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                                                                   EXHIBIT 10.22

                       OFFICE LEASE -- FULL SERVICE GROSS
                                  GENERAL FORM

1. PARTIES. This ("Lease"), dated for reference purposes only, May 18, 1999, is
made by and between SIGNATURE SERVICE, a California corporation (herein called
"Lessor"), as managing agent and attorney-in-fact for the subject real property
owner(s) ("Owner"(s)) and Advance Paradigm, Inc., a Delaware corporation (herein
called "Lessee"), together and hereinafter referred to as (the "Parties").

2. PREMISES. Lessor does hereby lease to Lessee and Lessee hereby leases from
Lessor, subject to the provisions of this Lease, that certain office space
described in Exhibit "C" attached hereto (hereinafter called the "Premises") in
that certain building known as Regents Park ("Project") located at 11344 Coloma
Road Suite 345, Gold River, CA 95670.

3. TERM. The Term of this Lease ("Term") shall be for 60 months beginning August
1, 1999 (the "Commencement Date") and ending on the 31 day of July, 2004 (the
"Termination Date"). In the event that the Lease Term is month-to-month, either
party may cancel the Lease with 30 days prior written notice.

4. POSSESSION. Possession of the Premises shall be deemed tendered to Lessee
("Tender of Possession") when (1) the improvements to be provided by Lessor
under this Lease, if any, are substantially completed, (2) the Project utilities
are ready for use in the Premises, (3) Lessee has reasonable access to the
Premises, and (4) five (5) days shall have expired following advance written
notice to Lessee of the occurrence of the matters described in (1), (2) and (3),
above of this paragraph 4.

         If for any reason, Lessor cannot deliver possession of the Premises to
Lessee on the Commencement Date and subject to delays caused by Lessee
(paragraph 4.1) in such event Lessor shall not be subject to any liability
therefor, nor shall such failure affect the validity of this Lease or the
obligations of Lessee hereunder. In such case the Commencement Date, and
likewise the Termination Date, shall be postponed until possession is tendered
to Lessee. Lessee shall not be obligated to pay Rent or perform any other
obligations of Lessee under the terms of this Lease until possession of the
Premises is tendered to Lessee. If Lessor has not delivered possession of the
Premises within ninety (30) days following said Commencement Date, Lessee may,
at Lessee's option, by notice in writing to Lessor, cancel this Lease, in which
event the Parties shall be discharged from all obligations hereunder; provided,
however, that, as to Lessee's obligations, Lessee first reimburses Lessor for
all costs incurred for Non-Standard improvements and, as to Lessor's
obligations, Lessor shall return any money previously deposited by Lessee (less
any offsets due Lessor for Non-Standard improvements).

[INITIAL STAMP]

         4.1 DELAYS CAUSED BY LESSEE. There shall be no abatement of Rent, and
the ninety (90) day period following the Commencement Date before which Lessee's
right to cancel this Lease accrues under paragraph 4, shall be deemed extended
to the extent of any delays caused by acts or omissions of Lessee, Lessee's
agents, employees and contractors.

         4.2 EARLY POSSESSION. If Lessee occupies the Premises prior to said
Commencement Date for any purpose including construction of tenant improvements,
such occupancy shall be subject to all provisions of this Lease, such occupancy
shall not change the Termination Date, and Lessee shall pay Rent for such
occupancy.

         4.3 UNCERTAIN COMMENCEMENT. In the event the Commencement Date is
defined as the completion of the improvements, Lessee and Lessor shall execute
an amendment to this Lease establishing the date of Tender of Possession or the
actual taking of possession by Lessee, whichever first occurs, as the
Commencement Date in a form attached hereto as Exhibit "D".

5. BASE RENT. Lessee hereby covenants and agrees to pay to Lessor as Base Rent
for the Premises the sum of See Exhibit "B" ($ _____________), hereafter
referred to as ("Base Rent") in advance on or before the first day of each month
and every successive calendar month thereafter during the Term hereof, without
prior notice or demand and without deduction or offset whatsoever, except that
the first month's Base Rent shall be paid upon the execution of this Lease.
Rent, as defined in Paragraph 30 herein, for any period during the Term hereof
which is for less than one (1) month shall be a prorated portion thereof.

* - See Exhibit "B"

6. SECURITY DEPOSIT. Lessee has deposited with Lessor the sum of Eight thousand
five hundred twenty seven dollars 00/100 ($8,527.00). Said sum shall be held
by Lessor as security for the faithful performance by Lessee of all the terms,
covenants, and conditions of this Lease to be kept and performed by Lessee
during the Term hereof. Any time the Base Rent increases during the term of this
Lease, Lessee shall, upon written request from Lessor, deposit additional monies
with Lessor as an addition to the Security Deposit so that the total amount of
the Security Deposit shall at all times bear the same proportion to the then
current Base Rent. If Lessee defaults with respect to any provision of this
Lease, including, but not limited to, the provisions relating to the payment of
any Rent, Lessor may (but shall not be required to) use, apply or retain all or
any part of the Security Deposit for the payment of any Rent or any other sum
in which Lessor may spend or become obligated to spend by reason of Lessee's
default, or to compensate Lessor for any other loss or damage which Lessor may
suffer by reason of Lessee's default. If any portion of said deposit is so used
or applied, Lessee shall within five (5) days after written demand therefore,
deposit cash with Lessor in an amount sufficient to restore the Security Deposit
to its original amount and Lessee's failure to do so shall be a material breach
of this Lease. Lessor shall not be required to keep this Security Deposit
separate from its general funds, and Lessee shall not be entitled to interest on
such deposit. If Lessee shall fully and faithfully perform every provision of
this Lease to be performed by it, the Security Deposit or any balance thereof
shall be returned to the Lessee within ten (10) days following the expiration of
the Lease Term. In the event of assignment of Lessor's interest in this Lease,
Lessor shall transfer said deposit to Lessor's successor in interest.

7. OPERATING EXPENSE ADJUSTMENTS.

         7.1 Lessee shall pay Lessor, as Rent, Lessee's pro rata share of the
amount by which the Operating Expenses for the Comparison Year exceed the
Operating Expenses for the Base Year.

The term "Base Year" shall mean the calendar year in which this Lease Term
commences. "Comparison Year" shall mean each calendar year of the Term following
the Base Year.

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                                                       Lessor     Lessee
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[INITIAL STAMP]

         7.2 The term "Operating Expenses" shall mean any and all expenses
incurred by Lessor in connection with the operation, maintenance and repair of
the Project including, but not limited to the following: charges or fees for,
and taxes on, the furnishing of electricity, fuel, water, sewer, gas, oil and
other utilities; (at Lessor's sole discretion) security; pest control; cleaning
of windows and exterior curtain walls; janitorial services; trash and snow
removal; landscaping and repair and maintenance of grounds; salaries, wages and
benefits for employees of Lessor engaged in the operation, maintenance or repair
of the Project including benefits, payroll taxes and worker's compensation
insurance; license fees and governmental permits; casualty and liability
insurance; costs of repairing casualties or losses to the building(s), for which
Lessor does not receive insurance proceeds covering the entire loss; costs for
code compliance; cleaning supplies; uniforms and dry cleaning service; supplies,
repairs, replacements and other expenses for maintaining and operating the
Project at the time it was constructed or the installation of any device or
other equipment which improves the operating efficiency of any system within the
Project and thereby reduces the cost of operating said system(s); all such
costs, including interest thereon, shall be amortized on a straight line basis
over the useful life of the investments and prorated as per paragraph 7.5
Lessor's accounting fees and costs for the system within the Project and thereby
reduces Operating Expenses; Lessor's accounting fees and costs for the
preparation of statements of operating expenses or incurred in order to reduce
operating expenses; legal fees with any other tenant in the project and costs
relating to the operation, repair or maintenance of the Project or incurred in
order to reduce operating expenses; service or management contracts with
independent contractors and general overhead; administrative expenses;
management fees; telephone, stationery; and the costs of any other items which,
under generally accepted accounting principles constitute operating and
maintenance costs attributable to any or all of the Project. "Operating
Expenses" shall not include any of the following: cost of capital improvements,
except as mentioned above; expenses for painting, redecorating, or other work
which Lessor performs for any lessee in the Project, the expense of which is
paid by such lessee; Lessor's mortgage payment(s) depreciation of the Project or
other said improvements; ground rent; leasing commissions; salaries, wages or
other compensation paid to officers or executives of Lessor; and income, excess
profits, or franchise taxes or other such taxes imposed on or measured by the
income of Lessor from the operation of the Project. If the Operating Expenses
paid or incurred by the Lessor for the Comparison Year are in excess of the
Operating Expenses paid or incurred for the Base Year ("Excess Expenses"), then
the Lessee shall pay 4.89 percent of the increase. This percentage is the
portion that the rentable area of the Premises bears to the total rentable area
of the Project.

         7.3 PAYMENT. Prior to the commencement of each Comparison Year during
the Term, Lessor shall estimate Lessee's share of Excess Expenses for the year,
and Lessee shall pay to Lessor, on the first day of each month, in advance, with
Lessee's Base Rent, one-twelfth (1/12) of Lessor's estimated amount. Lessor
shall have the right, from time to time, to revise Lessor's estimate of Lessee's
share of Excess Expenses by giving written notice to Lessee. Within one hundred
twenty (120) days after the end of each calendar year during the Term, or as
soon thereafter as is practicable, Lessor shall deliver to Lessee a statement of
Operating Expenses for the year just ended, accompanied by a computation of
Lessee's share of Excess Expenses for the year Failure by Lessor to provide said
statements in the manner described herein shall in no way constitute a waiver of
Lessor's rights to collect any amount owing to Lessor. If Lessee has overpaid
its share of Excess Expenses owing pursuant to this provision, and Lessee is not
in default under this Lease, Lessor shall credit Lessee the amount of such
overpayment in determining Lessee's estimated payments for the following
Comparison Year; provided, that in the case of an overpayment for the final year
of the Term, Lessor shall refund such overpayment to Lessee promptly following
the determination of Lessee's share of Excess Expenses. If Lessee has underpaid
its share of Excess Expenses owing pursuant to this provision, Lessee shall pay
the amount of such underpayment to Lessor as Rent within five (5) days after
Lessee's receipt of the operating expense statement.

         7.4 LESSEE AUDIT. Lessee shall have the right at Lessee's expense and
upon not less than forty-eight (48) hours written notice to Lessor to review at
reasonable times Lessor's books and records for any fiscal year a portion of
which falls within the Term for purposes of verifying Lessor's calculation of
Lessee's share of Excess Expenses. Lessee shall not disclose any information
regarding any audit of Lessor's records nor shall Lessee employ contingent fee
auditors. In the event that Lessee shall dispute any amount set forth in any
statement provided by Lessee pursuant to Subsection 7.3 above, Lessee shall have
the right not later than twenty (20) days following the receipt of such
statement and upon the condition that Lessee shall first deposit with Lessor the
full amount in dispute, to cause Lessor's books and records with respect to such
fiscal year to be audited by certified public accountants selected by Lessee
subject to Lessor's reasonable right of approval. The Excess Expenses payable by
Lessee pursuant to this Section 7 shall be appropriately adjusted on the basis
of such audit, and credited or paid to the appropriate Party, in the manner
described in Subsection 7.3, above. If the audit discloses a liability for a
refund or credit by Lessor to Lessee in excess of ten percent (10%) of Lessor's
previously reported figure for Lessee's share of Excess Expenses, the cost of
the audit shall be borne by Lessor; otherwise the cost of the audit shall be
paid by Lessee. If Lessee does not request an audit in accordance with the
provisions of this Section 7.4 within twenty (20) days of receipt of Lessor's
statement of Excess Expenses such statement shall be final and binding for all
purposes hereof.

         7.5 PRORATION. Any Operating Expenses attributable to a period which
falls only partially within the Term shall be prorated between Lessor and Lessee
so that Lessee shall pay only that proration thereof which the part of such
period within the Term bears to the entire period.

         7.6 SURVIVAL. Any amounts payable by Lessee for Operating Expenses
which would not otherwise be due until after the date of the termination of this
Lease, shall, if the exact amount is uncertain at the time that this Lease
terminates, be paid by Lessee to Lessor upon the date of the termination in an
amount to be determined by Lessor with an adjustment to be made once the exact
amount is known.

8. USE. Lessee shall use the Premises for general office purposes and shall not
use or permit the Premises to be used for any other purpose without the prior
written consent of Lessor.

         Lessee shall not do or permit anything to be done in or about the
Premises nor bring or keep anything therein which will in any way increase the
existing rate of or affect any fire or other insurance upon the Project or any
of its contents, or cause cancellation of any insurance policy covering said
Project or part thereof or any of its contents. Lessee shall not do or permit
anything to be done in or about tile Premises which will (a) in any way
obstruct or interfere with the rights of other lessees or occupants of the
Project or injure or annoy them or use, (b) allow the Premises to be used for
any improper, immoral, unlawful or objectionable purpose, nor shall Lessee
cause, maintain or permit any nuisance in, on or about the Premises or (c)
violate any codes, laws or regulations of city, state or federal authorities.
Lessee shall not commit nor suffer to be committed any waste in or upon the
Premises.

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                                                       Lessor     Lessee
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         8.1 CONDITION OF PREMISES.

                  Lessor shall deliver the Premises to Lessee in a clean
condition on the Lease Commencement Date (unless Lessee is already in
possession). Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises and the Project in their as is condition existing as of the Lease
Commencement Date or the date that Lessee takes possession of the Premises,
whichever is earlier, subject to all applicable zoning, municipal, county and
state laws, ordinances and regulations governing and regulating the use of the
Premises, and any easements, covenants or restrictions of record, and accepts
this Lease subject thereto and to all matters disclosed thereby and any exhibits
or addendas attached hereto. Lessee acknowledges that it has satisfied itself by
its own independent investigation that the Premises, indoor air quality and HVAC
system are suitable for its intended use, and that neither Lessor nor Lessor's
agent or agents has made any representations or warranty as to the present or
future suitability of the Premises, Common Areas, or Project for the conduct of
Lessee's business.

9. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.

                                                                 [INITIAL STAMP]

         9.1 LESSOR'S OBLIGATIONS. Lessor shall keep the Project, including the
Premises, interior and exterior walls, roof, and common areas, and the equipment
whether used exclusively for the Premises or in common with other premises, in
good condition and repair; provided, however, Lessor shall not be obligated to
paint, repair or replace wall coverings, or to repair or replace any
improvements that are not ordinarily a part of the Project or are above then
building standards. In addition, Lessor shall not be responsible for the
installation or maintenance of telephone or computer related wire or cabling.
There shall be no abatement of Rent and Lessor shall not be liable on account of
any injury or interference with Lessee's business with respect to any
improvements, alterations or repairs made by Lessor to the Project or any part
thereof. Provided Lessor commences repairs within 30 days of written notice from
Lessee and provided Lessor is reasonably able to commence these repairs within
the 30 day period. Lessee expressly waives the benefits of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Premises in good order, condition and repair.

         9.2 LESSEE'S OBLIGATIONS.

[INITIAL STAMP]

                  A. Notwithstanding Lessor's obligation to keep the Premises in
good condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional Rent for (i) that portion of the cost of any
maintenance and repair of the Premises, or any equipment, (wherever located)
that serves only Lessee or the Premises, to the extent such cost is attributable
to causes beyond normal wear and tear and (ii) for any other costs which are
incurred in on or about the Premises because of Lessee's particular use or
actions beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, replacing, repairing and/or maintaining wall coverings or any Premises
improvements that are not ordinarily a part of the Premises or that are above
then Project standards including but not limited to all telephone or computer
related wire or cabling. Lessor may, at its option, upon reasonable notice,
elect to have Lessee perform any particular such maintenance or repairs the cost
of which is otherwise Lessee's responsibility hereunder.

                  B. On the last day of the Term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in good condition,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices by Lessee. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, alterations, furnishings and equipment.
Except as otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall paneling, ceilings
and plumbing on the Premises amid in good operating condition.

         9.3 ALTERATIONS AND ADDITIONS. * See Exhibit "B"

                  A. Lessee shall not, without Lessor's prior written consent,
make any alterations, improvements, additions, Utility Installations, or repairs
in, on or about the Premises, or the Project. As used in this Section 9 the term
"Utility Installation" shall mean carpeting, window and wall coverings, power
panels, electrical distribution systems, lighting fixtures, heating or air
conditioning, plumbing, and telephone and telecommunication wiring and
equipment. Lessee shall be entitled to the use of its proportionate share of
Building Project telecommunication service lines based on the Building Project
standard allocation for the Premises usable square footage. Any additional
telecommunication lines utilized by Lessee shall be subject to Lessors approval
and Lessee will pay Lessor's standard fee per additional line utilized, which
shall be due and payable as Rent along with Lessee's payment of Base Rent. At
the expiration of the Term, Lessor may require the removal of any or all of said
alterations, improvements, additions or Utility Installations, and the
restoration of the Premises and the Project to their prior condition, at
Lessee's expense. Should Lessor permit Lessee to make its own alterations,
improvements, additions or Utility Installations, Lessee shall use only such
contractor as has been approved by Lessor, in writing, and Lessor may require
Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such improvements, to insure Lessor against any liability for mechanic's and
materialmen's liens and to insure completion of the work. Should Lessee make any
alterations, improvements, additions or Utility Installations without the prior
approval of Lessor, or use a contractor not expressly approved by Lessor, Lessor
may, at any time during the Term of this Lease, require that Lessee remove any
part or all of the same.

