Document:

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                                     LEASE

                                 BY AND BETWEEN

                              ROTUNDA PARTNERS II,
                     A CALIFORNIA LIMITED LIABILITY COMPANY

                                   AS LANDLORD

                                       AND

                        SCIENTIFIC LEARNING CORPORATION,
                             A DELAWARE CORPORATION

                                    AS TENANT

                                 MARCH 20, 2000

                              1501 BROADWAY AVENUE

                                   OAKLAND, CA

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                                TABLE OF CONTENTS

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ARTICLE 1             REFERENCE...................................................................................1

         1.1      References......................................................................................1

ARTICLE 2             LEASED PREMISES, TERM AND POSSESSION........................................................4

         2.1      Demise Of Leased Premises.......................................................................4

         2.2      Parking; Right To Use Outside Areas.............................................................4

         2.3      Commencement Date And Lease Term................................................................4

         2.4      Delivery Of Possession..........................................................................4

         2.5      Performance Of Improvements; Acceptance Of Possession...........................................5

         2.6      Surrender Of Possession.........................................................................5

ARTICLE 3             RENT, LATE CHARGES AND SECURITY DEPOSITS....................................................5

         3.1      Base Monthly Rent...............................................................................5

         3.2      Additional Rent.................................................................................5

         3.3      Adjustments.....................................................................................6

         3.4      Late Charge, And Interest On Rent In Default....................................................7

         3.5      Payment Of Rent.................................................................................7

         3.6      Prepaid Rent....................................................................................7

         3.7      Security Deposit................................................................................8

ARTICLE 4             USE OF LEASED PREMISES AND OUTSIDE AREA.....................................................8

         4.1      Permitted Use...................................................................................8

         4.2      General Limitations On Use......................................................................8

         4.3      Trash Disposal..................................................................................9

         4.4      Signs...........................................................................................9

         4.5      Compliance With Laws............................................................................9

         4.6      Compliance With Insurance Requirements..........................................................9

         4.7      Landlord's Right To Enter.......................................................................9

         4.8      Environmental Protection.......................................................................10

         4.9      Reservations...................................................................................11

ARTICLE 5             REPAIRS, MAINTENANCE, SERVICES AND UTILITIES...............................................11

         5.1      Repair And Maintenance.........................................................................11

                  (a)      Tenant's Obligations..................................................................11

                  (b)      Landlord's Obligation.................................................................11
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                                      i.

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                                TABLE OF CONTENTS
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         5.2      Utilities......................................................................................11

         5.3      Security.......................................................................................11

         5.4      Utilities......................................................................................11

         5.5      Energy And Resource Consumption................................................................11

         5.6      Limitation Of Landlord's Liability.............................................................12

ARTICLE 6             ALTERATIONS AND IMPROVEMENTS...............................................................12

         6.1      By Tenant......................................................................................12

         6.2      Ownership Of Improvements......................................................................13

         6.3      Alterations Required By Law....................................................................13

         6.4      Liens..........................................................................................13

ARTICLE 7             ASSIGNMENT AND SUBLETTING BY TENANT........................................................13

         7.1      By Tenant......................................................................................13

         7.2      Merger, Reorganization, or Sale of Assets......................................................14

         7.3      Landlord's Election............................................................................15

         7.4      Assignment Consideration And Excess Rentals Defined............................................15

         7.5      Payments.......................................................................................15

         7.6      Effect Of Landlord's Consent...................................................................15

ARTICLE 8             LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY...........................................16

         8.1      Limitation On Landlord's Liability And Release.................................................16

         8.2      Tenant's Indemnification Of Landlord...........................................................16

ARTICLE 9             INSURANCE..................................................................................17

         9.1      Tenant's Insurance.............................................................................17

         9.2      Landlord's Insurance...........................................................................18

         9.3      Mutual Waiver Of Subrogation...................................................................18

ARTICLE 10            DAMAGE TO LEASED PREMISES..................................................................18

         10.1     Landlord's Duty To Restore.....................................................................18

         10.2     Insurance Proceeds.............................................................................19

         10.3     Landlord's Right To Terminate..................................................................19

         10.4     Tenant's Right To Terminate....................................................................19

         10.5     Tenant's Waiver................................................................................20

         10.6     Abatement Of Rent..............................................................................20
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                                      ii.

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                                TABLE OF CONTENTS
                                   (CONTINUED)

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ARTICLE 11            CONDEMNATION...............................................................................20

         11.1     Tenant's Right To Terminate....................................................................20

         11.2     Landlord's Right To Terminate..................................................................20

         11.3     Restoration....................................................................................20

         11.4     Temporary Taking...............................................................................20

         11.5     Division Of Condemnation Award.................................................................20

         11.6     Abatement Of Rent..............................................................................21

         11.7     Taking Defined.................................................................................21

ARTICLE 12            DEFAULT AND REMEDIES.......................................................................21

         12.1     Events Of Tenant's Default.....................................................................21

         12.2     Landlord's Remedies............................................................................22

         12.3     Landlord's Default And Tenant's Remedies.......................................................23

         12.4     Limitation Of Tenant's Recourse................................................................23

         12.5     Tenant's Waiver................................................................................23

ARTICLE 13            GENERAL PROVISIONS.........................................................................23

         13.1     Taxes On Tenant's Property.....................................................................23

         13.2     Holding Over...................................................................................24

         13.3     Subordination To Mortgages.....................................................................24

         13.4     Tenant's Attornment Upon Foreclosure...........................................................25

         13.5     Mortgagee Protection...........................................................................25

         13.6     Estoppel Certificate...........................................................................25

         13.7     Tenant's Financial Information.................................................................25

         13.8     Transfer By Landlord...........................................................................25

         13.9     Force Majeure..................................................................................25

         13.10    Notices........................................................................................25

         13.11    Attorneys' Fees................................................................................26

         13.12    Definitions....................................................................................26

                  (a)      Real Property Taxes...................................................................27

                  (b)      Landlord's Insurance Costs............................................................27

                  (c)      Property Maintenance Costs............................................................27

                  (d)      Property Operating Expenses...........................................................28
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                                     iii.

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                                TABLE OF CONTENTS
                                   (CONTINUED)

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                  (e)      Law...................................................................................28

                  (f)      Lender................................................................................28

                  (g)      Private Restrictions..................................................................28

                  (h)      Rent..................................................................................28

         13.13    General Waivers................................................................................28

         13.14    Miscellaneous..................................................................................28

ARTICLE 14            CORPORATE AUTHORITY BROKERS AND ENTIRE AGREEMENT...........................................29

         14.1     Corporate Authority............................................................................29

         14.2     Brokerage Commissions..........................................................................29

         14.3     Entire Agreement...............................................................................29

         14.4     Landlord's Representations.....................................................................29

ARTICLE 15            OPTIONS TO EXTEND..........................................................................30

         15.1     Options........................................................................................30

         15.2     Fair Market Rent...............................................................................30

         15.3     Determination..................................................................................30

         15.4     Arbitration....................................................................................30

         15.5     Improvement Allowance..........................................................................31

ARTICLE 16            EXPANSION..................................................................................31

         16.1     Expansion Space................................................................................31

         16.2     Option Consideration...........................................................................32

         16.3     Base Monthly Rent for Expansion Space..........................................................32

         16.4     Tenant Improvement Allowance for Expansion Space...............................................32

         16.5     Corridor for Expansion Space...................................................................33

ARTICLE 17            RIGHT OF FIRST REFUSAL.....................................................................33

17.1                  RIGHT OF FIRST REFUSAL.....................................................................33

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Exhibit A         SITE PLAN
Exhibit B         WORK LETTER
Exhibit C         COMMENCEMENT DATE CERTIFICATE
Exhibit D         FORM OF ESTOPPEL CERTIFICATE

                                     iv.

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                                      LEASE

         THIS LEASE, dated March 20, 2000 for reference purposes only, is
made by and between ROTUNDA PARTNERS II, a California limited liability
company ("Landlord") and SCIENTIFIC LEARNING CORPORATION, a Delaware
corporation ("Tenant"), to be effective and binding upon the parties as of
the date the last of the designated signatories to this Lease shall have
executed this Lease (the "Effective Date of this Lease").

                                    ARTICLE 1

                                    REFERENCE

1.1  REFERENCES. All references in this Lease (subject to any further
clarifications contained in this Lease) to the following terms shall have the
following meaning or refer to the respective address, person, date, time
period, amount, percentage, calendar year or fiscal year as below set forth:

         Tenant's Address for Notice:         PRIOR TO THE COMMENCEMENT DATE:

                                              Scientific Learning Corporation
                                              1995 University Avenue, Suite
                                              400 Berkeley, CA 94704

                                              AFTER THE COMMENCEMENT DATE:

                                              At the Leased Premises.

         Tenant's Representative:             General Counsel

         Landlord's Address for Notices:      600 Grand Avenue, Suite 404
                                              Oakland, CA 94610

                                              With a copy to:

                                              Rod Divelbiss, Esq. 100 Spear
                                              Street, Suite 1115 San
                                              Francisco, CA 94105

         Landlord's Representative:           Mark Moss
         Email address:                       piedmark@aol.com
         Phone Number:                        (510) 268-8500
         Fax Number:                          (510) 834-5380

         Intended Delivery Date:              January  1, 2001

         Intended Commencement Date:          January 1, 2001

         Lease Term:                          Eight (8) years

         Lease Expiration Date:               Eight (8) Years from the
                                              Commencement Date, unless
                                              earlier terminated in
                                              accordance with the terms of
                                              this Lease, or extended by
                                              Tenant pursuant to Article 15.

                                      1.

<PAGE>

         Options to Renew:                    Two (2) option(s) to renew, each
                                              for a term of five (5) years at
                                              95% of Fair Market Value.

         Partial First Month's Prepaid Rent:  $50,000, with credit given for
                                              $25,000 paid to Landlord by
                                              Tenant prior to execution of
                                              this Lease (to be applied to the
                                              first month in which Base
                                              Monthly Rent is due)

         Tenant's Security Deposit:           $400,000, subject to reduction
                                              in accordance with Sec. 3.7

         Late Charge Amount:                  Three Percent (3%) of the
                                              Delinquent Amount

         Tenant's Required Liability
         Coverage:                            $2,000,000 Combined Single Limit

         Tenant's Broker:                           NONE

         Landlord's Broker:                         NONE

         Property:                            That certain real property
                                              situated in the City of Oakland,
                                              State of California, improved
                                              with one building, which real
                                              property is shown on the Site
                                              Plan attached hereto as Exhibit
                                              "A" and is commonly known as or
                                              otherwise described as the
                                              Rotunda Building.

         Building:                            That certain building on the
                                              Property in which the Leased
                                              Premises are located commonly
                                              known as 1501 Broadway Ave.,
                                              Oakland, CA (the "Building"),
                                              which Building is shown outlined
                                              on Exhibit "A" hereto. The
                                              Building contains 242,031 square
                                              feet.

         Outside                              Areas: The "Outside Areas" shall
                                              mean all areas which are located
                                              outside of and contiguous to the
                                              Building, as shown the Site Plan
                                              attached as Exhibit A, such as
                                              pedestrian walkways, parking
                                              areas, landscaped area, open
                                              areas and enclosed trash
                                              disposal areas.

         Parking Area:                        The "Parking Area" shall mean
                                              all areas marked as such on the
                                              Site Plan attached as Exhibit A.

         Plans:                               The "Plans" shall mean the
                                              drawings prepared by
                                              Architectural Dimensions
                                              attached as Schedule 1 to the
                                              Work Letter bearing the
                                              following identifying
                                              information: Job No. CC020,
                                              Sheet X-6 dated March 13, 2000,
                                              Sheet X-7 dated March 13, 2000,
                                              Sheet X-8 dated March 13, 2000,
                                              Sheet X-9 dated March 13, 2000,
                                              and Sheet X-11 dated
                                              March 16, 2000.

         Leased Premises:                     The "Leased Premises" shall mean
                                              all the interior space on the
                                              fifth (5th) and sixth (6th)
                                              floors and the seventh (7th)
                                              floor penthouse of the Building,
                                              to consist of approximately
                                              69,483 rentable square feet and
                                              shown on the Plans attached as
                                              Schedule 1 to the Work Letter,
                                              as it may be changed by the
                                              addition of all or any portion
                                              of the Expansion Space, together
                                              with the exclusive right to use
                                              the areas marked "roof" on
                                              Sheets X-8 and X-11 of the
                                              Plans.

                                      2.

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         Original Build-out Space             All the interior space on the
                                              fifth (5th) and sixth (6th)
                                              floors and the seventh (7th)
                                              floor penthouse of the
                                              Building, to consist of
                                              approximately 69,483 rentable
                                              square feet and shown on the
                                              Plans attached as Schedule 1 to
                                              the Work Letter.

