taxes on Tenant's personal property or trade
fixtures are levied against Landlord or Landlord's property or if the assessed
value of the Premises is increased by the inclusion therein of a value placed
upon such personal property or trade fixtures of Tenant and if Landlord, after
written notice to Tenant, pays the taxes based on such increased assessment,
which Landlord shall have the right to do regardless of the validity thereof,
but only under proper protest if requested by Tenant. Tenant shall upon demand,
as the case may be, repay to Landlord the taxes so levied against Landlord, or
the proportion of such taxes resulting from such increase in the assessment;
provided that in any such event Tenant shall have the right, in the name of
Landlord and with Landlord's full cooperation, to bring suit in any court of
competent jurisdiction to recover the amount of any such taxes so paid under
protest, and any amount so recovered shall belong to Tenant.

(b) If the Tenant improvements in the Premises, whether installed, and/or paid
for by Landlord or Tenant and whether or not affixed to the real property so as
to become a part thereof, are assessed for real property tax purposes at a
valuation higher than the valuation at which standard office improvements in
other space in the Complex are assessed, then the real property taxes and
assessments levied against Landlord or the Complex by reason of such excess
assessed valuation shall be deemed to be taxes levied against personal property
of Tenant and shall be governed by the provisions of 12Ba, above. If the records
of the County Assessor are available and sufficiently detailed to serve as a
basis for determining whether said Tenant improvements are assessed at a higher
valuation than standard office improvements in other space in the Complex, such
records shall be binding on both the Landlord and the Tenant. If the records of
the County

<PAGE>

Assessor are not available or sufficiently detailed to serve as a basis for
making said determination, the actual cost of construction shall be used.

13. LIABILITY INSURANCE. Tenant at Tenant's expense, agrees to keep in force
during the term of this Lease a policy of commercial general liability insurance
with a combined single limit coverage of not less than Two Million Dollars
($2,000,000) per occurrence for injuries to or death of persons occurring in, on
or about the Premises or the Complex, and property damage. The policy or
policies affecting such insurance, certificates of insurance of which shall be
furnished to Landlord, shall name Landlord as additional insureds, and shall
insure any liability of Landlord, contingent or otherwise, as respects acts or
omissions of Tenant, its agents, employees or invitees or otherwise by any
conduct or transactions of any of said persons in or about or concerning the
Premises, including any failure of Tenant to observe or perform any of its
obligations hereunder; shall be issued by an insurance company admitted to
transact business in the State of California; and shall provide that the
insurance effected thereby shall not be canceled, except upon thirty (30) days'
prior written notice to Landlord. If, during the term of this Lease, in the
considered opinion of Landlord's Lender, insurance advisor, or counsel, the
amount of insurance described in this paragraph 13 is not adequate, Tenant
agrees to increase said coverage to such reasonable amount as Landlord's Lender,
insurance advisor, or counsel shall deem adequate.

14. TENANT'S PERSONAL PROPERTY INSURANCE AND WORKMAN'S COMPENSATION INSURANCE.
Tenant shall maintain a policy or policies of fire and property damage insurance
in "all risk" form with a sprinkler leakage endorsement insuring the personal
property, inventory, trade fixtures, and leasehold improvements within the
leased Premises for the full replacement value thereof. The proceeds from any of
such policies shall be used for the repair or replacement of such items so
insured.

    Tenant shall also maintain a policy or policies of workman's compensation
insurance and any other employee benefit insurance sufficient to comply with all
laws.

15. PROPERTY INSURANCE. Landlord shall purchase and keep in force and as
Additional Rent and in accordance with Paragraph 4D of this Lease, Tenant shall
pay to Landlord (or Landlord's agent if so directed by Landlord) Tenant's
proportionate share (calculated on a square footage or other equitable basis as
calculated by Landlord) of the deductibles on insurance claims and the cost of
policy or policies of insurance covering loss or damage to the Premises and
Complex in the amount of the full replacement value thereof, providing
protection against those perils included within the classification of "all
risks" insurance and flood and/or earthquake insurance, if available, plus a
policy of rental income insurance in the amount of one hundred (100%) percent of
twelve (12) months Basic Rent, plus sums paid as Additional Rent. If such
insurance cost is increased due to Tenant's use of the Premises or the Complex,
Tenant agrees to pay to Landlord the full cost of such increase. Tenant shall
have no interest in nor any right to the proceeds of any insurance procured by
Landlord for the Complex.

<PAGE>

    Landlord and Tenant do each hereby respectively release the other, to the
extent of insurance coverage of the releasing party, from any liability for loss
or damage caused by fire or any of the extended coverage casualties included in
the releasing party's insurance policies, irrespective of the cause of such fire
or casualty; provided, however, that if the insurance policy of either releasing
party prohibits such waiver, then this waiver shall not take effect until
consent to such waiver is obtained. If such waiver is so prohibited, the insured
party affected shall promptly notify the other party thereof.

16. INDEMNIFICATION. Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord for any injury to or death of any person or
damage to or destruction of property in or about the Premises or the Complex by
or from any cause whatsoever, including, without limitation, gas, fire, oil,
electricity or leakage of any character from the roof, walls, basement or other
portion of the Premises or the Complex but excluding, however, the willful
misconduct or negligence of Landlord, its agents, servants, employees, invitees,
or contractors of which negligence Landlord has knowledge and reasonable time to
correct. Except as to injury to persons or damage to property to the extent
arising from the willful misconduct or the negligence of Landlord, its agents,
servants, employees, invitees, or contractors, Tenant shall hold Landlord
harmless from and defend Landlord against any and all expenses, including
reasonable attorneys' fees, in connection therewith, arising out of any injury
to or death of any person or damage to or destruction of property occurring in,
on or about the Premises, or any part thereof, from any cause whatsoever.

17. COMPLIANCE. Tenant, at its sole cost and expense, shall promptly comply with
all laws, statutes, ordinances and governmental rules, regulations or
requirements now or hereafter in effect; with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted; and with
any direction or occupancy certificate issued pursuant to law by any public
officer; provided, however, that no such failure shall be deemed a breach of the
provisions if Tenant, immediately upon notification, commences to remedy or
rectify said failure. The judgment of any court of competent jurisdiction or the
admission of Tenant in any action against Tenant, whether Landlord be a party
thereto or not, that Tenant has violated any such law, statute, ordinance or
governmental rule, regulation, requirement, direction or provision, shall be
conclusive of that fact as between Landlord and Tenant. This paragraph shall not
be interpreted as requiring Tenant to make structural changes or improvements,
except to the extent such changes or improvements are required as a result of
Tenant's use of the Premises. Tenant shall, at its sole cost and expense, comply
with any and all requirements pertaining to said Premises, of any insurance
organization or company, necessary for the maintenance of reasonable fire and
public liability insurance covering the Premises.

18. LIENS. Tenant shall keep the Premiss and the Complex free from any liens
arising out of any work performed, materials furnished or obligation incurred by
Tenant. In the event that Tenant shall not, within ten (10) days following the
imposition of such lien, cause the same to be released of record, Landlord shall
have, in addition to all other remedies provided herein and by law, the right,
but no obligation, to cause the same to be released by such means as it shall
deem

<PAGE>

proper, including payment of the claim giving rise to such lien. All sums paid
by Landlord for such purpose, and all expenses incurred by it in connection
therewith, shall be payable to Landlord by Tenant on demand with interest at the
prime rate of interest as quoted by the Bank of America.

19. ASSIGNMENT AND SUBLETTING. Tenant shall not assign, transfer, or hypothecate
the leasehold estate under this Lease, or any interest therein, and shall not
sublet the Premises, or any part thereof, or any right or privilege appurtenant
thereto, or suffer any other person or entity to occupy or use the Premises, or
any portion thereof, without, in each case, the prior written consent of
Landlord which consent will not be unreasonably withheld. As a condition for
granting this consent to any assignment, transfer or subletting, Landlord shall
require Tenant to pay to Landlord, as Additional Rent, all rents and/or
additional consideration due Tenant from its assignees, transferees, or
subtenants in excess of the Rent payable by Tenant to Landlord hereunder for the
assigned, transferred, and/or subleased space. Tenant shall by thirty (30) days
written notice, advise Landlord of its intent to assign or transfer Tenant's
interest in the Lease or sublet the Premises or any portion thereof for any part
of the term hereof. Within thirty (30) days after receipt of said written
notice, Landlord may, in its sole discretion, elect to terminate this Lease as
to the portion of the Premises described in Tenant's notice on the date
specified in Tenant's notice by giving written notice of such election to
terminate. If no such notice to terminate is given to Tenant within said thirty
(30) day period, Tenant may proceed to locate an acceptable sublessee, assignee,
or other transferee for presentment to Landlord for Landlord's approval, all in
accordance with the terms, covenants, and conditions of this paragraph 19. If
Tenant intends to sublet the entire Premises and Landlord elects to terminate
this Lease, this Lease shall be terminated on the date specified in Tenant's
notice. If, however, this Lease shall terminate pursuant to the foregoing with
respect to less than all the Premises, the rent, as defined and reserved
hereinabove shall be adjusted on a pro rata basis to the number of square feet
retained by Tenant, and this Lease as so amended shall continue in full force
and effect. In the event Tenant is allowed to assign, transfer or sublet the
whole or any part of the Premises, with the prior written consent of Landlord,
no assignee, transferee or subtenant shall assign or transfer this Lease, either
in whole or in part, or sublet the whole or any part of the Premises, without
also having obtained the prior written consent of Landlord. A consent of
Landlord to one assignment, transfer, hypothecation, subletting, occupation or
use by any other person shall not release Tenant from any of Tenant's
obligations hereunder or be deemed to be a consent to any subsequent similar or
dissimilar assignment, transfer, hypothecation, subletting, occupation or use by
any other person. Any such assignment, transfer, hypothecation, subletting,
occupation or use without such consent shall be void and shall constitute a
breach of this Lease by Tenant and shall, at the option of Landlord exercised by
written notice to Tenant, terminate this Lease. The leasehold estate under this
Lease shall not, nor shall any interest therein, be assignable for any purpose
by operation of law without the written consent of Landlord. As a condition to
its consent, Landlord shall require Tenant to pay all expenses in connection
with the assignment, and Landlord shall require Tenant's assignee or transferee
(or other assignees or transferees) to assume in writing all of the obligations
under this Lease and for Tenant to remain liable to

<PAGE>

Landlord under the Lease. Notwithstanding the above, in no event will Landlord
consent to a sub-sublease.

20. SUBORDINATION AND MORTGAGES. In the event Landlord's title or leasehold
interest is now or hereafter encumbered by a deed of trust, upon the interest of
Landlord in the land and buildings in which the Demised Premises are located, to
secure a loan from a lender (hereinafter referred to as "Lender") to Landlord.
Tenant shall, at the request of Landlord or Lender, execute in writing an
agreement subordinating its rights under this Lease to the lien of such deed of
trust, or, if so requested, agreeing that the lien of Lender's deed of trust
shall be or remain subject and subordinate to the rights of Tenant under this
Lease. Notwithstanding any such subordination, Tenant's possession under this
Lease shall not be disturbed if Tenant is not in default and so long as Tenant
shall pay all rent and observe and perform all of the provisions set forth in
this Lease.

21. ENTRY BY LANDLORD. Landlord reserves, and shall at all reasonable times
after at least 24 hours notice (except in emergencies) have, the right to enter
the Premises to inspect them; to perform any services to be provided by Landlord
hereunder; to submit the Premises to prospective purchasers, mortgagers or
tenants; to post notices of nonresponsibility; and to alter, improve or repair
the Premises and any portion of the Complex, all without abatement of rent; and
may erect scaffolding and other necessary structures in or through the Premises
where reasonably required by the character of the work to be performed;
provided, however, that the business of Tenant shall be interfered with to the
least extent that is reasonably practical. For each of the foregoing purposes,
any entry to the Premises obtained by Landlord by any of said means, or
otherwise, shall not under any circumstances be construed or deemed to be a
forcible or unlawful entry into or a detainer of the Premises or an eviction,
actual or constructive, of Tenant from the premises or any portion thereof.
Landlord shall also have the right at any time to change the arrangement or
location of entrances or passageways, doors and doorways, and corridors,
elevators, stairs, toilets or other public parts of the Complex and to change
the name, number or designation by which the Complex is commonly known, and none
of the foregoing shall be deemed an actual or constructive eviction of Tenant,
or shall entitle Tenant to any reduction of rent hereunder.