                  B. Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Project that Lessee shall desire
to make or are required to be made by the city or other governing authority
because of Lessee's use or alteration, improvement, addition or Utility
Installation, shall be presented to Lessor in written form, with proposed
detailed plans and the cost thereof, including the cost of alterations or
improvements to the common areas of the Project all of which shall be borne by
Lessee unless otherwise agreed to in writing. If Lessor shall give its consent
to Lessee's making such alteration, improvement, addition or Utility
Installation, the consent shall be deemed conditioned upon Lessee acquiring a
permit to do so from the applicable governmental agencies, furnishing a copy
thereof to Lessor prior to the commencement of the work and compliance by Lessee
with all conditions of said permit in a prompt and expeditious manner. In the
event Lessee utilizes any common areas for any utility installations, including
but not limited to, phones or telecommunications equipment, Lessee shall do so
at its sole risk. It is recommended that Lessee install a separate lock box, and
such other security as Lessee deems appropriate, over any such installations as
to protect Lessee's property from theft or damage. Lessee acknowledges that the
common areas are not secure and any of Lessee's property placed therein requires
separate security, which is the sole responsibility of the Lessee at Lessee's
sole cost and expense.

                  C. Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use in the Premises, which claims are or may be secured by any mechanic or
materialman liens against the Premises or any interest therein.

                  D. All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made to the Premises by Lessee, including but
not limited to, floor

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                                                       Lessor     Lessee
<PAGE>   4
coverings, panelings, doors, drapes, built-ins, moldings, sound attenuation,
lighting and telephone or communication systems, conduit, wiring and outlets
shall be made and done in a good and workmanlike manner and of good and
sufficient quality and materials and shall be the property of Lessor and remain
upon and be surrendered with the Premises at the expiration of the Lease Term
unless Lessor requires their removal pursuant to paragraph 9.3(A). Provided
Lessee is not in Default, notwithstanding the provisions of this Paragraph
9.3(D), Lessee's personal property and equipment, other than that which is
affixed to the Premises so that it cannot be removed without material damage to
the Premises or the Project, and other than Utility Installations, shall remain
the property of Lessee and may be removed by Lessee subject to the provisions of
paragraph 9.2.

                  E. Lessee shall provide Lessor with as-built plans and
specifications for any alterations, improvements, additions or Utility
Installations. In the event Lessee utilizes any common areas for any of its
personal property, such as its telephone system and equipment, such usage of the
common area shall be at Lessee's sole risk against loss, theft or damage. Lessor
specifically negates any responsibility for loss, theft or damage to any of
Lessee's personal property stored or otherwise existing in any building common
areas. Lessor recommends that Lessee install its phone system and any other
personal property or equipment within the Premises due to lack of security of
the common areas. In the event Lessee utilizes any common areas as described in
this paragraph 9.3(E), all personal property placed therein must be covered by
Lessee's insurance pursuant to paragraph 12.2 herein.

         9.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Project for the benefit of Lessor
or Lessee, or any other lessee of the Project, including, but not by way of
limitation, such utilities as plumbing, electrical systems, communication
systems, and fire protection and detection systems, so long as such
installations do not unreasonably interfere with Lessee's use of the Premises.

                                                                 [INITIAL STAMP]

10. LIENS. Lessee shall promptly pay and discharge all claims for work or labor
done, supplies furnished or services rendered and shall keep the Premises free
and clear of all mechanic and materialman liens in connection therewith. Lessor
shall have the right to post or keep posted on the Premises, or in the immediate
vicinity thereof, any notices of non-responsibility for any construction,
alteration, or repair of the Premises by Lessee. If any such lien is filed,
Lessor may, but shall not be required to take such action or pay such amount as
may be necessary to remove such lien; and Lessee shall pay to Lessor as Rent any
such amounts expended by Lessor within five (5) days after notice is received
by Lessee of the amount expended by Lessor. In addition, Lessor may require
Lessee to pay Lessor's reasonable attorney's fees and costs in participating in
such action if Lessor shall decide it is to Lessor's best interest so to do.

11. ASSIGNMENT AND SUBLETTING. Lessee shall not assign, transfer, mortgage or
encumber this Lease or sublet all or a portion of the Premises without obtaining
the prior written consent of Lessor, nor shall any assignment or transfer of
this Lease be effective by operation of law or otherwise without the prior
written consent of Lessor. In any such case, such consent may be withheld in the
sole discretion of Lessor, except that if such assignment or sublet is to
Lessee's affiliate then the provisions of paragraph 11.5 below shall govern
Lessor's consent. Lessor reserves the right to condition any consent on Lessors'
reasonable determination that (a) the proposed assignee or sublessee conducts a
business on the Premises of a quality substantially equal to that of Lessee,
consistent with the general character of a professional office use and not in
violation of any exclusives or rights then held by other lessees, (b) the
proposed assignee or sublessee be at least as financially responsible as Lessee
was expected to be at the time of the execution of the Lease or of such
assignment of subletting, whichever is greater and (c) Lessors lender does not
object to the assignment or sublease in their reasonable discretion. In the
event that Lessee desires to assign this Lease, sublet the Premises, or permit
occupancy of use of the Premises or any part thereof by another party or
parties, Lessee shall provide Lessor with thirty (30) days advance written
notice of Lessee's bona fide proposed assignment or subletting of all or any
part of the Premises. Lessor shall have the right, at its option during said
thirty (30) day period, to (a) release Lessee from this Lease for such space,
(b) sublet all or any part of the Premises from Lessee at the same Rental Lessee
is paying Lessor, with the right to further sublease such space or (c) refuse to
consent to Lessee's assignment or subletting of such space and to continue this
Lease in full force and effect as to the entire Premises.

         11.1 LESSEE AFFILIATE. Notwithstanding the provisions of this Section
11, Lessee may assign or sublet the Premises, or any portion thereof, without
Lessor's consent, to any corporation which controls, is controlled by or is
under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate";
provided that before such assignment shall be effective, (a) said assignee shall
assume, in full, the obligations of Lessee under this Lease and (b) Lessor shall
be given written notice of such assignment and assumption. Any such assignment
shall not, in any way affect or limit the liability of Lessee under the terms of
this Lease even if after such assignment or subletting the terms of this Lease
are materially changed or altered without the consent of Lessee, the consent of
whom shall not be necessary.

         11.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.

                  A. Regardless of Lessor's consent, no assignment or subletting
shall release Lessee of Lessee's obligations hereunder or alter the primary
liability of Lessee to pay the Rent and other sums due Lessor hereunder
including Lessee's share of Excess Expenses, and to perform all other
obligations to be performed by Lessee hereunder.

                  B. Lessor may accept Rent from any person other than Lessee
pending approval or disapproval of such assignment or sublease.

                  C. Neither a delay in the approval or disapproval of such
assignment or subletting, nor the acceptance of Rent, shall constitute a waiver
or estoppel of Lessor's right to exercise its remedies for the breach of any of
the terms of conditions of this Section 11 of this Lease.

                  D. If Lessee's obligations under this Lease have been
guaranteed by third parties, then an assignment or sublease, and Lessor's
consent thereto, shall not be effective unless said guarantors give their
written consent to such sublease and the terms thereof.

                  E. The consent by Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent
and such action shall not relieve such

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                                                       Lessor     Lessee
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persons from liability under this Lease or said sublease: however, such persons
shall not be responsible to the extent any such amendment or modification
enlarges or increases the obligations of the Lessee or sublessee under this
Lease or such sublease.

                  F. In the event of any default under this Lease or any
Sublease, Lessor may proceed directly against Lessee, any guarantors or any one
else responsible for the performance of this Lease, including the sublessee,
without first exhausting Lessor's remedies against any other person or entity
responsible therefor to Lessor, or any security held by Lessor or Lessee.

                  G. Lessor's written consent to any assignment or subletting of
the Premises by Lessee shall not constitute an acknowledgment that no default
then exists under this Lease of the obligations to be performed by Lessee nor
shall such consent be deemed a waiver of any then existing default, except as
may be otherwise stated by Lessor at the time.

                  H. The discovery of the fact that any financial statement
relied upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessor's election, render Lessor's said consent null
and void.

         11.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING.
Regardless of Lessor's consent, the following terms and conditions shall apply
to any subletting by Lessee of all or any part of the Premises and shall be
deemed included in all subleases under this Lease whether or not expressly
incorporated therein:

                  A. Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all Rentals and income arising from any sublease heretofore
or hereafter made by Lessee, and Lessor may collect such Rent and income and
apply same toward Lessee's obligations under this Lease; provided, however, that
until a default shall occur in the performance of Lessee's obligations under
this Lease, Lessee may receive, collect and enjoy the Rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the Rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
Rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such Rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee or Lessor for any such Rents
so paid by said sublessee to Lessor.

                  B. No sublease entered into by Lessee shall be effective
unless and until it has been approved in writing by Lessor. In entering into any
sublease, Lessee shall use only such form of a sublease as is satisfactory to
Lessor, and once approved by Lessor, such sublease shall not be changed or
modified without Lessor's prior written consent. Any sublessee shall, by reason
of entering into a sublease under this Lease, be deemed, for the benefit of
Lessor, to have assumed and agreed to conform and comply with each and every
obligation in this Lease to be performed by Lessee other than such obligations
as are contrary to or inconsistent with provisions contained in a sublease to
which Lessor has expressly consented to in writing.

         11.4 LESSOR'S EXPENSES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do.
Lessee shall pay Lessor's reasonable costs amid expenses incurred in connection
therewith, including attorneys, architects, engineers or other consultants fees
which shall in no event be less than $100.00 and shall not exceed $500.00
without Lessor notifying Lessee.

12. INSURANCE AND INDEMNITY.

         12.1 LIABILITY INSURANCE - LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the Term of this Lease a policy of Commercial
General Liability insurance utilizing Insurance Services Office (ISO) CG 00 00
01 OCCURRENCE FORM, or equivalent, in an amount not less than $1,000,000 per
occurrence and aggregate or in a greater amount as reasonably determined by
Lessor. Should Lessee utilize special chemicals or pollutants on or about the
Premises, then Lessee must provide POLLUTION LEGAL LIABILITY INSURANCE in a form
and amount as required by Lessor, but in no event less than $1,000.000.
Compliance with the above requirement shall not, however, limit the liability of
Lessee hereunder.

         12.2 PROPERTY INSURANCE - LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the Term of this Lease for the benefit of
Lessee, Insurance Services Office (ISO) form(s) Cause of Loss - Special (CP 10
30) or equivalent, Endorsement (CP 10 39) Sprinkler Leakage - Earthquake
Extension, (CP 10 40) Cause of Loss - Earthquake Form, and (CP 10 41)
Earthquake Inception Extension or their equivalent. Said policies shall cover
the full replacement cost, as the same may exist from time to time, of all of
Lessee's personal property, fixtures, equipment and Lessee improvements.

         12.3 INSURANCE POLICIES. Lessee shall deliver to Lessor copies of
liability insurance policies required under this Section 12 or certificates
evidencing the existence and amounts of such insurance within seven (7) days
after the Commencement Date of this Lease. No such policy shall be
cancelable or subject to reduction of coverage or other modification except
after thirty (30) days prior written notice to Lessor. Lessee shall, at least
thirty (30) days prior to the expiration of such policies, furnish Lessor with
renewals thereof. All policies shall name Lessor, the Premises owner, and any
other parties reasonably requested by Lessor as additional insured.

         12.4 WAIVER OR SUBROGATION. Lessee hereby releases Lessor, and waives
its entire right of recovery against Lessor, for direct or consequential loss,
damage or expense arising out of or resulting from fire, explosion or other
casualty or occurrence incurred by Lessor, which loss, damage or expense IS
THEN COVERED IN WHOLE OR IN PART BY THE INSURANCE MAINTAINED, OR REQUIRED TO BE
MAINTAINED PURSUANT TO THIS LEASE, whether due to the negligence of Lessor or
Lessee or their agents, employees, contractors and/or invitees. If necessary,
all property insurance policies required under this Lease shall be endorsed to
so provide.

         12.5 INDEMNITY. Lessee shall indemnify and hold harmless Lessor and
its agents. Lessor's master or ground lessor, if any, partners and lenders,
affiliates, subsidiaries or any other entities or persons involved in the
management or ownership of the Project (including all officers, directors and
shareholders of the same), from and against any and all claims for damage to
the person or property of anyone or any entity arising from Lessee's use of the
Project, or from the conduct of Lessee's business or from any activity, work
or things done, permitted or suffered by Lessee in or about the Premises or
elsewhere and shall further indemnify and hold harmless Lessor from and
against any and all claims, costs and expenses arising from any breach or
default in the performance of any obligation on Lessee's part to be performed
under the terms of this Lease, or arising from any act or omission of Lessee,
or any of Lessee's agents, contractors, employees or invitees, and from and
against all costs, attorney's fees, expenses and liabilities incurred by
Lessor as the result of any such use, conduct, activity, work, things done,
permitted or suffered, breach, default or

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                                                       Lessor     Lessee
<PAGE>   6

                                                                 [INITIAL STAMP]

negligence, and in dealing reasonably therewith, including but not limited to
the defense or pursuit of any claim or any action or proceeding involved
therein; and in case any action or proceeding be brought against Lessor by
reason of any such matter, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified. Lessee, as a material part of the
consideration to Lessor, hereby assumes all risk of damage to property of Lessee
or injury to persons, in, upon or about the Project arising from any cause and
Lessee hereby waives all claims in respect thereof against Lessor.

         12.6 EXEMPTION OF LESSOR FROM LIABILITY. Except for the gross
negligence or willful misconduct or Lessor, Lessee hereby agrees that Lessor,
Lessor's master or ground lessor, if any, partners and lenders, affiliates,
subsidiaries or any other entities or persons involved in the management or
ownership of the Project (including all officers, directors and shareholders of
the same) together and collectively in this Paragraph 12.6 referred to as
("Lessor") shall not be liable for injury to Lessee's business or any loss of
income therefrom or for loss of or damage to the goods, wares, merchandise or
other property of Lessee, Lessee's employees, invitees, customers, or any other
person in or about the Premises or the Project, nor shall Lessor be liable for
injury to the person of Lessee, Lessee's employees, agents or contractors,
whether such damage or injury is caused by or results from theft, fire, steam,
electricity, gas, water or rain, or from the breakage, leakage, obstruction or
other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, or from any other cause, whether said damage
or injury results from conditions arising upon the Premises or upon other
portions of the Project, or from other sources or places, or from new
construction or the repair, alteration or improvement of any part of the
Project, or of the equipment, fixtures or appurtenances applicable thereto, and
regardless of whether the cause of such damage or injury or the means of
repairing the same is inaccessible, Lessor shall not be liable for any damages
arising from any act or neglect of any other Lessee, occupant or user of the
Project, nor from the failure of Lessor to enforce the provisions of any other
lease of any other lessee of the Project. Lessor's liability under this Lease
shall be limited to Lessor's actual interest in the Project.

         12.7 NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified in
this Section 12 are adequate to cover Lessee's property or obligations under
this Lease.

[INITIAL STAMP]

13. SERVICES AND UTILITIES. Provided that Lessee is not in default hereunder,
Lessor agrees to furnish to the Premises Monday through Friday, 8:00 a.m. to
6:00 p.m. and Saturday 10:00 a.m. to 2:00 p.m., during generally recognized
business days, subject to the rules and regulations of the Project of which the
Premises are a part in such reasonable quantities as in the judgment of Lessor
is reasonably necessary for the comfortable occupancy of the Premises for
general office purposes: (a) electricity for normal lighting; (b) the
electricity for fractional horsepower office machines 24 hours per day, 365 days
per year; (c) heat and air conditioning; and (d) janitorial service 5 days per
week as scheduled by Lessor. Lessor shall also maintain and keep lighted the
common stairs, common entries and toilet rooms in the Project of which the
Premises are a part. Lessor shall not be liable for, and Lessee shall not be
entitled to, any reduction of Rental by reason of Lessor's failure to furnish or
interruption of any of the foregoing when such failure is caused by accident,
breakage, repairs, strikes, lockouts or other labor disturbances or labor
disputes of any character, or by any other cause, similar or dissimilar, beyond
the reasonable control of Lessor or by wear and tear, tenant usage, overload or
building design. Lessor shall not be liable under any circumstances for a loss
of or injury to property or Lessee's business, however occurring, through or in
connection with or incidental to failure to furnish or the interruption of any
of the foregoing. Wherever heat generating machines or equipment are used in the
Premises which affect the temperature otherwise maintained by the air
conditioning system, Lessor, upon 30 days written notice to Lessee reserves the
right to install supplementary air conditioning units in the Premises and the
reasonable cost thereof, including the cost of installation, and the reasonable
cost of operation and maintenance thereof shall be paid by Lessee to Lessor upon
demand by Lessor.

         Lessee will not, without written consent of Lessor, use any apparatus
or device in the Premises, including, but without limitation thereto, punch card
machines and/or any machines using in excess of 120 volts, which will in any way
increase the amount of electricity usually furnished or supplied for the use of
the Premises as general office space; nor connect with electrical current except
through existing electrical outlets in the Premises, any apparatus or device,
for the purpose of using electric current. If Lessee shall require water or
electric current in excess of that usually furnished or supplied for the use of
the Premises as general office space, or if Lessee requires the use of any
service or utilities described herein beyond the hours described in this Section
13, Lessee shall first cause a water meter or electrical current meter to be
installed in the Premises, so as to measure the amount of water and electric
current consumed for any such use. The cost of any such meters and of
installation, maintenance and repair thereof shall be paid for by the Lessee and
Lessee agrees to pay to Lessor promptly upon demand therefor by Lessor for all
such water and electric current consumed as shown by said meters, at the rates
charged for such services by the local public utility furnishing the same, plus
any additional expense incurred in keeping account of the water and electric
current so consumed. If a separate meter is not installed, such excess cost for
such water and electric current will be established by an estimate made by a
utility company or electrical engineer.