         Expansion Space                      The 12,947 rentable square
                                              foot space delineated on Sheet
                                              X-9 of the Plans as "Future
                                              Tenant", as more fully described
                                              in Article 16.

         Tenant's Parking Spaces              100 Spaces

         Tenant's Percentage Share:           The term "Tenant's Percentage
                                              Share" shall mean the percentage
                                              obtained by dividing the
                                              rentable square footage of the
                                              Leased Premises at the time of
                                              calculation by the rentable
                                              square footage of the Building.
                                              Such percentage is currently
                                              estimated to be 34.06%. In the
                                              event that the rentable square
                                              footage of the Leased Premises
                                              is changed, Tenant's Percentage
                                              Share shall be recalculated to
                                              equal the percentage described
                                              in the first sentence of this
                                              paragraph, so that the aggregate
                                              Tenant's Expense Share of all
                                              tenants of the Building shall
                                              equal 100%.

         Base Year:                           Calendar Year 2001

         Base Monthly Rent:                   The term "Base Monthly Rent for
                                              the Original Build-out Space"
                                              shall mean the following:

                                              PERIOD          MONTHLY AMOUNT
                                              ------          --------------
                                              Months 1-12     $2.33 per
                                                              rentable sq. ft.

                                              Commencing with Month 13 of the
                                              Lease Term and at the end of
                                              each 12 month period thereafter
                                              (until the Lease Expiration
                                              Date), Base Monthly Rent for the
                                              Original Build-out Space shall
                                              be increased at a rate of 3% per
                                              annum compounded annually.

                                              The term "Base Monthly Rent for
                                              the Designated Portion of the
                                              Expansion Space" shall mean
                                              $2.17 per rentable square foot,
                                              subject to a 3% annual increase,
                                              compounded annually as described
                                              in Section 16.3.

                                              The term "Base Monthly Rent"
                                              shall be deemed to refer
                                              collectively to the Base Monthly
                                              Rent for the Original Build-out
                                              Space and the Base Monthly Rent
                                              for the Designated Portion of
                                              the Expansion Space.

         Permitted Use:                       General Office, research and
                                              development, marketing, sales
                                              and other related lawful uses.

         Exhibits:                            The term "Exhibits" shall mean
                                              the Exhibits of this Lease which
                                              are described as follows:

                                              Exhibit "A" - Site Plan showing
                                              the Property, the Outside Areas,
                                              the Parking Area and delineating
                                              the Building in which the Leased
                                              Premises are to be located.

                                      3.

<PAGE>

                                              Exhibit "B" - Work Letter

                                              Exhibit "C" - Commencement Date
                                                            Certificate

                                              Exhibit "D" - Form of Tenant
                                                            Estoppel Certificate

                                    ARTICLE 2

                      LEASED PREMISES, TERM AND POSSESSION

2.1  DEMISE OF LEASED PREMISES. Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord, for the Lease Term and upon the terms and
subject to the conditions of this Lease, that certain interior space
described in Article 1 as the Leased Premises, reserving and excepting to
Landlord the right to sixty-five percent (65%) of all assignment
consideration and excess rentals as provided in Article 7 below. Tenant's
lease of the Leased Premises, together with the appurtenant right to use the
Outside Areas as described in Paragraph 2.2 below, shall be conditioned upon
and be subject to the continuing compliance by Tenant with (i) all the terms
and conditions of this Lease, and (ii) all Laws governing the use of the
Leased Premises and the Property.

2.2  PARKING; RIGHT TO USE OUTSIDE AREAS. As an appurtenant right to Tenant's
right to the use and occupancy of the Leased Premises, Tenant shall have the
right to use the Outside Areas in conjunction with its use of the Leased
Premises solely for the purposes for which they were designated and intended
and for no other purposes whatsoever. Tenant's right to so use the Outside
Areas shall be subject to the limitations on such use as set forth in Article
1 and shall terminate concurrently with any termination of this Lease. Tenant
shall have the nonexclusive right to use 100 parking spaces located in the
Parking Area, at the prevailing rate which is currently (and shall be for the
first twelve months of the term) not more than of $100 per month for each
space, payable concurrently with Base Monthly Rent to either the Landlord,
or, at Landlord's direction, to any entity operating the Parking Area.
Landlord hereby represents, and Tenant acknowledges, that as of the date of
this Lease, construction of the proposed parking garage at 16th Street and
San Pablo in Oakland, on land owned and controlled by the City of Oakland,
has not begun but has been promised to Landlord by the City of Oakland.
During construction of said parking structure, Landlord shall provide Tenant
with access to no less than the number of parking spaces referred to in
Article 1, which parking spaces will be located no further than one and
one-half blocks from the Building. Landlord shall make all reasonable efforts
to accommodate all of Tenant's parking requests in lots as close to the
Building as possible, and may provide valet parking, at no cost to Tenant, if
sufficient spaces cannot be provided within one and one-half blocks of the
Building. Following completion of the parking structure, Landlord shall
provide no less than the number of parking spaces referred to in Article 1 to
Tenant within such structure.

2.3  COMMENCEMENT DATE AND LEASE TERM. Subject to Paragraph 2.4 below, the
term of this Lease shall begin, and the Commencement Date shall be deemed to
have occurred on the actual Delivery Date, as determined pursuant to Section
2.4 below. The term of this Lease shall in all events end on the Lease
Expiration Date (as set forth in Article 1) unless extended or sooner
terminated in accordance with the terms of this Lease. The Lease Term shall
be that period of time commencing on the Commencement Date and ending on the
Lease Expiration Date (the "Lease Term").

2.4  DELIVERY OF POSSESSION. Landlord shall deliver to Tenant possession of
the Leased Premises upon Substantial Completion of the Improvements as that
term is defined in the Work Letter (defined in Section 2.5) attached hereto
as Exhibit B. The date that the Leased Premises are so delivered to the
Tenant shall be deemed the "Delivery Date." If Landlord is unable to so
deliver possession of the Leased Premises to Tenant in the agreed condition
on or before the Intended Delivery Date, Landlord shall have until the date
that is sixty (60) days after the Intended Delivery Date (the "Delivery Grace
Period") to deliver the Leased Premises. Additionally, the Delivery Grace
Period above set forth shall be extended for such number of days as Landlord
may be delayed in delivering possession of the Leased Premises to Tenant by
reason of the action or inaction of Tenant. If Landlord is unable to deliver
possession of the Leased Premises in the agreed condition to Tenant within
the Delivery Grace Period (including any extension thereof by reason of the
actions or inaction of Tenant), then Tenant shall be entitled to elect either
to (i) receive a credit of two (2) days of free rent for each day that the
Leased Premises are not delivered to Tenant after expiration of the Delivery
Grace Period (including any extension thereof by reason of the actions or
inaction of Tenant), which free rent shall apply to the first months in which
Base Monthly Rent is due or (ii) terminate this Lease, and in the

                                      4.

<PAGE>

event of such termination Landlord shall not be liable in damages to Tenant
for any delay. If Tenant elects to receive the credit rather than electing to
terminate this lease, Tenant may not thereafter terminate this Lease based
upon this paragraph.

2.5  PERFORMANCE OF IMPROVEMENTS; ACCEPTANCE OF POSSESSION. Landlord shall,
pursuant to the Work Letter attached to as Exhibit B and made a part of this
Lease (the "Work Letter"), perform the work and make the installations in the
Leased Premises substantially as set forth in the Work Letter (such work and
installations hereinafter referred to as the "Improvements"). It is agreed
that by occupying the Leased Premises, Tenant shall be deemed to have
accepted same and to have acknowledged that the Leased Premises are in the
condition called for hereunder, subject to reasonable punchlist items (to be
identified by Tenant in a written notice to Landlord given within thirty (30)
days of such occupancy) and latent defects.

2.6  SURRENDER OF POSSESSION. Immediately prior to the expiration or upon the
sooner termination of this Lease, Tenant shall remove all of Tenant's
equipment, trade fixtures, furniture, supplies, wall decorations and other
personal property from within the Leased Premises, the Building and the
Outside Areas, and shall vacate and surrender the Leased Premises to Landlord
in as good condition, broom clean, as existed at the Commencement Date,
damage by casualty or condemnation (which events shall be governed by
Articles 10 and 11) and reasonable wear and tear excepted. Except for such
reasonable wear and tear, Tenant shall (i) repair all damage to the Leased
Premises, the exterior of the Building and the Outside Areas caused by
Tenant's removal of Tenant's property, (ii) patch and refinish, to Landlord's
reasonable satisfaction, all penetrations made by Tenant or its employees to
the roof, floor, interior or exterior walls or ceiling of the Leased Premises
and the Building, whether such penetrations were made with Landlord's
approval or not, and (iii) repair all stained or damaged ceiling tiles, wall
coverings and floor coverings if damage was caused by Tenant. Additionally,
to the extent that Landlord shall have notified Tenant in writing at the time
the improvements were completed that it desired to have certain improvements
made by Tenant or at the request of Tenant removed at the expiration or
sooner termination of the Lease, Tenant shall, upon the expiration or sooner
termination of the Lease, remove any such improvements constructed or
installed by Landlord or Tenant and repair all damage caused by such removal;
provided however, Tenant shall not be required to remove the Improvements
installed pursuant to the Work Letter. If the Leased Premises are not
surrendered to Landlord in the condition required by this paragraph at the
expiration or sooner termination of this Lease, Landlord may, at Tenant's
expense, so remove Tenant's signs, property and/or improvements not so
removed and make such repairs and replacements not so made or hire, at
Tenant's expense, independent contractors to perform such work. Tenant shall
be liable to Landlord for all reasonable costs incurred by Landlord in
returning the Leased Premises to the required condition. Tenant shall pay to
Landlord the amount of all reasonable costs so incurred within ten (10) days
of Landlord's billing Tenant for same. Tenant shall indemnify Landlord
against loss or liability resulting from delay by Tenant in surrendering the
Leased Premises, including, without limitation, any claims made by any
succeeding Tenant or any losses to Landlord with respect to lost
opportunities to lease to succeeding tenants.

                                    ARTICLE 3

                    RENT, LATE CHARGES AND SECURITY DEPOSITS

3.1  BASE MONTHLY RENT.

         (a) Commencing on the Commencement Date (as determined pursuant to
Paragraph 2.3 above) and continuing throughout the Lease Term, Tenant shall
pay to Landlord, without prior demand therefor, in advance on the first day
of each calendar month, the amount set forth as "Base Monthly Rent" for the
Original Build-out Space in Article 1, subject to a possible credit in
accordance with Section 7(c) of the Work Letter.

3.2  ADDITIONAL RENT., in addition to the Base Monthly Rent for the Original
Build-out Space, Tenant shall pay to Landlord as additional rent (the
"Additional Rent") the following amounts:

         (a) Provided that in no event shall Tenant be responsible for annual
increases in Property Operating Expenses in excess of $0.05 per rentable
square foot of the Leased Premises per month, commencing on January 1, 2002
and continuing thereafter throughout the Lease Term, Tenant's Percentage
Share of any increases in Property Operating Expenses (as defined in
Article 13) incurred by Landlord in excess of the Property Operating Expenses

                                      5.

<PAGE>

paid by Landlord in calendar year 2001 (the "Base Year"). Payment shall be
made by whichever of the following methods (or combination of methods) is
(are) from time to time designated by Landlord:

                  (i) Landlord may bill to Tenant, on a periodic basis not more
frequently than monthly, the amount of such expenses (or group of expenses) due
from Tenant, and Tenant shall pay to Landlord the amount due within thirty (30)
days after receipt of a written bill therefor from Landlord, and/or

                  (ii) Landlord may deliver to Tenant Landlord's reasonable
estimate of any given expense (such as Landlord's Insurance Costs or Real
Property Taxes), or group of expenses, which it anticipates will be paid or
incurred for the ensuing calendar or fiscal year, as Landlord may determine,
and Tenant shall pay to Landlord an amount equal to Tenant's Percentage Share
of the excess of such expenses over the amount of such expenses incurred in
the Base Year the estimated amount of such expenses for such year over the in
equal monthly installments during such year with the installments of Base
Monthly Rent.

         (b) Landlord's share of the consideration received by Tenant upon
certain assignments and sublettings as required by Article 7.

         (c) Any legal fees and costs that Tenant is obligated to pay or
reimburse to Landlord pursuant to Article 13; and

         (d) Any amounts due Landlord from Tenant Lease concerning the Expansion
Space pursuant to the Article 16.

         (e) Any other charges or reimbursements due Landlord from Tenant
pursuant to the terms of this Lease.