22. BANKRUPTCY AND DEFAULT. The commencement of a bankruptcy action or
liquidation action or reorganization action or insolvency action or an
assignment of or by Tenant for the benefit of creditors, or any similar action
undertaken by Tenant, or the insolvency of Tenant, shall, at Landlord's option,
constitute a breach of this Lease by Tenant. If the trustee or receiver
appointed to serve during a bankruptcy, liquidation, reorganization, insolvency
or similar action elects to reject Tenant's unexpired Lease, the trustee or
receiver shall notify Landlord in writing of its election within thirty (30)
days after an order for relief in a liquidation action or within thirty (30)
days after the commencement of any action.

    Within thirty (30) days after court approval of the assumption of this
Lease, the trustee or receiver shall cure (or provide adequate assurance to the
reasonable satisfaction of Landlord that

<PAGE>

the trustee or receiver shall cure) any and all previous defaults under the
unexpired Lease and shall compensate Landlord for all actual pecuniary loss and
shall provide adequate assurance of future performance under said Lease to the
reasonable satisfaction of Landlord. Adequate assurance of future performance,
as used herein, includes, but shall not be limited to: (i) assurance of source
and payment of rent, and other consideration due under this Lease; (ii)
assurance that the assumption or assignment of this Lease will not breach
substantially any provision, such as radius, location, use, or exclusivity
provision, in any agreement relating to the above described Premises.

    Nothing contained in this section shall affect the existing right of
Landlord to refuse to accept an assignment upon commencement of or in connection
with a bankruptcy, liquidation, reorganization or insolvency action or an
assignment of Tenant for the benefit of creditors or other similar act. Nothing
contained in this Lease shall be construed as giving or granting or creating an
equity in the demised Premises to Tenant. In no event shall the leasehold estate
under this Lease, or any interest therein, be assigned by voluntary or
involuntary bankruptcy proceeding without the prior written consent of Landlord.
In no event shall this Lease or any rights or privileges hereunder be an asset
of Tenant under any bankruptcy, insolvency or reorganization proceedings.

    The failure to perform or honor any covenant, condition or representation
made under this Lease shall constitute a default hereunder by Tenant upon
expiration of the appropriate grace period hereinafter provided. Tenant shall
have a period of five (5) days from the date of written notice from landlord
within which to cure any default in the payment of rental or adjustment thereto.
Tenant shall have a period of thirty (30) days from the date of written notice
from Landlord within which to cure any other default under this Lease. Upon an
uncured default of this Lease by Tenant, Landlord shall have the following
rights and remedies in addition to any other rights or remedies available to
Landlord at law or in equity:

    (a) The rights and remedies provided for by California Civil Code Section
1951.2., including but not limited to, recovery of the worth at the time of
award of the amount by which the unpaid rent for the balance of the term after
the time of award exceeds the amount of rental loss for the same period that
Tenant proves could be reasonably avoided, as computed pursuant to subsection
(b) of said Section 1951.2. Any proof by Tenant under subparagraphs(2) and (3)
of Section 1951.2 of the California Civil Code of the amount of rental loss that
could be reasonably avoided shall be made in the following manner: Landlord and
Tenant shall each select a licensed real estate broker in the business of
renting property of the same type and use as the Premises and in the same
geographic vicinity. Such two real estate brokers shall select a third licensed
real estate broker, and the three licensed real estate brokers so selected shall
determine the amount of the rental loss that could be reasonably avoided from
the balance of the term of this Lease after the time of award. The decision of
the majority of said licensed real estate brokers shall be final and binding
upon the parties hereto.

<PAGE>

    (b) The rights and remedies provided by California Civil Code Section which
allows Landlord to continue the Lease in effect and to enforce all of its rights
and remedies under this Lease, including the right to recover rent as it becomes
due, for so long as Landlord does not terminate Tenant's right to possession;
acts of maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver upon Landlord's initiative to protect its interest
under this Lease shall not constitute a termination of Tenant's right to
possession.

    (c) The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law.

    (d) To the extent permitted by law the right and power to enter the Premises
and remove therefrom all persons and property, to store such property in a
public warehouse or elsewhere at the cost of and for the account of Tenant, and
to sell such property and apply such proceeds therefrom pursuant to applicable
California law. Landlord, may from time to time, sublet the Premises or any part
thereof for such term or terms (which may extend beyond the term of this Lease)
and at such rent and such other terms as Landlord in its sole discretion may
deem advisable, with the right to make alterations and repairs to the Premises.
Upon each subletting, (i) Tenant shall be immediately liable to pay Landlord, in
addition to indebtedness other than rent due hereunder, the cost of such
subletting, including, but not limited to, reasonable attorneys' fees, and any
real estate commissions actually paid, and the cost of such alterations and
repairs incurred by Landlord and the amount, if any, by which the rent hereunder
for the period of such subletting (to the extent such period does not exceed the
term hereof) exceeds the amount to be paid as rent for the Premises for such
period or (ii) at the option of Landlord, rents received from such subletting
shall be applied first to payment of indebtedness other than rent due hereunder
from Tenant to Landlord; second, to the payment of any costs of such subletting
and of such alterations and repairs; third to payment of rent due and unpaid
hereunder; and the residue, if any, shall be held by Landlord and applied in
payment of future rent as the same becomes due hereunder. If Tenant has been
credited with any rent to be received by such subletting under option (i) and
such rent shall not be promptly paid to Landlord by the subtenant(s), or if such
rentals received from such subletting under option (ii) during any month be less
than that to be paid during that month by Tenant hereunder, Tenant shall pay any
such deficiency to Landlord. Such deficiency shall be calculated and paid
monthly. For all purposes set forth in this subparagraph d., no taking
possession of the Premises by Landlord shall be construed as an election on its
part to terminate this Lease unless a written notice of such intention be given
to Tenant. Notwithstanding any such subletting without termination, Landlord may
at any time hereafter elect to terminate this Lease for such previous breach.

    (e) The right to have a receiver appointed for Tenant upon application by
Landlord, to take possession of the Premise and to apply any rental collected
from the Premises and to exercise all other rights and remedies granted to
Landlord pursuant to subparagraph d. above.

23. ABANDONMENT. Tenant shall not vacate or abandon the Premises at any time
during the term of this Lease and if Tenant shall abandon, vacate of surrender
said Premises, or be

<PAGE>

dispossessed by the process of law, or otherwise, any personal property
belonging to Tenant and left on the Premises shall be deemed to be abandoned, at
the option of Landlord, except such property as may be mortgaged to Landlord.

24. DESTRUCTION. In the event the Premises are destroyed in whole or in part
from any cause, except for routine maintenance and repairs and incidental damage
and destruction caused from vandalism and accidents for which Tenant is
responsible for under Paragraph 10, Landlord may, at its option:

    (a) Rebuild or restore the Premises to their condition prior to the damage
or destruction, or

    (b) Terminate this Lease (providing that the Premises is damaged to the
extent of 33 1/3% of the replacement cost).

        If Landlord does not give Tenant notice in writing within (30) days from
the destruction of the Premises of its election to either rebuild and restore
them, or to terminate this Lease, Landlord shall be deemed to have elected to
rebuild or restore them, in which event Landlord agrees, at its expense,
promptly to rebuild or restore the Premises to their condition prior to the
damage or destruction. Tenant shall be entitled to a reduction in rent while
such repair is being made in the proportion that the area of the Premises
rendered untenantable by such damage bears to the total area of the Premises. If
Landlord initially estimates that the rebuilding or restoration will exceed 180
days or if Landlord does not complete the rebuilding or restoration within one
hundred eighty (180) days following the date of destruction (such period of time
to be extended for delays caused by the fault or neglect of Tenant or because of
Acts of God, acts of public agencies, labor disputes, strikes, fires, freight
embargoes, rainy or stormy weather, inability to obtain materials, supplies or
fuels, acts of contractors or subcontractors, or delay of the contractors or
subcontractors due to such causes or other contingencies beyond the control of
Landlord), then Tenant shall have the right to terminate this Lease by giving
fifteen (15) days prior written notice to Landlord. Notwithstanding anything
herein to the contrary, Landlord's obligation to rebuild or restore shall be
limited to the building and interior improvements constructed by Landlord as
they existed as of the commencement date of the Lease and shall not include
restoration of Tenant's trade fixtures, equipment, merchandise, or any
improvements, alterations or additions made by Tenant to the Premises, which
Tenant shall forthwith replace or fully repair at Tenant's sole cost and expense
provided this Lease is not cancelled according to the provisions above.

    Unless this Lease is terminated pursuant to the foregoing provisions, this
Lease shall remain in full force and effect. Tenant hereby expressly waives the
provisions of Section 1932, Subdivision 2, in Section 1933, Subdivision 4 of the
California Civil Code.

    In the event that the building in which the Premises are situated is damaged
or destroyed to the extent of not less than 33 1/3% of the replacement cost
thereof, Landlord may elect to

<PAGE>

terminate this Lease, whether the Premises be injured or not. Notwithstanding
anything to the contrary herein, Landlord may terminate this Lease in the event
of an uninsured event or if insurance proceeds are insufficient to cover 100% of
the rebuilding costs net of the deductible.

25. EMINENT DOMAIN. If all or any part of the Premises shall be taken by any
public or quasi-public authority under the power of eminent domain or conveyance
in lieu thereof, this Lease shall terminate as to any portion of the Premises so
taken or conveyed on the date when title vests in the condemnor, and Landlord
shall be entitled to any and all payment, income, rent, award, or any interest
therein whatsoever which may be paid or made in connection with such taking or
conveyance, and Tenant shall have no claim against Landlord or otherwise for the
value of any unexpired term of this Lease. Notwithstanding the foregoing
paragraph, any compensation specifically awarded Tenant for loss of business,
Tenant's personal property, moving cost or loss of goodwill, shall be and remain
the property of Tenant.

    If (i) any action or proceeding is commenced for such taking of the Premises
or any part thereof, or if Landlord is advised in writing by any entity or body
having the right or power of condemnation of its intention to condemn the
premises or any portion thereof, or (ii) any of the foregoing events occur with
respect to the taking of any space in the Complex not leased hereby, or if any
such spaces so taken or conveyed in lieu of such taking and Landlord shall
decide to discontinue the use and operation of the Complex, or decide to
demolish, alter or rebuild the Complex, then, in any of such events Landlord
shall have the right to terminate this Lease by giving Tenant written notice
thereof within sixty (60) days of the date of receipt of said written advice, or
commencement of said action or proceeding, or taking conveyance, which
termination shall take place as of the first to occur of the last day of the
calendar month next following the month in which such notice is given or the
date on which title to the Premises shall vest in the condemnor.

    In the event of such a partial taking or conveyance of the Premises, if the
portion of the Premises taken or conveyed is so substantial that the Tenant can
no longer reasonably conduct its business, Tenant shall have the privilege of
terminating this Lease within sixty (60) days from the date of such taking or
conveyance, upon written notice to Landlord of its intention so to do, and upon
giving of such notice this Lease shall terminate on the last day of the calendar
month next following the month in which such notice is given, upon payment by
Tenant of the rent from the date of such taking or conveyance to the date of
termination.

    If a portion of the Premises be taken by condemnation or conveyance in lieu
thereof and neither Landlord nor Tenant shall terminate this Lease as provided
herein, this Lease shall continue in full force and effect as to the part of the
Premises not so taken or conveyed, and the rent herein shall be apportioned as
of the date of such taking or conveyance so that thereafter the rent to be paid
by Tenant shall be in the ratio that the area of the portion of the Premises not
so taken or conveyed bears to the total area of the Premises prior to such
taking.

<PAGE>

26. SALE OR CONVEYANCE BY LANDLORD. In the event of a sale or conveyance of the
Complex or any interest therein, by any owner of the reversion then constituting
Landlord, the transferor shall thereby be released from any further liability
upon any of the terms, covenants or conditions (express or implied) herein
contained in favor of Tenant, and in such event, insofar as such transfer is
concerned, Tenant agrees to look solely to the responsibility of the successor
in interest of such transferor in and to the Complex and this Lease. This Lease
shall not be affected by any such sale or conveyance, and Tenant agrees to
attorn to the successor in interest of such transferor.