14. REAL PROPERTY TAXES.

         14.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Tax, as
defined in paragraph 14.3, applicable to the Project subject to reimbursement by
Lessee of Lessee's Share of such taxes in accordance with the provisions of
paragraph 7.2, except as otherwise provided in paragraph 14.2.

         14.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for
paying any increase in Real Property Tax specified in the tax assessor's records
and work sheets as being caused by additional improvements placed upon the
Project by other lessees or by Lessor for the exclusive enjoyment of any other
lessee. Lessee shall, however, pay to Lessor at the time that Excess Expenses
are payable under paragraph 7.2 the entirety of any increase in Real Property
Tax if assessed solely by reason of additional improvements placed upon the
Premises by Lessee or at Lessee's request.

         14.3 DEFINITION OF REAL PROPERTY TAX. As used herein, the term "Real
Property Tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Project or any portion thereof by any authority
having the direct or indirect power to tax, including any city, county, state or
federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, as against any legal or
equitable interest of Lessor in the Project or in any portion thereof, as
against Lessor's right to Rent or other income therefrom, and as against
Lessor's business of leasing the Project. The term "Real Property Tax" shall
also include any tax, fee, levy, assessment or charge (i) in substitution of,
partially or totally, any tax, fee, levy, assessment or charge hereinabove
included within the definition of "Real Property Tax", or (ii) the nature of
which was hereinbefore included within the definition of "Real Property Tax", or
(iii) which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a change in ownership, as defined by applicable local
statutes for property tax purposes, of the Project or which is added to a tax or
charge hereinbefore included within the definition of Real Property Tax by
reason of such change of ownership,

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                                                       ------     -------
                                                       Lessor     Lessee
<PAGE>   7

or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.

         14.4 JOINT ASSESSMENT. If the improvements or property, the taxes for
which are to be paid separately by Lessee under paragraph 14.2 or 14.5 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessor's work sheets
or such other information (which may include the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.

         14.5 PERSONAL PROPERTY TAXES.

                  A. Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere.

                  B. If any of Lessee's said personal property shall be assessed
with Lessor's real property, Lessee shall pay to Lessor the taxes attributable
to Lessee within ten (10) days after receipt of a written statement setting
forth the taxes applicable to Lessee's property.

15. OPTIONS.

         15.1 DEFINITION. As used in this Lease, the word "Option" has the
meaning as described in an Addenda or Amendment, if any, to the Lease.

         15.2 OPTIONS PERSONAL. Each Option granted to Lessee, if any, is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee; provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 11.1
of this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.

         15.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
Options to extend or renew this Lease a later Option cannot be exercised unless
the prior Option to extend or renew this Lease has been so exercised.

         15.4 EFFECT OF DEFAULT ON OPTIONS.

                                                                 [INITIAL STAMP]

                  A. Lessee shall have no right to exercise an Option, (i)
during the time commencing from the date Lessor gives to Lessee a notice of
default pursuant to paragraph 19.1 (C) or 19.1 (D) and continuing until the
noncompliance alleged in said notice of default is cured, or (ii) during the
period of time commencing the day after a monetary obligation to Lessor is due
from Lessee and unpaid (without any necessity for notice thereof to Lessee) and
continuing until the obligation is paid, or (iii) in the event that Lessor has
given to Lessee two (2) or more notices of default under paragraph 19.1 (C), or
paragraph 19.1 (D), only if the defaults are not cured within 30 days, during
any one year period the Term of the Lease, or (iv) if Lessee has committed any
non-curable breach, including, without limitation, those described in paragraph
19.1 (B), or is otherwise in default of any of the terms, covenants or
conditions of this Lease.

                  B. The period of time within which an Option in favor of
Lessee may be exercised shall not be extended or enlarged by reason of Lessee's
inability to exercise an Option for any reason.

                                                                 [INITIAL STAMP]

                  C. All rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during the
Term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessee fails to commence to cure a default specified in paragraph 19.1 (D)
within thirty (30) days after the date that Lessor gives notice to Lessee of
such default and/or Lessee fails thereafter to diligently prosecute said cure to
completion, or (iii) Lessor gives to Lessee two (2) or more notices of default
under paragraph 19.1 (C), or paragraph 19.1 (D), with any one year period, or
(iv) if Lessee has committed any non-curable breach, including without
limitation if the defaults are not cured within 30 days those described in 19.1
(B) and (F), or is otherwise in default of any of the terms, covenants and
conditions of this Lease.

16. SECURITY MEASURES - LESSOR'S RESERVATIONS.

                  A. Lessee hereby acknowledges that Lessor shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Project. Lessee assumes all responsibility
for the protection of Lessee, its agents, and invitees and the property of
Lessee and of Lessee's agents and invitees from acts of third parties. No
security or protection of any kind is provided for the common areas throughout
the Project. Nothing herein contained shall prevent Lessor, at Lessor's sole
option, from providing security protection for the Project or any part thereof,
in which event the cost thereof shall be included within the definition of
Operating Expenses, as set forth in paragraph 7.

                  B. Lessor shall have the following rights:

                           1. To change the name, address or title of the
Project in which the Premises is located upon not less than ninety (90) days
prior written notice to Lessee;

                           2. To, at Lessor's expense, provide and install
Project standard graphics on the door of the Premises and such portions of the
Common Areas as Lessor shall reasonably deem appropriate;

                           3. To permit any lessee the exclusive right to
conduct any business as long as such exclusive right does not conflict with any
rights expressly given herein;

                           4. To place such signs, notices or displays as Lessor
reasonably deems necessary or advisable upon the roof, exterior of the Project
or on pole signs in the Common Areas;

                  C. Lessee shall not:

                           1. Use a presentation (photographic or otherwise) of
the Project or its name in connection with Lessee's business (without Lessor's
prior written consent);

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                                                       ------     -------
                                                       Lessor     Lessee
<PAGE>   8

                           2. Suffer or permit anyone, except in emergency, to
go upon the roof of the Project.

17. LESSOR'S ACCESS.

         17.1 Lessor and Lessor's agents shall have the right to enter the
Premises at reasonable times for the purpose of inspecting the same, performing
any services requited of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Project as Lessor may reasonably deem
necessary or desirable and the erecting, using and maintaining of utilities,
services, pipes and conduits throughout the Premises and/or other premises as
long as there is no material adverse effect to Lessee's use of the Premises.

         17.2 All activities of Lessor pursuant to this paragraph shall be
without abatement of Rent, nor shall Lessor have any liability to Lessee for the
same.

         17.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes,
and in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forcible or unlawful entry or
detainer of the Premises or an eviction. Lessee waives any charges for damages
or injuries or interference with Lessee's property or business in connection
therewith.

18. DAMAGE OR DESTRUCTION.

         18.1 DEFINITIONS. The following Definitions "A" through "G" shall have
the same meaning throughout the Lease as they do in this Section 18.

                  A. "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.

                  B. "Premises Project Partial Damage" shall mean if the Project
of which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent (50%) of the then Replacement Cost of
the Project.

                  C. "Premises Project Total Destruction" shall mean if the
Project of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is fifty percent (50%) or more of the then Replacement
Cost of the Project.

                  D. "Project" shall mean the site and all of the buildings
located thereon.

                  E. "Project Total Destruction" shall mean if the Project
buildings are damaged or destroyed to the extent that the cost of repair is
fifty percent (50%) or more of the then Replacement Cost of the Project
buildings.

                  F. "Insured Loss" shall mean damage or destruction which
was caused by an event required to be covered by the insurance described in
paragraph 12. The fact that an Insured Loss has a deductible amount shall not
make the loss an uninsured loss.

                  G. "Replacement Cost" shall mean the amount of money
necessary to be spent in order to repair or rebuild the damaged area to the
condition that existed immediately prior to the damage occurring, excluding all
improvements made by lessees, other than those installed by Lessor at Lessee's
expense.

         18.2 PREMISES DAMAGE; PREMISES PROJECT PARTIAL DAMAGE.

                  A. Insured Loss: Subject to the provisions of paragraphs 18.4
and 18.5, if at any time during the Term of this Lease there is damage which is
an Insured Loss and which falls into the classification of either Premises
Damage or Premises Project Partial Damage, then Lessor shall, as soon as
reasonably possible and to the extent the required materials and labor are
readily available through usual commercial channels, at Lessor's expense, repair
such damage (but not Lessee's fixtures, equipment or lessee improvements
originally paid for by Lessee) to its condition existing at the time of the
damage, and this Lease shall continue in full force and effect.

                  B. Uninsured Loss: Subject to the provisions of paragraphs
18.4 and 18.5, if at any time during the Term of this Lease there is damage
which is not an Insured Loss and which falls within the classification of
Premises Damage or Premises Project Partial Damage, unless caused by a negligent
or willful act of Lessee (in which event Lessee shall make the repairs at
Lessee's expense), which damage prevents Lessee from making any substantial use
of the Premises, Lessor may at Lessor's option either (i) repair such damage as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) give written notice to Lessee within
thirty (30) days after the date of the occurrence of such damage of Lessor's
intention to cancel and terminate this Lease, in which case this Lease shall
terminate as of the date of the occurrence of such damage.

         18.3 PREMISES PROJECT TOTAL DESTRUCTION: PROJECT TOTAL DESTRUCTION.
Subject to the provisions of paragraphs 18.4 and 18.5 if at any time during
the Term of this Lease there is damage, whether or not it is an Insured Loss,
which falls into the classifications of either (i) Premises Project Total
Destruction, or (ii) Project Total Destruction, then Lessor may at Lessor's
option either (i) repair such damage or destruction as soon as reasonably
possible at Lessor's expense (to the extent the required materials are readily
available through usual commercial channels) to its condition existing at the
time of the damage, but not Lessee's fixtures, equipment or lessee improvements,
and this Lease shall continue in full force and effect, or (ii) give written
notice to Lessee within thirty (30) days after the date of the occurrence of
such damage of Lessor's intention to cancel and terminate this Lease, in which
case this Lease shall terminate as of the date of the occurrence of such damage.

         18.4 DAMAGE NEAR END OF TERM.

                  A. If at any time during the last twelve (12) months of the
Term of this Lease there is substantial damage to the Premises, Lessor may at
Lessor's option cancel and terminate this Lease as of the date of occurrence of
such damage by giving written notice to Lessee of Lessor's election to do so
within thirty (30) days after the date of the occurrence of such damage.

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                                                       ------     -------
                                                       Lessor     Lessee
<PAGE>   9

                  B. Notwithstanding paragraph 18.3, in the event that Lessee
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such option,
if it is to be exercised at all, no later than twenty (20) days after the
occurrence of an Insured Loss falling within the classification of Premises
Damage during the last twelve (12) months of the term of this Lease. If Lessee
duly exercises such option during said twenty (20) day period, Lessor shall, at
Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or
Lessee improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option
during said twenty (20) day period, then Lessor may at Lessor's option
terminate and cancel this Lease as of the expiration of said twenty (20) day
period, notwithstanding any term or provision in the grant of option to the
contrary.

         18.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.

                  A. In the event Lessor repairs or restores the Project or
Premises pursuant to the provisions of this paragraph 18 and any part of the
Premises are not usable (including loss of use due to loss of access or
essential services), the Rent payable hereunder (including Lessee's Share of
Operating Expense Increase) for the period during which such damage, repair or
restoration continues shall be abated, provided (i) the damage was not the
result of the negligence of Lessee, and (ii) such abatement shall only be to the
extent the operation and profitability of Lessee's business as operated from the
Premises is adversely affected. Except for said abatement of Rent, if any,
Lessee shall have no claim against Lessor for any damage suffered by reason of
any such damage, destruction, repair or restoration.

                                                                 [INITIAL STAMP]

                  B. If Lessor shall be obligated to repair or restore the
Premises or the Project under the provisions of this paragraph 18 and shall not
commence such repair or restoration within ninety (90) days after such
occurrence, or if Lessor shall not complete the restoration and repair within
four (4) months after such occurrence, Lessee may at Lessee's option cancel and
terminate this Lease by giving Lessor written notice of Lessee's election to do
so at any time prior to the commencement or completion, respectively, of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.

                  C. Lessee agrees to cooperate with Lessor in connection with
any such restoration and repair, including but not limited to the approval
and/or execution of plans and specifications required.

         18.6 WAIVER. Lessor and Lessee waive the provisions of any statute
which relate to termination of leases when leased property is destroyed and
agree that such event shall be governed by the terms of this Lease.

19. DEFAULT; REMEDIES.

         19.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee;

                  A. The vacation or abandonment of the Premises by Lessee.
Vacation or abandonment of the Premises shall include the failure to occupy the
Premises for a continuous period of sixty (60) days or more, if rent is not
paid:

                  B. The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 8 (Use), 9.3 (Alterations and Additions), 10 (Liens),
11 - 11.5 (Assignment and Subletting), 19.1 (A) (vacation or abandonment), 19.1
(e) (insolvency), 19.1 (f) (false statement), 22 (Estoppel Certificate), 24 (b)
(Subordination), 39 (Auctions), 47 (Easements), and 55 (Hazardous Wastes) all of
which are hereby deemed to be material, non-curable defaults without the
necessity of any notice by Lessor to Lessee thereof;

                                                                 [INITIAL STAMP]

                  C. The failure by Lessee to make any payment of Rent or any
other monetary payment required to be made by Lessee hereunder for five (5) days
after written notice by Lessor of nonpayment;

                  D. The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee other than those referenced in subparagraphs (B) and (C), above, where
such failure shall continue for a period of thirty (30) days after written
notice thereof from Lessor to Lessee: provided. however, Lessee must proceed and
use its best efforts to cure the default within forty-eight (48) hours of
receipt of the notice and that if the nature of Lessee's noncompliance is such
that more than thirty (30) day's are reasonably required for its cure, then
Lessee shall not be deemed to be in default if Lessee commenced such cure
within forty-eight (48) hours from receipt of the notice and thereafter
diligently pursues such cure to completion. To the extent permitted by law, such
thirty (30) day notice shall constitute the sole and exclusive notice required
to be given to Lessee under applicable Unlawful Detainer statutes;

                  E. (i) The making by Lessee of any general arrangement or
general assignment for the benefit of creditors: (ii) Lessee becoming a "debtor"
as defined in 11 U.S.C., Section 101 or any successor statute thereto (unless,
in the case of a petition filed against Lessee, the same is dismissed within
sixty (60) days; (iii) the appointment of a trustee or receiver to take
possession of substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where possession is not restored to Lessee
within thirty (30) days; or (iv) the attachment, execution of other judicial
seizure of substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where such seizure is not discharged within
thirty (30) days. In the event that any provision of this paragraph 19.1(E) is
contrary to any applicable law, such provision shall be of no force or effect;
or

                  F. The discovery by Lessor that any financial statement given
to Lessor by Lessee, or its successor in interest or by any guarantor of
Lessee's obligation hereunder, was materially false or an act or omission of
Lessee which constitutes a violation of law or an illegal activity.

         19.2 REMEDIES. In the event of any material default or breach of this
Lease by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such default;

                  A. Terminate Lessee's right to possession of the Premises by a
lawful means, in which case this Lease and the Term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid Rent for
the balance of the term after the time of such award exceeds the

                               Page 9       Initials:  /s/ CH     /s/ MRS
                                                       ------     -------
                                                       Lessor     Lessee
<PAGE>   10

                                                                 [INITIAL STAMP]

amount of such Rental loss for the same period that Lessee proves could be
reasonably avoided; including by reletting the leasing commission paid by Lessor
to release the Premises and which is applicable to the unexpired Term of this
Lease.

                  B. Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. In such event Lessor shall be entitled to enforce all of
Lessor's rights and remedies under this Lease, including the right to recover
the Rent as it becomes due hereunder.

                  C. Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of that state wherein the Premises
are located. Unpaid installments of Rent and other unpaid monetary obligations
of Lessee under the terms of this Lease shall bear interest from the date due in
accordance with paragraph 28 herein.

         19.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) days after written notice by Lessee to Lessor
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
pursues the same to completion.

         19.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Lessee's Share of Excess Expenses or other Rent
due hereunder will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed on Lessor by the terms of any mortgage or trust
deed covering the Project. Accordingly, if any installment of Base Rent,
Lessee's share of Excess Expenses, or any other Rent due from Lessee shall not
be received by Lessor or Lessor's designee by the fifth (5th) day of any month
in which Rental is due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to ten percent (10%) of such
overdue amount. The Parties hereby agree that such late charge represents a fair
and reasonable estimate of the costs Lessor will incur by reason of late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's default with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder.

20. CONDEMNATION. If the Premises or any portion thereof or the Project are
taken under the power of eminent domain, or sold under the threat of the
exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs; provided that if so
much of the Premises or the Project are taken by such condemnation as would
substantially and adversely affect the operation and profitability of Lessee's
business conducted from the Premises, Lessee shall have the option, to be
exercised only in writing within thirty (30) days after Lessor shall have given
Lessee written notice of such taking (or in the absence of such notice, within
thirty (30) days after the condemning authority shall have taken possession),
to terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance within the
foregoing, this Lease shall remain in full force and effect as to the portion
of the Premises remaining, except that the Base Rent and Lessee's Share of
Excess Expenses shall be reduced in the proportion that the floor area of the
Premises taken bears to the total floor area of the Premises. Common Areas taken
shall be excluded from the Common Areas usable by Lessee and no reduction of
Rent shall occur with respect thereto or by reason thereof. Lessor shall have
the option in its sole discretion to terminate this Lease as of the taking of
possession by the condemning authority of all or a portion of the Project, by
giving written notice to Lessee of such election within thirty (30) days after
receipt of notice of a taking by condemnation of any part of the Premises or the
Project. Any award for the taking of all or any part of the Premises or the
Project under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any separate award for loss of or damage to Lessee's trade
fixtures, removable personal property and unamortized Lessee improvements that
have been paid for by Lessee. For that purpose the cost of such improvements
shall be amortized over the original term of this Lease excluding any options.
In the event that this Lease is not terminated by reason of such condemnation,
Lessor shall to the extent of severance damages received by Lessor in connection
with such condemnation, repair any damage to the Premises caused by such
condemnation except to the extent that Lessee has been reimbursed therefor by
the condemning authority. Lessee shall pay any amount in excess of such
severance damages required to complete such repair.