Tenant may cause an audit of Landlord's books and records to determine the
accuracy of Landlord's billings for Property Operating Expenses under this
Lease, provided Tenant commences such audit within sixty (60) days after
Tenant's receipt of the year-end statement described in Section 3.3 above
setting forth the annual reconciliation of the Property Operating Expenses or
any change in estimated monthly expenses under Section 3.2(a)(iii) above. If
such audit reveals that the Landlord overcharged Tenant for Property
Operating Expenses for any given year, then Landlord shall pay to Tenant the
excess. If such audit reveals a discrepancy of more than three (3%) percent
of the actual amount of any Property Operating Expenses charges, then
Landlord shall pay the cost of the audit.

3.3  ADJUSTMENTS.

         (a)      If Landlord shall have elected to bill Tenant for Tenant's
Percentage Share of increases in the Property Operating Expenses over the
Base Year (or any group of such expenses) on an estimated basis in accordance
with the provisions of Paragraph 3.2(a)(iii) above, Landlord shall furnish to
Tenant within three months following the end of the applicable calendar or
fiscal year, as the case may be, a statement setting forth (i) the amount of
such expenses paid or incurred during the just ended calendar or fiscal year,
as appropriate, and (ii) the amount that Tenant has paid to Landlord for
credit against such expenses for such period. If Tenant shall have paid more
than its obligation for such expenses for the stated period, Landlord shall,
at its election, either (i) credit the amount of such overpayment toward the
next ensuing payment or payments of Additional Rent that would otherwise be
due or (ii) refund in cash to Tenant the amount of such overpayment within
thirty (30) days after conclusion of the reconciliation. If such year-end
statement shall show that Tenant did not pay its obligation for such expenses
in full, then Tenant shall pay to Landlord the amount of such underpayment
within ten days from Landlord's billing of same to Tenant. The provisions of
this Paragraph shall survive the expiration or sooner termination of this
Lease.

         (b)      If the occupancy of the Building during any part of any
expense year (including the Base Year) is less than 95%, Landlord shall make
an appropriate adjustment of the variable components of Property Operating
Expenses for that expense year, as reasonably determined by Landlord using
sound accounting and management principles, to determine the amount of
Property Operating Expenses that would have been incurred had the Building
been 95% occupied. This amount shall be considered to have been the amount of
Property Operating Expenses for that expense year. For purposes of this
paragraph, "variable components" include only those component expenses that
are affected by variations in occupancy levels.

                                      6.

<PAGE>

                  (c)      Base Year Property Operating Expenses shall be
adjusted as follows:

                  (i)      If Landlord incurs expenses associated with or
relating to separate items, categories or subcategories of Property Operating
Expenses that were not part of Property Operating Expenses during the Base
Year or a part of Property Operating Expenses for only a portion of the Base
Year, Property Operating Expenses for the Base Year shall be considered to be
increased by the amounts that Landlord would have incurred during the Base
Year with respect to such expenses had these separate items, categories or
subcategories of Property Operating Expenses been included in the Property
Operating Expenses during the entire Base Year;

                  (ii)     If any portion of the Building is covered by a
warranty at anytime during the Base Year, Property Operating Expenses for the
Base Year shall be considered to be increased by the amount that Landlord
would have incurred during the Base Year with respect to the items or matters
covered by the warranty had the warranty not been effective during the Base
Year; and

                  (iii)    Any additional annual premium resulting from any
new forms of insurance, any increase in insurance limits or coverages, or any
decrease in deductibles in any year after the Base Year shall be considered
to be included in Property Operating Expenses for the Base Year.

3.4  LATE CHARGE, AND INTEREST ON RENT IN DEFAULT. Tenant acknowledges that
the late payment by Tenant of any monthly installment of Base Monthly Rent or
any Additional Rent will cause Landlord to incur certain costs and expenses
not contemplated under this Lease, the exact amounts of which are extremely
difficult or impractical to fix. Such costs and expenses will include without
limitation, administration and collection costs and processing and accounting
expenses. Therefor, if any installment of Base Monthly Rent is not received
by Landlord from Tenant when the same becomes due, Tenant shall immediately
pay to Landlord a late charge in an amount equal to the amount set forth in
Article 1 as the "Late Charge Amount," and if any Additional Rent is not
received by Landlord when the same becomes due, Tenant shall immediately pay
to Landlord a late charge in an amount equal to 3% of the Additional Rent not
so paid; provided, however, that once but only once in any twelve (12) month
period during the Lease Term, Tenant shall be entitled to written notice of
non-receipt of Base Monthly Rent or Additional Rent from Landlord, and Tenant
shall not be liable for any Late Charge Amount or other late charge hereunder
if such installment of Base Monthly Rent or Additional Rent is received by
Landlord within ten (10) days after Tenant's receipt of such notice from
Landlord. Landlord and Tenant agree that this late charge represents a
reasonable estimate of such costs and expenses and is fair compensation to
Landlord for the anticipated loss Landlord would suffer by reason of Tenant's
failure to make timely payment. In no event shall this provision for a late
charge be deemed to grant to Tenant a grace period or extension of time
within which to pay any rental installment or prevent Landlord from
exercising any right or remedy available to Landlord upon Tenant's failure to
pay each rental installment due under this Lease when due, including the
right to terminate this Lease. If any rent remains delinquent for a period in
excess of 10 calendar days after notice from Landlord, then, in addition to
such late charge, Tenant shall pay to Landlord interest on any rent that is
not so paid from said tenth day at the then maximum rate of interest not
prohibited or made usurious by Law until paid.

3.5  PAYMENT OF RENT. Except as specifically provided otherwise in this
Lease, all rent shall be paid in lawful money of the United States, without
any abatement, reduction or offset for any reason whatsoever, to Landlord at
such address as Landlord may designate from time to time. Tenant's obligation
to pay Base Monthly Rent and all Additional Rent shall be appropriately
prorated at the commencement and expiration of the Lease Term. The failure by
Tenant to pay any Additional Rent as required pursuant to this Lease when due
shall be treated the same as a failure by Tenant to pay Base Monthly Rent
when due, and Landlord shall have the same rights and remedies against Tenant
as Landlord would have had Tenant failed to pay the Base Monthly Rent when
due.

3.6  PREPAID RENT. Tenant shall, upon execution of this Lease, pay to
Landlord the amount set forth in Article 1 as "Partial First Month's Prepaid
Rent" as prepayment of rent for credit against the first payment of Base
Monthly Rent due hereunder. Tenant shall, within ten (10) days following
Tenant's approval of the final plans and specifications for the Improvements,
pay to Landlord the balance of the first month's rent for the Original
Build-out Space and the Expansion Space.

                                      7.

<PAGE>

3.7  SECURITY DEPOSIT.

         (a) Within ten (10) days following Tenant's approval of the final plans
and specifications for the Improvements, Tenant shall deposit with Landlord the
amount set forth in Article 1 as the "Security Deposit" as security for the
performance by Tenant of the terms of this Lease to be performed by Tenant, and
not as prepayment of rent.

         (b) Landlord may apply such portion or portions of the Security
Deposit as are reasonably necessary for the following purposes: (i) to remedy
any default by Tenant in the payment of Base Monthly Rent or Additional Rent
or a late charge or interest on defaulted rent, or any other monetary payment
obligation of Tenant under this Lease; (ii) to repair damage to the Leased
Premises, the Building or the Outside Areas caused or permitted to occur by
Tenant; (iii) to clean and restore and repair the Leased Premises, the
Building or the Outside Areas following their surrender to Landlord if not
surrendered in the condition required pursuant to the provisions of Article
2, and (iv) to remedy any other default of Tenant to the extent permitted by
Law including, without limitation, paying in full on Tenant's behalf any sums
claimed by materialmen or contractors of Tenant to be owing to them by Tenant
for work done or improvements made at Tenant's request to the Leased
Premises. In this regard, Tenant hereby waives any restriction on the uses to
which the Security Deposit may be applied as contained in Section 1950.7(c)
of the California Civil Code and/or any successor statute. In the event the
Security Deposit or any portion thereof is so used, Tenant shall pay to
Landlord, promptly upon demand, an amount in cash sufficient to restore the
Security Deposit to the full original sum or shall replenish the letter of
credit, if applicable. Landlord shall not be deemed a trustee of the Security
Deposit. Landlord may use the Security Deposit in Landlord's ordinary
business and shall not be required to segregate it from Landlord's general
accounts. Tenant shall not be entitled to any interest on any cash Security
Deposit held by Landlord. If Landlord transfers the Building or the Property
during the Lease Term, Landlord may pay the Security Deposit to any
subsequent owner in conformity with the provisions of Section 1950.7 of the
California Civil Code and/or any successor statute, in which event the
transferring landlord shall be released from all liability for the return of
the Security Deposit.

         (c) Provided Tenant has not been in default beyond any applicable
notice and cure period, on the first day of the eighteenth calendar month of
the Lease Term, the amount of the Security Deposit shall be reduced to Three
Hundred Thousand Dollars ($300,000), and Landlord shall promptly return to
Tenant the sum of One Hundred Thousand Dollars ($100,000).

                                    ARTICLE 4

                     USE OF LEASED PREMISES AND OUTSIDE AREA

4.1  PERMITTED USE. Tenant shall be entitled to use the Leased Premises
solely for the "Permitted Use" as set forth in Article 1 and for no other
purpose whatsoever. Tenant shall have the right to vacate the Leased Premises
at any time during the Term of this Lease, provided Tenant maintains the
Leased Premises in the same condition as if fully occupied and as otherwise
required by the terms of this Lease. Tenant shall have the right to use the
Outside Areas in conjunction with its Permitted Use of the Leased Premises
solely for the purposes for which they were designed and intended and for no
other purposes whatsoever.

4.2  GENERAL LIMITATIONS ON USE. Tenant shall not do or permit anything to be
done in or about the Leased Premises, the Building, the Outside Areas or the
Property which does or could (i) jeopardize the structural integrity of the
Building or (ii) cause damage to any part of the Leased Premises, the
Building, the Outside Areas or the Property. Tenant shall not operate any
equipment within the Leased Premises which does or could (i) injure, vibrate
or shake the Leased Premises or the Building, (ii) damage, overload or impair
the efficient operation of any electrical, plumbing, heating, ventilating or
air conditioning systems within or servicing the Leased Premises or the
Building, or (iii) damage or impair the efficient operation of the sprinkler
system (if any) within or servicing the Leased Premises or the Building.
Tenant shall not (i) install any equipment or antennas on or make any
penetrations of the exterior walls or roof of the Building or (ii) affix any
equipment or make any penetrations or cuts in the floors, ceiling or walls of
the Leased Premises, without Landlord's prior written consent, which consent
shall not be

                                      8.

<PAGE>

unreasonably withheld; provided, however, that it shall be reasonable for
Landlord to withhold its consent if Tenant's proposed installations or
penetrations impact the structural integrity of the Building. Tenant shall
not place any loads upon the floors, walls, ceiling or roof systems which
could endanger the structural integrity of the Building or damage its floors,
foundations or supporting structural components. Tenant shall not place any
explosive, flammable or harmful fluids or other waste materials in the
drainage systems of the Leased Premises, the Building, the Outside Areas or
the Property. Tenant shall not drain or discharge any fluids in the
landscaped areas or across the paved areas of the Property. Tenant shall not
use any of the Outside Areas for the storage of its materials, supplies,
inventory or equipment and all such materials, supplies, inventory or
equipment shall at all times be stored within the Leased Premises. Tenant
shall not commit nor permit to be committed any waste in or about the Leased
Premises, the Building, the Outside Areas or the Property.

4.3  TRASH DISPOSAL. Landlord shall provide trash bins or other adequate
garbage disposal facilities within the trash enclosure areas provided or
permitted by Landlord outside the Leased Premises sufficient for the interim
disposal of all of its trash, garbage and waste. All such trash, garbage and
waste temporarily stored in such areas shall be stored in such a manner so
that it is not visible from outside of such areas, and Landlord shall cause
such trash, garbage and waste to be regularly removed from the Property.
Tenant shall keep the Leased Premises in a clean, safe and neat condition and
keep the Outside Areas (except the trash enclosure areas) free and clear of
all of Tenant's trash, garbage, waste and/or boxes, pallets and containers
containing same at all times.

4.4  SIGNS. Other than business identification signs allowed pursuant to this
Section, Tenant shall not place or install on or within any portion of the
Leased Premises, the exterior of the Building, the Outside Areas or the
Property any sign, advertisement, banner, placard, or picture which is
visible from the exterior of the Leased Premises. Subject to Landlord's prior
written consent, which shall not be unreasonably withheld, and subject to
approval by the City of Oakland, the National Park Service and the California
State Historic Preservation Office, Tenant shall have the right to install an
illuminated business identification blade sign on the Building. Landlord
shall cooperate with Tenant's efforts to obtain approval from the City of
Oakland for an illuminated sign. Any such sign shall be installed at Tenant's
sole cost and expense and only in strict compliance with Landlord's approval
(which shall not be unreasonably withheld), and all Laws and all requirements
of the City of Oakland, using a person approved by Landlord to install same.