27. ATTORNMENT TO LENDER OR THIRD PARTY. In the event the interest of Landlord
in the land and buildings in which the leased Premises are located (whether such
interest of Landlord is a fee title interest or a leasehold interest) is
encumbered by deed of trust, and such interest is acquired by the lender or any
third party through judicial foreclosure or by exercise of a power of sale at
private trustee's foreclosure sale, Tenant hereby agrees to attorn to the
purchaser at any such foreclosure sale and to recognize such purchaser as the
Landlord under this Lease. In the event the lien of the deed of trust securing
the loan from a Lender to landlord is prior and paramount to the Lease, this
Lease shall nonetheless continue in full force and effect for the remainder of
the unexpired term hereof, at the same rental herein reserved and upon all the
other terms, conditions and covenants herein contained.

28. HOLDING OVER. Any holding over by Tenant after expiration or other
termination of the term of this Lease with the written consent of Landlord
delivered to Tenant shall not constitute a renewal or extension of the Lease or
give Tenant any rights in or to the leased Premises except as expressly provided
in this Lease. Any holding over after the expiration or other termination of the
term of this Lease, with the consent of Landlord, shall be construed to be a
tenancy from month to month, on the same terms and conditions herein specified
insofar as applicable except that the monthly Basic Rent shall be increased to
an amount equal to one hundred fifty (150%) percent of the monthly Basic Rent
required during the last month of the Lease term.

29. CERTIFICATE OF ESTOPPEL. Tenant shall at any time upon not less than ten
(10) days' prior written notice from Landlord execute, acknowledge and deliver
to Landlord a statement in writing (i) certifying that this Lease is unmodified
and in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is in full force
and effect) and the date to which the rent and other charges are paid in
advance, if any, and (ii) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or specifying
such defaults, if any, are claimed. Any such statement may be conclusively
relied upon by any prospective purchaser or encumbrancer of the Premises.
Tenant's failure to deliver such statement within such time shall be conclusive
upon Tenant that this Lease is in full force and effect, without modification
except as may be represented by Landlord; that there are no uncured defaults in
Landlord's performance, and that not more than one month's rent has been paid in
advance.

<PAGE>

30. CONSTRUCTION CHANGES. It is understood that the description of the Premises
and the location of ductwork, plumbing and other facilities therein are subject
to such minor changes as Landlord or Landlord's architect determines to be
desirable in the course of construction of the Premises, and no such changes, or
any changes in plans for any other portions of the Complex shall affect this
Lease or entitle Tenant to any reduction of rent hereunder or result in any
liability of Landlord to Tenant. Landlord does not guarantee the accuracy of any
drawings supplied to Tenant and verification of the accuracy of such drawings
rests with Tenant.

31. RIGHT OF LANDLORD TO PERFORM. All terms, covenants and conditions of this
Lease to be performed or observed by Tenant shall be performed or observed by
Tenant at Tenant's sole cost and expense and without any reduction of rent. If
Tenant shall fail to pay any sum of money, or other rent, required to be paid by
it hereunder and such failure shall continue for five (5) days after written
notice by Landlord, or shall fail to perform any other term or covenant
hereunder on its part to be performed, and such failure shall continue for
thirty (30) days after written notice thereof by Landlord, Landlord, without
waiving or releasing Tenant from any obligation of Tenant hereunder, may, but
shall not be obligated to, make any such payment or perform any such other term
or covenant on Tenant's part to be performed. All sums so paid by Landlord and
all necessary costs of such performance by Landlord together with interest
thereon at the rate of the prime rate of interest per annum as quoted by the
Bank of America from the date of such payment or performance by Landlord, shall
be paid (and Tenant covenants to make such payment) to Landlord on demand by
Landlord, and Landlord shall have (in addition to any other right or remedy of
Landlord) the same rights and remedies in the event of nonpayment by Tenant as
in the case of failure by Tenant in the payment of rent hereunder.

32. ATTORNEYS' FEES. (A) In the event that either Landlord or Tenant should
bring suit for the possession of the Premises, for the recovery of any sum due
under this Lease, or because of the breach of any provision of this Lease, or
for any other relief against the other party hereunder, then all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing party
therein shall be paid by the other party, which obligation on the part of the
other party shall be deemed to have accrued on the date of the commencement of
such action and shall be enforceable whether or not the action is prosecuted to
judgment.

    (B) Should Landlord be named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder, Tenant
shall pay to Landlord its costs and expenses incurred in such suit, including a
reasonable attorney's fee.

33. WAIVER. The waiver by either party of the other party's failure to perform
or observe any term, covenant or condition herein contained to be performed or
observed by such waiving party shall not be deemed to be a waiver of such item,
covenant or condition or of any subsequent failure of the party failing to
perform or observe the same or any other such term, covenant or condition
therein contained, and no custom or practice which may develop between the
parties hereto during the term hereof shall be deemed a waiver of, or in any way
affect, the

<PAGE>

right of either party to insist upon performance and observance by the other
party in strict accordance with the terms hereof.

34. NOTICES. All notices, demands, requests, advices or designations which may
be or are required to be given by either party to the other hereunder shall be
in writing. All notices, demands, requests, advices or designations by Landlord
to Tenant shall be sufficiently given, made or delivered if personally served on
Tenant by leaving the same at the Premises or if sent by United States certified
or registered mail, postage prepaid, addressed to Tenant at the Premises. All
notices, demands, request, advices or designations by Tenant to Landlord shall
be sent by United States certified or registered mail, postage prepaid,
addressed to Landlord at its offices at Westport Joint Venture, 2560 Mission
College Blvd., #101, Santa Clara, CA 95054. Each notice, request, demand, advice
or designation referred to in this paragraph shall be deemed received on the
date of the personal service or mailing thereof in the manner herein provided,
as the case may be.

35. EXAMINATION OF LEASE. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option for a lease,
and this instrument is not effective as a lease or otherwise until its execution
and delivery by both Landlord and Tenant.

36. DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord fails
to perform obligations required of Landlord within a reasonable time, but in no
event earlier than thirty (30) days after written notice by Tenant to Landlord
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have heretofore been furnished to Tenant in
writing, specifying wherein Landlord has failed to perform such obligations;
provided, however, that if the nature of Landlord's obligations is such that
more than thirty (30) days are required for performance, then Landlord shall not
be in default if Landlord commences performance within such thirty (30) day
period and thereafter diligently prosecutes the same to completion.

37. CORPORATE AUTHORITY. If Tenant is a corporation, (or a partnership) each
individual executing this Lease on behalf of said corporation (or partnership)
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of said corporation (or partnership) in accordance with the
by-laws of said corporation (or partnership in accordance with the partnership
agreement) and that this Lease is binding upon said corporation (or partnership)
in accordance with its terms. If Tenant is a corporation, Tenant shall, within
thirty (30) days after execution of this Lease, deliver to Landlord a certified
copy of the resolution of the Board of Directors of said corporation authorizing
or ratifying the execution of this Lease.

38. INTENTIONALLY DELETED.

<PAGE>

39. LIMITATION OF LIABILITY. In consideration of the benefits accruing
hereunder, Tenant and all successors and assigns covenant and agree that, in the
event of any actual or alleged failure, breach or default hereunder by Landlord:

    (i)    the sole and exclusive remedy shall be against Landlord's interest in
           the Premises leased herein;

    (ii)   no partner of Landlord shall be sued or named as a party in any suit
           or action (except as may be necessary to secure jurisdiction of the
           partnership)

    (iii)  no service or process shall be made against any partner of Landlord
           (except as may be necessary to secure jurisdiction of the
           partnership)

    (iv)   no partner of Landlord shall be required to answer or otherwise
           plead to any service of process;

    (v)    no judgment will be taken against any partner of Landlord;

    (vi)   any judgment taken against any partner of Landlord may be vacated and
           set aside at any time without hearing;

    (vii)  no writ of execution will ever be levied against the assets of any
           partner of Landlord;

    (viii) these covenants and agreements are enforceable both by Landlord and
           also by any partner of Landlord.

    Tenant agrees that each of the foregoing covenants and agreements shall be
applicable to any covenant or agreement either expressly contained in this Lease
or imposed by statute or at common law.

40. MISCELLANEOUS AND GENERAL PROVISIONS

    a. Tenant shall not, without the written consent of Landlord, use the name
    of the building for any purpose other than as the address of the business
    conducted by Tenant in the Premises.

    b. This Lease shall in all respects be governed by and construed in
    accordance with the laws of the State of California. If any provision of
    this Lease shall be invalid, unenforceable or ineffective for any reason
    whatsoever, all other provisions hereof shall be and remain in full force
    and effect.

    c. The term "Premises" includes the space leased hereby and any improvements
    now hereafter installed herein or attached thereto. The term "Landlord" or
    any pronoun used in place thereof includes the plural as well as the
    singular and the successors and assigns of Landlord. The term "Tenant" or
    any pronoun used in place thereof includes the plural as well as the
    singular and individuals, firms, associations, partnerships and
    corporations, and their and each of their respective heirs, executors,
    administrators, successors and permitted assigns, according to the context
    hereof, and the provisions of this Lease shall inure to the benefit of and
    bind such heirs, executors, administrators, successors and permitted
    assigns. The term "person" includes the plural as well as the singular and

<PAGE>

    individuals, firms, associations, partnerships and corporations, Words used
    in any gender include other genders. If there be more than one Tenant the
    obligations of Tenant hereunder are joint and several. The paragraph
    headings of this Lease are for convenience of reference only and shall have
    no effect upon the construction or interpretation of any provision hereof.

    d. Time is of the essence of this Lease and of each and all of its
    provisions.

    e. At the expiration or earlier termination of this Lease, Tenant shall
    execute, acknowledge and deliver to Landlord, within ten (10) days after
    written demand from Landlord to Tenant, any quitclaim deed or other document
    required by any reputable title company, licensed to operate in the State of
    California, to remove the cloud or encumbrance created by this Lease from
    the real property of which Tenant's Premises are a part.

    f. This instrument along with any exhibits and attachments hereto
    constitutes the entire agreement between Landlord and Tenant relative to the
    Premises and this agreement and the exhibits and attachments may be altered,
    amended or revoked only by an instrument in writing signed by both Landlord
    and Tenant. Landlord and Tenant agree hereby that all prior or
    contemporaneous oral agreements between and among themselves and their
    agents or representatives relative to the leasing of the Premises are merged
    in or revoked by this agreement.

    g. Neither Landlord nor Tenant shall record this Lease or a short form
    memorandum hereof without the consent of the other.

    h. Tenant further agrees to execute any amendments required by a lender to
    enable Landlord to obtain financing, so long as Tenant's rights hereunder
    are not substantially affected.

    i. Paragraphs 43 through 55 are added hereto and are included as a part of
    this Lease.

    j. Clauses, plats and riders, if any, signed by Landlord and Tenant and
    endorsed on or affixed to this Lease are a part hereof.

    k. Tenant covenants and agrees that no diminution or shutting off of light,
    air or view by any structure which may be hereafter erected (whether or not
    by Landlord) shall in any way affect his Lease, entitle Tenant to any
    reduction of rent hereunder or result in any liability of Landlord to
    Tenant.

<PAGE>

41. BROKERS. Tenant warrants that it had dealings with only the following real
estate brokers or agents in connection with the negotiation of this Lease: None
and that it knows of no other real estate broker or agent who is entitled to a
commission in connection with this Lease.

42. SIGNS. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside of
the Premises or any exterior windows of the Premises without the written consent
of Landlord first had and obtained and Landlord shall have the right to remove
any such sign, placard, picture, advertisement, name or notice without notice to
and at the expense of Tenant. If Tenant is allowed to print or affix or in any
way place a sign in, on, or about the Premises, upon expiration or other sooner
termination of this Lease, Tenant, at Tenant's sole cost and expense shall both
remove such sign and repair all damage in such a manner as to restore all
aspects of the appearance of the Premises to the condition prior to the
placement of said sign.

    All approved signs or lettering on outside doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved of by
Landlord. Tenant shall not place anything or allow anything to be placed near
the glass of any window, door partition or wall which may appear unsightly from
outside the Premises.

    IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this
Lease as of the day and year last written below.

LANDLORD:                                      TENANT:
WESTPOINT JOINT VENTURE                        BLUESTONE SOFTWARE, INC.
a California joint venture                     a Delaware corporation

JOHN ARRILLAGA SURVIVOR'S TRUST

By: ________________________________________   By: /s/ Robert W. Bickel
    John Arrillaga, Trustee

Date: ______________________________________   Title: Senior Vice President

PEERY PRIVATE INVESTMENT                       Robert W. Bickel
COMPANY-WP, L.P.                               Type or Print Name
a California limited partnership

                                               Date: ___________________________
By: ________________________________________
    Richard T. Peery, Trustee of the
    Richard T. Peery Separate Property Trust
    dated 7/20/77, as its General Partner

Date: ______________________________________

<PAGE>

PEERY PUBLIC INVESTMENT COMPANY-WP, L.P.
a California limited partnership

By: _________________________________________
    Richard T. Peery, Trustee of the
    Richard T. Peery Separate Property Trust
    dated 7/20/77, as its General Partner

Date: _______________________________________

<PAGE>

Paragraphs 43 through 55 to Lease Agreement dated October 15, 1999,
By and Between Westport Joint Venture, a California joint venture,
as Landlord, and Bluestone Software, Inc., a Delaware corporation,
as Tenant for 10,847 +/- Square Feet of Space Located at 1300 Bridge
Parkway, Suite 101, Redwood City, California.

43. BASIC RENT: In accordance with Paragraph 4A herein, the total aggregate sum
of TWO MILLION FOUR HUNDRED TWENTY EIGHT THOUSAND EIGHT HUNDRED FIFTY THREE AND
24/100 DOLLARS ($2,428,853.24), shall be payable as follows:

    On January 15, 2000, the sum of TWENTY THOUSAND EIGHT HUNDRED NINETEEN AND
24/100 DOLLARS ($20,819.24) shall be due, representing the prorated Basic Rent
for the period of January 15, 2000 through January 31, 2000.

    On February 1, 2000, the sum of THIRTY SEVEN THOUSAND NINE HUNDRED SIXTY
FOUR AND 50/100 DOLLARS ($37,964.50) shall be due, and a like sum due on the
first day of each month thereafter, through and including January 1, 2001.

    On February 1, 2001, the sum of THIRTY NINE THOUSAND FORTY NINE AND 20/100
DOLLARS ($39,049.20) shall be due, and a like sum due on the first day of each
month thereafter, through and including January 1, 2002.

    On February 1, 2002, the sum of FORTY THOUSAND ONE HUNDRED THIRTY THREE AND
90/100 DOLLARS ($40,133.90) shall be due, and a like sum due on the first day
of each month thereafter, through and including January 1, 2003.

    On February 1, 2003, the sum of FORTY ONE THOUSAND TWO HUNDRED EIGHTEEN AND
60/100 DOLLARS ($41,218.60) shall be due, and a like sum due on the first day
of each month thereafter, through and including January 1, 2004.

    On February 1, 2004, the sum of FORTY TWO THOUSAND THREE HUNDRED THREE AND
30/100 DOLLARS ($42,303.30) shall be due, and a like sum due on the first day
of each month thereafter, through and including January 1, 2005; or until the
entire aggregate sum of TWO MILLION FOUR HUNDRED TWENTY EIGHT THOUSAND EIGHT
HUNDRED FIFTY THREE AND 24/100 DOLLARS ($2,428,853.24) has been paid.

44. "AS-IS" BASIS: Subject only to Paragraph 45 and to Landlord making the
improvements shown on EXHIBIT B to be attached hereto, it is hereby agreed that
the Premises leased hereunder is leased strictly on an "as-is" basis and in its
present condition, and in the configuration as shown on EXHIBIT B to be
attached hereto, and by reference made a part hereof. Except as noted herein,
it is specifically agreed between the parties that after Landlord makes the
interior improvements as shown on EXHIBIT B, Landlord shall not be required to
make, nor be responsible for any cost, in connection with any repair,
restoration, and/or improvement to the Premises in order for this Lease to
commence, or thereafter, throughout the Term of this Lease.

<PAGE>

Notwithstanding anything to the contrary within this Lease, Landlord makes no
warranty or representation of any kind or nature whatsoever as to the condition
or repair of the Premises, nor as to the use or occupancy which may be made
thereof.

45. TENANT INTERIOR IMPROVEMENTS: Landlord shall, at its sole cost and expense,
construct certain interior improvements (the "Tenant Improvements") in the
Premises, as shown on Exhibit B to be attached to the Lease and Landlord agrees
to deliver the Premises leased hereunder to Tenant, at Landlord's expense, in
the configuration shown in Red on EXHIBIT B to be attached hereto.
Notwithstanding anything to the contrary above, it is specifically understood
and agreed that Landlord shall be required to furnish only a standard air
conditioning/heating system, normal electrical outlets, standard fire sprinkler
system, standard bathroom, standard lobby, 2'x4' suspended acoustical tile drop
ceiling throughout the entire space leased, carpeting and/or vinyl-coated floor
tile, and standard office partitions and doors, as shown on EXHIBIT B to be
attached hereto; provided however, any special HVAC and/or plumbing and/or
electrical requirements over and above that normally supplied by Landlord shall
be 100 percent the responsibility of and be paid for 100 percent by Tenant.

    It is further agreed that Tenant shall furnish Landlord with Tenant's
required specifications and a preliminary space plan showing the layout of the
improvements to be constructed in the Premises by November 15, 1999. At that
time, Landlord shall have the final interior plans drawn by Landlord's
architect. All of the plans and specifications shall be EXHIBIT B to this
Lease. If said preliminary plans and specifications for any items affecting the
interior improvements to be constructed in the building are not received by
Landlord for Landlord's approval (which approval shall not be unreasonably
withheld) by November 15, 1999, then it is agreed that, notwithstanding
anything to the contrary in this Lease, this Lease and Tenant's obligation to
perform all terms, covenants and conditions of this Lease shall commence
January 15, 2000, regardless of whether or not the building and interior
improvements are completed on January 15, 2000, and Landlord shall complete
construction of the interior improvements as soon as reasonably possible
thereafter.

    Notwithstanding anything to the contrary, it is agreed that in the event
Tenant makes changes, additions, or modifications to the plans and
specifications to be constructed by Landlord as set forth herein, or
improvements are installed for Tenant in excess of those to be provided Tenant
by Landlord as set forth on EXHIBIT B, any increased cost(s) resulting from
said changes, additions, and/or modifications and/or improvements in excess of
those to be provided Tenant shall be contracted for with Landlord and paid for
one hundred percent (100%) by Tenant.

    The interior shall be constructed in accordance with EXHIBIT B of the
Lease, it being agreed, however, that if the interior improvements constructed
by Landlord relating thereto, do not conform exactly to the plans and
specifications as set forth in the Lease, and the general appearance,
structural integrity, and Tenant's uses and occupancy of the Premises and
interior improvements relating thereto are not materially or unreasonably
affected by such deviation, it is agreed that the commencement date of the
Lease, and Tenant's obligation to pay rental, shall not

<PAGE>

be affected, and Tenant hereby agrees, in such event, to accept the Premises
and interior improvements as constructed by Landlord.

    Tenant shall have thirty (30) days after the Commencement Date to provide
Landlord with a "punch list" pertaining to Landlord's work with respect to
Tenant's interior improvements. As soon as reasonably possible thereafter,
Landlord, or one of Landlord's representatives (if so approved by Landlord),
and Tenant shall conduct a joint walk-through of the Premises (if Landlord so
requires), and inspect such Tenant Improvements, using their best efforts to
agree on the incomplete or defective construction related to the Tenant
Improvements installed by Landlord. After such inspection has been completed,
Landlord shall prepare, and both parties shall sign, a list of all "punch list"
items which the parties reasonably agree are to be corrected by Landlord (but
which shall exclude any damage or defects caused by Tenant, its employees,
agents or parties Tenant has contracted with to work on the Premises). Landlord
shall have thirty (30) days thereafter (or longer if necessary, provided
Landlord is diligently pursuing the completion of the same) to complete, at
Landlord's expense, the repairs on the "punch list" without the Commencement
Date of the Lease and Tenant's obligation to pay Rental thereunder being
affected. This Paragraph shall be of no force and effect if Tenant shall fail
to give any such notice to Landlord within thirty (30) days after the
Commencement Date of this Lease.

46. CONSENT: Whenever the consent of one party to the other is required
hereunder, such consent shall not be unreasonably withheld.

47. CHOICE OF LAW: SEVERABILITY. This Lease shall in all respects be governed
by and construed in accordance with the laws of the State of California. If any
provisions of this Lease shall be invalid, unenforceable, or ineffective for
any reason whatsoever, all other provisions hereof shall be and remain in full
force and effect.

48. AUTHORITY TO EXECUTE. The parties executing this Lease Agreement hereby
warrant and represent that they are properly authorized to execute this Lease
Agreement and bind the parties on behalf of whom they execute this Lease
Agreement and to all of the terms, covenants and conditions of this Lease
Agreement as they relate to the respective parties hereto.

49. ASSESSMENT CREDITS. The demised property herein may be subject to a special
assessment levied by the City of Redwood City as part of an Improvement
District. As a part of said special assessment proceedings (if any), additional
bonds were or may be sold and assessments were or may be levied to provide for
construction contingencies and reserve funds. Interest shall be earned on such
funds created for contingencies and on reserve funds which will be credited for
the benefit of said assessment district. To the extent surpluses are created in
said district through unused contingency funds, interest earnings or reserve
funds, such surpluses shall be deemed the property of Landlord. Notwithstanding
that such surpluses may be credited on assessments otherwise due against the
Leased Premises, Tenant shall pay to Landlord, as additional rent if, and at the
time of any such credit of surpluses, an amount equal to all such surpluses so
credited. For example: if (i) the property is subject to an annual assessment of

<PAGE>

$1,000.00, and (ii) a surplus of $200.00 is credited towards the current year's
assessment which reduces the assessment amount shown on the property tax bill
from $1,000.00 to $800.00, Tenant shall, upon receipt of notice from Landlord,
pay to Landlord said $200.00 credit as Additional Rent.

50. ASSIGNMENT AND SUBLETTING (CONTINUED):

    A. In addition to and notwithstanding anything to the contrary in Paragraph
19 of this Lease, Landlord hereby agrees to consent to Tenant's assigning or
subletting said Lease to: (i) any parent or subsidiary corporation, or
corporation with which Tenant merges or consolidates provided that the net worth
of said parent or subsidiary corporation, or said corporation has a net worth
equal to or greater than the net worth of Tenant (a) at the time of Lease
execution or (b) at the time of such assignment, merger, or consolidation
(whichever is greater); or (ii) any third party or entity to whom Tenant sells
all or substantially all of its assets; provided, that the net worth of the
resulting or acquiring corporation has a net worth after the merger,
consolidation or acquisition equal to or greater than the net worth of Tenant
(a) at the time of Lease execution or (b) at the time of such merger,
consolidation or acquisition (whichever is greater). No such assignment or
subletting will release the Tenant from its liability and responsibility under
this Lease to the extent Tenant continues in existence following such
transaction. Notwithstanding the above, Tenant shall be required to (a) give
Landlord written notice prior to such assignment or subletting to any party as
described in (i) and (ii) above, (b) execute Landlord's consent document
prepared by Landlord reflecting the assignment or subletting and (c) pay
Landlord's costs for processing said Consent prior to the effective date of said
assignment or sublease.

    B. Notwithstanding the foregoing, Landlord and Tenant agree that it shall
not be unreasonable for Landlord to refuse to consent to a proposed assignment,
sublease or other transfer ("Proposed Transfer") if the Premises or any other
portion of the Property would become subject to additional or different
Government Requirements as a direct or indirect consequence of the Proposed
Transfer and/or the Proposed Transferee's use and occupancy of the Premises and
the Property. However, Landlord may, in its sole discretion, consent to such a
Proposed Transfer where Landlord is indemnified by Tenant and (i) Subtenant or
(ii) Assignee, in form and substance satisfactory to Landlord's counsel, by
Tenant and/or the Proposed Transferee from and against any and all costs,
expenses, obligations and liability arising out of the Proposed Transfer and/or
the Proposed Transferee's use and occupancy of the Premises and the Property.