21. BUILDING PLANNING.

                                                                 [INITIAL STAMP]

22. ESTOPPEL CERTIFICATE.

                  A. Each Party (as "responding party") shall at any time upon
not less than ten (10) days prior written notice from the other Party
("requesting party") execute, acknowledge and deliver to the requesting Party 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 the responding Party's knowledge, any
uncured defaults on the part of the requesting Party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Project or of the business
of Lessee.

                              Page 10        Initials: /s/ CH     /s/ MRS
                                                       ------     -------
                                                       Lessor     Lessee
<PAGE>   11

                  B. At the requesting Party's option, the failure to deliver
such statement within such time shall be a material default of this Lease by
the Party who is to respond, without any further notice to such Party, or it
shall be conclusive upon such Party that (i) this Lease is in full force and
effect, without modification except as may be represented by the requesting
Party, (ii) there are no uncured defaults in the requesting Party's performance,
and (iii) if Lessor is the requesting Party, not more than one month's Base
Rent has been paid in advance.

                  C. If Lessor desires to finance, refinance, or sell the
Project, or any part thereof, Lessee hereby agrees to deliver to any lender
or purchaser designated by Lessor such financial statements of Lessee as may
be reasonably required by such lender or purchaser. Such statements shall
include the past three (3) years' financial statements of Lessee. All such
financial statements shall be received by Lessor and such lender or purchaser
in confidence and shall be used only for the purposes herein set forth.

23. BROKER'S FEE.

                  A. The brokers involved in this transaction are NONE as
"listing broker" and Collier Iliff Thorn as "cooperating broker", licensed real
estate broker(s). A "cooperating broker" is defined as any broker other than the
listing broker entitled to a share of any commission arising under this Lease.
Upon execution of this Lease by both Parties, Lessor shall pay to said brokers
jointly, or in such separate shares as they may mutually designate in writing, a
fee as set forth in a separate agreement between Lessor and said broker(s), or
in the event there is no separate agreement between Lessor and said broker(s),
the sum of Ten thousand two hundred thirty three dollars 54/100, ($10,233.54)
for brokerage services rendered by said broker(s) to Lessor in this transaction.

                  B. Lessee and Lessor each represent and warrant to the other
that neither has had any dealings with any person, firm, broker or finder (other
than the person(s), if any, whose names are set forth in paragraph 23(A), above)
in connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction and Lessee and Lessor do each hereby indemnify and hold the other
harmless from and against any costs, expenses, attorneys' fees or liability for
compensation or charges which may be claimed by any such unnamed broker, finder
or other similar party by reason of any dealings or actions of the indemnifying
Party. Lessee agrees that Lessor shall not be responsible for any future broker
fees related to this transaction, as it may relate to Lessee's renewal of the
Lease, if said broker is solely representing Lessee.

                                                                 [INITIAL STAMP]

24. SUBORDINATION. This Lease shall be subject and subordinate at all times to
the lien of any mortgage or deed of trust or other encumbrance(s) which may now
or which may at any time hereafter be made upon the Project of which the
Premises is a part or any portion thereof, or upon Lessor's interest therein.
This clause shall be self-operative, and no further instrument of subordination
shall be required to effect the subordination of this Lease. Nonetheless, in
confirmation of such subordination, Lessee shall execute and deliver such
further instrument(s) subordinating this Lease to the lien of any such mortgage
or deed of trust thereby. If the interests of Lessor under this Lease shall be
transferred by reason of foreclosure or other proceedings for enforcement of any
mortgage or deed of trust on the Premises or Project, Lessee shall be bound to
the transferee at the option of the transferee, under the terms, covenants and
conditions of this Lease for the remaining Term, including any extensions or
renewals, with the same force and effect as if the transferee were Lessor under
this Lease, and, if requested by such transferee, Lessee agrees to attorn to the
transferee as its Lessor. The holder of any mortgage or deed of trust
encumbering the Project shall have the right, unilaterally, at any time to
subordinate fully or partially its mortgage or deed of trust or other security
instrument to this Lease on such terms and subject to such conditions as such
holder may consider appropriate in its discretion. Upon request Lessee shall
execute and deliver an instrument confirming any such full or partial
subordination.

25. PARKING. Lessee shall have the right to use, in common with other lessees or
occupants of the Project, the parking facilities of the Project, subject to the
monthly rates (if any), rules and regulations, and any other charges of Lessor
for such parking facilities which may be established or altered by Lessor at
any time or from time to time during the term thereof. In no event shall Lessee
utilize more parking stalls than are available to Lessee is determined by the
useable square footage of the Premises and the parking ratio of the Building.

26. LESSOR AND OWNER(S) LIABILITY. Lessor and Owner's liability under this
Lease is limited to its actual ownership interest in the Project. Lessee
expressly agrees that the obligations and liability of Lessor and Owner(s)
under this Lease and all executed documents related thereto shall not constitute
personal obligations of Lessor and its agents, Owner(s), Lessor's master or
ground Lessor, partners and lenders, affiliates, subsidiaries or any other
entities or persons involved in the management or ownership of the Project
(including all officers, directors and shareholders of the same).

27. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.

                                                                 [INITIAL STAMP]

28. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the lesser of 10%
the maximum rate then allowable by law or judgments from the date due. Payment
of such interest shall not excuse or cure any default by Lessee under this
Lease.

29. TIME OF ESSENCE. Time is of the essence with respect to the obligations to
be performed under this Lease.

30. ADDITIONAL PROVISION REGARDING RENTAL. All monetary obligations of Lessee to
Lessor under the terms of this Lease including, but not limited to, Lessee's
Share of Excess Expenses and any other expenses and sums payable by Lessee
hereunder shall be payable and referred to throughout this Lease as ("Rent",
"Rental" or "Rentals"). Any payments of Rent may be applied to any past due
balance, before current charges, at Lessor's sole option.

31. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the Parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective even if such writings or understandings are materially
different than those contained herein. This Lease may be modified in writing
only, signed by the Parties in interest at the time of the modification. Except
as otherwise stated in this Lease, Lessee hereby acknowledges that neither the
real estate broker, if any, listed in paragraph 24 hereof nor any cooperating
broker on this transaction nor the Lessor or any employee or agents of any of
said persons has made any oral or written warranties or representations to
Lessee relative to the condition or use by Lessee of the Premises or the Project
and Lessee acknowledges that Lessee assumes all responsibility regarding the
Occupational Safety Health Act, the legal use and adaptability of the Premises
and

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                                                       ------     -------
                                                       Lessor     Lessee

<PAGE>   12

the compliance thereof with all applicable laws and regulations in effect during
the Term of this Lease.

32. NOTICES. Any notice required or permitted to be given hereunder must be in
writing and must be given by either certified or registered mail, return receipt
requested, or by personal delivery, and shall be deemed sufficiently given if
delivered or addressed (if mailed) to Lessee or to Lessor at the address below
the signature of the respective Parties or to the Premises, if the notice is to
Lessee, and no address is below Lessee's signature on the signature page of this
Lease. However, any notice from Lessee whereby Lessee is exercising an Option,
if any, or a notice describing a Lessor default must be sent via certified or
registered mail, return receipt requested or by personal delivery with a written
verification of receipt from the Property Manager or an officer of Lessor.
Mailed notices shall be deemed given upon actual receipt at the address
required, or three (3) working days following deposit in the U.S. mail, postage
prepaid, whichever first occurs. Either Party may, by notice to the other,
specify a different address for notice purposes. A copy of all notices required
or permitted to be given to Lessor hereunder must be concurrently transmitted
to such Party or Parties at such addresses as Lessor may from time to time
designate either in writing or under Lessor's signature block on the signature
page of this Lease.

33. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of Rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular Rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such Rent.

34. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute
acknowledge and deliver to the other a "short form" memorandum of this Lease for
recording purposes.

35. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.

36. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.

37. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
26, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Project is located and any litigation concerning this Lease between
the Parties hereto shall be initiated in the county in which the Project is
located.

38. ATTORNEY'S FEES,

                  A. If either Party herein brings an action or proceeding to
enforce this Lease or any provision hereof, or declare rights hereunder, the
prevailing Party in any such action, trial or appeal thereon, shall be entitled
to his reasonable attorney's fees, consultants fees and General Administration
costs and expenses to be paid by the non-prevailing Party as fixed by the court.
The attorney's fees and other costs award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all fees
and costs reasonably incurred in good faith, including reasonable fees of
Lessor's in-house counsel.

[INITIAL STAMP]

                  B. Lessee agrees to pay Lessor $350.00 for its costs and
expenses incurred in the preparation and service of a Notice of Default.
Three-Day Notice to Pay Rent or Quit or similar notice whether or not a legal
action is subsequently commenced in connection with such notice. Lessee agrees
that $350.00 is a fair and reasonable estimate of the costs and expenses that
will be incurred by Lessor in the preparation and service of said notice and
agrees that Lessor may include said $350.00 charge in said notice(s) as
additional rent due and payable to cure said default, in addition to, Late Fees,
Excess Expenses and all other monetary sums then unpaid and owing by Lessee to
Lessor.

39. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent The holding of any auction on the Premises or Common Areas in violation
of this paragraph shall constitute a material default of this Lease.

40. SIGNS. Lessor may, at any time, place on or about the Premises, or the
Project, any ordinary "For Sale" signs and Lessor may, at any time, during the
last one hundred twenty (120) days of the Term hereof, place on or about the
Premises any ordinary "For Lease" signs. Lessee shall not place any sign upon
the Premises or the Project without Lessor's prior written consent. Under no
circumstances shall Lessee place a sign on any roof of the Project.

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

42. CONSENTS. Except for paragraphs 39 (auctions) and 40 (signs) hereof, and
when Lessor has its "sole discretion", wherever in this Lease the consent of one
Party is required to an act of the other Party, such consent shall not be
unreasonably withheld or delayed.

43. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.

44. QUIET POSSESSION. Upon Lessee paying the Rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee's shall have quiet possession of
the Premises for the entire Term hereof subject to all of the provisions of this
Lease.

45. HOLDING OVER. If Lessee remains in possession of the Premises or any part
thereof after the expiration of the Term hereof, with the express written
consent of Lessor, such occupancy shall be a tenancy from month to month at a
Rental in an amount equal to One Hundred Fifty Percent (150%) of the then
monthly Rental, plus all other charges payable hereunder, and all Options, if
any, shall terminate and shall be of no further affect during said
month-to-month tenancy.

                              Page 12        Initials: /s/ CH     /s/ MRS
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<PAGE>   13

46. RULES AND REGULATIONS. Lessee shall faithfully observe and comply with the
rules and regulations that Lessor shall from time to time promulgate. Lessor
reserves the right from time to time to make all reasonable modifications to
said rules. The additions and modifications to those rules shall be binding upon
Lessee upon delivery of a copy of them to Lessee. Lessor shall not be
responsible to Lessee for the nonperformance of any said rules by any other
lessees or occupants.

47. EASEMENTS.

         47.1 Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee.

         47.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Project, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.

48. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said Party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said Party to pay
such sum or any part thereof, said Party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.

49. WAIVER OF TRIAL BY JURY. The Parties hereby knowingly, voluntarily and
intentionally waive any right that either Party may have to a Trial by Jury in
respect of any litigation based hereon, or arising out of, under or in
connection with the premises, this Lease or any documents executed in connection
herewith, or in respect of any course of conduct, statements (whether oral or
written), or actions of either Party. This provision is a material inducement
for each of the Parties to enter into this Lease.

50. AUTHORITY. If Lessee is a corporation, trust, LLC, general or limited
partnership or other legal entity, Lessee, and each individual executing this
Lease on behalf of such entity represent and warrant that such individual is
duly authorized to execute and deliver this Lease on behalf of said entity. If
Lessee is a corporation, trust, LLC or partnership, Lessee shall, within thirty
(30) days after execution of this Lease, deliver to Lessor evidence of such
authority satisfactory to Lessor.

51. CONFLICT. Any conflict between this Lease and its Exhibit(s) or Addenda(s),
if any, the Exhibit(s) or Addenda(s) shall control and prevail. In the event of
a conflict between any typewritten or handwritten provisions the handwritten
provisions, if any, shall control and prevail.

52. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both Parties. In the event Lessor delivers a copy of this Lease executed by
Lessor to Lessee, for Lessee's signature, Lessee shall have three (3) days to
deliver the Lease back to Lessor fully executed, without alterations.
Otherwise, this Lease shall become void, have no force or affect and neither
Party shall have any obligation to the other.

53. LENDER MODIFICATION. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Project.

54. MULTIPLE PARTIES. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.

55. HAZARDOUS WASTES. Lessee shall not generate. handle, store or dispose of
hazardous or toxic materials in violation of any federal, state or local law,
ordinance or regulation in, on or about the Premises, or the Project.

56. FINANCIAL STATEMENTS. Lessee, from time to time, within ten (10) days of
receipt of Notice from Lessor, shall deliver to Lessor current and historical
financial statements.

57. APPLICATION OF COVENANTS TO AGENT AND OWNER. Lessee stipulates and agrees
that all covenants contained in this Lease which are for the benefit of Lessor
apply equally to the Owner(s) including, but not limited to, Paragraphs 12.1
through 12.7 and Paragraph 26 of this Lease.

58. AGENCY AND ASSIGNMENT. Lessee consents and stipulates to SIGNATURE SERVICES
acting as managing agent in the capacity of Lessor, on behalf of the Owner(s)
and further acknowledges that SIGNATURE SERVICES has been appointed
attorney-in-fact for the Owner(s), to act on its behalf as Lessor pursuant to
the terms and conditions of this Lease. In addition, upon a default by Lessee,
Lessee stipulates and agrees that the Owner(s) shall have the right to assign
this entire lease to SIGNATURE SERVICES for the express purpose of enforcing the
terms and conditions of this Lease against Lessee, including filing and
prosecuting an action against Lessee to judgment, collection of the judgment,
costs, expenses and reasonable attorneys fees in connection therewith. Further.
Lessee waives the right to challenge the fact of agency, the authority of
SIGNATURE SERVICES, to act on behalf of the Owner(s) and the assignment
contemplated in this Paragraph.

59. ATTACHMENTS. Attached hereto are the following documents, which constitute a
part of this Lease:

          Exhibit "A":        Rules and Regulations

          Exhibit "B":        Addendum

          Exhibit "C":        Floor Plan

          Exhibit "D":        Memorandum of Lease Commencement

                              Page 13        Initials: /s/ CH     /s/ MRS
                                                       ------     -------
                                                       Lessor     Lessee

<PAGE>   14
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.

IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY LESSOR
AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR
THE TRANSACTION RELATING THERETO; LESSEE SHALL RELY SOLELY UPON THE ADVICE OF
THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

LESSOR:                                          LESSEE:

                                                 Advance Paradigm, Inc., a
SIGNATURE SERVICES, a California Corporation     Delaware corporation
                                                 ----------------------------

By:   /s/ CHAD HORNING                           By: /s/ MARK R. STORY for
      ----------------                               ------------------------
      Chad Horning                                   Signature

                                                     Jon S. Halbert
Its:  Vice President                                 ------------------------
                                                     Name (Please Print)

                                                     Executive Vice President/
Date:      6/3/99                                    Chief Operating Officer
      ---------------                                -------------------------
                                                     Title

Executed at Newport Beach, California

                                                 ----------------------------
SEND RENT AND ALL NOTICES TO:

4425 Jamboree Road, Suite 250                    By:
Newport Beach, Ca 92660                             ------------------------
Attn:  Chad Horning                                 Signature

                                                     ------------------------
                                                     Name (Please Print)

                                                     -------------------------
                                                     Title

                                                 ----------------------------

                                                 By:
                                                     ------------------------
                                                     Signature

                                                     ------------------------
                                                     Name (Please Print)

                                                     -------------------------
                                                     Title

                                                 Date:
                                                       -----------------------

                                                 Executed at:
                                                              ----------------

                                                 (ALL NOTICES WILL BE SENT TO
                                                 THE ADDRESS THAT APPEARS ON
                                                 THE FIRST PAGE OF THIS LEASE
                                                 AGREEMENT UNLESS A DIFFERENT
                                                 ADDRESS IS FILLED IN BELOW).

                                                 Address:
                                                          --------------------

                                                 City:
                                                       -----------------------

                                                 State:      Zip Code:
                                                        ----           -------

                                    Page 14           Initials:          /s/ MRS
                                                                ------   -------
                                                                Lessor   Lessee
<PAGE>   15
                                   EXHIBIT "A"

           RULES AND REGULATIONS FOR OFFICE LEASE - FULL SERVICE GROSS
                                  GENERAL RULES

1.       Lessee shall not suffer or permit the obstruction of any Common Areas,
         including driveways, walkways and stairways.

2.       Lessor reserves the right to refuse access to any persons Lessor in
         good faith judges to be a threat to the safety, reputation, or property
         of the Project and its occupants.

3.       Lessee shall not make or permit any noise or odors that annoy or
         interfere with other lessees or persons having business within the
         Project.

4.       Lessee shall not keep animals or birds within the Project, and shall
         not bring bicycles, motorcycles or other vehicles into areas not
         designated as authorized for same.