4.5  COMPLIANCE WITH LAWS. Tenant shall abide by and shall promptly observe
and comply with, at its sole cost and expense, all Laws respecting the use
and occupancy of the Leased Premises, the Building, the Outside Areas or the
Property including, without limitation, all Laws governing the use and/or
disposal of Hazardous Materials (except that Tenant shall not be responsible
for any Hazardous Materials at the Leased Premises, the Building, the Outside
Areas or the Property not introduced by Tenant, its agents, employees or
invitees), and shall defend with competent counsel, indemnify and hold
Landlord harmless from any claims, damages or liability resulting from
Tenant's failure to so abide, observe, or comply. Tenant's obligations
hereunder shall survive the expiration or sooner termination of this Lease.

4.6  COMPLIANCE WITH INSURANCE REQUIREMENTS. With respect to any insurance
policies required or permitted to be carried by Landlord in accordance with
the provision of this Lease, copies of which have been or will, upon Tenant's
written request therefor, be provided to Tenant, Tenant shall not conduct nor
permit any other person to conduct any activities nor keep, store or use (or
allow any other person to keep, store or use) any item or thing within the
Leased Premises, the Building, the Outside Areas or the Property which (i) is
prohibited under the terms of any such policies, (ii) could result in the
termination of the coverage afforded under any of such policies, (iii) could
give to the insurance carrier the right to cancel any of such policies, or
(iv) could cause an increase in the rates (over standard rates) charged for
the coverage afforded under any of such policies. Tenant shall comply with
all requirements of any insurance company, insurance underwriter, or Board of
Fire Underwriters which are necessary to maintain, at standard rates, the
insurance coverages carried by either Landlord or Tenant pursuant to this
Lease.

4.7  LANDLORD'S RIGHT TO ENTER. Landlord and its agents shall have the right
to enter the Leased Premises during normal business hours after giving Tenant
reasonable notice and subject to Tenant's reasonable security measures for
the purpose of (i) inspecting the same; (ii) showing the Leased Premises to
prospective purchasers, mortgagees or tenants; (iii) making necessary
alterations approved by Tenant, additions or repairs; (iv) posting notices,
and (v) performing any of Tenant's obligations when Tenant has failed to do
so beyond any applicable notice and cure

                                      9.

<PAGE>

period. Landlord shall have the right to enter the Leased Premises during
normal business hours and during all reasonable times, subject to Tenant's
reasonable security measures, for purposes of supplying any maintenance or
services agreed to be supplied by Landlord. Landlord shall have the right to
enter the Outside Areas during normal business hours for purposes of (i)
inspecting the exterior of the Building and the Outside Areas; (ii) posting
notices of nonresponsibility (and for such purposes Tenant shall provide
Landlord at least thirty days' prior written notice of any work to be
performed on the Leased Premises); and (iii) supplying any services to be
provided by Landlord. Any entry into the Leased Premises or the Outside Areas
obtained by Landlord in accordance with this paragraph shall not under any
circumstances be construed or deemed to be a forcible or unlawful entry into,
or a detainer of, the Leased Premises, or an eviction, actual or constructive
of Tenant from the Leased Premises or any portion thereof. In exercising its
rights under this Section, Landlord shall use commercially reasonable efforts
to minimize interference with Tenant's use of the Leased Premises and the
Outside Areas.

4.8  ENVIRONMENTAL PROTECTION. Tenant's obligations under this Section shall
survive the expiration or termination of this Lease.

         (a) As used herein, the term "Hazardous Materials" shall mean any
toxic or hazardous substance, material or waste or any pollutant or
infectious or radioactive material, including but not limited to those
substances, materials or wastes regulated now or in the future under any of
the following statutes or regulations and any and all of those substances
included within the definitions of "hazardous substances," "hazardous
materials," "hazardous waste," "hazardous chemical substance or mixture,"
"imminently hazardous chemical substance or mixture," "toxic substances,"
"hazardous air pollutant," "toxic pollutant," or "solid waste" in the (a)
Comprehensive Environmental Response, Compensation and Liability Act of 1990
("CERCLA" or "Superfund"), as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), 42 U.S.C. Section 9601 ET SEQ., (b)
Resource Conservation and Recovery Act of 1976 ("RCRA"), 42 U.S.C. Section
6901 ET SEQ., (c) Federal Water Pollution Control Act ("FSPCA"), 33 U.S.C.
Section 1251 ET SEQ., (d) Clean Air Act ("CAA"), 42 U.S.C. Section 7401 ET
SEQ., (e) Toxic Substances Control Act ("TSCA"), 14 U.S.C. Section 2601 ET
SEQ., (f) Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, ET
SEQ., (g) Carpenter-Presley-Tanner Hazardous Substance Account Act
("California Superfund"), Cal. Health & Safety Code Section 25300 ET SEQ.,
(h) California Hazardous Waste Control Act, Cal. Health & Safety code Section
25100 ET SEQ., (i) Porter-Cologne Water Quality Control Act ("Porter-Cologne
Act"), Cal. Water Code Section 13000 ET SEQ., (j) Hazardous Waste Disposal
Land Use Law, Cal. Health & Safety codes Section 25220 ET SEQ., (k) Safe
Drinking Water and Toxic Enforcement Act of 1986 ("Proposition 65"), Cal.
Health & Safety code Section 25249.5 ET SEQ., (l) Hazardous Substances
Underground Storage Tank Law, Cal. Health & Safety code Section 25280 ET
SEQ., (m) Air Resources Law, Cal. Health & Safety Code Section 39000 ET SEQ.,
and (n) regulations promulgated pursuant to said laws or any replacement
thereof, or as similar terms are defined in the federal, state and local
laws, statutes, regulations, orders or rules. Hazardous Materials shall also
mean any and all other biohazardous wastes and substances, materials and
wastes which are, or in the future become, regulated under applicable Laws
for the protection of health or the environment, or which are classified as
hazardous or toxic substances, materials or wastes, pollutants or
contaminants, as defined, listed or regulated by any federal, state or local
law, regulation or order or by common law decision, including, without
limitation, (i) trichloroethylene, tetrachloroethylene, perchloroethylene and
other chlorinated solvents, (ii) any petroleum products or fractions thereof,
(iii) asbestos, (iv) polychlorinted biphenyls, (v) flammable explosives, (vi)
urea formaldehyde, (vii) radioactive materials and waste, and (viii)
materials and wastes that are harmful to or may threaten human health,
ecology or the environment.

         (b) Notwithstanding anything to the contrary in this Lease, Tenant,
at its sole cost, shall comply with all Laws relating to the storage, use and
disposal of Hazardous Materials by Tenant, its subtenants, their respective
agents, employees, contractors or invitees (collectively, the "Tenant
Parties"). Tenant shall not store, use or dispose of any Hazardous Materials
except for diminimus amounts typically used in offices and/or those Hazardous
Materials listed in a Hazardous Materials management plan ("HMMP") which
Tenant shall deliver to Landlord upon execution of this Lease and update at
least annually with Landlord ("Permitted Materials") which may be used,
stored and disposed of provided (i) such Permitted Materials are used,
stored, transported, and disposed of in strict compliance with applicable
laws, (ii) such Permitted Materials shall be limited to the materials listed
on and may be used only in the quantities specified in the HMMP, and (iii)
Tenant shall provide Landlord with copies of all material safety data sheets
and other documentation required under applicable Laws in connection with
Tenant's use of Permitted Materials as and when such documentation is
provided to any regulatory authority having jurisdiction, in no event shall
Tenant cause or permit to be discharged into the plumbing or sewage system of
the Building or onto the land underlying or adjacent to the Building any
Hazardous Materials. Tenant shall be solely responsible for

                                      10.

<PAGE>

and shall defend, indemnify, and hold Landlord and its agents harmless from
and against all claims, costs and liabilities, including attorneys' fees and
costs, arising out of or in connection with Tenant's storage, use and/or
disposal of Hazardous Materials. If the presence of Hazardous Materials on
the Leased Premises caused or permitted by Tenant results in contamination or
deterioration of water or soil, then Tenant shall promptly take any and all
action necessary to clean up such contamination as required by Law, but the
foregoing shall in no event be deemed to constitute permission by Landlord to
allow the presence of such Hazardous Materials.

4.9  RESERVATIONS. Landlord reserves the right from time to time to grant,
without the consent or joinder of Tenant, such easements, rights of way and
dedications that Landlord deems necessary, and to cause the recordation of
parcel maps and covenants, conditions and restrictions, so long as such
easements, rights of way, dedications and covenants, conditions and
restrictions do not materially and adversely affect the use of the Leased
Premises by Tenant, materially and adversely affect Tenant's parking rights,
and do not prohibit any Permitted Use. Tenant agrees to execute any documents
reasonably request by Landlord to effectuate any such easement rights,
dedications, maps or covenants, conditions and restrictions.

                                    ARTICLE 5

                  REPAIRS, MAINTENANCE, SERVICES AND UTILITIES

5.1  REPAIR AND MAINTENANCE. Except in the case of damage to or destruction of
the Leased Premises, the Building, the Outside Areas or the Property caused by
an act of God or other peril, in which case the provisions of Article 10 shall
control, the parties shall have the following obligations and responsibilities
with respect to the repair and maintenance of the Leased Premises, the Building,
the Outside Areas, and the Property.

         (a) TENANT'S OBLIGATIONS. Tenant shall, at all times during the
Lease Term and at its sole cost and expense, continuously keep and maintain
the Leased Premises, excluding all Improvements, but including alterations,
fixtures and furnishings, in good order, condition and repair, subject to the
provisions of this Article 5 and Article 10. At Landlord's option, if Tenant
fails to repair and maintain within a reasonable time following Landlord's
notice to Tenant that such repair and maintenance is necessary, Landlord may
make such repair and maintenance. Within thirty (30) days of its receipt of
Landlord's invoice, Tenant shall pay to Landlord Landlord's out-of-pocket
costs incurred in connection with such repair and maintenance.

         (b) LANDLORD'S OBLIGATION. Landlord shall at its sole cost and
expense, (i) regularly clean and at all times during the Lease Term, maintain
in good condition and repair all portions of the Property (including the
Leased Premises) except those required to be maintained by Tenant pursuant to
Section 5.1(a) above.

5.2  UTILITIES. Landlord shall provide at its sole cost and expense, adequate
gas, water and electricity to the Leased Premises, provided that if Tenant
requires HVAC after normal business hours (which shall be from 8:00 a.m. to
7:00 p.m., Monday through Friday, and from 9:00 a.m. to 1:00 p.m. on
Saturdays) Landlord may charge Tenant $40.00 for the first hour for each zone
for which after hours HVAC is requested, and $15.00 for each additional hour
for each zone. Tenant shall be responsible for arranging for telephone
service n Tenant's own name, at Tenant's sole cost and expense.

5.3  SECURITY. Landlord shall provide, at its sole cost and expense, a
security guard service, twenty four hours a day, seven days a week, to
provide security for the Leased Premises, the Building, the Outside Areas and
the Property. In addition, Landlord, at its sole cost and expense, shall
provide escort services from the Leased Premises to parking spaces provided
hereunder, if requested to do so by Tenant, but only on Monday through Friday
after 7:00 p.m.

5.4  UTILITIES. Landlord shall provide at its sole cost and expense, adequate
janitorial services to the Leased Premises, Monday through Friday, consistent
with customary and reasonable janitorial practices in class A office
buildings in the San Francisco Bay area.

5.5  ENERGY AND RESOURCE CONSUMPTION. Landlord may voluntarily cooperate in a
reasonable manner with the efforts of governmental agencies and/or utility
suppliers in reducing energy or other resource consumption within the
Property. Tenant shall not be entitled to terminate this Lease or to any
reduction in or abatement of rent by

                                      11.

<PAGE>

reason of such compliance or cooperation. Tenant agrees at all times to
cooperate fully with Landlord and to abide by all reasonable rules
established by Landlord (i) in order to maximize the efficient operation of
the electrical, heating, ventilating and air conditioning systems and all
other energy or other resource consumption systems with the Property and/or
(ii) in order to comply with the requirements and recommendations of utility
suppliers and governmental agencies regulating the consumption of energy
and/or other resources.