    C . Any and all sublease agreement(s) between Tenant and any and all
subtenant(s) (which agreements must be consented to by Landlord, pursuant to the
requirements of this Lease) shall contain the following language:

                   "If Landlord and Tenant jointly and voluntarily
          elect, for any reason whatsoever, to terminate the Master
          Lease prior to the scheduled Master Lease termination date,
          then this Sublease (if then still in effect) shall terminate
          concurrently with the

<PAGE>

          termination of the Master Lease. Subtenant expressly
          acknowledges and agrees that (1) the voluntary termination of
          the Master Lease by Landlord and Tenant and the resulting
          termination of this Sublease shall not give Subtenant any
          right or power to make any legal or equitable claim against
          Landlord, including without limitation any claim for
          interference with contract or interference with prospective
          economic advantage, and (2) Subtenant hereby waives any and
          all rights it may have under law or at equity against Landlord
          to challenge such an early termination of the Sublease, and
          unconditionally releases and relieves Landlord, and its
          officers, directors, employees and agents, from any and all
          claims, demands, and/or causes of action whatsoever
          (collectively, "Claims"), whether such matters are known or
          unknown, latent or apparent, suspected or unsuspected,
          foreseeable or unforeseeable, which Subtenant may have arising
          out of or in connection with any such early termination of
          this Sublease. Subtenant knowingly and intentionally waives
          any and all protection which is or may be given by Section
          1542 of the California Civil Code which provides as follows:
          "A general release does not extend to claims which the
          creditor does not know or suspect to exist in his favor at the
          time of executing the release, which if known by him must have
          materially affected his settlement with debtor.

                   The term of this Sublease is therefore subject to
          early termination. Subtenant's initials here below evidence
          (a) Subtenant's consideration of and agreement to this early
          termination provision, (b) Subtenant's acknowledgment that, in
          determining the net benefits to be derived by Subtenant under
          the terms of this Sublease, Subtenant has anticipated the
          potential for early termination, and (c) Subtenant's agreement
          to the general waiver and release of Claims above.

                  Initials: ________        Initials: ________"
                           Subtenant        Tenant

51. BANKRUPTCY AND DEFAULT: Paragraph 22 is modified to provide that with
respect to non-monetary defaults not involving Tenant's failure to pay Basic
Rent or Additional Rent, Tenant shall not be in default of any non-monetary
obligation if (i) more than thirty (30) days is required to cure such
non-monetary default, and (ii) Tenant commences cure of such default as soon as
reasonably practicable after receiving written notice of such default from
Landlord and thereafter continuously and with due diligence prosecutes such cure
to completion.

<PAGE>

52. ABANDONMENT: Paragraph 23 is modified to provide that Tenant shall not be in
default under the Lease if it leaves all or any part of Premises vacant so long
as (i) Tenant is performing all of its other obligations under the Lease
including the obligation to pay Basic Rent and Additional Rent (ii) Tenant
provides on-site security during normal business hours for those parts of the
Premises left vacant, (iii) such vacancy does not materially and adversely
affect the validity or coverage of any policy of insurance carried by Landlord
with respect to the Premises, and (iv) the utilities and heating and ventilation
system are operated and maintained to the extent necessary to prevent damage to
the Premises or its systems.

53. HAZARDOUS MATERIALS: Landlord and Tenant agree as follows with respect to
the existence or use of "Hazardous Materials" (as defined herein) on, in, under
or about the Premises and real property located beneath said Premises and the
common areas of the Complex (hereinafter collectively referred to as the
"Property"):

    A. As used herein, the term "Hazardous Materials" shall mean any material,
waste, chemical, mixture or byproduct which is or hereafter is defined, listed
or designated under Environmental Laws (defined below) as a pollutant, or as a
contaminant, or as a toxic or hazardous substance, waste or material, or any
other unwholesome, hazardous, toxic, biohazardous, or radioactive material,
waste, chemical, mixture or byproduct, or which is listed, regulated or
restricted by any Environmental Law (including, without limitation, petroleum
hydrocarbons or any distillates or derivatives or fractions thereof,
polychlorinated biphenyls, or asbestos). As used herein, the term "Environmental
Laws" shall mean any applicable Federal, State of California or local government
law (including common law), statute, regulation, rule, ordinance, permit,
license, order, requirement, agreement, or approval, or any determination,
judgment, directive, or order of any executive or judicial authority at any
level of Federal, State of California or local government (whether now existing
or subsequently adopted or promulgated) relating to pollution or the protection
of the environment, ecology, natural resources, or public health and safety.

    B. Tenant shall obtain Landlord's written consent, which may be withheld in
Landlord's discretion, prior to the occurrence of any Tenant's Hazardous
Materials Activities (defined below); provided, however, that Landlords consent
shall not be required for normal use in compliance with applicable Environmental
Laws of customary household and office supplies (Tenant shall first provide
Landlord with a list of said materials use), such as mild cleaners, lubricants
and copier toner. As used herein, the term "Tenant's Hazardous Materials
Activities" shall mean any and all use, handling, generation, storage, disposal,
treatment, transportation, release, discharge, or emission of any Hazardous
Materials on, in, beneath, to, from, at or about the Property, in connection
with Tenant's use of the Property, or by Tenant or by any of Tenant's agents,
employees, contractors, vendors, invitees, visitors or its future subtenants or
assignees. Tenant agrees that any and all Tenant's Hazardous Materials
Activities shall be conducted in strict, full compliance with applicable
Environmental Laws at Tenant's expense, and shall not result in any
contamination of the Property or the environment. Tenant agrees to provide
Landlord with prompt written notice of any spill or release of Hazardous
Materials at the

<PAGE>

Property during the term of the Lease of which Tenant becomes aware, and further
agrees to provide Landlord with prompt written notice of any violation of
Environmental laws in connection with Tenant's Hazardous Materials Activities of
which Tenant becomes aware. If Tenant's Hazardous Materials Activities involve
Hazardous Materials other than normal use of customary household and office
supplies, Tenant also agrees at Tenant's expense: (i) to install such Hazardous
Materials monitoring, storage and containment devices as Landlord reasonably
deems necessary (Landlord shall have no obligation to evaluate the need for any
such installation or to require any such installation); (ii) provide Landlord
with a written inventory of such Hazardous Materials, including an update of
same each year upon the anniversary date of the Commencement Date of the Lease
("Anniversary Date"); and (iii) on each Anniversary Date, to retain a qualified
environmental consultant, acceptable to Landlord, to evaluate whether Tenant is
in compliance with all applicable Environmental Laws with respect to Tenant's
Hazardous Materials Activities. Tenant, at its expense, shall submit to Landlord
a report from such environmental consultant which discusses the environmental
consultant's findings within two (2) months of each Anniversary Date. Tenant, at
its expense, shall promptly undertake and complete any and all steps necessary,
and in full compliance with applicable Environmental Laws, to fully correct any
and all problems or deficiencies identified by the environmental consultant, and
promptly provide Landlord with documentation of all such corrections.

    C. Prior to termination or expiration of the Lease, Tenant, at its expense,
shall (i) properly remove from the Property all Hazardous Materials which come
to be located at the Property in connection with Tenant's Hazardous Materials
Activities, and (ii) fully comply with and complete all facility closure
requirements of applicable Environmental Laws regarding Tenant's Hazardous
Materials Activities, including but not limited to (x) properly restoring and
repairing the Property to the extent damaged by such closure activities, and (y)
obtaining from the local Fire Department or other appropriate governmental
authority with jurisdiction a written concurrence that closure has been
completed in compliance with applicable Environmental Laws. Tenant shall
promptly provide Landlord with copies of any claims, notices, work plans, data
and reports prepared, received or submitted in connection with any such closure
activities.

    D. If Landlord, in its sole discretion, believes that the Property has
become contaminated as a result of Tenant's Hazardous Materials Activities,
Landlord in addition to any other rights it may have under this Lease or under
Environmental Laws or other laws, may enter upon the Property and conduct
inspection, sampling and analysis, including but not limited to obtaining and
analyzing samples of soil and groundwater, for the purpose of determining the
nature and extent of such contamination. Tenant shall promptly reimburse
Landlord for the costs of such an investigation, including but not limited to
reasonable attorneys' fees Landlord incurs with respect to such investigation,
that discloses Hazardous Materials contamination for which Tenant is liable
under this Lease. Except as may be required of Tenant by applicable
Environmental Laws, Tenant shall not perform any sampling, testing, or drilling
to identify the presence of any Hazardous Materials at the Property, without
Landlord's prior written consent which may be withheld in Landlord's discretion.
Tenant shall promptly provide Landlord with

<PAGE>

copies of any claims, notices, work plans, data and reports prepared, received
or submitted in connection with any sampling, testing or drilling performed
pursuant to the preceding sentence.

    E. Tenant shall indemnify, defend (with legal counsel acceptable to
Landlord, whose consent shall not unreasonably be withheld) and hold harmless
Landlord, its employees, assigns, successors, successors-in-interest, agents and
representatives from and against any and all claims (including but not limited
to third party claims from a private party or a government authority),
liabilities, obligations, losses, causes of action, demands, governmental
proceedings or directives, fines, penalties, expenses, costs (including but not
limited to reasonable attorneys', consultants' and other experts' fees and
costs), and damages, which arise from or relate to: (i) Tenant's Hazardous
Materials Activities; (ii) any Hazardous Materials contamination caused by
Tenant prior to the Commencement Date of the Lease; or (iii) the breach of any
obligation of Tenant under this Paragraph 53 (collectively, "Tenant's
Environmental Indemnification"). Tenant's Environmental Indemnification shall
include but is not limited to the obligation to promptly and fully reimburse
Landlord for losses in or reductions to rental income, and diminution in fair
market value of the Property. Tenant's Environmental Indemnification shall
further include but is not limited to the obligation to diligently and properly
implement to completion, at Tenant's expense, any and all environmental
investigation, removal, remediation, monitoring, reporting, closure activities,
or other environmental response action (collectively, "Response Actions").
Tenant shall promptly provide Landlord with copies of any claims, notices, work
plans, data and reports prepared, received or submitted in connection with any
Response Actions.

    F. Landlord hereby informs Tenant, and Tenant hereby acknowledges, that the
Premises and adjacent properties overlie a former solid waste landfill site
commonly known as the Westport Landfill ("Former Landfill"). Landlord further
informs Tenant, and Tenant hereby acknowledges, that (i) prior testing has
detected the presence of low levels of certain volatile and semi-volatile
organic compounds and other contaminants in the groundwater, in the leachate
from the landfilled solid waste, and/or in certain surface waters of the
Property, as more fully described in Section 2.3.2 of the report entitled
"Revised Discharge Monitoring Plan, Westport Landfill Site, Redwood City,
California" prepared by Geomatrix Consultants, dated May 1996 ("Discharge
Plan"), (ii) methane gas is or may be generated by the landfilled solid waste
(item "i" immediately preceding and this item "ii" are hereafter collectively
referred to as the "Landfill Contamination"), and (iii) the Premises and the
Former Landfill are subject to the California Regional Water Quality Control
Board's ("Regional Board") Waste Discharge Requirements Order No. 94-181 (the
"Order"). The Order is attached hereto as EXHIBIT C. As evidenced by their
initials set forth immediately below, Tenant acknowledges that Landlord has
provided Tenant with copies of the environmental reports listed on EXHIBIT D,
and Tenant acknowledges that Tenant and Tenant's experts (if any) have had ample
opportunity to review such reports and that Tenant has satisfied itself as to
the environmental conditions of the Property and the suitability of such
conditions for Tenant's intended use of the Property.

                  Initial: ____________         Initial:  ____________
                           Tenant                             Landlord

<PAGE>

    G. Landlord shall indemnify, defend, and hold harmless Tenant against any
and all claims asserted by third parties (excluding any agents employees,
contractors, vendors, invitees, visitors, future subtenants and assignees of
Tenant, and excluding any other parties related to Tenant), including all
liabilities, judgments, damages, suits, orders, government directives, costs and
expenses in connection with such claims, which arise from (i) the Landfill
Contamination, or (ii) the Order, as may be amended ("Landlord's Environmental
Indemnity"); PROVIDED HOWEVER that Landlord's Environmental Indemnity shall be
subject to the following limitations and conditions:

       (1) Landlord's Environmental Indemnity shall not apply to any economic or
           consequential damages suffered by Tenant, including but not limited
           to loss of business or profits.