5.       Lessee shall not make, suffer or permit litter except in appropriate
         receptacles for that purpose.

6.       Lessee shall not alter any lock or install new or additional locks or
         bolts.

7.       Lessee shall be responsible for the inappropriate use of any toilet
         rooms, plumbing or other utilities. No foreign substances of any kind
         are to be inserted therein.

8.       Lessee shall not deface the walls, partitions or other surfaces of the
         Premises or Project.

9.       Lessee shall not suffer or permit anything in or around the Premises or
         Project that causes excessive vibration or floor loading in any part of
         the Project.

10.      Furniture, significant freight and equipment shall be moved into or
         out of the Project only with the Lessor's knowledge and consent, and
         subject to such reasonable limitations, techniques and timing, as
         may be designated by Lessor. Lessee shall be responsible for any damage
         to the Project arising from any such activity.

11.      Lessee shall not employ any service or contractor for services or work
         to be performed in the Project, except as approved by Lessor.

12.      Lessor reserves the right to close and lock the Project on Saturdays,
         Sundays and legal holidays, and on other days between the hours of 6
         p.m. and 7 am. If Lessee uses the Premises during such periods, Lessee
         shall be responsible for securely locking any doors it may have opened
         for entry.

13.      Lessee shall return all keys at the termination of its tenancy and
         shall be responsible for the cost of replacing any keys that are lost.

14.      No window coverings, shades, awnings, signs, advertisements, etc. shall
         be installed or used by Lessee in any window or exterior of the
         Project.

15.      No Lessee, employee or invitee shall go upon the roof of the Project.

16.      Lessee shall not suffer or permit smoking or carrying of lighted cigars
         or cigarettes in areas designated by Lessor or by applicable
         governmental agencies as non-smoking areas.

17.      Lessee shall not use any method of heating or air conditioning other
         than as provided by Lessor.

18.      Lessee shall not install, maintain or operate any vending machines
         upon the Premises without Lessor's written consent.

19.      The Premises shall not be used for lodging or manufacturing, commercial
         cooking or food preparation.

20.      Lessee shall comply with all safety, fire protection and evacuation
         regulations established by Lessor or any applicable governmental
         agency.

21.      Lessor reserves the right to waive any one of these rules or
         regulations, and/or as to any particular Lessee, and any such waiver
         shall not constitute a waiver of any other rule or regulation or any
         subsequent application thereof to such Lessee.

22.      Lessee assumes all risks from theft or vandalism and agrees to keep its
         Premises locked as may be required.

23.      Lessee shall provide and cause all Lessee's employees, agents, etc.,
         utilizing Lessee's space to use carpet protectors under office chairs.

24.      If Lessee requires burglar alarm and/or other alarm/security service,
         it shall first obtain, and comply with Lessor's instructions. Any
         such service shall be at Lessee's sole cost and expense.

                                     Page 1

                                                      Initials: /s/ CH   /s/ MRS
                                                                ------   -------
                                                                Lessor   Lessee
<PAGE>   16

25.      Lessee shall not waste electricity, water or air conditioning and
         agrees to cooperate fully with Lessor to assure the most effective
         operation of the Building's heating, and air conditioning and to comply
         with any governmental energy-saving rules, laws or regulations of
         which Lessee has actual notice, and shall refrain from attempting to
         adjust controls. Lessee shall keep corridor and exterior doors closed.

26.      Lessor reserves the right, exercisable with 30 days written notice and
         without liability to Lessor, to change the name of the Building.

27.      Lessee shall comply with all safety, fire extinguisher, fire protection
         and evacuation procedures and regulations established by Lessor or any
         governmental agency.

28.      Lessor reserves the right to make such other reasonable rules and
         regulations as it may from time to time deem necessary for the
         appropriate operation and safety of the Project and its occupants.
         Lessee agrees to abide by these and such rules and regulations.

                                  PARKING RULES

1.       Parking areas shall be used only for parking by vehicles no longer than
         full size passenger automobiles herein called "Permitted Size
         Vehicles". Vehicles other than Permitted Size Vehicles are herein
         referred to as "Oversized Vehicles".

2.       Lessee shall not permit or allow any vehicles that belong to or are
         controlled by Lessee or Lessee's employees, suppliers, shippers,
         customers, or invitees to be loaded, unloaded, or parked in areas other
         than those designated by Lessor for such activities.

3.       Lessor reserves the right to relocate all or part of parking spaces
         from floor to floor, within one floor, and/or to reasonably adjacent
         off-site location(s), and to reasonably allocate them between compact
         and standard size spaces, as long as the same complies with applicable
         laws, ordinances and regulations.

4.       Users of the parking area will obey all posted signs and park only in
         the areas designated for vehicle parking.

5.       Unless otherwise instructed, every person using the parking is required
         to park and lock his own vehicle. Lessor will not be responsible for
         any damage to vehicles, injury to persons or loss of property, all
         of which risks are assumed by the party using the parking area.

6.       The maintenance, washing, waxing or cleaning of vehicles in the
         parking or Common Areas is prohibited.

7.       Lessee shall be responsible for seeing that all of its employees,
         agents and invitees comply with the applicable parking rules,
         regulations, laws and agreements.

8.       Lessor reserves the right to modify these rules and/or adopt such
         other reasonable and non-discriminatory rules and regulations as it may
         deem necessary for the proper operation of the parking area.

9.       Such parking use as is herein provided is intended merely as a license
         only and no bailment is intended or shall be created hereby.

                                     Page 2

                                                      Initials: /s/ CH   /s/ MRS
                                                                ------   -------
                                                                Lessor   Lessee

<PAGE>   17
                                   EXHIBIT "B"
                                ADDENDUM TO LEASE

THIS ADDENDUM TO LEASE ("Addendum") is attached to and made a part of that
certain Lease dated May 18, 199 by and between SIGNATURE SERVICES, a California
Corporation ("LESSOR") and Advance Paradigm Inc., a Delaware corporation
("Lessee") for the lease of the Premises at Regents Park, located at 11344
Coloma Road, Suite 345, Gold River, California, 95670, Commencing August 1,
1999. In the event of any conflict or inconsistency between the terms and
provisions of this Addendum and the terms and provisions of the Lease, the terms
and provisions of this Addendum shall control. Capitalized terms used herein
shall have the same meaning as set forth in the Lease, unless otherwise defined
herein.

1.       TENANT IMPROVEMENTS:

         Lessor agrees to provide for the following tenant improvements at
         Lessors sole cost and expense. Except for the improvements listed
         below, Lessee agrees to accept the Premises in it "AS IS" condition.

         Lessor shall at its sole cost and expense provide the following tenant
         improvements.

         a.       Remove partitions as shown on Exhibit "C".

         b.       Carpet and paint suite in Lessor's standard finishes.

         c.       Lessor shall construct 12 lineal feet of wall to demise the
                  computer room.

         d.       Provide approximately 13 power poles to Lessee's free standing
                  partitions, each pole shall service 4 work station with 12
                  amps per pole.

         e.       Provide 2 dedicated 20 amp circuits in the data center.

2.       BASE RENTAL:

         August 1, 1999 - July 31, 2001 = $8527.95 per month
         August 1, 2001 - July 31, 2002 = $8869.06 per month
         August 1, 2002 - July 31, 2003 = $9223.83 per month
         August 1, 2002 - July 31, 2004 = $9592.78 per month

         3.       RIGHT OF FIRST REFUSAL FOR ADDITIONAL SPACE

         A.       Provided Lessee is not in default under the Lease, Lessor
                  agrees that prior to renting any suite immediately adjacent to
                  the Premises (the "First Refusal Space") to a third (3rd)
                  party, Lessor will submit to Lessee the terms under which
                  Lessor is willing to accept a lease from a third party (the
                  "Offered Lease"). On or before the fifth (5th) business day
                  after the date of such submission, Lessee will have (the
                  "Refusal Right") to send Lessor a notice stating that Lessee
                  elects to rent the First Refusal Space upon the identical
                  terms and conditions set forth in the Offered Lease (the
                  "Offered Lease Terms") or the rent then if effect on Lessees
                  exciting space whichever is less. The notice must be actually
                  received by Lessor within the five (5) day period.

         B.       If Lessee duly and timely exercises its First Refusal Right,
                  Lessor and Lessee will promptly (and in any event within five
                  (5) business days after Lessor's receipt of Lessee's notice)
                  enter into a Lease for the First Refusal Space (the "New
                  Lease") on the Offered Lease Terms or the rent then in effect
                  on Lessees exciting space whichever is less. If, for any
                  reason, Lessee fails to duly and timely exercise the First
                  Refusal Right, or if Lessee properly exercises it but
                  thereafter, for any reason, (except for Lessor's fault) does
                  not timely enter into the New Lease, Lessor will be free to
                  rent the First Refusal Space to another lessee and the First
                  Refusal Right and Lessor's obligation under this Article will
                  be null and void and without further force and effect
                  throughout the remainder of the Term of this Lease and any
                  extensions thereof. In addition, in the event Lessee properly
                  exercises its right

                                                                 [INITIAL STAMP]

                                   Page 1 of 4

<PAGE>   18

[INITIAL STAMP]   and, as described above, does not enter into the New Lease
                  then

         C.       Notwithstanding anything to the contrary in this Article;

[INITIAL STAMP]   I.

                  ii.      Lessee agrees that any default under this Lease will
                           be deemed and constitute a like default under the New
                           Lease.

4.       OPTION TO TERMINATE

         A.       Termination Date. Provided Lessee is not in default under this
                  Lease and subject to paragraph 15 of this Lease, Lessee shall
                  have an Option (the "Termination Option") to terminate this
                  Lease, effective as of July 31, 2001 July 31, 2002 July 31,
                  2003 July 31, 2004 (the "Termination Date") subject to the
                  following terms and conditions:

         I.       Notice. Lessee gives Lessor a written notice of Lessee's
                  election to exercise the Termination Option, which notice
                  must be received by Lessor not later than months 4 prior to
                  the Termination Date; and

[INITIAL STAMP]

         B.       Terms. If Lessee timely and properly exercises the Termination
[INITIAL STAMP]   Option, (I) all rent payable under this Lease shall be paid
                  through and apportioned as of the Termination Date;
                  (ii) neither party shall have any rights, estates,
                  liabilities, or obligations under this Lease for the period
                  accruing after the Termination Date, except those which, by
                  the provisions of this Lease, expressly survive

         5.       SECURITY DEPOSIT:

                  Lessor shall refund the security deposit to Lessee after the
                  payment of the fourth month rent provided that there is no
                  uncured default under the Lease.

         6.       ALTERATIONS (9.3):

                  If Lessor requires Lessee to remove any tenant improvements,
                  Lessor will notify Lessee at the time Lessor provides it
                  consent to said improvements.

         7.       ADA AND ACCESSIBILITY CODE COMPLIANCE:

                  With respect to any and all improvements, maintenance, etc.
                  Related to the Americans With Disabilities Act and / or
                  Accessibility Code requirements, as may be amended from time
                  to time, Lessee agrees to be responsible for the cost and
                  expense of all future improvements, maintenance, etc. In
                  Lessee's suite / Premises. Lessor shall be responsible for the
                  cost and expense of all improvements, maintenance, etc.
                  related to the common areas of the building provided, however,
                  that such improvements, Maintenance, etc. is not caused or
                  occasioned by Lessee's use, action or inactions.

                                                                 [INITIAL STAMP]

                                   Page 2 of 4

<PAGE>   19

8.       OPERATING HOURS:

         Operating hours for the Premises shall be as follows:

         Monday through Friday    7am to 12am
         Saturday:                7am to 12am
         Sunday                   7am to 12am

         Because Lessee's hours of operation are more than provided for in the
         lease. Lessee agrees to reimburse Lessor for the cost of such excess
         utility usage based on the following formula and assumptions:

         ASSUMPTIONS:

<TABLE>
<S>                                                                          <C>
         Lessor's estimate of utility cost for the building for one year     $23,229
         (Subject to change):

         Percentage allocations of cost for the Premises:                         80%
         (20% allocated for common area / after hours)

         Total excess hours of operation per year:                             1,924

         Total normal work hours per standard / lease per year:                2,808

         Square footage of Premises:                                           6,317

         FORMULA: (All numbers are annual, unless noted)

         Total Building Bill:                                             $23,233.00
         x 80%                                                                    80
                                                                          ----------
         Adjusted Bill:                                                    18,578.40

         Adjusted Building Bill:                                          $18,578.40
            Actual Working Hours                                                2808
                                                                          ----------
         Cost Per Hour                                                        6.6162

         Cost Per Hour:                                                   $     6.62
            Bldg. Sq. Ft.                                                      16016
                                                                          ----------
         Cost Per Sq. Ft. Per Hour:                                           .00041

         Cost Per Sq. Ft. Per Hour:                                       $   .00041
         x Premises Sq. Ft.                                                    6,317
                                                                          ----------
         Total Cost Per Hour:                                                 2.6096
</TABLE>

                                                                 [INITIAL STAMP]

                                  Page 3 of 4

<PAGE>   20

<TABLE>
<S>                                                                       <C>
Total Cost Per Hour:                                                      $   2.6096
x Excess Hours                                                                 1.924
                                                                          ----------
Annual Cost:                                                                5020.019

Annual Cost:                                                              $ 5020.019
  12 months                                                                       12
                                                                          ----------
Cost Per Month                                                            $   481.40
</TABLE>

9.       COMMISSION:

         Lessor agrees to pay brokerage commission for the initial two years of
         the lease as Lessee has an option to terminate at that date. In the
         event Lessee does not terminate the lease, and provided that Lessee has
         not defaulted on the payment of Rent, Bruce Hohenhaus of Colliers
         International Shall be paid commission as follows:

         August 1, 2002 - July 31, 2002  $5321.43
         August 1, 2002 - July 31, 2003  $5534.29
         August 1, 2003 - July 31, 2004  $5755.66

LESSOR:

Signature Services                  Advance Paradigm Inc., a Delaware
a California Corporation            corporation

BY: /s/ CHAD HORNING                BY: /s/ MARK R. STORY for
    ---------------------------         ---------------------------
    Chad Horning/Vice President         Jon S. Halbert/Executive Vice President/
                                        Chief Operating Officer

DATE:     6/3/99                    DATE:     5/28/99
    ---------------------------           -------------------------

                                  Page 4 of 4

<PAGE>   21
                            FIRST AMENDMENT TO LEASE

THIS FIRST AMENDMENT TO LEASE ("Amendment") is entered into by and between
Signature Services a California Corporation ("Lessor") and Advance Paradigm Inc.
A Delaware corporation with respect to that certain Lease for office space
located at 11344 Coloma Road suite 345, Gold River, CA 95670 dated May 18, 1999
by and between Lessor and Lessee hereinafter referred to as (the "Lease").
Capitalized terms used herein shall have the same meaning as set forth in the
Lease unless otherwise defined herein.

NOW, THEREFORE, in consideration of the mutual covenants contained here in, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties agree to amend the Lease in the following
particulars only:

        1. PREMISES:

           The Premises is hereby amended to include an additional 2,495 square
feet (the "Expansion Space") making the Premises square footage 8,812 square
feet. The space is depicted on Exhibit "A" attached hereto.

        2. BASE RENTAL:

           The Base Rental is amended as follows:

           September 1, 1999 - September 30, 1999 - $8,527.95 per month
           October 1, 1999 - September 30, 2001 - $11,896,20 per month
           October 1, 2001 - September 30, 2002 - $12,372.05 per month
           October 1, 2002 - September 30, 2003 - $12,867.28 per month
           October 1, 2003 - September 30, 2004 - $13,381.90 per month

        3. TENANT IMPROVEMENTS:

           Lessor agrees to provide for the following tenant improvements at
Lessor's sole cost and expense. Except for the improvements listed below, Lessee
agrees to accept the Premises in its "AS IS" condition.

           a. Demolish the Expansion Space to provide an open floor plan to
              adjoin the Original Premises.

           b. Carpet and paint the Expansion Space with building standard
              finishes.

           c. Provide a maximum of 8 power poles for the Expansion Space.

           d. Build a conference room wall and doorway as depicted on Exhibit
              "A".

        4. OPERATING HOURS:

           Operating hours for the Premises shall be as follows:

           Monday through Friday        7am to 12am

           Saturday:                    7am to 12am

           Sunday                       7am to 12am
<PAGE>   22
Because Lessee's hours of operation are more than provided for in the Lease,
Lessee agrees to reimburse Lessor for the cost of such excess utility usage
based on the following formula and assumptions. Such amount is payable as rent
and shall be paid by Lessee to Lessor monthly with Lease Base Rent.

<TABLE>
<CAPTION>

ASSUMPTIONS:

<S>                                                                   <C>
Lessor's estimate of utility cost for the building for one year       $23,229
(Subject to change):

Percentage allocations of cost for the Premises:                          80%
(20% allocated for common area/after hours)

Total excess hours of operation per year:                               1,924

Total normal work hours per standard/lease per year:                    2,808

Square footage of Premises:                                             8,812

FORMULA: (All numbers are annual, unless noted)

Total Building Bill:                                                  $23,233.00
x 80%                                                                         80

                                                                      ----------
Adjusted Bill:                                                         18,578.40

Adjusted Building Bill:                                               $18,578.40
Actual Working Hours                                                       2,808

                                                                      ----------
Cost Per Hour                                                             6.6162

Cost Per Hour:                                                        $     6.62
  Bldg. Sq. Ft.                                                            16016

                                                                      ----------
Cost Per Sq. Ft. Per Hour:                                                .00041

Cost Per Sq. Ft. Per Hour:                                            $   .00041
x Premises Sq. Ft.                                                          8812

                                                                      ----------
Total Cost Per Hour:                                                        6.61

Total Cost Per Hour:                                                  $     3.61
x Excess Hours                                                             1.924

                                                                      ----------
Annual Cost:                                                            6,945.64
</TABLE>

<PAGE>   23
<TABLE>
<CAPTION>

<S>                                                                   <C>
Annual Cost:                                                          $6945.64
  12 months                                                                 12

                                                                      --------
Cost Per Month                                                        $ 578.80
</TABLE>

6.   OPERATING EXPENSES:

     Paragraph 7.2 of the lease shall be amended to increase Lessee's prorata
percentage to 6.83 percent.