5.6  LIMITATION OF LANDLORD'S LIABILITY. Landlord shall not be liable to
Tenant for injury to Tenant, its employees, agents, invitees or contractors,
damage to Tenant's property or loss of Tenant's business or profits, nor
shall Tenant be entitled to terminate this Lease or to any reduction in or
abatement of rent by reason of (i) Landlord's failure to provide security
services or systems within the Property for the protection of the Leased
Premises, the Building or the Outside Areas, or the protection of Tenant's
property or Tenant's employees, invitees, agents or contractors, or (ii)
Landlord's failure to perform any maintenance or repairs to the Leased
Premises, the Building, the Outside Areas or the Property until Tenant shall
have first notified Landlord, in writing, of the need for such maintenance or
repairs, and then only after Landlord shall have had a reasonable period of
time following its receipt of such notice within which to perform such
maintenance or repairs (not to exceed thirty (30) days), or (iii) any
failure, interruption, rationing or other curtailment in the supply of water,
electric current, gas or other utility service to the Leased Premises, the
Building, the Outside Areas or the Property from whatever cause (other than
to the extent caused by Landlord's negligence or willful misconduct), or (iv)
the unauthorized intrusion or entry into the Leased Premises by third parties
(other than Landlord).

                                    ARTICLE 6

                          ALTERATIONS AND IMPROVEMENTS

6.1  BY TENANT. This provision refers to alterations made to the Leased
Premises after Tenant's initial occupancy of the Leased Premises, and does
not pertain to the construction of the Improvements, which is governed by the
attached Work Letter. Tenant shall not make any alterations to or
modifications of the Leased Premises or construct any improvements within the
Leased Premises until Landlord shall have first approved, in writing, the
plans and specifications therefor, which approval shall not be unreasonably
withheld or delayed. Landlord's approval shall be deemed given if not denied
by Landlord in a written notice to Tenant delivered within fifteen (15) days
following receipt of Tenant's written request. Tenant's written request shall
also contain a request for Landlord to elect whether or not it will require
Tenant to remove the subject alterations, modifications or improvements at
the expiration or earlier termination of this Lease. If such additional
request is not included, Landlord may make such election at the expiration or
earlier termination of this Lease (and for purposes of Tenant's removal
obligations set forth in Section 2.6 above, Landlord shall be deemed to have
made the election at the time the alterations, modifications or improvements
were completed). All modifications, alterations or improvements, once
approved by Landlord, shall be made, constructed or installed by Tenant at
Tenant's expense (including all permit fees and governmental charges related
thereto), using a licensed contractor first approved by Landlord, in
substantial compliance with the Landlord-approved plans and specifications
therefor. All work undertaken by Tenant shall be done in accordance with all
Laws and in a good and workmanlike manner using new materials of good
quality. Tenant shall not commence the making of any such modifications or
alterations or the construction of any such improvements until (i) all
required governmental approvals and permits shall have been obtained, (ii)
all requirements regarding insurance imposed by this Lease have been
satisfied, (iii) Tenant shall have given Landlord at least fifteen (15) days
prior written notice of its intention to commence such work so that Landlord
may post and file notices of non-responsibility, and (iv) if requested by
Landlord, Tenant shall have obtained contingent liability and broad form
builder's risk insurance in an amount satisfactory to Landlord in its
reasonable discretion to cover any perils relating to the proposed work not
covered by insurance carried by Tenant pursuant to Article 9. In no event
shall Tenant make any modification, alterations or improvements whatsoever to
the Outside Areas or the exterior or structural components of the Building
including, without limitation, any cuts or penetrations in the floor, roof or
exterior walls of the Leased Premises (except to the extent Tenant has
obtained Landlord's approval pursuant to Section 4.2). As used in this
Article, the term "modifications, alterations and/or improvements" shall
include, without limitation, the installation of additional electrical
outlets, overhead lighting fixtures, drains, sinks, partitions, doorways, or
the like. Notwithstanding the foregoing, Tenant, without Landlord's prior
written consent, shall be permitted to make non-structural alterations to the
Building, provided that: (a) such alterations do not exceed $7,500
individually, (b) Tenant shall timely provide Landlord the notice required,
(c) Tenant shall notify Landlord in writing within thirty (30) days of
completion of the alteration and deliver to Landlord a set of the plans and

                                      12.

<PAGE>

specifications therefor, either "as built" or marked to show construction
changes made, and (d) Tenant shall, upon Landlord's request, remove the
alteration at the termination of the Lease and restore the Leased Premises to
their condition prior to such alteration.

6.2  OWNERSHIP OF IMPROVEMENTS. All modifications, alterations and
improvements made or added to the Leased Premises by Tenant (other than
Tenant's inventory, equipment, movable furniture, wall decorations and trade
fixtures) shall be deemed real property and a part of the Leased Premises,
but shall remain the property of Tenant during the Lease. Any such
modifications, alterations or improvements, once completed, shall not be
altered or removed from the Leased Premises during the Lease Term without
Landlord's written approval first obtained in accordance with the provisions
of Paragraph 6.1 above. At the expiration or sooner termination of this
Lease, all such modifications, alterations and improvements other than
Tenant's inventory, equipment, movable furniture, wall decorations and trade
fixtures, shall automatically become the property of Landlord and shall be
surrendered to Landlord as part of the Leased Premises as required pursuant
to Article 2, unless Landlord shall require Tenant to remove any of such
modifications, alterations or improvements in accordance with the provisions
of Article 2, in which case Tenant shall so remove same. Landlord shall have
no obligations to reimburse Tenant for all or any portion of the cost or
value of any such modifications, alterations or improvements so surrendered
to Landlord. All modifications, alterations or improvements which are
installed or constructed on or attached to the Leased Premises by Landlord
and/or at Landlord's expense shall be deemed real property and a part of the
Leased Premises and shall be property of Landlord. All lighting, plumbing,
electrical, heating, ventilating and air conditioning fixtures, partitioning,
window coverings, wall coverings and floor coverings installed by Tenant
shall be deemed improvements to the Leased Premises and not trade fixtures of
Tenant. Landlord shall have no lien or interest whatsoever in any of Tenant's
property or equipment located in the Leased Premises or elsewhere, and
Landlord waives any such liens and interests.

6.3  ALTERATIONS REQUIRED BY LAW. Tenant shall make all modifications,
alterations and improvements to the Leased Premises, at its sole cost, that
are required by any Law because of (i) Tenant's use or occupancy of the
Leased Premises, (ii) Tenant's application for any permit or governmental
approval, or (iii) Tenant's making of any modifications, alterations or
improvements to or within the Leased Premises. If Landlord shall, at any time
during the Lease Term, be required by any governmental authority to make any
modifications, alterations or improvements to the Building or the Property,
the cost incurred by Landlord in making such modifications, alterations or
improvements, including interest at a rate equal to the greater of (a) 12%,
or (b) the sum of that rate quoted by Wells Fargo Bank, N.T. & S.A. from time
to time as its prime rate, plus two percent (2%) ("Wells Prime Plus Two")
(but in no event more than the maximum interest rate permitted by law), shall
be amortized by Landlord over the useful life of such modifications,
alterations or improvements, as determined in accordance with generally
accepted accounting principles, and the monthly amortized cost of such
modifications, alterations and improvements as so amortized shall be
considered a Property Maintenance Cost.

6.4  LIENS. Tenant shall keep the Property and every part thereof free from
any lien, and shall pay when due all bills arising out of any work performed,
materials furnished, or obligations incurred by Tenant, its agents, employees
or contractors relating to the Property. If any such claim of lien is
recorded against Tenant's interest in this Lease, the Property or any part
thereof, Tenant shall bond against, discharge or otherwise cause such lien to
be entirely released within ten days after the same has been recorded.
Tenant's failure to do so shall be conclusively deemed a material default
under the terms of this Lease.

                                    ARTICLE 7

                       ASSIGNMENT AND SUBLETTING BY TENANT

7.1  BY TENANT. Except in connection with a Permitted Transfer, Tenant shall
not sublet the Leased Premises or any portion thereof or assign its interest
in this Lease, whether voluntarily or by operation of Law, without Landlord's
prior written consent which shall not be unreasonably withheld. Any attempted
subletting or assignment without Landlord's prior written consent (except a
Permitted Transfer), at Landlord's election, shall constitute a default by
Tenant under the terms of this Lease. The acceptance of rent by Landlord from
any person or entity other than Tenant, or the acceptance of rent by Landlord
from Tenant with knowledge of a violation of the provisions of this
paragraph, shall not be deemed to be a waiver by Landlord of any provision of
this Article or this Lease or to be a consent to any subletting by Tenant or
any assignment of Tenant's interest in this Lease. Without limiting the

                                      13.

<PAGE>

circumstances in which it may be reasonable for Landlord to withhold its
consent to an assignment or subletting, Landlord and Tenant acknowledge that
it shall be reasonable for Landlord to withhold its consent in the following
instances:

         (a)  the proposed assignee or sublessee is a governmental agency;

         (b) the use of the Leased Premises by the proposed assignee or
sublessee would involve occupancy by other than a Permitted Use as set forth
in Article 1, would entail any alterations which would lessen the value of
the leasehold improvements in the Leased Premises, or would require increased
services by Landlord;

         (c) the financial worth of the proposed assignee does not meet the
credit standards applied by Landlord at the time of the proposed assignment;

         (d) the proposed assignee or sublessee in the ten years prior to the
assignment or sublease has filed for bankruptcy protection, has been the
subject of an involuntary bankruptcy, or has been adjudged insolvent;

         (e) Landlord has experienced a previous default by or is in
litigation with the proposed assignee or sublessee;

         (f) the use of the Leased Premises by the proposed assignee or
sublessee will violate any applicable law, ordinance or regulation;

         (g) the proposed assignment or sublease fails to include all of the
terms and provisions required to be included therein pursuant to this
Article 7;

         (h) in the case of a subletting of less than the entire Leased
Premises, if the subletting would result in the division of any floor of the
Building into more than two subleased parcels or would require improvements
to be made outside of the Leased Premises;

         (i) the proposed transferee is an existing tenant in the Building
and the Landlord at that time has comparable available space for lease in the
Building.

7.2  MERGER, REORGANIZATION, OR SALE OF ASSETS. Each of the following shall
be deemed a voluntary assignment of Tenant's interest in this Lease: (a)
dissolution, merger, consolidation or other reorganization of Tenant; or (b)
at any time that the capital stock of Tenant is not publicly traded on a
recognized exchange, the sale or transfer in one or more transactions to one
or more related parties of a controlling percentage of the capital stock of
Tenant; or (c) or the sale or transfer of all or substantially all of the
assets of Tenant. The phrase "controlling percentage" means the ownership of
and the right to vote stock possessing more than fifty percent of the total
combined voting power of all classes of Tenant's capital stock issued,
outstanding and entitled to vote for the election of directors. If Tenant is
a partnership, a withdrawal or change, voluntary, involuntary or by operation
of Law, of any general partner, or the dissolution of the partnership, shall
be deemed a voluntary assignment of Tenant's interest in this Lease.
Notwithstanding the foregoing, Tenant (or any Permitted Transferee, as
defined herein) may, without Landlord's prior written consent and without
being subject to any of the provisions of this Article 7, including without
limitation, Landlord's right to recapture any portion of the Leased Premises,
sublet the Leased Premises or assign this Lease to (individually, a
"Permitted Transferee," collectively, "Permitted Transferees"): (i) a
subsidiary, affiliate, parent, division, entity or joint venture controlling,
controlled by or under common control with Tenant; or (ii) a successor
corporation related to Tenant by merger, consolidation, nonbankruptcy
reorganization, or government action; or (iii) a purchaser of all or
substantially all of the assets of Tenant; provided that either (1) Tenant
shall remain primarily liable under the Lease (except in the event it is not
the surviving entity in the merger) or (2) that any Permitted Transferee
under (i), (ii) or (iii) above has a net worth equal to or greater than
Tenant's and does not have any contingent or off-balance sheet liabilities
that make it less credit worthy than Tenant as of the date of this Lease. In
the event any proposed assignee or subtenant under (i), (ii) or (iii) above
has a net worth less than Tenant or has contingent or off-balance sheet
liabilities that make it less credit worthy than Tenant, Landlord's consent
(pursuant to Section 7.1 above) shall be required and all of the terms and
conditions of this Article 7 shall apply, except that Landlord shall not be
entitled to terminate this Lease pursuant to Section 7.3, and Landlord shall

                                      14.

<PAGE>

not be entitled to any assignment consideration or excess rentals pursuant to
Section 7.5 of this Lease. If any proposed assignee or subtenant under (i),
(ii) or (iii) above does not qualify as a Permitted Transferee because it has
a net worth which is less than Tenant or has contingent or off-balance sheet
liabilities that make it less creditworthy than Tenant, then in the event
Landlord nevertheless consents (pursuant to the provisions of Section 7.1
above) to such proposed assignee or subtenant, such proposed assignee or
subtenant shall constitute a Permitted Transferee under this Lease.