       (2) Landlord's Environmental Indemnity shall not apply, without
           limitation, to any releases caused by Tenant's Hazardous Materials
           Activities.

       (3) Tenant acknowledges that Landlord must comply with the Order, as may
           be amended, and with directives of government authorities including
           the Regional Board, with respect to the Contamination and the Former
           Landfill. Tenant further acknowledges that groundwater monitoring
           wells, methane recovery wells and equipment, and other environmental
           control devices are located on and about the Premises and may be
           modified or added to during the term of the Lease (collectively,
           "Environmental Equipment"), and that environmental investigation,
           monitoring, closure and post-closure activities (collectively,
           "Environmental Activities")will be performed on the Premises during
           the term of the Lease. Tenant shall allow Landlord, and any other
           party named as a discharger under the Order, as may be amended, and
           their respective agents, consultants and contractors, and agents of
           governmental environmental authorities with jurisdiction ("Government
           Representatives") to enter the Premises to access the Environmental
           Equipment and to perform Environmental Activities during the term of
           the Lease, provided that Tenant's use and occupancy of the Premises
           shall not unreasonably be disturbed.

       (4) Tenant and Landlord shall reasonably cooperate with each other
           regarding any Environmental Activities to be performed, and regarding
           any Environmental Equipment to be installed, maintained, or removed
           on the Premises during the term of the Lease.

       (5) Tenant shall be responsible at its expense for repairing any
           Environmental Equipment damaged due to the negligence of Tenant or
           Tenant's agents, employees, contractors, vendors, invitees, visitors,
           future subtenants or assignees (such terms "invitees" and "visitors"
           as used in this Paragraph 53

<PAGE>

           shall not include Landlord or any other party named
           as a discharger under the Order as may be amended, or
           any of their respective agents, consultants or
           contractors, or any Government Representatives).

    It is agreed that the Tenant's responsibilities related to Hazardous
Materials will survive the expiration or termination of this Lease and that
Landlord may obtain specific performance of Tenant's responsibilities under this
Paragraph 53.

54. WAIVER OF LANDLORD'S LIEN. Said Lease does not create a lien with respect to
the personal property of Tenant; provided, however, such waiver shall not be
deemed to constitute a waiver of any rights or remedies of Landlord, if and when
applicable, as a judgment lien creditor.

55. QUIET ENJOYMENT: Landlord covenants with respect to actions by Landlord,
that Tenant, on paying the Rent (including Basic Rent and Additional Rent) and
performing all the covenants of this Lease on its part to be performed, shall
and may peaceably and quietly hold and enjoy the Premise s for the Term of this
Lease subject to and in accordance with the terms, covenants, conditions and
provisions of this Lease, including the rights expressly reserved to Landlord as
set forth in this Lease.<PAGE>

                                                               EXHIBIT 10.42

                       FOURTH LOAN MODIFICATION AGREEMENT

         This Fourth Loan Modification Agreement is entered into as of December
1, 1999 by and between BLUESTONE SOFTWARE, INC., a Delaware corporation with its
principal place of business at 1000 Briggs Road, Mount Laurel, New Jersey
08054-4101 ("Borrower") and SILICON VALLEY BANK, a California-chartered bank
("Bank"), with its principal place of business at 3003 Tasman Drive, Santa
Clara, CA 95054 and with a loan production office located at 5 Radnor Corporate
Center, Suite 555, 100 Matsonford Road, Radnor, Pennsylvania 19087.

1.       DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which
may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a
loan arrangement dated as of December 8, 1997, evidenced by, among other
documents, a certain Loan and Security Agreement dated as of December 8, 1997
between Borrower and Bank, as amended by a First Loan Modification Agreement
dated as of August 16, 1998, as amended by a Second Loan Modification Agreement
dated as of January 21, 1999, and as amended by a Third Loan Modification
Agreement dated as of March 30, 1999 (as amended, the "Loan Agreement"). The
Loan Agreement established in favor of the Borrower: (i) a revolving line of
credit in the maximum principal amount of One Million Seven Hundred Fifty
Thousand Dollars ($1,750,000.00) (the "Committed Revolving Line"), and (ii) an
equipment line of credit in the maximum principal amount of Two Million Dollars
($2,000,000.00) (the "1998 Committed Equipment Line"). Capitalized terms used
but not otherwise defined herein shall have the same meaning as in the Loan
Agreement.

Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness".

2.       DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured by
the Collateral as described in the Loan Agreement (together with any other
collateral security granted to Bank, the "Security Documents").

Hereinafter, the Security Documents, together with all other documents
evidencing or securing the Indebtedness shall be referred to as the "Existing
Loan Documents".

3.       DESCRIPTION OF CHANGE IN TERMS.

         A.       MODIFICATION(S) TO LOAN AGREEMENT.

                  1.       All references to "Committed Equipment Line" in the
                           Loan Agreement shall mean and refer to the "1998
                           Committed Equipment Line".

                  2.       The Loan Agreement shall be amended by deleting the
                           following definition appearing in Section 1.1
                           thereof:

                                    ""Committed Revolving Line" shall mean a
                                    credit extension of up to One Million Seven
                                    Hundred Fifty Thousand Dollars
                                    ($1,750,000.00)."

                           and inserting in lieu thereof the following:

                                    ""Committed Revolving Line" shall mean an
                                    Advance or Advances of up to Three Million
                                    Dollars ($3,000,000.00)."

                  3.       The Loan Agreement shall be amended by deleting the
                           following definition appearing in Section 1.1
                           thereof:

<PAGE>

                                    ""Credit Extension" means each Advance,
                                    Equipment Advance or any other extension of
                                    credit by Bank for the benefit of Borrower
                                    hereunder."

                           and inserting in lieu thereof the following:

                                    ""Credit Extension" means each Advance,
                                    Equipment Advance, Letter of Credit or any
                                    other extension of credit by Bank for the
                                    benefit of Borrower hereunder."

                  4.       The Loan Agreement shall be amended by deleting the
                           following definition appearing in Section 1.1
                           thereof:

                                    ""Equipment Advance" has the meaning set
                                    forth in Section 2.1.1."

                           and inserting in lieu thereof the following:

                                    ""Equipment Advance" or "Equipment Advances"
                                    shall mean any advance made pursuant to
                                    Sections 2.1.2, 2.1.2.A or 2.1.2.B hereof."

                  5.       The Loan Agreement shall be amended by deleting the
                           following definition appearing in Section 1.1
                           thereof:

                                    ""Maturity Date" means the later of the
                                    Second Equipment Maturity Date or the
                                    Revolving Maturity Date."

                           and inserting in lieu thereof the following:

                                    ""Maturity Date" means, as applicable, (i)
                                    the Revolving Maturity Date for Advances
                                    pursuant to Section 2.1.1; (ii) the
                                    Equipment Maturity Date for Equipment
                                    Advances pursuant to Section 2.1.2; (iii)
                                    the Second Equipment Maturity Date for
                                    Equipment Advances pursuant to Section
                                    2.1.2.A; and (iv) the 1999 Equipment
                                    Maturity Date No. 1 and 1999 Equipment
                                    Maturity Date No. 2 for Equipment Advances
                                    pursuant to Section 2.1.2.B."

                  6.       The Loan Agreement shall be amended by deleting the
                           following definition appearing in Section 1.1
                           thereof:

                                    ""Obligations" means all debt, principal,
                                    interest, Bank Expenses and other amounts
                                    owed to Bank by Borrower pursuant to this
                                    Agreement or any other agreement, whether
                                    absolute or contingent, due or to become
                                    due, now existing or hereafter arising,
                                    including any interest that accrues after
                                    the commencement of an Insolvency Proceeding
                                    and including any debt, liability, or
                                    obligation owing from Borrower to others
                                    that Bank may have obtained by assignment or
                                    otherwise."

                           and inserting in lieu thereof the following:

                                    ""Obligations" means all debt, principal,
                                    interest, Bank Expenses and other amounts
                                    owed to Bank by Borrower pursuant to this
                                    Agreement or any other agreement, including,
                                    without limitation, all Obligations under
                                    the EXIM Agreement, whether absolute or
                                    contingent, due or to become due, now
                                    existing or hereafter arising, including any
                                    interest that accrues after

                                        2

<PAGE>

                                    the commencement of an Insolvency Proceeding
                                    and including any debt, liability, or
                                    obligation owing from Borrower to others
                                    that Bank may have obtained by assignment or
                                    otherwise."

                  7.       The Loan Agreement shall be amended by deleting the
                           following definition appearing in Section 1.1
                           thereof:

                                    ""Payment Date" means the first calendar day
                                    of each month commencing on the first such
                                    date after the Closing Date and ending on
                                    the Revolving Maturity Date."

                           and inserting in lieu thereof the following:

                                    ""Payment Date" means the first calendar day
                                    of each month commencing on the first such
                                    date after the Closing Date and ending on
                                    the Maturity Date."

                  8.       The Loan Agreement shall be amended by deleting the
                           following definition appearing in Section 1.1
                           thereof:

                                    ""Revolving Maturity Date" shall mean April
                                    1, 2000."

                           and inserting in lieu thereof the following:

                                    ""Revolving Maturity Date" shall mean
                                    December 1, 2000."

                  9.       The Loan Agreement shall be amended by incorporating
                           into Section 1.1 thereof the following new
                           definitions:

                                    "EXIM Agreement" is that certain
                                    Export-Import Bank Loan and Security
                                    Agreement dated as of December 1, 1999 by
                                    and between the Borrower and the Bank and
                                    all documents, instruments and agreements
                                    executed in conjunction therewith.

                                    "Letter of Credit" means a letter of credit
                                    or similar undertaking issued by Bank
                                    pursuant to Section 2.1.3.

                                    "Letter of Credit Reserve" has the meaning
                                    set forth in Section 2.1.3.

                                    "1999 Committed Equipment Line" shall mean
                                    an Equipment Advance or Equipment Advances
                                    of up to Five Hundred Thousand Dollars
                                    ($500,000.00).

                                    "1999 Equipment Availability End Date No. 1"
                                    has the meaning set forth in Section 2.1.2.
                                    B.

                                    "1999 Equipment Availability End Date No. 2"
                                    has the meaning set forth in Section 2.1.2.
                                    B.

                                    "1999 Equipment Maturity Date No. 1" means
                                    that date which is thirty-six (36) months
                                    following the 1999 Equipment Availability
                                    End Date No. 1.

                                        3

<PAGE>

                                    "1999 Equipment Maturity Date No. 2" means
                                    that date which is thirty-six (36) months
                                    following the 1999 Equipment Availability
                                    End Date No. 2.

                  10.      The Loan Agreement shall be amended by deleting the
                           following text appearing as the first sentence of
                           paragraph (a) of Section 2.1.1 entitled "Credit
                           Extensions":

                                    "Subject to and upon the terms and
                                    conditions of this Agreement, Bank agrees to
                                    make Advances to Borrower in an aggregate
                                    outstanding amount not to exceed the
                                    Committed Revolving Line or the Borrowing
                                    Base, whichever is less."

                           and inserting in lieu thereof the following:

                                    "Subject to and upon the terms and
                                    conditions of this Agreement, Bank agrees to
                                    make Advances to Borrower in an aggregate
                                    outstanding amount not to exceed: (i) the
                                    Committed Revolving Line or the Borrowing
                                    Base, whichever is less, minus (ii) the face
                                    amount of all outstanding Letters of Credit
                                    (including drawn but unreimbursed Letters of
                                    Credit)."

                  11.      No further Equipment Advances shall be made under
                           Sections 2.1.2 and 2.1.2.A. All Equipment Advances
                           currently amortizing under Sections 2.1.2 and 2.1.2.A
                           shall continue to be repaid as provided in Sections
                           2.1.2 and 2.1.2.A.

                  12.      The Loan Agreement shall be amended by inserting
                           after Section 2.1.2.A thereof entitled "1998-1999
                           Equipment Advances" the following new section:

                                    "2.1.2.B.    1999 EQUIPMENT ADVANCES.