7.   RIGHT OF FIRST REFUSAL FOR ADDITIONAL SPACE:

     Paragraph 3 of The Addendum To Lease is hereby deleted in its entirety.

8.   LIMITATION OF AMENDMENT:

     All other terms and conditions of the Lease shall remain unchanged and if
full force and effect.

LESSOR:                                 LESSEE:

Signature Services                      Advance Paradigm Inc. a Delaware
a California Corporation                corporation

BY: /s/ CHAD HORNING                    BY: /s/ [Signature Illegible]
    ----------------------------            -----------------------------
    Chad Horning/Vice President             Mark Story/Vice President of
                                            Quality

DATE:     11/15/99                      DATE:        10/28/99
      --------------------------              ---------------------------

<PAGE>   24
                            SECOND AMENDMENT TO LEASE

THIS SECOND AMENDMENT TO LEASE ("Amendment") is entered into by and between
Signature Services a California Corporation ("Lessor") and Advance Paradigm Inc.
A Delaware corporation with respect to that certain Lease for office space
located at 11344 Coloma Road suite 345, Gold River, CA 95670 dated May 18, 1999
by and between Lessor and Lessee hereinafter referred to as (the "Lease").
Capitalized terms used herein shall have the same meaning as set forth in the
Lease unless otherwise defined herein.

NOW, THEREFORE, in consideration of the mutual covenants contained here in, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties agree to amend the Lease in the following
particulars only:

     1.   PREMISES:

          The Premises is hereby amended to include an additional 3,250 square
          feet (the "Expansion Space") making the total Premises 12,062 rentable
          square feet. The Expansion Space is depicted on Exhibit "A" attached
          hereto.

     2.   BASE RENTAL:

          The Base Rental is amended as follows:

          September 1, 1999 - September 30, 1999 = $8,527.95 per month
          October 1, 1999 - November 30, 1999 = $11,896.20 per month
          December 1, 1999 - September 30, 2001 = $16,283.70 per month
          October 1, 2001 - September 30, 2002 = $16,935.04 per month
          October 1, 2002 - September 30, 2003 = $17,612.93 per month
          October 1, 2003 - September 30, 2004 = $18,317.35 per month

     3.   TENANT IMPROVEMENTS:

          Lessor agrees to provide for the following tenant improvements at
          Lessor's sole cost and expense. Except for the improvements listed
          below, Lessee agrees to accept the Premises in its "AS IS" condition.

          a.   Carpet and paint the Expansion Space with building standard
               finishes.

          b.   Provide a maximum of 4 power poles for the Expansion Space.

          c.   Install a 4x5 closet for telcom termination for the second floor
               Expansion Space.

     4.   OPERATING HOURS:

          Operating hours for the Premises shall be as follows:

          Monday through Friday         7am to 12am

          Saturday:                     7am to 12am

          Sunday                        7am to 12am

          Because Lessee's hours of operation are more than provided for in the
          Lease, Lessee agrees to reimburse Lessor for the cost of such excess
          utility usage based on the following formula and assumptions. Such
          amount is payable as rent and shall be paid by Lessee to Lessor
          monthly with Lessees Base Rent.

                                                                 [INITIAL STAMP]

                                   Page 1 of 3
<PAGE>   25

ASSUMPTIONS:

<TABLE>
<S>                                                                   <C>
Lessor's estimate of utility cost for the building for one year
(Subject to change):                                                  $   23,229

Percentage allocations of cost for the Premises:
(20% allocated for common area/after hours)                                   80%

Total excess hours of operation per year:                                  1,924

Total normal work hours per standard/lease per year:                       2,808

Square footage of Premises:                                               12,062

FORMULA: (All numbers are annual, unless noted)

Total Building Bill:                                                  $23,233.00
x 80%                                                                         80
                                                                      ----------
Adjusted Bill:                                                         18,578.40

Adjusted Building Bill:                                               $18,578.40
Actual Working Hours                                                       2,808
                                                                      ----------
Cost Per Hour                                                             6.6162

Cost Per Hour:                                                        $     6.62
  Bldg. Sq. Ft.                                                           16,016
                                                                      ----------
Cost per Sq. Ft. Per Hour:                                                .00041

Cost per Sq. Ft. Per Hour:                                            $   .00041
x Premises Sq. Ft.                                                        12.062
                                                                      ----------
Total Cost Per Hour:                                                        4.95

Total Cost Per Hour:                                                  $     4.95
x Excess Hours                                                             1,924
                                                                      ----------
Annual Cost:                                                            9,523.80

Annual Cost:                                                          $ 9,523.80
  12 months                                                                   12
                                                                      ----------
Cost Per Month                                                        $   793.65
</TABLE>

                                                                 [INITIAL STAMP]

                                   Page 2 of 3
<PAGE>   26

     6.   OPERATING EXPENSES:

          Paragraph 7.2 of the lease shall be amended to increase Lessee's
          prorata percentage to 9.35 percent.

     7.   RIGHT OF FIRST REFUSAL FOR ADDITIONAL SPACE:

          Paragraph 3 of The Addendum To Lease is hereby deleted in its
          entirety.

     8.   OPTION TO TERMINATE

          A.   Termination Date. Provided Lessee is not in default under this
               Lease and subject to paragraph 15 of this Lease, Lessee shall
               have an Option (the "Termination Option") to terminate this
               Lease, effective as of one of the following dates: December 31,
               2001, December 31, 2002, December 31, 2003 and December 31, 2004
               (the "Termination Date") subject to the following terms and
               conditions:

               i.   Notice. Lessee gives Lessor a written notice of Lessee's
                    election to exercise the Termination Option, which notice
                    must be received by Lessor not later than 4 months prior to
                    the desired Termination Date; and

               ii.  Termination Fee. Lessee pays to Lessor concurrently with
                    Lessee's notice to exercise the Termination Option, a cash
                    lease termination fee (the "Fee") in the amount of:

                    a.   Nine thousand one hundred twenty six dollars.
                         ($9126.00)

          B.   Terms. If Lessee timely and properly exercises the Termination
               Option, (i) all rent payable under this Lease shall be paid
               through and apportioned as of the Termination Date (in addition
               to payment by Lessee of the Fee); (ii) neither party shall have
               any rights, estates, liabilities, or obligations under this Lease
               for the period accruing after the Termination Date, except those
               which, by the provisions of this Lease, expressly survive.

     9.   LIMITATION OF AMENDMENT:

          All other terms and conditions of the Lease shall remain unchanged and
          in full force and effect.

     LESSOR:                                   LESSEE:

     Signature Services                        Advance Paradigm Inc., a Delaware
     a California Corporation                  corporation

     BY: /s/ CHAD HORNING                      BY: /s/ MARK STORY
        -------------------------------           -----------------------------
        Chad Horning/Vice President               Mark Story/Vice President of
                                                  Quality

     DATE: 1/14/00                             DATE: 11/30/99
          -----------------------------             ---------------------------

                                  Paqe 3 of 3

<PAGE>   27
                                 EXHIBIT "A"

                                 [FLOOR PLAN]
<PAGE>   28
                            THIRD AMENDMENT TO LEASE

THIS THIRD AMENDMENT TO LEASE ("Amendment") is entered into by and between
Signature Services California Corporation ("Lessor") and Advance Paradigm Inc. A
Delaware corporation with respect to that certain Lease for office space located
at 11344 Coloma Road suite 345, Gold River, CA 95670 dated May 18, 1999 by and
between Lessor and Lessee hereinafter referred to as (the "Lease"). Capitalized
terms used herein shall have the same meaning as set forth in the Lease unless
otherwise defined herein.

NOW, THEREFORE, in consideration of the mutual covenants contained here in, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Parties agree to amend the Lease in the following
particulars only:

     1.   PREMISES:

          The Premises is hereby amended to include an additional 5319 square
          feet (the "Expansion Space") making the total Premises 17381 rentable
          square feet. The Expansion Space is depicted on Exhibit "A" attached
          hereto.

     2.   BASE RENTAL:

          The Base Rental is amended as follows:

          December 1, 1999 - March 31, 2000 = $16,283.70 per month
          April 1, 2000 - March 31, 2001 = $23,464.35 per month
          April 1, 2001 - March 31, 2002 = $24,333.40 per month
          April 1, 2002 - March 31, 2003 = $25,202.45 per month
          April 1, 2003 - March 31, 2004 = $26,071.50 per month

     3.   TENANT IMPROVEMENTS

          Lessor agrees to provide for the following tenant improvements at
          Lessor's sole cost and expense. Except for the improvements listed
          below, Lessee agrees to accept the Premises in its "AS IS" condition.

          a. Carpet and paint the Expansion Space with building standard
             finishes.

          b. Provide a maximum of 5 power poles for the Expansion Space.

          c. Install a 4x5 closet for telcom termination for the second floor
             Expansion Space.

          d. Complete TI in expansion space as noted on drawing in Attachment A.

[INITIAL STAMP]

          The improvement will be completed and the premises ready for occupancy
          not later than April 1, 2000.

     4.   OPERATING HOURS/MISC.:

          The cost for excess utility usage shall be amended to $l,143.66 per
          month due to the increase in the square footage which is calculated in
          accordance with BOMA standards and the projects 10% load factor. As
          Lessee's hours of operation are beyond Lessor's normal hours of
          operation, Lessee agrees to reimburse Lessor for the additional costs
          incurred for any day porters as Lessor deems reasonably necessary for
          stocking restrooms, grounds pick up and the like.

                                                                 [INITIAL STAMP]

                                   Page 1 of 2

<PAGE>   29

     5.   OPERATING EXPENSES:

          Paragraph 7.2 of the lease shall be amended to increase Lesses's
          prorata percentage to 13.47 percent.

     6.   RIGHT OF FIRST REFUSAL FOR ADDITIONAL SPACE:

          Paragraph 3 of The Addendum To Lease is hereby deleted in its
          entirety.

     7.   OPERATING HOURS/MISC.:

          A.   Termination Date. Provided Lessee is not in default under this
               Lease and subject to paragraph 15 of this Lease, Lessee shall
               have an Option (the "Termination Option") to terminate this
               Lease, effective as of one of the following dates: April 1, 2002
               and April 1, 2003 (the "Termination Date") subject to the
               following terms and conditions:

          I.   Notice. Lessee gives Lessor a written notice of Lessee's election
               to exercise the Termination Option, which notice must be received
               by Lessor not later than 6 months prior to the desired
               Termination Date; and

          ii.  Termination Fee. Lessee pays to Lessor concurrently with Lessee's
               notice to exercise the Termination Option, a cash lease
               termination fee (the "Fee") in the amount of:

               a.   Nine thousand one hundred twenty six dollars. ($9,126.00)
                    and

               b.   Payment of $12,142.50 if Lessee exercises Termination Option
                    effective April 1, 2002 or payment of $6,071.25 if Lessee
                    exercises Termination Option effective April 1, 2003

[INITIAL STAMP]

          B.   Terms. If Lessee timely and properly exercises the Termination
               Option, (1) all rent payable under this Lease shall be paid
               through and apportioned as of the Termination Date (in addition
               to payment by Lessee of the Fee): (ii) neither party shall have
               any rights, estates, liabilities, or obligations under this Lease
               for the period accruing after the Termination Date, except those
               which, by the provisions of this Lease, expressly survive.

     8.   LIMITATION OF AMENDMENT:

          All other terms and conditions of the Lease shall remain unchanged and
          in full force find effect.

LESSOR:                                     LESSEE:

Signature Services                          Advance Paradigm Inc. a Delaware
a California Corporation                    corporation

BY: /s/ CHAD HORNING                        BY: /s/ JON S. HALBERT
   ---------------------------                  -------------------------------
   Chad Horning/Vice President                  Jon S. Halbert, COO

DATE: 3/23/00                               DATE: 3/2/00
     -------------------------                   ------------------------------

                                  Page 2 of 2

<PAGE>   30
                               ATTACHMENT "A"

                                [FLOOR PLAN]
<PAGE>   31
FOURTH AMENDMENT TO LEASE

THIS FOURTH AMENDMENT TO LEASE ("Amendment") is entered into by and between
North Parkcenter LLC, a Delaware limited liability company ("Lessor") and
AdvancePCS,fka Advance Paradigm Inc., a Delaware corporation ("Lessee") with
respect to that certain Lease for office space located at 11344 Coloma Road,
Suite 345, Gold River, California 95670 dated May 18, 1999, which was
subsequently amended on 10/28/99, 11/30/99 and 3/2/00 by and between Lessor and
Lessee hereinafter referred to as the (the Lease"). Capitalized terms used
herein shall have the same meaning as set forth in the Lease unless otherwise
defined herein.

NOW THEREFORE, in consideration of the mutual covenants contained herein, and
other good and valuable consideration, the receipt of sufficiency of which are
hereby acknowledged, the Parties agree to amend the Lease in the following
particulars only:

1. PREMISES:

The Premises is hereby amended to include an additional 3326 square feet (the
"Expansion Space") making the total Premises 20,707 rentable square feet. The
Expansion space is depicted on Exhibit "A" attached hereto.

2. BASE RENTAL:

The Base Monthly rental shall be amended as follows:

 1/1/01 -- 3/31/01                $28,453.35 per month
 4/1/01 -- 12/31/01               $29,322.40 per month
 1/01/02 -- 3/31/02               $29,488.70 per month
 4/1/02 -- 12/31/02               $30,357.75 per month
 1/1/03 -- 3/31/03                $30,524.05 per month
 4/1/03 -- 12/31/03               $31,393.10 per month
 1/1/04 -- 3/31/04                $31,559.40 per month

<PAGE>   32

3. TENANT IMPROVEMENTS:

Lessor agrees to provide for the following tenant improvements at Lessor's sole
cost and expense.

A.   Demolish existing offices to create an open office for Lessee's modular
     furniture.
B.   Carpet and Paint the expansion space with Lessor's standard finishes.
C.   Repair ceiling and replace ceiling tiles where necessary.
D.   Make adjustments to HVAC system to balance area.
E.   Adjust lighting grid as appropriate for workspace design.

     However, should Lessee elect to terminate the lease effective 4/01/02,
Lessee shall pay to Lessor the sum of $32,221.00 as a cash lease termination fee
for "the Expansion Space" subject to the same terms and conditions as stated on
The Third Amendment to Lease. The Termination Fee stated on the Third Amendment
to Lease, for Lessee's premises consisting of 17,381 square feet shall remain in
full force and effect, and shall be paid in addition to the above stated amount.
Should Lessee elect to take the Premises in its "AS IS" condition, the
$32,221.00 termination fee stated above with respect to the "Expansion Space"
shall not be required with respect to the 4/01/02 Termination Option.

4. OPERATING EXPENSES:

Paragraph 7.2 of the Lease shall be amended to increase Lessee's prorata
percentage of operating expenses to 15.5 percent.

5. OPERATING HOURS/MISC.:

The cost for excess utility usage shall be amended to $1336.66 per month due to
the increase in the square footage which is calculated in accordance with BOMA
standards and the projects 100% load factor. As Lessee's hours of operation are
beyond Lessor's normal hours of operation, Lessee agrees to reimburse Lessor for
the additional costs incurred for any day porters as Lessor deems reasonably
necessary for stocking restrooms, grounds pick up and the like.

<PAGE>   33

6. LIMITATION OF AMENDMENT.

All other terms and conditions of the Lease shall remain unchanged and in full
force and effect.

LESSOR:                                      LESSEE:

North Parkcenter LLC, A                      AdvancePCS, fka Advance
Delaware limited liability                   Paradigm Inc., a
Company                                      Delaware corporation

BY: CT California Fund, LLC,
A California limited liability               By: KEN ZADOORIAN
Company                                         --------------------------------
Its: Managing Member                         Name: Ken Zadoorian
  By: CF Fund Manager LLC, a                      ------------------------------
       California limited liability          Title: SVP Human Resources
       Company                                     -----------------------------
      Its: Managing Member

By: /s/ JOHN G. VALENTINE
   ----------------------------------
   John G. Valentine

By: /s/ MARC S. BELLUOMINI
   ----------------------------------
   Marc S. Belluomini

Its: E.V.P.
    ---------------------------------<PAGE>   1
                                                                     EXHIBIT 4.1

                            STATEMENT OF DESIGNATION

                                       OF

                         5% CONVERTIBLE PREFERRED STOCK

                                       OF

                              EXCO RESOURCES, INC.

                        (PURSUANT TO SECTION 2.13 OF THE
                         TEXAS BUSINESS CORPORATION ACT)

         EXCO Resources, Inc., a Texas corporation (the "Company"), hereby
certifies that the following resolution was adopted by the Board of Directors of
the Company on May 21, 2001:

         RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Company by the provisions of the
Restated Articles of Incorporation of the Company (the "Articles of
Incorporation"), there is hereby created, out of the 10,000,000 shares of
Preferred Stock, par value $0.01 per share, of the Company authorized in Article
Fourth of the Articles of Incorporation (the "Preferred Stock"), a series of the
Preferred Stock consisting of 7,168,634 shares, which series shall have the
following powers, designations, preferences and other rights, and the following
qualifications, limitations and restrictions (in addition to the powers,
designations, preferences and other rights, and the qualifications, limitations
and restrictions, set forth in the Articles of Incorporation that are applicable
to the Preferred Stock):

         SECTION 1. Definitions. For purposes of this Statement of Designation,
the following definitions shall apply:

         "Arrearage" shall have the meaning ascribed to it in Section 4 herein.