7.3  LANDLORD'S ELECTION. If Tenant shall desire to assign its interest under
the Lease or to sublet all or any portion of the Leased Premises, except in
connection with a Permitted Transfer Tenant must first notify Landlord, in
writing, of its intent to so assign or sublet, at least twenty (20) days in
advance of the date it intends to so assign its interest in this Lease or
sublet the Leased Premises but not sooner than one hundred eighty days in
advance of such date, specifying in detail the terms of such proposed
assignment or subletting, including the name of the proposed assignee or
sublessee, the property assignee's or sublessee's intended use of the Leased
Premises, current financial statements (including a balance sheet, income
statement and statement of cash flow, all prepared in accordance with
generally accepted accounting principles) of such proposed assignee or
sublessee, the form of documents to be used in effectuating such assignment
or subletting and such other information as Landlord may reasonably request.
Landlord shall have a period of twenty (20) days following receipt of such
notice and the required information within which to do one of the following:
(i) consent to such requested assignment or subletting subject to Tenant's
compliance with the conditions set forth in Paragraph 7.4 below, or (ii)
refuse to so consent to such requested assignment or subletting, provided
that such consent shall not be unreasonably refused, or (iii) in the case of
an assignment of this Lease or sublet of any part of the Leased Premises for
the remainder of the term, terminate this Lease. During such ten (10) day
period, Tenant covenants and agrees to supply to Landlord, upon request, all
necessary or relevant information which Landlord may reasonably request
respecting such proposed assignment or subletting and/or the proposed
assignee or sublessee. Notwithstanding the foregoing, if Landlord elects to
terminate the Lease as provided herein, Landlord shall notify Tenant thereof
during such ten (10) day period and Tenant shall either (i) accept Landlord's
termination or (ii) rescind its request for consent to the assignment or
subletting, in which case the Lease shall continue in full force and effect
between Tenant and Landlord.

7.4  ASSIGNMENT CONSIDERATION AND EXCESS RENTALS DEFINED. For purposes of
this Article, including any amendment to this Article by way of addendum or
other writing, the term "assignment consideration" shall mean all
consideration to be paid by the assignee to Tenant or to any other party on
Tenant's behalf or for Tenant's benefit as consideration for such assignment,
after deduction for reasonable leasing commissions and reasonable legal fees
incurred by Tenant in connection with such assignment and, the cost of tenant
improvements made by Tenant at Tenant's sole cost and expense to prepare the
Leased Premises for the assignee, but without deduction for any other costs
or expenses. The term "excess rentals" shall mean all consideration to be
paid by the sublessee to Tenant or to any other party on Tenant's behalf or
for Tenant's benefit for the sublease of the Leased Premises in excess of the
rent due to Landlord under the terms of this Lease for the same period, after
deduction for reasonable leasing commissions and reasonable legal fees
incurred by Tenant in connection with such sublease and the cost of tenant
improvements made by Tenant at Tenant's sole cost and expense to prepare the
Leased Premises for the subtenant, but without deduction for any other costs
or expenses. Tenant agrees that sixty-five percent (65%) of any assignment
consideration and/or excess rentals arising from any assignment or subletting
by Tenant which is to be paid to Landlord pursuant to this Article now is and
shall then be the property of Landlord and not the property of Tenant.

7.5  PAYMENTS. All payments required by this Article to be made to Landlord
shall be made in cash in full as and when they become due. At the time
Tenant, Tenant's assignee or sublessee makes each such payment to Landlord,
Tenant or Tenant's assignee or sublessee, as the case may be, shall deliver
to Landlord an itemized statement in reasonable detail showing the method by
which the amount due Landlord was calculated and certified by the party
making such payment as true and correct.

7.6  EFFECT OF LANDLORD'S CONSENT. No subletting or assignment, even with the
consent of Landlord, shall relieve Tenant of its personal and primary
obligation to pay rent and to perform all of the other obligations to be
performed by Tenant hereunder. Consent by Landlord to one or more assignments
of Tenant's interest in this Lease or to one or more sublettings of the
Leased Premises shall not be deemed to be a consent to any subsequent
assignment or subletting.

                                      15.

<PAGE>

                                    ARTICLE 8

                LIMITATION ON LANDLORD'S LIABILITY AND INDEMNITY

8.1  LIMITATION ON LANDLORD'S LIABILITY AND RELEASE. Landlord shall not be
liable to Tenant for, and Tenant hereby releases Landlord and its partners,
principals, members, officers, agents, employees, lenders, attorneys, and
consultants from, any and all liability, whether in contract, tort or on any
other basis, for any injury to or any damage sustained by Tenant, Tenant's
agents, employees, contractors or invitees, any damage to Tenant's property,
or any loss to Tenant's business, loss of Tenant's profits or other financial
loss of Tenant resulting from or attributable to the condition of, the
management of, the repair or maintenance of, the protection of, the supply of
services or utilities to, the damage in or destruction of the Leased
Premises, the Building, the Property or the Outside Areas, including without
limitation (i) the failure, interruption, rationing or other curtailment or
cessation in the supply of electricity, water, gas or other utility service
to the Property, the Building or the Leased Premises; (ii) the vandalism or
forcible entry into the Building or the Leased Premises; (iii) the
penetration of water into or onto any portion of the Leased Premises; (iv)
the failure to provide security and/or adequate lighting in or about the
Property, the Building or the Leased Premises, (v) the existence of any
design or construction defects within the Property, the Building or the
Leased Premises; (vi) the failure of any mechanical systems to function
properly (such as the HVAC systems); (vii) the blockage of access to any
portion of the Property, the Building or the Leased Premises, except that
Tenant does not so release Landlord from such liability to the extent such
damage was proximately caused by Landlord's negligence, willful misconduct,
or Landlord's failure to perform an obligation expressly undertaken pursuant
to this Lease after a reasonable period of time (not to exceed 15 days) shall
have lapsed following receipt of written notice from Tenant to so perform
such obligation. In this regard, Tenant acknowledges that it is fully
apprised of the provisions of Law relating to releases, and particularly to
those provisions contained in Section 1542 of the California Civil Code which
reads as follows:

           "A general release does not extend to claims which the
           creditor does not know or suspect to exist in his favor at the
           time of executing the release, which if known by him must have
           materially affected his settlement with the debtor."

Notwithstanding such statutory provision, and for the purpose of implementing
a full and complete release and discharge, Tenant hereby (i) waives the
benefit of such statutory provision and (ii) acknowledges that, subject to
the exceptions specifically set forth herein, the release and discharge set
forth in this paragraph is a full and complete settlement and release and
discharge of all claims and is intended to include in its effect, without
limitation, all claims which Tenant, as of the date hereof, does not know of
or suspect to exist in its favor.

8.2  TENANT'S INDEMNIFICATION OF LANDLORD. Tenant shall defend with competent
counsel satisfactory to Landlord any claims made or legal actions filed or
threatened against Landlord with respect to the violation of any Law, or the
death, bodily injury, personal injury, property damage, or interference with
contractual or property rights suffered by any third party, occurring within
the Leased Premises or resulting from Tenant's use or occupancy of the Leased
Premises, the Building or the Outside Areas, or resulting from Tenant's
activities in or about the Leased Premises, the Building, the Outside Areas
or the Property, and Tenant shall indemnify and hold Landlord, Landlord's
partners, principals, members, employees, agents and contractors harmless
from any loss liability, penalties, or expense whatsoever (including any loss
attributable to vacant space which otherwise would have been leased, but for
such activities) resulting therefrom, except to the extent proximately caused
by the negligence or willful misconduct of Landlord or Landlord's failure to
perform an obligation expressly undertaken pursuant to this Lease after a
reasonable period of time not to exceed 15 days shall have lapsed following
receipt of written notice from Tenant to so perform such obligation. This
indemnity agreement shall survive the expiration or sooner termination of
this Lease. The parties acknowledge that this paragraph has been the subject
of negotiation.

                                      16.

<PAGE>

                                    ARTICLE 9

                                    INSURANCE

9.1  TENANT'S INSURANCE. Tenant shall maintain insurance complying with all
of the following:

         (a) Tenant shall procure, pay for and keep in full force and effect,
at all times during the Lease Term, the following:

                  (i)      Comprehensive general liability insurance insuring
Tenant against liability for personal injury, bodily injury, death and damage
to property occurring within the Leased Premises, or resulting from Tenant's
use or occupancy of the Leased Premises, the Building, the Outside Areas or
the Property, or resulting from Tenant's activities in or about the Leased
Premises or the Property, with coverage in an amount equal to Tenant's
Required Liability Coverage (as set forth in Article 1), which insurance
shall contain a "broad form liability" endorsement insuring Tenant's
performance of Tenant's obligations to indemnify Landlord as contained in
this Lease.

                  (ii)     Fire and property damage insurance in so-called
"fire and extended coverage" form insuring Tenant against loss from physical
damage to Tenant's personal property, inventory, trade fixtures and equipment
within the Leased Premises with coverage for the full actual replacement cost
thereof;

                  (iii)    Plate glass insurance, at actual replacement cost;

                  (iv)     Pressure vessel insurance, if applicable;

                  (v)      Workers' compensation insurance and any other
employee benefit insurance sufficient to comply with all laws; and

                  (vi)     With respect to making of alterations or the
construction of improvements or the like undertaken by Tenant, contingent
liability and builder's risk insurance, in an amount and with coverage
reasonably satisfactory to Landlord.

         (b) Each policy of liability insurance required to be carried by
Tenant pursuant to this paragraph or actually carried by Tenant with respect
to the Leased Premises or the Property: (i) shall, except with respect to
insurance required by subparagraph (a)(vi) above, name Landlord, and such
others as are designated by Landlord, as additional insureds; (ii) shall be
primary insurance providing that the insurer shall be liable for the full
amount of the loss, up to and including the total amount of liability set
forth in the declaration of coverage, without the right of contribution from
or prior payment by any other insurance coverage of Landlord; (iii) shall be
in a form satisfactory to Landlord; (iv) shall be carried with companies
reasonably acceptable to Landlord with Best's ratings of at least A and XI;
(v) shall provide that such policy shall not be subject to cancellation,
lapse or change except after at least thirty days prior written notice to
Landlord, and (vi) shall contain a so-called "severability" or "cross
liability" endorsement. Each policy of property insurance maintained by
Tenant with respect to the Leased Premises or the Property or any property
therein (i) shall provide that such policy shall not be subject to
cancellation, lapse or change except after at least thirty days prior written
notice to Landlord and (ii) shall contain a waiver and/or a permission to
waive by the insurer of any right of subrogation against Landlord, its
partners, principals, members, officers, employees, agents and contractors,
which might arise by reason of any payment under such policy or by reason of
any act or omission of Landlord, its partners, principals, members, officers,
employees, agents and contractors.

         (c) Prior to the time Tenant or any of its contractors enters the
Leased Premises, Tenant shall deliver to Landlord, with respect to each
policy of insurance required to be carried by Tenant pursuant to this
Article, a copy of such policy (appropriately authenticated by the insurer as
having been issued, premium paid) or a certificate of the insurer certifying
in form satisfactory to Landlord that a policy has been issued, premium paid,
providing the coverage required by this Paragraph and containing the
provisions specified herein. With respect to each renewal or replacement of
any such insurance, the requirements of this Paragraph must be complied with
not less than thirty

                                      17.

<PAGE>

days prior to the expiration or cancellation of the policies being renewed or
replaced. Landlord may, at any time and from time to time, inspect and/or
copy any and all insurance policies required to be carried by Tenant pursuant
to this Article. If Landlord's Lender, insurance broker, advisor or counsel
reasonably determines at any time that the amount of coverage set forth in
Paragraph 9.1(a) for any policy of insurance Tenant is required to carry
pursuant to this Article is not adequate, then Tenant shall increase the
amount of coverage for such insurance to such greater amount as Landlord's
Lender, insurance broker, advisor or counsel reasonably deems adequate.

9.2  LANDLORD'S INSURANCE. With respect to insurance maintained by Landlord:

         (a) Landlord shall maintain, as the minimum coverage required of it
by this Lease, fire and property damage insurance in so-called "fire and
extended coverage" form insuring Landlord (and such others as Landlord may
designate) against loss from physical damage to the Building with coverage of
not less than one hundred percent (100%) of the full actual replacement cost
thereof and against loss of rents for a period of not less than six months.
Such fire and property damage insurance, at Landlord's election but without
any requirements on Landlord's behalf to do so, (i) may be written in
so-called "all risk" form, excluding only those perils commonly excluded from
such coverage by Landlord's then property damage insurer; (ii) may provide
coverage for physical damage to the improvements so insured for up to the
entire full actual replacement cost thereof; (iii) may be endorsed to cover
loss or damage caused by any additional perils against which Landlord may
elect to insure, including earthquake and/or flood; and/or (iv) may provide
coverage for loss of rents for a period of up to twelve months. Landlord
shall not be required to cause such insurance to cover any of Tenant's
personal property, inventory, and trade fixtures, or any modifications,
alterations or improvements made or constructed by Tenant to or within the
Leased Premises. Landlord shall use commercially reasonable efforts to obtain
such insurance at competitive rates.