                                    (a)      Subject to and upon the terms and
                                    conditions of this Agreement, Bank agrees to
                                    make advances (each an "Equipment Advance"
                                    and collectively, the "Equipment Advances")
                                    to Borrower under this Section 2.1.2.B in an
                                    aggregate amount not to exceed the 1999
                                    Committed Equipment Line in the following
                                    manner: (i) at any time through June 1, 2000
                                    (the "1999 Equipment Availability End Date
                                    No. 1") in an aggregate amount not greater
                                    than the 1999 Committed Equipment Line (the
                                    "1999 Equipment Line No. 1"), and (ii) at
                                    any time from the 1999 Equipment
                                    Availability End Date No. 1 through that
                                    date which is six (6) months following the
                                    1999 Equipment Availability End Date No. 1
                                    (the "1999 Equipment Availability End Date
                                    No. 2"), in an aggregate amount not to
                                    exceed the 1999 Committed Equipment Line,
                                    less the outstanding principal amounts
                                    advanced pursuant to 1999 Equipment Line No.
                                    1 (the "1999 Equipment Line No. 2"). To
                                    evidence the Equipment Advance or Equipment
                                    Advances, Borrower shall deliver to Bank, at
                                    the time of each Equipment Advance request,
                                    an invoice for the equipment to be
                                    purchased. The Equipment Advances under this
                                    Section 2.1.2.B shall be used only to
                                    purchase Equipment and shall not exceed One
                                    Hundred Percent (100%) of the invoice amount
                                    of such equipment approved from time to time
                                    by Bank, excluding taxes, shipping, warranty
                                    charges, freight discounts and installation
                                    expense. Software shall be limited to
                                    twenty-five percent (25.0%) of aggregate
                                    Equipment Advances under this Section
                                    2.1.2.B.

                                        4

<PAGE>

                                    (b)      Interest shall accrue from the date
                                    of each Equipment Advance under this Section
                                    2.1.2.B at the per annum rate equal to the
                                    aggregate of the Prime Rate PLUS Three
                                    Quarters of One percent (0.75%), and shall
                                    be payable monthly on the Payment Date of
                                    each month. Any Equipment Advances made
                                    pursuant to the 1999 Equipment Line No. 1
                                    that are outstanding on the 1999 Equipment
                                    Availability End Date No. 1 will be payable
                                    in Thirty-Six (36) equal monthly
                                    installments of principal, plus all accrued
                                    interest, beginning on the Payment Date of
                                    the month following the 1999 Equipment
                                    Availability End Date No. 1 and ending on
                                    the 1999 Equipment Maturity Date No. 1. Any
                                    Equipment Advances made pursuant to the 1999
                                    Equipment Line No. 2 that are outstanding on
                                    the 1999 Equipment Availability End Date No.
                                    2 will be payable in Thirty-Six (36) equal
                                    monthly installments of principal, plus all
                                    accrued interest, beginning on the Payment
                                    Date of the month following the 1999
                                    Equipment Availability End Date No. 2 and
                                    ending on the 1999 Equipment Maturity Date
                                    No. 2. Equipment Advances, once repaid, may
                                    not be reborrowed. Equipment Advances may be
                                    prepaid at any time in whole or in part
                                    without penalty or premium.

                                    (c)      When Borrower desires to obtain an
                                    Equipment Advance, Borrower shall notify
                                    Bank (which notice shall be irrevocable) by
                                    facsimile transmission to be received no
                                    later than 3:00 p.m. Eastern time one (1)
                                    Business Day before the day on which the
                                    Equipment Advance is to be made. Such notice
                                    shall be substantially in the form of
                                    Exhibit B. The notice shall be signed by a
                                    Responsible Officer or its designee and
                                    include a copy of the invoice for the
                                    Equipment to be financed."

                  13.      The Loan Agreement shall be amended by inserting
                           after Section 2.1.2.B thereof the following new
                           section:

                                    "2.1.3  LETTERS OF CREDIT.

                                    (a)      Subject to the terms and conditions
                                    of this Agreement, Bank agrees to issue or
                                    cause to be issued Letters of Credit for the
                                    account of Borrower in an aggregate
                                    outstanding face amount not to exceed (i)
                                    the Committed Revolving Line or the
                                    Borrowing Base, whichever is less, minus
                                    (ii) the then outstanding principal balance
                                    of the Advances; PROVIDED that the face
                                    amount of outstanding Letters of Credit
                                    (including drawn but unreimbursed Letters of
                                    Credit and any Letter of Credit Reserve)
                                    shall not in any case exceed One Million
                                    Dollars ($1,000,000.00). Each Letter of
                                    Credit shall have an expiry date no later
                                    than one hundred eighty (180) days after the
                                    Maturity Date provided that Borrower's
                                    Letter of Credit reimbursement obligation
                                    shall be secured by cash on terms acceptable
                                    to Bank at any time after the Maturity Date
                                    if the term of this Agreement is not
                                    extended by Bank. All Letters of Credit
                                    shall be, in form and substance, acceptable
                                    to Bank in its sole discretion and shall be
                                    subject to the terms and conditions of
                                    Bank's form of standard Application and
                                    Letter of Credit Agreement.

                                    (b)      The obligation of Borrower to
                                    reimburse Bank within two (2) business days
                                    of notice by Bank for drawings made under
                                    Letters of Credit shall be absolute,
                                    unconditional and irrevocable, and shall be
                                    performed strictly in

                                        5

<PAGE>

                                    accordance with the terms of this Agreement
                                    and such Letters of Credit, under all
                                    circumstances whatsoever. Borrower shall
                                    indemnify, defend, protect, and hold Bank
                                    harmless from any loss, cost, expense or
                                    liability, including, without limitation,
                                    reasonable attorneys' fees, arising out of
                                    or in connection with any Letters of Credit,
                                    except for losses, costs, expenses or
                                    liability resulting from gross negligence or
                                    willful misconduct of Bank.

                                    (c)      Borrower may request that Bank
                                    issue a Letter of Credit payable in a
                                    currency other than United States Dollars.
                                    If a demand for payment is made under any
                                    such Letter of Credit, Bank shall treat such
                                    demand as an Advance to Borrower of the
                                    equivalent of the amount thereof (plus cable
                                    charges) in United States currency at the
                                    then prevailing rate of exchange in San
                                    Francisco, California, for sales of that
                                    other currency for cable transfer to the
                                    country of which it is the currency.

                                    (d)      Upon the issuance of any letter of
                                    credit payable in a currency other than
                                    United States Dollars, Bank shall create a
                                    reserve (the "Letter of Credit Reserve")
                                    under the Committed Revolving Line for
                                    letters of credit against fluctuations in
                                    currency exchange rates, in an amount equal
                                    to ten percent (10%) of the face amount of
                                    such letter of credit. The amount of such
                                    reserve may be amended by Bank from time to
                                    time to account for fluctuations in the
                                    exchange rate. The availability of funds
                                    under the Committed Revolving Line shall be
                                    reduced by the amount of such reserve for so
                                    long as such letter of credit remains
                                    outstanding."

                  14.      The Loan Agreement shall be amended by deleting the
                           following text appearing as Section 2.2 entitled
                           "Overadvances":

                                    "2.2     OVERADVANCES. If, at any time or
                                    for any reason, the amount of Obligations
                                    owed by Borrower to Bank pursuant to Section
                                    2.1.1 of this Agreement is greater than the
                                    lesser of (i) the Committed Revolving Line
                                    or (ii) the Borrowing Base, Borrower shall
                                    immediately pay to Bank, in cash, the amount
                                    of such excess."

                           and inserting in lieu thereof the following:

                                    "2.2     OVERADVANCES. If, at any time or
                                    for any reason, the amount of Obligations
                                    owed by Borrower to Bank pursuant to Section
                                    2.1.1 and 2.1.3 of this Agreement is greater
                                    than: (i) the lesser of the Committed
                                    Revolving Line or the Borrowing Base, minus
                                    (ii) the face amount of all outstanding
                                    Letters of Credit (including drawn but
                                    unreimbursed Letters of Credit), Borrower
                                    shall immediately pay to Bank, in cash, the
                                    amount of such excess."

                  15.      The Loan Agreement shall be amended by deleting the
                           following text appearing as paragraph (a) of Section
                           2.3 entitled "Interest Rates, Payments, and
                           Calculations":

                                    "(a)     INTEREST RATE. Except as set forth
                                    in Section 2.3(b) any Advances made pursuant
                                    to Section 2.1.1 shall bear interest, on the
                                    average daily balance thereof, at a per
                                    annum rate equal to Three Quarters of One
                                    percentage point (0.75%) above the Prime
                                    Rate. Notwithstanding the foregoing, if the
                                    Borrower fails to achieve the Net Revenue
                                    Requirement

                                        6

<PAGE>

                                    for ANY fiscal quarter, any Advances shall
                                    bear interest (except as set forth in
                                    Section 2.3(b)), on an average daily balance
                                    thereof, effective as of the first day of
                                    the month following the quarter end in which
                                    Borrower failed to achieve such Net Revenue
                                    Requirement, at a per annum rate equal to
                                    the aggregate of the Prime Rate, PLUS One
                                    and One-Quarter percent (1.25%). The
                                    effective interest rate shall not decrease
                                    as a result of the compliance by the
                                    Borrower with the Net Revenue Requirement
                                    for subsequent periods."

                           and inserting in lieu thereof the following:

                                    "(a)     INTEREST RATE. Except as set forth
                                    in Section 2.3(b): (i) any Advances made
                                    pursuant to Section 2.1.1 shall bear
                                    interest, effective as of December 1, 1999,
                                    on the average daily balance thereof, at a
                                    per annum rate equal to the aggregate of the
                                    Prime Rate PLUS One Half of One percent
                                    (0.50%), (ii) any Equipment Advances made
                                    pursuant to Section 2.1.2 shall bear
                                    interest in accordance with terms of Section
                                    2.1.2, (iii) any Equipment Advances made
                                    pursuant to Section 2.1.2.A shall bear
                                    interest in accordance with terms of Section
                                    2.1.2.A, and (iv) any Equipment Advances
                                    made pursuant to Section 2.1.2.B shall bear
                                    interest in accordance with terms of Section
                                    2.1.2.B."

                  16.      The Loan Agreement shall be amended by incorporating
                           into Section 4.1 entitled "Grant of Security
                           Interest" the following text to appear as the last
                           sentence in Section 4.1:

                                    "Notwithstanding the foregoing, it is
                                    expressly acknowledged and agreed that the
                                    security interest created in this Agreement
                                    only with respect to EXIM Eligible Foreign
                                    Accounts (as such term is defined in the
                                    EXIM Agreement) is subject to and
                                    subordinate to the security interest granted
                                    to the Bank in the EXIM Agreement with
                                    respect to such EXIM Eligible Foreign
                                    Accounts, but only to the extent any
                                    advances are actually made to the Borrower
                                    under the EXIM Agreement based upon such
                                    EXIM Eligible Foreign Accounts."

                  17.      The Loan Agreement shall be amended by deleting the
                           following text appearing in the first paragraph of
                           Section 6.3 entitled "Financial Statements, Reports,
                           Certificates":

                                    "(a)     as soon as available, but in any
                                    event within twenty-five (25) days after the
                                    end of each month, a company prepared
                                    consolidated balance sheet and income
                                    statement covering Borrower's consolidated
                                    operations during such period, in a form and
                                    certified by an officer of Borrower
                                    reasonably acceptable to Bank;"

                           and inserting in lieu thereof the following:

                                    "(a)     as soon as available, but in any
                                    event within thirty (30) days after the end
                                    of each month, a company prepared
                                    consolidated balance sheet and income
                                    statement covering Borrower's consolidated
                                    operations during such period, in a form and
                                    certified by an officer of Borrower
                                    reasonably acceptable to Bank;"

                                        7

<PAGE>

                  18.      The Loan Agreement shall be amended by deleting the
                           following text appearing as the second paragraph of
                           Section 6.3 entitled "Financial Statements, Reports,
                           Certificates":

                                    "Borrower shall deliver to Bank, on a
                                    semi-monthly basis within seven (7) business
                                    days of the fifteenth (15th) and last day of
                                    each month, a Borrowing Base Certificate
                                    signed by a Responsible Officer in
                                    substantially the form of EXHIBIT C hereto,
                                    together with aged listings of accounts
                                    receivable. Notwithstanding the foregoing,
                                    if at any time during the preceding month
                                    the outstanding principal balance under the
                                    Committed Revolving Line is no greater than
                                    $1,000,000.00, the Borrowing Base
                                    Certificate and the aged listings of
                                    accounts receivable shall be delivered by
                                    Borrower to Bank within fifteen (15) days of
                                    the last day of each such month."