         "Articles of Incorporation" shall mean the Company's Restated Articles
of Incorporation.

         "Board of Directors" shall mean the Board of Directors of the Company
or any authorized committee of the Board of Directors.

         "Business Day" shall mean any day other than a Saturday or a Sunday, a
day on which banking institutions in New York, New York are authorized or
required by law or executive order to remain closed, or a day on which the
corporate trust office of the Transfer Agent is closed for business.

         "Code" shall have the meaning ascribed to it in Section 11 herein.

                                     -1-

<PAGE>   2

         "Common Stock" shall mean the Common Stock, par value $0.02 per share,
of the Company.

         "Company" shall mean EXCO Resources, Inc., a Texas corporation.

         "Conversion Date" shall mean, in the case of a Mandatory Conversion,
the Mandatory Conversion Date, and, in the case of an Optional Conversion, the
Business Day on which certificates representing shares of Convertible Preferred
Stock are surrendered pursuant to Section 6(c) or the date on which an agreement
regarding lost, stolen or destroyed shares is accepted by the Company.

         "Conversion Rate" shall have the meaning ascribed to it in Section 6
herein.

         "Convertible Preferred Stock" shall mean the Company's 5% Convertible
Preferred Stock, par value $0.01 per share.

         "Dividend Payment Date" shall have the meaning ascribed to it in
Section 4 herein.

         "Dividend Rate" shall have the meaning ascribed to it in Section 4
herein.

         "Exchange Act" shall have the meaning ascribed to it in Section 18
herein.

         "Fair Market Value" of publicly traded shares of Common Stock as of a
particular date shall mean the average of the last reported sale prices as
reported on the Nasdaq National Market of the National Association of Securities
Dealers, Inc. Automated Quotation System, or such other exchange or trading
system on which the Common Stock is then traded, for 30 consecutive Business
Days commencing 45 days before such date. If the Common Stock is not listed or
admitted to trading or quoted on any national securities exchange or quotation
system, "Fair Market Value" shall be the average of the average of the closing
bid and asked prices of the Common Stock for such 30 consecutive Business Days
as furnished by two members of the National Association of Securities Dealers,
Inc. selected by the Company for that purpose. If the Common Stock is not traded
in a manner such that the quotations referred to above are available, "Fair
Market Value" shall be deemed to be the fair market value per share of the
Common Stock as determined by the Board of Directors in the good faith exercise
of its reasonable business judgment.

         "Issue Date" shall mean the date that shares of Convertible Preferred
Stock are first issued by the Company.

         "Junior Securities" shall mean any capital stock of the Company other
than the Convertible Preferred Stock, any Parity Securities or any Senior
Securities.

         "Mandatory Conversion" shall have the meaning ascribed to it in Section
6 herein.

                                       -2-

<PAGE>   3

         "Mandatory Conversion Date" shall have the meaning ascribed to it in
Section 6 herein.

         "Optional Conversion" shall have the meaning ascribed to it in Section
6 herein.

         "Parity Securities" shall mean any class or series of capital stock of
the Company authorized after the Issue Date which is entitled to receive assets
upon liquidation, dissolution or winding up of the affairs of the Company on a
parity with the Convertible Preferred Stock.

         "Person" shall mean an individual, partnership, corporation, limited
liability company, incorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof.

         "Preferred Stock" shall mean the Preferred Stock, par value $0.01 per
share, of the Company.

         "Registered Holders" shall have the meaning ascribed to it in Section 4
herein.

         "SEC" shall have the meaning ascribed to it in Section 18 herein.

         "Senior Securities" shall mean any class or series of capital stock of
the Company authorized after the Issue Date ranking senior to the Convertible
Preferred Stock in respect of the right to participate in any distribution upon
liquidation, dissolution or winding up of the affairs of the Company.

         "Stated Value" shall mean $21.00 per share.

         "Transfer Agent" shall mean Continental Stock Transfer & Trust Company
until any redesignation is made, if at all, pursuant to Section 17.

         SECTION 2. Designation and Amount. The shares of such series shall be
designated as "5% Convertible Preferred Stock" and the authorized number of
shares constituting such series shall be 7,168,634.

         SECTION 3. Ranking. For the purposes of determining whether any
dividend will be paid, and whether there will be any distribution of assets upon
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, the Convertible Preferred Stock will rank:

                  (a) junior to all of the Company's existing and future
         indebtedness and other obligations;

                  (b) senior to the Common Stock; and

                                       -3-

<PAGE>   4

                  (c) senior to any other classes of Common Stock or series of
         Preferred Stock that the Company may establish after the issuance of
         the Convertible Preferred Stock.

         SECTION 4. Dividends.

                  (a) General. The holders of shares of Convertible Preferred
         Stock shall be entitled to receive dividends at a rate of 5% of the
         Stated Value per annum (the "Dividend Rate"), which dividends shall be
         fully cumulative and paid quarterly in arrears in cash, in four equal
         installments on March 31, June 30, September 30 and December 31 of each
         year (commencing September 30, 2001), or if any such date is not a
         Business Day, the Business Day next following such day (each such date,
         regardless of whether any dividends have been paid or declared and set
         aside for payment on such date, the "Dividend Payment Date"), to
         holders of record (the "Registered Holders") as they appear on the
         stock record books of the Company on the fifteenth day prior to the
         relevant Dividend Payment Date. Dividends shall be paid only when, as
         and if declared by the Board of Directors out of funds at the time
         legally available for the payment of dividends. Dividends shall begin
         to accumulate on outstanding shares of Convertible Preferred Stock from
         the Issue Date and shall be deemed to accumulate from day to day
         whether or not declared until paid. Dividends shall accumulate on the
         basis of a 360-day year consisting of twelve 30-day months (four 90-day
         quarters) and the actual number of days elapsed in the period for which
         the dividend is payable.

                  (b) Accumulation. Dividends on the Convertible Preferred Stock
         shall be cumulative, and from and after any Dividend Payment Date on
         which any dividend that has accumulated or been deemed to have
         accumulated through such date has not been paid in full, additional
         dividends shall accumulate at 7% per annum on the amount of such unpaid
         dividends (the "Arrearage"). Such additional dividends in respect of
         any Arrearage shall be deemed to accumulate from day to day whether or
         not declared until the Arrearage is paid, shall be calculated as of
         such successive Dividend Payment Date, and shall constitute an
         additional Arrearage from and after any Dividend Payment Date to the
         extent not paid on such Dividend Payment Date. References in any
         Section herein to dividends that have accumulated or that have been
         deemed to have accumulated with respect to the Convertible Preferred
         Stock shall include the amount, if any, of any Arrearage together with
         any dividends accumulated or deemed to have accumulated on such
         Arrearage pursuant to this Section 4(b). Additional dividends in
         respect of any Arrearage may be declared and paid at any time, in whole
         or in part, without reference to any regular Dividend Payment Date, to
         Registered Holders as they appear on the stock record books of the
         Company on such record date as may be fixed by the Board of Directors
         (which record date shall be no less than 10 days prior to the
         corresponding payment date). Dividends in respect of any Arrearage
         shall be paid in cash.

                  (c) Method of Payment. Dividends paid on the shares of
         Convertible Preferred Stock in an amount less than the total amount of
         such dividends at the time

                                       -4-

<PAGE>   5

         accumulated and payable on all outstanding shares of Convertible
         Preferred Stock shall be allocated pro rata on a share-by-share basis
         among all such shares then outstanding. Dividends that are declared and
         paid in an amount less than the full amount of dividends accumulated on
         the Convertible Preferred Stock (and on any Arrearage) shall be applied
         first to the earliest dividend which has not theretofore been paid. All
         cash payments of dividends on the shares of Convertible Preferred Stock
         shall be made in such coin or currency of the United States of America
         as at the time of payment is legal tender for payment of public and
         private debts.

                  (d) Restrictions on Dividends. So long as any shares of the
         Convertible Preferred Stock are outstanding, the Board of Directors
         shall not declare, and the Company shall not pay or set apart for
         payment, any dividend or other payments on any Junior Securities or
         Parity Securities or make any payment on account of, or set apart for
         payment, money for a sinking or other similar fund for, the repurchase,
         redemption or other retirement of, any Junior Securities or Parity
         Securities or any warrants, rights or options exercisable for or
         convertible into any Junior Securities or Parity Securities (other than
         the repurchase, redemption or other retirement of debentures or other
         debt securities that are convertible or exchangeable into any Junior
         Securities or Parity Securities), or make any distribution in respect
         of the Junior Securities or Parity Securities, either directly or
         indirectly, whether in cash, obligations or shares of the Company or
         other property (other than distributions or dividends in Junior
         Securities or Parity Securities to the holders of the Junior Securities
         or Parity Securities, respectively, or any payment of cash to settle
         fractional shares that might otherwise be issuable upon Junior
         Securities or Parity Securities in respect of stock dividends, stock
         splits and the like), and shall not permit any corporation or other
         entity directly or indirectly controlled by the Company to purchase or
         redeem any Junior Securities or Parity Securities or any warrants,
         rights, calls or options exercisable for or convertible into any Junior
         Securities or Parity Securities (other than the repurchase, redemption
         or other retirement of debentures or other debt securities that are
         convertible or exchangeable into any Junior Securities or Parity
         Securities or the repurchase, redemption or other retirement of Junior
         Securities or Parity Securities in exchange for Junior Securities or
         Parity Securities, respectively) unless prior to or concurrently with
         such declaration, payment, setting apart for payment, repurchase,
         redemption or other retirement or distribution, as the case may be, all
         accumulated and unpaid dividends on shares of the Convertible Preferred
         Stock not paid on the dates provided for in paragraph (a) of Section 4
         hereof (including Arrearages and accumulated dividends thereon) shall
         have been paid, except that when dividends are not paid in full as
         aforesaid upon the shares of Convertible Preferred Stock, all dividends
         declared on the Convertible Preferred Stock and any series of Parity
         Securities shall be declared and paid pro rata so that the amount of
         dividends so declared and paid on Convertible Preferred Stock and such
         series of Parity Securities shall in all cases bear to each other the
         same ratio that accumulated dividends (including interest accrued on or
         additional dividends accumulated in respect of such accumulated
         dividends) on the shares of Convertible Preferred Stock and such Parity
         Securities bear to each other.

                                       -5-

<PAGE>   6

         SECTION 5. Liquidation Preference.

                  (a) General. In the event of any voluntary or involuntary
         liquidation, dissolution or winding up of the affairs of the Company,
         the holders of the shares of Convertible Preferred Stock then
         outstanding shall be entitled to receive out of the assets of the
         Company available for distribution to its shareholders, whether such
         assets are capital or surplus of any nature, an amount per share equal
         to the sum of (i) the unpaid dividends, if any, accumulated or deemed
         to have accumulated thereon to the date of final distribution to such
         holders, whether or not such dividends are declared; and (ii) the
         Stated Value thereof, before any payment shall be made or any assets
         distributed to the holders of any Junior Securities. After any such
         payment in full, the holders of Convertible Preferred Stock shall not,
         as such, be entitled to any further participation in any distribution
         of assets of the Company.

                  (b) Parity Securities. All the assets of the Company available
         for distribution to shareholders after the liquidation preferences of
         any Senior Securities shall be distributed ratably (in proportion to
         the full distributable amounts to which holders of Convertible
         Preferred Stock and Parity Securities, if any, are respectively
         entitled upon such dissolution, liquidation or winding up) among the
         holders of the then-outstanding shares of Convertible Preferred Stock
         and Parity Securities, if any, when such assets are not sufficient to
         pay in full the aggregate amounts payable thereon.

                  (c) Merger Not A Liquidation. Neither a consolidation nor a
         merger of the Company with or into any other Person or Persons, nor a
         sale, conveyance, lease, exchange or transfer of all or part of the
         Company's assets for cash, securities or other property to a Person or
         Persons shall be deemed to be a liquidation, dissolution or winding up
         of the Company for purposes of this Section 5, but the holders of
         shares of Convertible Preferred Stock shall nevertheless be entitled
         from and after any such consolidation, merger or sale, conveyance,
         lease, exchange or transfer of all or part of the Company's assets to
         the rights provided by this Section 5 following any such transaction.
         Notice of any voluntary or involuntary liquidation, dissolution or
         winding up of the Company, stating the payment date or dates when, and
         the place or places where, the amounts distributable to each
         shareholder of Convertible Preferred Stock in such circumstances shall
         be payable, shall be given by first-class mail, postage prepaid, mailed
         not less than 30 days prior to any payment date stated therein, to
         holders of record as they appear on the stock record books of the
         Company as of the date such notices are first mailed.

         SECTION 6. Conversion. The holders of the Convertible Preferred Stock
will have the following rights with respect to the conversion of the Convertible
Preferred Stock into shares of Common Stock:

                                       -6-

<PAGE>   7

                  (a) Optional Conversion. Subject to and in compliance with the
         provisions of this Section 6, each share of Convertible Preferred Stock
         may, at the option of the holder, be converted at any time into
         fully-paid and nonassessable shares of Common Stock (an "Optional
         Conversion") at the rate of one share of Common Stock for each share of
         Convertible Preferred Stock so converted, subject to adjustment as
         provided in this Section 6 (as so adjusted, the "Conversion Rate").

                  (b) Mandatory Conversion. Effective at 5:00 p.m., New York
         time, on June 30, 2003 (the "Mandatory Conversion Date"), each
         outstanding share of Convertible Preferred Stock shall be automatically
         converted into a number of shares of Common Stock determined by the
         Conversion Rate then in effect (a "Mandatory Conversion") without any
         further action by the holders of such shares and whether or not the
         certificates representing such shares are surrendered to the Company or
         its Transfer Agent; provided, however, that the Company will not be
         obligated to issue certificates evidencing the shares of Common Stock
         issuable upon such conversion unless and until the certificates
         evidencing such shares of Convertible Preferred Stock are either
         delivered to the Company or its Transfer Agent as provided in Section
         6(c) below or the holder notifies the Company or the Transfer Agent
         that such certificates have been lost, stolen or destroyed and executes
         an agreement satisfactory to the Company to indemnify the Company from
         any loss incurred by it in connection with such certificates.

                  (c) Mechanics of Conversion. Each holder of Convertible
         Preferred Stock who desires or is obligated to convert the same into
         shares of Common Stock pursuant to this Section 6 will surrender the
         certificate or certificates therefor, duly endorsed, at the principal
         office of the Company or any Transfer Agent for the Convertible
         Preferred Stock, or the holder will notify the Company or the Transfer
         Agent that such certificates have been lost, stolen or destroyed and
         execute an agreement satisfactory to the Company to indemnify the
         Company from any loss incurred by it in connection with such
         certificates, and will give written notice to the Company at such
         office that such holder elects or is obligated to convert the same.
         Such notice will state the number of shares of Convertible Preferred
         Stock being converted and will specify the name or names (with address
         or addresses) in which a certificate or certificates evidencing shares
         of Common Stock are to be issued. Thereupon, the Company will promptly
         issue and deliver at such office to such holder a certificate or
         certificates for the number of shares of Common Stock which equals the
         number of shares of Common Stock to which such holder is entitled under
         the then-effective Conversion Rate, together with a cash adjustment in
         respect of any fraction of a share of Common Stock as provided in
         Section 6(h). In the event that there shall have been surrendered a
         certificate or certificates representing Convertible Preferred Stock,
         only part of which are to be converted, the Company will promptly issue
         and deliver, in the manner set forth in the preceding sentence, a new
         certificate or certificates representing the number of shares of
         Convertible Preferred Stock which shall not have been converted. In
         addition, upon any such conversion the holder of the shares of
         Convertible Preferred Stock being converted who held such shares of
         Convertible Preferred Stock at 5:00 p.m., New York time, on any
         Dividend Record Date shall be paid all accrued but unpaid dividends on
         the shares of

                                      -7-
<PAGE>   8

         Convertible Preferred Stock being converted (whether or not authorized
         or declared), such amount of dividends being determined as of the last
         preceding Dividend Record Date prior to the Conversion Date, in cash on
         or before the fifth Business Day after the Conversion Date. Such
         conversion will be deemed to have been made at the close of business on
         the Conversion Date, and the Person entitled to receive the shares of
         Common Stock issuable upon such conversion will be treated for all
         purposes as the record holder of such shares of Common Stock on such
         date.

                  (d) Adjustment for Changes in Common Stock. If the Company at
         any time or from time to time after the Issue Date (i) pays a dividend
         in or makes a distribution in shares of Common Stock; (ii) subdivides
         its outstanding shares of Common Stock; or (iii) combines its
         outstanding shares of Common Stock into a smaller number of shares, the
         Conversion Rate in effect immediately prior thereto shall be adjusted
         so that the holder of a share of Convertible Preferred Stock thereafter
         surrendered for conversion shall be entitled to receive the number of
         shares of Common Stock which it would have owned or have been entitled
         to receive after the happening of any of the events described above had
         such share of Convertible Preferred Stock been converted on or
         immediately prior to the record date for such dividend or the effective
         date of such subdivision, combination or reclassification, as the case
         may be.