         (b) Landlord shall maintain comprehensive general liability
insurance insuring Landlord (and such others as are designated by Landlord)
against liability for personal injury, bodily injury, death, and damage to
property occurring in, on or about, or resulting from the use or occupancy of
the Property, or any portion thereof, with combined single limit coverage of
at least Three Million Dollars ($3,000,000). Landlord may carry such greater
coverage as Landlord or Landlord's Lender, insurance broker, advisor or
counsel may from time to time determine is reasonably necessary for the
adequate protection of Landlord and the Property.

         (c) Landlord may maintain any other insurance which in the opinion
of its insurance broker, advisor or legal counsel is prudent in carry under
the given circumstances, provided such insurance is commonly carried by
owners of property similarly situated and operating under similar
circumstances.

9.3  MUTUAL WAIVER OF SUBROGATION. Landlord hereby releases Tenant, and
Tenant hereby releases Landlord and its respective partners, principals,
members, officers, agents, employees and servants, from any and all liability
for loss, damage or injury to the property of the other in or about the
Leased Premises or the Property which is caused by or results from a peril or
event or happening which is covered by insurance actually carried and in
force at the time of the loss by the party sustaining such loss; PROVIDED,
HOWEVER, that such waiver shall be effective only to the extent permitted by
the insurance covering such loss and to the extent such insurance is not
prejudiced thereby.

                                   ARTICLE 10

                            DAMAGE TO LEASED PREMISES

10.1  LANDLORD'S DUTY TO RESTORE. If the Leased Premises, the Building or the
Outside Area are damaged by any peril after the Effective Date of this Lease,
Landlord shall restore the same, as and when required by this paragraph,
unless this Lease is terminated by Landlord pursuant to Paragraph 10.3 or by
Tenant pursuant to Paragraph 10.4. If this Lease is not so terminated, then
upon the issuance of all necessary governmental permits, Landlord shall
commence and diligently prosecute to completion the restoration of the Leased
Premises, the Building or the Outside Area, as the case may be, to the extent
then allowed by law, to substantially the same condition in which it existed
as of the Commencement Date. Landlord's obligation to restore shall be
limited to the improvements constructed by Landlord. Landlord shall have no
obligation to restore any alterations made by Tenant to the Leased Premises
or any of Tenant's personal property, inventory or trade fixtures. Upon
completion of the restoration by

                                      18.

<PAGE>

Landlord, Tenant shall forthwith replace or fully repair all of Tenant's
personal property, inventory, trade fixtures to like or similar conditions as
existed at the time immediately prior to such damage or destruction.

10.2  INSURANCE PROCEEDS. All insurance proceeds available from the fire and
property damage insurance carried by Landlord shall be paid to and become the
property of Landlord. If this Lease is terminated pursuant to either
Paragraph 10.3 or 10.4, all insurance proceeds available from insurance
carried by Tenant which cover loss of property that is Landlord's property or
would become Landlord's property on termination of this Lease shall be paid
to and become the property of Landlord, and the remainder of such proceeds
shall be paid to and become the property of Tenant. If this Lease is not
terminated pursuant to either Paragraph 10.3 or 10.4, all insurance proceeds
available from insurance carried by Tenant which cover loss to property that
is Landlord's property shall be paid to and become the property of Landlord,
and all proceeds available from such insurance which cover loss to property
which would only become the property of Landlord upon the termination of this
Lease shall be paid to and remain the property of Tenant. The determination
of Landlord's property and Tenant's property shall be made pursuant to
Paragraph 6.2.

10.3  LANDLORD'S RIGHT TO TERMINATE. Landlord shall have the option to
terminate this Lease in the event any of the following occurs, which option
may be exercised only by delivery to Tenant of a written notice of election
to terminate within thirty days after the date of such damage or destruction:

         (a) The Building is damaged by any peril covered by valid and
collectible insurance actually carried by Landlord and in force at the time
of such damage or destruction or by any peril which would have been covered
by the insurance Landlord is required to maintain pursuant to Section 9.2 (an
"Insured Peril") to such an extent that the estimated cost to restore the
Building exceeds the lesser of (i) the insurance proceeds available from
insurance actually carried by Landlord (or which Landlord was required to
carry pursuant to Section 9.2(a) hereof) plus the amount of any deductible
(up to a maximum amount of five percent (5%) of the replacement cost of the
Building), plus any amount that the Tenant agrees in writing to contribute
towards restoration, or (ii) fifty percent of the then actual replacement
cost of the Building;

         (b) The Building is damaged by an uninsured peril, which peril
Landlord was not required to insure against pursuant to the provisions of
Article 9 of this Lease, provided, however, that, subject to the requirements
of the holder of any deed of trust encumbering the Property, Landlord shall
not have the right to terminate this Lease if Tenant notifies Landlord,
within thirty (30) days after Tenant receives Landlord's written notice of
termination pursuant to this Section 10.3, that Tenant will pay for the cost
of restoration of the Leased Premises, in excess of any insurance proceeds to
be received by Landlord.

         (c) The Building is damaged by any peril and, because of the laws
then in force, the Building (i) cannot be restored at reasonable cost or (ii)
if restored, cannot be used for the same use being made thereof before such
damage.

10.4  TENANT'S RIGHT TO TERMINATE. If the Leased Premises, the Building or
the Outside Area are damaged by any peril and Landlord does not elect to
terminate this Lease or is not entitled to terminate this Lease pursuant to
this Article, then as soon as reasonably practicable, Landlord shall furnish
Tenant with the written opinion of Landlord's architect or construction
consultant as to when the restoration work required of Landlord may be
complete. Tenant shall have the option to terminate this Lease in the event
any of the following occurs, which option may be exercised only by delivery
to Landlord of a written notice of election to terminate within thirty (30)
days after Tenant receives from Landlord the estimate of the time needed to
complete such restoration:

         (a) If the time estimated to substantially complete the restoration
exceeds nine (9) months from and after the date the architect's or construction
consultant's written opinion is delivered; or

         (b) If the damage occurred within twelve months of the last day of the
then current Lease Term, unless at the time of damage or destruction, Tenant has
an option to extend, in which case this Lease shall not terminate if Tenant
elects to exercise its option to extend.

                                      19.

<PAGE>

10.5  TENANT'S WAIVER. Landlord and Tenant agree that the provisions of
Paragraph 10.4 above, captioned "Tenant's Right To Terminate", are intended
to supersede and replace the provisions contained in California Civil Code,
Section 1932, Subdivision 2, and California Civil Code, Section 1934, and
accordingly, Tenant hereby waives the provisions of such Civil Code Sections
and the provisions of any successor Civil Code Sections or similar laws
hereinafter enacted.

10.6  ABATEMENT OF RENT. In the event of damage to the Leased Premises which
does not result in the termination of this Lease, the Base Monthly Rent (and
any Additional Rent) shall be temporarily abated during the period of
restoration in proportion in the degree to which Tenant's use of the Leased
Premises is impaired by such damage.

                                   ARTICLE 11

                                  CONDEMNATION

11.1  TENANT'S RIGHT TO TERMINATE. Except as otherwise provided in Paragraph
11.4 below regarding temporary takings, Tenant shall have the option to
terminate this Lease if, as a result of any taking, (i) all of the Leased
Premises is taken, or (ii) twenty-five percent (25%) or more of the Leased
Premises is taken and the part of the Leased Premises that remains cannot,
within a reasonable period of time, be made reasonably suitable for the
continued operation of Tenant's business, or (iii) or a portion of the
Outside Area is taken such that the parking available to Tenant is reduced by
more than thirty-five percent (35%), and the Landlord does not, within a
reasonable period of time, provide alternative parking arrangements within a
reasonable walking distance of the Leased Premises. Tenant must exercise such
option within a reasonable period of time, to be effective on the later to
occur of (i) the date that possession of that portion of the Leased Premises
that is condemned is taken by the condemnor or (ii) the date Tenant vacated
the Leased Premises.

11.2  LANDLORD'S RIGHT TO TERMINATE. Except as otherwise provided in
Paragraph 11.4 below regarding temporary takings, Landlord shall have the
option to terminate this Lease if, as a result of any taking, (i) all of the
Leased Premises is taken, (ii) twenty-five percent (25%) or more of the
Leased Premises is taken and the part of the Leased Premises that remains
cannot, within a reasonable period of time, be made reasonably suitable for
the continued operation of Tenant's business, or (iii) because of the laws
then in force, the Leased Premises may not be used for the same use being
made before such taking, whether or not restored as required by Paragraph
11.3 below. Any such option to terminate by Landlord must be exercised within
a reasonable period of time, to be effective as of the date possession is
taken by the condemnor.

11.3  RESTORATION. If any part of the Leased Premises or the Building is
taken and this Lease is not terminated, then Landlord shall, to the extent
not prohibited by laws then in force, repair any damage occasioned thereby to
the remainder thereof to a condition reasonably suitable for Tenant's
continued operations and otherwise, to the extent practicable, in the manner
and to the extent provided in Paragraph 10.1.

11.4  TEMPORARY TAKING. If a portion of the Leased Premises is temporarily
taken for a period of one year or less and such period does not extend beyond
the Lease Expiration Date, this Lease shall remain in effect. If any portion
of the Leased Premises is temporarily taken for a period which exceeds one
year or which extends beyond the Lease Expiration Date, then the rights of
Landlord and Tenant shall be determined in accordance with Paragraphs 11.1
and 11.2 above.

11.5  DIVISION OF CONDEMNATION AWARD. Any award made for any taking of the
Property, the Building, or the Leased Premises, or any portion thereof, shall
belong to and be paid to Landlord, and Tenant hereby assigns to Landlord all
of its right, title and interest in any such award; PROVIDED, HOWEVER, that
Tenant shall be entitled to receive any portion of the award that is made
specifically (i) for the taking of personal property, inventory or trade
fixtures belonging to Tenant, (ii) for the interruption of Tenant's business
or its moving costs, or (iii) for the value of any leasehold improvements
installed and paid for by Tenant. The rights of Landlord and Tenant regarding
any condemnation shall be determined as provided in this Article, and each
party hereby waives the provisions of Section 1265.130 of the California Code
of Civil Procedure, and the provisions of any similar law hereinafter
enacted, allowing either party to petition the Superior Court of Alameda
County to terminate this Lease and/or otherwise allocate condemnation awards
between Landlord and Tenant in the event of a taking of the Leased Premises.

                                      20.

<PAGE>

11.6  ABATEMENT OF RENT. In the event of a taking of the Leased Premises which
does not result in a termination of this Lease (other than a temporary taking),
then, as of the date possession is taken by the condemning authority, the Base
Monthly Rent shall be reduced in the same proportion that the area of that part
of the Leased Premises so taken (less any addition to the area of the Leased
Premises by reason of any reconstruction) bears to the area of the Leased
Premises immediately prior to such taking.

11.7  TAKING DEFINED. The term "taking" or "taken" as used in this Article 11
shall mean any transfer or conveyance of all or any portion of the Property
to a public or quasi-public agency or other entity having the power of
eminent domain pursuant to or as a result of the exercise of such power by
such an agency, including any inverse condemnation and/or any sale or
transfer by Landlord of all or any portion of the Property to such an agency
under threat of condemnation or the exercise of such power.