                           and inserting in lieu thereof the following:

                                    "Within thirty (30) days after the last day
                                    of each month, Borrower shall deliver to
                                    Bank a Borrowing Base Certificate signed by
                                    a Responsible Officer in substantially the
                                    form of EXHIBIT C hereto, together with aged
                                    listings of accounts receivable."

                  19.      The Loan Agreement shall be amended by deleting the
                           following text appearing as the third paragraph of
                           Section 6.3 entitled "Financial Statements, Reports,
                           Certificates":

                                    "Within twenty-five (25) days after the last
                                    day of each month, Borrower shall deliver to
                                    Bank with the monthly financial statements a
                                    Compliance Certificate signed by a
                                    Responsible Officer in substantially the
                                    form of EXHIBIT D hereto."

                           and inserting in lieu thereof the following:

                                    "Within thirty (30) days after the last day
                                    of each month, Borrower shall deliver to
                                    Bank with the monthly financial statements a
                                    Compliance Certificate signed by a
                                    Responsible Officer in substantially the
                                    form of EXHIBIT D hereto."

                  20.      The Loan Agreement shall be amended by deleting the
                           following text appearing as Section 6.8 thereof:

                                    "6.8 TANGIBLE NET WORTH. Borrower shall
                                    maintain, as of the last day of each
                                    calendar month, a Tangible Net Worth of not
                                    less than: (i) One Million Seven Hundred
                                    Fifty Thousand Dollars ($1,750,000.00) for
                                    each month through the month ending May 31,
                                    1999, (ii) Three Million Dollars
                                    ($3,000,000.00) for the months ending June
                                    30, 1999, July 31, 1999 and August 31, 1999,
                                    and (iii) Four Million Five Hundred Thousand
                                    Dollars ($4,500,000.00) for each month
                                    thereafter. The Bank hereby reserves the
                                    right, in its sole and absolute discretion,
                                    to reset such Tangible Net Worth covenant
                                    upon a public offering of stock by the
                                    Borrower. For purposes hereof, Tangible Net
                                    Worth shall be defined as Borrower's equity
                                    plus Subordinated Debt less intangible
                                    assets."

                                      8
<PAGE>

                           and inserting in lieu thereof the following:

                                    "6.8     TANGIBLE NET WORTH. Borrower shall
                                    maintain, as of the last day of each
                                    calendar month, a Tangible Net Worth plus
                                    Subordinated Debt of not less than the
                                    aggregate of (i) Eight Million Dollars
                                    ($8,000,000.00), PLUS (ii) fifty percent
                                    (50.0%) of the amount of cash received by
                                    Borrower from any new equity issued by
                                    Borrower (except for issuances pursuant to
                                    employee or director stock option plans of
                                    Borrower)."

                  21.      The Loan Agreement shall be amended by deleting the
                           following text appearing as paragraph (a) of Section
                           9.1 entitled "Rights and Remedies":

                                    "(a)     Declare all Obligations, whether
                                    evidenced by this Agreement, by any of the
                                    other Loan Documents, or otherwise,
                                    immediately due and payable (provided that
                                    upon the occurrence of an Event of Default
                                    described in Section 8.5 all Obligations
                                    shall become immediately due and payable
                                    without any action by Bank);"

                           and inserting in lieu thereof the following:

                                    "(a)     Declare all Obligations (including,
                                    without limitation, all obligations under
                                    the EXIM Agreement), whether evidenced by
                                    this Agreement, by any of the other Loan
                                    Documents, or otherwise, immediately due and
                                    payable (provided that upon the occurrence
                                    of an Event of Default described in Section
                                    8.5 all Obligations shall become immediately
                                    due and payable without any action by
                                    Bank);"

                  22.      The Loan Agreement shall be amended in Section 9.1
                           entitled "Rights and Remedies" by incorporating
                           therein immediately after paragraph (i) the following
                           new paragraph:

                                    "(j)     Demand that Borrower (i) deposit
                                    cash with Bank in an amount equal to the
                                    amount of any Letters of Credit remaining
                                    undrawn, as collateral security for the
                                    repayment of any future drawings under such
                                    Letters of Credit, and Borrower shall
                                    forthwith deposit and pay such amounts, and
                                    (ii) pay in advance all Letters of Credit
                                    fees scheduled to be paid or payable over
                                    the remaining term of the Letters of
                                    Credit."

                  23.      An Event of Default under the EXIM Agreement shall be
                           an Event of Default under the Loan Agreement, as
                           amended hereby.

                  24.      The Borrower hereby ratifies, confirms and reaffirms,
                           all and singular, the terms and conditions of a
                           certain Negative Pledge Agreement dated as of August
                           16, 1998 between Borrower and Bank, and acknowledges,
                           confirms and agrees that said Negative Pledge
                           Agreement shall remain in full force and effect.

                  25.      The Borrowing Base Certificate appearing as EXHIBIT C
                           to the Loan Agreement is hereby replaced with the
                           Borrowing Base Certificate attached as EXHIBIT A
                           hereto.

                  26.      The Compliance Certificate appearing as EXHIBIT D to
                           the Loan Agreement is hereby replaced with the
                           Compliance Certificate attached as EXHIBIT B hereto.

                                        9

<PAGE>

4.       FEE. Borrower shall pay to Bank the following fully earned and
non-refundable modification fees: (i) a working capital line commitment fee
equal to Six Thousand Two Hundred Fifty Dollars ($6,250.00), which fee shall be
due on the date hereof, and (ii) an equipment line commitment fee equal to Two
Thousand Five Hundred Dollars ($2,500.00), which fee shall be due on the date
hereof. The Borrower shall also reimburse Bank for all legal fees and expenses
incurred in connection with this amendment to the Existing Loan Documents.

5.       CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.

6.       RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and
reaffirms all terms and conditions of all security or other collateral granted
to the Bank, and confirms that the indebtedness secured thereby includes,
without limitation, the Indebtedness.

7.       NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has
no defenses against the obligations to pay any amounts under the Indebtedness.

8.       CONTINUING VALIDITY. Borrower understands and agrees that in modifying
the existing Indebtedness, Bank is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Bank's agreement to modifications to the existing Indebtedness pursuant to this
Loan Modification Agreement in no way shall obligate Bank to make any future
modifications to the Indebtedness. Nothing in this Loan Modification Agreement
shall constitute a satisfaction of the Indebtedness. It is the intention of Bank
and Borrower to retain as liable parties all makers of Existing Loan Documents,
unless the party is expressly released by Bank in writing. No maker will be
released by virtue of this Loan Modification Agreement.

9.       JURISDICTION/VENUE. Borrower accepts for itself and in connection with
its properties, unconditionally, the non-exclusive jurisdiction of any state or
federal court of competent jurisdiction in the Commonwealth of Massachusetts in
any action, suit, or proceeding of any kind against it which arises out of or by
reason of this Loan Modification Agreement; provided, however, that if for any
reason Bank cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Clara County, California.

10.      COUNTERSIGNATURE. This Loan Modification Agreement shall become
effective only when it shall have been executed by Borrower and Bank (provided,
however, in no event shall this Loan Modification Agreement become effective
until signed by an officer of Bank in California).

                                       10

<PAGE>

         This Loan Modification Agreement is executed as a sealed instrument
under the laws of the Commonwealth of Massachusetts as of the date first written
above.

BORROWER:                                  BANK:

BLUESTONE SOFTWARE, INC.                   SILICON VALLEY BANK

By:_______________________________________ By:__________________________________

Name:__________________________________    Name:________________________________

Title:_________________________________    Title:_______________________________

                                       11

<PAGE>

                                    EXHIBIT A
                           BORROWING BASE CERTIFICATE

Borrower:  BLUESTONE SOFTWARE, INC.        Bank:            Silicon Valley Bank

Commitment Amount: $3,000,000.00

ACCOUNTS RECEIVABLE

                         1)       Accounts Receivable Book Value as of______
                                  $__________

                         2)       Additions (please explain on reverse)
                                  $__________

                         3)       TOTAL ACCOUNTS RECEIVABLE
                                  $__________

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)

                         4)       Amounts over 90 days due
                                  $__________

                         5)       Balance of 50% over 90 day accounts
                                  $__________

                         6)       Concentration Limits
                                  $__________

                         7)       Foreign Accounts
                                                         $__________

                         8)       Governmental Accounts
                                  $__________

                         9)       Contra Accounts
                                  $__________

                         10)      Promotion or Demo Accounts
                                  $__________

                         11)      Intercompany/Employee Accounts
                                  $__________

                         12)      Other (please explain on reverse)
                                  $__________

                         13)      TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS
                                  $__________

                         14)      Eligible Accounts (#3 minus #13)
                                  $__________

                         15)      LOAN VALUE OF ACCOUNTS (80.0% of #14)
                                  $__________

BALANCES

                         16)      Maximum Loan Amount
                                  $__________

                         17)      Total Funds Available [Lesser of #16 or #15]
                                  $__________

                         18)      Present balance owing on Line of Credit
                                  $__________

                         19)      Outstanding under Sublimit (Letters of Credit)
                                  $__________

                         20)      RESERVE POSITION (#17 minus #18 and #19)
                                  $__________

                                       12

<PAGE>

THE UNDERSIGNED REPRESENTS AND WARRANTS THAT THE FOREGOING IS TRUE, COMPLETE AND
CORRECT, AND THAT THE INFORMATION REFLECTED IN THIS BORROWING BASE CERTIFICATE
COMPLIES WITH THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THE LOAN AND
SECURITY AGREEMENT BETWEEN THE UNDERSIGNED AND SILICON VALLEY BANK, INCLUDING,
WITHOUT LIMITATION, THOSE APPEARING IN SECTION 2.1.1 OF THE LOAN AND SECURITY
AGREEMENT, AS AMENDED.

COMMENTS:

___________________________

By: _______________________
    Authorized Signer

                                       13

<PAGE>

                                    EXHIBIT B
                             COMPLIANCE CERTIFICATE

TO:               SILICON VALLEY BANK

FROM:             BLUESTONE SOFTWARE, INC.

         The undersigned authorized officer of BLUESTONE SOFTWARE, INC. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending with all required covenants except
as noted below and (ii) all representations and warranties of Borrower stated in
the Agreement are true and correct in all material respects as of the date
hereof. Attached herewith are the required documents supporting the above
certification. The Officer further certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer expressly acknowledges that no
borrowings may be requested by the Borrower at any time or date of determination
that Borrower is not in compliance with any of the terms of the Agreement, and
that such compliance is determined not just at the date this certificate is
delivered.

<TABLE>
<CAPTION>

           PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER
"COMPLIES" COLUMN.

         Reporting Covenant                                   Required                                    Complies
         ------------------                                   --------                                    --------

<S>                                                           <C>                                         <C>     <C>
         Monthly financial statements & CC                    Monthly within 30 days                      Yes     No
         Annual (CPA Audited)                                 FYE within 120 days                         Yes     No
         BBC & A/R Agings                                     Monthly within 30 days                      Yes     No

<CAPTION>

         Financial Covenant                                   Required                           Actual                   Complies
         ------------------                                   --------                           ------                   --------
<S>                                                           <C>                               <C>                       <C>    <C>
         Maintain on a Monthly Basis:

         Minimum Adjusted Quick Ratio                         1.50:1.0                           ____:1.0                 Yes    No
         Minimum Tangible Net Worth                           $8,000,000 plus 50% of            $________                 Yes    No
                                                              new equity (except for
                                                              stock option plans)

</TABLE>

COMMENTS REGARDING EXCEPTIONS:

Sincerely,

_______________________                     Date:_______________
SIGNATURE

_______________________
TITLE

                                       14

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