                  (e) Adjustments for Other Dividends and Distributions. If the
         Company at any time or from time to time after the Issue Date makes, or
         fixes a record date for the determination of holders of Common Stock
         entitled to receive, a dividend or other distribution payable in
         securities of the Company other than shares of Common Stock, in each
         such event provision will be made so that the holders of the
         Convertible Preferred Stock will receive upon conversion thereof, in
         addition to the number of shares of Common Stock receivable thereupon,
         the amount of the other securities of the Company which they would have
         received had their Convertible Preferred Stock been converted into
         Common Stock on the date of such event and had they thereafter, during
         the period from the date of such event to and including the Conversion
         Date, retained such securities receivable by them as aforesaid during
         such period, subject to all other adjustments called for during such
         period under this Section 6(e) with respect to the rights of the
         holders of the Convertible Preferred Stock or with respect to such
         other securities by their terms.

                  (f) General. An adjustment made pursuant to this Section 6
         shall become effective immediately after the record date (in the case
         of a dividend or distribution in shares of capital stock) and shall
         become effective immediately after the effective date (in the case of a
         subdivision, combination or reclassification). No adjustment in
         accordance with this Section 6 shall be required unless such adjustment
         would require an increase or decrease in the Conversion Rate of at
         least 1.0%; provided, however, that any adjustments which by reason of
         this clause are not required to be made shall be carried

                                      -8-
<PAGE>   9

         forward and taken into account in any subsequent adjustment. Any
         calculations under this Section 6 shall be made to the nearest
         one-thousandth of a share.

                  (g) Notices of Record Date. Upon (1) any taking by the Company
         of a record of the holders of any class of securities for the purpose
         of determining the holders thereof who are entitled to receive any
         dividend or other distribution (other than in connection with the
         declaration and payment or regular quarterly dividends in cash on the
         Convertible Preferred Stock), or (2) any capital reorganization of the
         Company, any reclassification or recapitalization of the capital stock
         of the Company, any merger or consolidation of the Company with or into
         any other corporation, or any voluntary or involuntary dissolution,
         liquidation or winding up of the Company, the Company will cause to be
         mailed to each holder of Convertible Preferred Stock, at such holder's
         address as it appears on the stock record books of the Company, at
         least twenty (20) days prior to the record date specified therein a
         notice specifying (1) the date on which any such record is to be taken
         for the purpose of such dividend or distribution and a description of
         such dividend or distribution, (2) the date on which any such
         reorganization, reclassification, recapitalization, merger,
         consolidation, dissolution, liquidation or winding up is expected to
         become effective, and (3) the date, if any, that is to be fixed as to
         when the holders of record of Common Stock (or other securities) will
         be entitled to exchange their shares of Common Stock (or other
         securities) for securities or other property deliverable upon such
         reorganization, reclassification, recapitalization, merger,
         consolidation, dissolution, liquidation or winding up (but no failure
         to mail such notice or any defect therein or in the mailing thereof
         shall affect the validity of the corporate action required to be
         specified in such notice).

                  (h) Fractional Shares. No fractional shares of Common Stock
         will be issued upon conversion of Convertible Preferred Stock. All
         shares of Common Stock (including fractions thereof) issuable upon
         conversion of more than one share of Convertible Preferred Stock by a
         holder thereof will be aggregated for purposes of determining whether
         the conversion would result in the issuance of any fractional shares.
         If, after the aforementioned aggregation, the conversion would result
         in the issuance of any fractional share, the Company will, in lieu of
         issuing any fractional share, pay cash equal to the product of such
         fraction multiplied by the Common Stock's Fair Market Value on the date
         of conversion.

                  (i) Reservation of Stock Issuable Upon Conversion. The Company
         will at all times reserve and keep available out of its authorized but
         unissued shares of Common Stock, solely for the purpose of effecting
         the conversion of the shares of the Convertible Preferred Stock, such
         number of its shares of Common Stock as will from time to time be
         sufficient to effect the conversion of all outstanding shares of
         Convertible Preferred Stock. If at any time the number of authorized
         but unissued shares of Common Stock is not sufficient to effect the
         conversion of all then outstanding shares of Convertible Preferred
         Stock, the Company will take such corporate action as may, in the
         opinion of its

                                      -9-

<PAGE>   10

         counsel, be necessary to increase its authorized but unissued shares of
         Common Stock to such number of shares as will be sufficient for such
         purpose.

                  (j) Payment of Taxes. The Company will pay all taxes (other
         than taxes based upon income) and other governmental charges that may
         be imposed with respect to the issuance or delivery of shares of Common
         Stock upon conversion of shares of Convertible Preferred Stock. The
         Company shall not, however, be required to pay any tax or other charge
         imposed in connection with any transfer involved in the issuance or
         delivery of shares of Common Stock in a name other than that in which
         the shares of Convertible Preferred Stock so converted were registered
         and shall not be required to make such issuance or delivery unless and
         until the person entitled to such issuance or delivery has paid to the
         Company the amount of any such tax or has established, to the
         satisfaction of the Company, that such tax has been paid or is not
         payable.

         SECTION 7. Voting Rights.

                  (a) So long as any shares of the Convertible Preferred Stock
         are outstanding, (i) each share of Convertible Preferred Stock shall
         entitle the holder thereof to vote on all matters voted on by holders
         of Common Stock; and (ii) the shares of Convertible Preferred Stock
         shall vote together with shares of Common Stock as a single class. Each
         share of Convertible Preferred Stock will entitle the holder to the
         number of votes per share equal to the full number of shares of Common
         Stock into which each share of Convertible Preferred Stock is
         convertible on the record date for such vote.

                  (b) Without the affirmative vote of the holders of at least a
         majority of the then-issued and outstanding shares of Convertible
         Preferred Stock, the Company shall not authorize, create or issue, or
         reclassify any authorized stock of the Company into, or increase the
         authorized amount of, (i) any Senior Securities or Parity Securities or
         (ii) any class or series of capital stock or any security convertible
         into or exercisable or exchangeable for any class or series of capital
         stock, redeemable mandatorily or redeemable at the option of the
         holders thereof. Such vote shall be taken in accordance with the
         procedures specified in Section 7(d) below.

                  (c) Without the affirmative vote of the holders of at least a
         majority of the then-issued and outstanding shares of Convertible
         Preferred Stock, the Company shall not (i) increase or decrease the
         aggregate number of authorized shares of such class or series; (ii)
         increase or decrease the par value of the shares of such class,
         including changing shares having a par value into shares without par
         value, or shares without par value into shares with par value; (iii)
         effect an exchange, reclassification, or cancellation of all or part of
         the shares of such class or series; (iv) effect an exchange, or create
         a right of exchange, of all or any part of the shares of another class
         into the shares of such class or series; (v) change the designations,
         preferences, limitations, or relative rights of the shares of such
         class or series, (vi) change the shares of such class or series,
         whether with or

                                      -10-
<PAGE>   11

         without par value, into the same or a different number of shares,
         either with or without par value, of the same class or series or
         another class or series; (vii) create a new class or series of shares
         having rights and preferences equal, prior, or superior to the shares
         of such class or series, or increase the rights and preferences of any
         class or series having rights and preferences equal, prior, or superior
         to the shares of such class or series, or increase the rights and
         preferences of any class or series having rights or preferences later
         or inferior to the shares of such class or series in such a manner as
         to become equal, prior, or superior to the shares of such class or
         series; (viii) divide the shares of such class into series and fix and
         determine the designation of such series and the variations in the
         relative rights and preferences between the shares of such series; or
         (ix) cancel or otherwise affect dividends on the shares of such class
         or series which had accrued but had not been declared. Such vote shall
         be taken in accordance with the procedures specified in Section 7(d)
         below.

                  (d) The foregoing rights of holders of Convertible Preferred
         Stock to take any actions as provided in this Section 7 may be
         exercised at any annual meeting of shareholders or at a special meeting
         of shareholders held for such purpose as hereinafter provided or at any
         adjournment thereof.

                  (e) The Company shall not enter into any agreement or issue
         any security that prohibits, conflicts or is inconsistent with, or
         would be breached by, the Company's performance of its obligations
         hereunder.

         SECTION 8. Exclusion of Other Rights. Except as may otherwise be
required by law, the shares of Convertible Preferred Stock shall not have any
preferences or relative, participating, option or other special rights, other
than those specifically set forth in this Statement of Designation. The shares
of Convertible Preferred Stock shall have no preemptive or redemption rights
pursuant to this Statement of Designation.

         SECTION 9. Reissuance. Shares of the Convertible Preferred Stock
acquired by the Company by conversion or otherwise will be deemed authorized but
unissued shares of preferred stock that is undesignated as to series and may be
redesignated and reissued as part of any series of preferred stock, but not as
the Convertible Preferred Stock.

         SECTION 10. Reorganization, Reclassification, Merger, Consolidation, or
Disposition of Assets. In the event the Company is a party to:

                  (a) any reclassification or change of outstanding shares of
         Common Stock issuable upon conversion of shares of Convertible
         Preferred Stock (other than a change in par value, or from par value to
         no par value, or from no par value to par value, or as a result of a
         subdivision or combination of the Common Stock),

                                      -11-
<PAGE>   12

                  (b) any consolidation or merger other than a merger in which
         the Company is the continuing corporation and which does not result in
         any reclassification, conversion, exchange or cancellation of, or
         change (other than a change in name, or par value, or from par value to
         no par value, or from no par value to par value, or as a result of a
         subdivision or combination of the Common Stock) in, outstanding shares
         of Common Stock or

                  (c) any sale or conveyance of all or substantially all of the
         property or business of the Company as an entirety (including, in the
         case of any of the foregoing events, any statutory exchange of
         securities with another corporation), pursuant to which the Common
         Stock is converted into the right to receive other securities, cash or
         other property,

then lawful provisions shall be made as part of the terms of such transaction
whereby each share of Convertible Preferred Stock then outstanding shall be
convertible into the kind and amount of shares of stock and other securities,
cash and other property receivable upon such reclassification, change,
consolidation, merger, sale, conveyance or statutory exchange by a holder of the
number of shares of Common Stock into which such share of Convertible Preferred
Stock was convertible immediately prior to such reclassification, change,
consolidation, merger, sale, conveyance or statutory exchange. In any such
event, effective provision shall be made (and it shall be a condition precedent
to any such reclassification, change, consolidation, merger, sale, conveyance or
statutory exchange that effective provision be made), in the articles or
certificate of incorporation or other constituent document of the resulting or
surviving corporation or other corporation issuing or delivering such shares of
stock, other securities, cash or other property or otherwise, so that the
provisions set forth herein for the protection of the conversion rights of the
Convertible Preferred Stock shall thereafter be applicable, as nearly as
reasonably may be, to any such other shares of stock and other securities, cash
or other property deliverable upon conversion of Convertible Preferred Stock
remaining outstanding or other convertible stock or securities received by the
holders of Convertible Preferred Stock in place thereof, and any such resulting
or surviving corporation or other corporation issuing or delivering such shares
of stock, other securities, cash or other property shall expressly assume the
obligation to deliver, upon the exercise of the conversion privilege, such
shares of stock, other securities, cash or other property as the holders of
shares of Convertible Preferred Stock remaining outstanding, or other
convertible stock or securities received by the holders of shares of Convertible
Preferred Stock in place thereof, shall be entitled to receive, pursuant to the
provisions hereof, and to make provision for the protection of the conversion
right as above provided. In case shares of stock, other securities, cash or
other property are deliverable upon conversion as aforesaid, then all references
to shares of Common Stock in this Section 10 shall be deemed to apply, so far as
provided and as nearly as is reasonable, to any such shares, other securities,
cash or other property. The provisions of this Section 10 shall similarly apply
to successive reclassifications, changes, consolidations, mergers, sales,
conveyances or statutory exchanges.

                                      -12-
<PAGE>   13

         SECTION 11. Dividend Received Deduction. The Company shall treat
dividends on the Convertible Preferred Stock as dividends for federal income tax
purposes, to the extent of the Company's current and accumulated earnings and
profits (as determined for federal income tax purposes). In addition, the
Company covenants not to take any action voluntarily that could reasonably be
expected to cause such dividends on the Convertible Preferred Stock to fail to
be eligible for the dividends received deduction in the case of a corporate
holder pursuant to Section 243 of the Internal Revenue Code of 1986, as amended
from time to time (the "Code").

         SECTION 12. Prohibition on Action by Written Consent. Any action by the
holders of shares of Convertible Preferred Stock shall be taken at any annual or
special meeting of such holders of Convertible Preferred Stock of the Company
and may not be taken without a meeting by written consent.

         SECTION 13. Identical Rights. Each share of the Convertible Preferred
Stock shall have the same relative rights and preferences as, and shall be
identical in all respects with, all other shares of the Convertible Preferred
Stock.

         SECTION 14. Amendments. Any provision of these terms of the Convertible
Preferred Stock may be amended, modified or waived if and only if holders of a
majority of the then-issued and outstanding shares of Convertible Preferred
Stock have consented by an affirmative vote to such amendment, modification or
waiver of any such provision of this Statement of Designation and upon obtaining
of such affirmative vote, such amendment, modification or waiver shall be
binding on all holders of the Convertible Preferred Stock.

         SECTION 15. Severability of Provisions. Whenever possible, each
provision hereof shall be interpreted in a manner as to be effective and valid
under applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid under
applicable law.

         SECTION 16. Certificates. So long as any shares of the Convertible
Preferred Stock are outstanding, there shall be set forth on the face or back of
each stock certificate issued by the Company the following legend:

                  "The Articles of Incorporation of the Corporation on file in
         the office of the Secretary of State of Texas set forth a full
         statement of (1) (A) all of the designations, preferences, limitations
         and relative rights of the shares of each class of shares authorized to
         be issued and (B) the authority of the Board of Directors to fix and
         determine the relative rights and preferences of the shares of
         Preferred Stock that the

                                      -13-
<PAGE>   14

         Corporation is authorized to issue in series and, if and to the extent
         that they have been fixed and determined, the relative rights and
         preferences of any such series and (2) a full statement of denial or
         limitation of the preemptive rights of Shareholders. The Statement of
         Designation of the 5% Convertible Preferred Stock on file in the office
         of the Secretary of State of Texas set forth a full statement of (1)
         (A) all of the designations, preferences, limitations and relative
         rights of the shares of each class of shares authorized to be issued
         and (B) the Preferred Stock that the Corporation is authorized to issue
         in series and, if and to the extent that they have been fixed and
         determined, the relative rights and preferences of any such series and
         (2) a full statement of the denial or limitation of the preemptive
         rights of Shareholders. The Corporation will furnish a copy of such
         statement(s) to the record holder of this certificate without charge on
         written request to the Corporation at its principal place of business
         or registered office."

         SECTION 17. Transfer Agent. The Company has initially appointed the
Transfer Agent to act as the dividend paying agent and conversion agent for the
Convertible Preferred Stock. At any time, the Company may terminate the
appointment of any Transfer Agent and appoint additional or other paying agents
and conversion agents, provided that until the Convertible Preferred Stock has
been delivered to the Company for cancellation, or moneys sufficient to pay the
Arrearage, if any, on the Convertible Preferred Stock have been made available
for payment and either paid or returned to the Company as provided in this
Statement of Designation, the Company will maintain an office or agency in New
York, New York for surrender of Convertible Preferred Stock for conversion. All
moneys deposited with any paying agent or held by the Company in trust for the
payment of any dividends on any shares of the Convertible Preferred Stock that
remain unclaimed at the end of two years after this payment has become due and
payable will be repaid to the Company or released from such trust to the
Company, and the holder of those shares of the Convertible Preferred Stock will
only be entitled to look to the Company for payment.

         SECTION 18. Reports. So long as any shares of the Convertible Preferred
Stock are outstanding, the Company will furnish to holders of the then
outstanding shares of Convertible Preferred Stock:

                  (a) all quarterly and annual financial information that would
         be required to be contained in a filing by the Company with the
         Securities and Exchange Commission (the "SEC") on Forms 10-Q and 10-K
         under the Securities Exchange Act of 1934 (the "Exchange Act"), and,
         with respect to the annual information only, a report by the Company's
         certified independent accountants, and

                  (b) all information that would be required to be contained in
         a current report filed by the Company with the SEC on Form 8-K under
         the Exchange Act.

                                      -14-
<PAGE>   15

In the event the Company files any of these reports with the SEC, the Company
will only be required to furnish the reports to holders who request a copy of
such reports. Unless prohibited by the SEC, the Company will make the reports
publicly available.

         SECTION 19. Notices. Any notice referred to herein shall be in writing
and, unless first-class mail shall be specifically permitted for such notices
under the terms hereof, shall be delivered personally, by telecopier, or by
registered or certified mail, postage prepaid, and shall be deemed to have been
given upon personal delivery thereof, upon transmittal of such notice by
telecopy (with confirmation of receipt by telecopy or telex) or seventy-two (72)
hours after transmittal by registered or certified mail, postage prepaid,
addressed as follows:

                  (a) if to the Company:

                        EXCO Resources, Inc.
                        Attention: General Counsel
                        6500 Greenville Avenue,
                        Suite 600, LB 17
                        Dallas, Texas 75206

                  (b) if to a holder of the Convertible Preferred Stock, to such
         holder at the address of such holder as listed in the stock record
         books of the Company (which may include the records of any Transfer
         Agent for the Convertible Preferred Stock); or

                  (c) to such other address as the Company or such holder, as
         the case may be, shall have designated by notice given in accordance
         with the foregoing.

         SECTION 20. Headings of Subdivisions. The headings of the various
subdivisions hereof are for convenience of reference only and shall not affect
the interpretation of any of the provisions hereof.

                  [Remainder of Page Intentionally Left Blank]

                                      -15-
<PAGE>   16

         IN WITNESS WHEREOF, the Company has caused this Statement of
Designation to be signed by J. Douglas Ramsey, its Vice President on this 21(st)
day of June of 2001.

                                      EXCO RESOURCES, INC.

                                      By: /s/ J. DOUGLAS RAMSEY
                                          --------------------------------------
                                          J. Douglas Ramsey
                                          Vice President

                                      -16-

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