                                   ARTICLE 12

                              DEFAULT AND REMEDIES

12.1  EVENTS OF TENANT'S DEFAULT. Tenant shall be in default of its
obligations under this Lease if any of the following events occur:

         (a) Tenant shall have failed to pay Base Monthly Rent or any
Additional Rent within three (3) days after notice from Landlord that such
rent is past due PROVIDED, HOWEVER, that such notice shall be concurrent
with, and not in addition to, any notice required by applicable Laws; or

         (b) Tenant shall have done or permitted to be done any act, use or
thing in its use, occupancy or possession of the Leased Premises or the
Building or the Outside Areas which is prohibited by the terms of this Lease
or Tenant shall have failed to perform any term, covenant or condition of
this Lease (except those requiring the payment of Base Monthly Rent or
Additional Rent, which failures shall be governed by subparagraph (a) above)
within thirty (30) days after written notice from Landlord to Tenant
specifying the nature of such failure and requesting Tenant to perform same
or within such longer period as is reasonably required in the event such
default is curable but not within such thirty (30) day period, PROVIDED such
cure is promptly commenced within such thirty (30) day period and is
thereafter diligently prosecuted to completion; or

         (c) Tenant shall have sublet the Leased Premises or assigned or
encumbered its interest in this Lease in violation of the provisions
contained in Article 7, whether voluntarily or by operation of law; or

         (d) Tenant shall have abandoned the Leased Premises; or

         (e) Tenant or any Guarantor of this Lease shall have permitted or
suffered the sequestration or attachment of, or execution on, or the
appointment of a custodian or receiver with respect to, all or any
substantial part of the property or assets of Tenant (or such Guarantor) or
any property or asset essential to the conduct of Tenant's (or such
Guarantor's) business, and Tenant (or such Guarantor) shall have failed to
obtain a return or release of the same within thirty days thereafter, or
prior to sale pursuant to such sequestration, attachment or levy, whichever
is earlier; or

         (f) Tenant or any Guarantor of this Lease shall have made a general
assignment of all or a substantial part of its assets for the benefit of its
creditors; or

         (g) Tenant or any Guarantor of this Lease shall have allowed (or
sought) to have entered against it a decree or order which: (i) grants or
constitutes an order for relief, appointment of a trustee, or condemnation or
a reorganization plan under the bankruptcy laws of the United States; (ii)
approves as properly filed a petition seeking liquidation or reorganization
under said bankruptcy laws or any other debtor's relief law or similar
statute of the United States or any state thereof; or (iii) otherwise directs
the winding up or liquidation of Tenant; provided, however, if any decree or
order was entered without Tenant's consent or over Tenant's objection,
Landlord may not terminate this Lease pursuant to this Subparagraph if such
decree or order is rescinded or reversed within thirty days after its
original entry; or

                                      21.

<PAGE>

         (h) Tenant or any Guarantor of this Lease shall have availed itself of
the protection of any debtor's relief law, moratorium law or other similar law
which does not require the prior entry of a decree or order.

12.2  LANDLORD'S REMEDIES. In the event of any default by Tenant, and without
limiting Landlord's right to indemnification as provided in Article 8.2,
Landlord shall have the following remedies, in addition to all other rights
and remedies provided by law or otherwise provided in this Lease, to which
Landlord may resort cumulatively, or in the alternative:

         (a) Landlord may, at Landlord's election, keep this Lease in effect
and enforce, by an action at law or in equity, all of its rights and remedies
under this Lease including, without limitation, (i) the right to recover the
rent and other sums as they become due by appropriate legal action, (ii) the
right to make payments required by Tenant, or perform Tenant's obligations
and be reimbursed by Tenant for the cost thereof with interest at the then
maximum rate of interest not prohibited by law from the date the sum is paid
by Landlord until Landlord is reimbursed by Tenant, and (iii) the remedies of
injunctive relief and specific performance to prevent Tenant from violating
the terms of this Lease and/or to compel Tenant to perform its obligations
under this Lease, as the case may be.

         (b) Landlord may, at Landlord's election, terminate this Lease by
giving Tenant written notice of termination, in which event this Lease shall
terminate on the date set forth for termination in such notice, in which
event Tenant shall immediately surrender the Leased Premises to Landlord, and
if Tenant fails to do so, Landlord may, without prejudice to any other remedy
which it may have for possession or arrearages in rent, enter upon and take
possession of the Leased Premises and expel or remove Tenant and any other
person who may be occupying the Leased Premises or any part thereof, without
being liable for prosecution or any claim or damages therefor. Any
termination under this subparagraph shall not relieve Tenant from its
obligation to pay to Landlord all Base Monthly Rent and Additional Rent then
or thereafter due, or any other sums due or thereafter accruing to Landlord,
or from any claim against Tenant for damages previously accrued or then or
thereafter accruing. In no event shall any one or more of the following
actions by Landlord, in the absence of a written election by Landlord to
terminate this Lease, constitute a termination of this Lease:

                  (i)      Appointment of a receiver or keeper in order to
protect Landlord's interest hereunder;

                  (ii)     Consent to any subletting of the Leased Premises
or assignment of this Lease by Tenant, whether pursuant to the provisions
hereof or otherwise; or

                  (iii)    Any action taken by Landlord or its partners,
principals, members, officers, agents, employees, or servants, which is
intended to mitigate the adverse effects of any breach of this Lease by
Tenant, including, without limitation, any action taken to maintain and
preserve the Leased Premises on any action taken to relet the Leased Premises
or any portion thereof for the account at Tenant and in the name of Tenant.

         (c) In the event Tenant breaches this Lease and abandons the Leased
Premises, Landlord may terminate this Lease, but this Lease shall not
terminate unless Landlord gives Tenant written notice of termination. If
Landlord does not terminate this Lease by giving written notice of
termination, Landlord may enforce all its rights and remedies under this
Lease, including the right and remedies provided by California Civil Code
Section 1951.4 ("Landlord may continue lease in effect after lessee's breach
and abandonment and recover rent as it becomes due, if lessee has right to
sublet or assign, subject only to reasonable limitations"), as in effect on
the Effective Date of this Lease.

         (d) In the event Landlord terminates this Lease, Landlord shall be
entitled, at Landlord's election, to the rights and remedies provided in
California Civil Code Section 1951.2, as in effect on the Effective Date of
this Lease. For purposes of computing damages pursuant to Section 1951.2, an
interest rate equal to the maximum rate of interest then not prohibited by
law shall be used where permitted. Such damages shall include, without
limitation:

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

                                      22.

<PAGE>

                  (ii)     The worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that Tenant proves could be reasonably
avoided, computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco, at the time of award plus one percent;
and

                  (iii)    Any other amount necessary to compensate Landlord
for all detriment proximately caused by Tenant's failure to perform Tenant's
obligations under this Lease, or which in the ordinary course of things would
be likely to result therefrom, including without limitation, the following:
(i) expenses for cleaning, repairing or restoring the Leased Premises,
(ii) expenses for altering, remodeling or otherwise improving the Leased
Premises for the purpose of reletting, including removal of existing
leasehold improvements and/or installation of additional leasehold
improvements (regardless of how the same is funded, including reduction of
rent, a direct payment or allowance to a new tenant, or otherwise),
(iii) broker's fees allocable to the remainder of the term of this Lease,
advertising costs and other expenses of reletting the Leased Premises;
(iv) costs of carrying and maintaining the Leased Premises, such as taxes,
insurance premiums, utility charges and security precautions, (v) expenses
incurred in removing, disposing of and/or storing any of Tenant's personal
property, inventory or trade fixtures remaining therein; (vi) reasonable
attorney's fees, expert witness fees, court costs and other reasonable
expenses incurred by Landlord (but not limited to taxable costs) in retaking
possession of the Leased Premises, establishing damages hereunder, and
releasing the Leased Premises; and (vii) any other expenses, costs or damages
otherwise incurred or suffered as a result of Tenant's default.

(e) In the event any rent check is returned for insufficient finds, by written
notice to Tenant, Landlord may require the Tenant to pay its rent thereafter by
wire transfer or cashiers check.

12.3  LANDLORD'S DEFAULT AND TENANT'S REMEDIES. In the event Landlord fails
to perform its obligations under this Lease, Landlord shall nevertheless not
be in default under the terms of this Lease until such time as Tenant shall
have first given Landlord written notice specifying the nature of such
failure to perform its obligations, and then only after Landlord shall have
had thirty (30) days following its receipt of such notice within which to
perform such obligations; PROVIDED THAT, if longer than thirty (30) days is
reasonably required in order to perform such obligations, Landlord shall have
such longer period. In the event of Landlord's default as above set forth,
then, and only then, Tenant may then proceed in equity or at law to compel
Landlord to perform its obligations and/or to recover damages proximately
caused by such failure to perform (except as and to the extent Tenant has
waived its right to damages as provided in this Lease).

12.4  LIMITATION OF TENANT'S RECOURSE. If Landlord is a corporation, trust,
partnership, joint venture, limited liability company, unincorporated
association, or other form of business entity, Tenant agrees that (i) the
obligations of Landlord under this Lease shall not constitute personal
obligations of the officers, directors, trustees, partners, joint venturers,
members, owners, stockholders, or other principals of such business entity,
and (ii) Tenant shall have recourse only to the property of such corporation,
trust, partnership, joint venture, limited liability company, unincorporated
association, or other form of business entity for the satisfaction of such
obligations and not against the assets of such officers, directors, trustees,
partners, joint venturers, members, owners, stockholders or principals.

12.5  TENANT'S WAIVER. Landlord and Tenant agree that the provisions of
Paragraph 12.3 above are intended to supersede and replace the provisions of
California Civil Code Sections 1932(1), 1941 and 1942, and accordingly,
Tenant hereby waives the provisions of California Civil Code Sections
1932(1), 1941 and 1942 and/or any similar or successor law regarding Tenant's
right to terminate this Lease or to make repairs and deduct the expenses of
such repairs from the rent due under this Lease.

                                   ARTICLE 13

                               GENERAL PROVISIONS

13.1  TAXES ON TENANT'S PROPERTY. Tenant shall pay before delinquency any and
all taxes, assessments, license fees, use fees, permit fees and public
charges of whatever nature or description levied, assessed or imposed against
Tenant or Landlord by a governmental agency arising out of, caused by reason
of or based upon Tenant's estate in this Lease, Tenant's ownership of
property, improvements made by Tenant to the Leased Premises or the Outside
Areas, improvements made by Landlord for Tenant's use within the Leased
Premises or the Outside Areas, Tenant's

                                      24.

<PAGE>

use (or estimated use) of public facilities or services or Tenant's
consumption (or estimated consumption) of public utilities, energy, water or
other resources (collectively, "Tenant's Interest"). Upon demand by Landlord,
Tenant shall furnish Landlord with satisfactory evidence of these payments.
If any such taxes, assessments, fees or public charges are levied against
Landlord, Landlord's property, the Building or the Property, or if the
assessed value of the Building or the Property is increased by the inclusion
therein of a value placed upon Tenant's Interest, regardless of the validity
thereof, Landlord shall have the right to require Tenant to pay such taxes,
and if not paid and satisfactory evidence of payment delivered to Landlord at
least ten days prior to delinquency, then Landlord shall have the right to
pay such taxes on Tenant's behalf and to invoice Tenant for the same. Tenant
shall, within the earlier to occur of (a) thirty (30) days of the date it
receives an invoice from Landlord setting forth the amount of such taxes,
assessments, fees, or public charge so levied, or (b) the due date of such
invoice, pay to Landlord, as Additional Rent, the amount set forth in such
invoice. Failure by Tenant to pay the amount so invoiced within such time
period shall be conclusively deemed a default by Tenant under this Lease.
Tenant shall have the right to bring suit in any court of competent
jurisdiction to recover from the taxing authority the amount of any such
taxes, assessments, fees or public charges so paid.

13.2  HOLDING OVER. This Lease shall terminate without further notice on the
Lease Expiration Date (as set forth in Article 1). Any holding over by Tenant
after expiration of the Lease Term shall neither constitute a renewal nor
extension of this Lease nor give Tenant any rights in or to the Leased
Premises except as expressly provided in this Paragraph. Any such holding
over to which Landlord has consented shall be construed to be a tenancy from
month to month, on the same terms and conditions herein specified insofar as
applicable, except that the Base Monthly Rent shall be increased to an amount
equal to one hundred fifty percent (150%) of the Base Monthly Rent payable
during the last full month immediately preceding such holding over. Tenant
acknowledges that if Tenant holds over without Landlord's consent, such
holding over may compromise or otherwise affect Landlord's ability to enter
into new leases with prospective tenants regarding the Leased Premises.
Therefore, if Tenant fails to surrender the Leased Premises upon the
expiration or termination of this Lease, in addition to any other liabilities
to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and
hold Landlord harmless from and against all claims resulting from such
failure, including, without limiting the foregoing, any claims made by any
succeeding tenant founded upon such failure to surrender, and any losses
suffered by Landlord, including lost profits, resulting from such failure to
surrender.

13.3  SUBORDINATION TO MORTGAGES. This Lease is subject to and subordinate to
all ground leases, mortgages and deeds of trust which affect the Building or
the Property and which are of public record as of the Effective Date of this
Lease, and to all renewals, modifications, consolidations, replacements and
extensions thereof. Landlord covenants to use its best efforts to obtain
non-disturbance agreements from all holders of ground leases, mortgages and
deeds of trust in effect as of the date of this Lease, in form reasonably
satisfactory to Tenant, within sixty (60) days of the date of this Lease. If
Landlord shall fail to obtain such non-disturbance agreements within such
sixty (60) day period, Tenant shall have thirty (30) days within which to
terminate this Lease by written notice to Landlord. Notwithstanding the
foregoing, if the lessor under any such ground lease or any lender holding
any such mortgage or deed of trust shall advise Landlord that it desires or
requires this Lease to be made prior and superior thereto, then, upon written
request of Landlord to Tenant, Tenant shall promptly execute, acknowledge and
deliver any and all customary or reasonable documents or instruments which
Landlord and such lessor or lender deems necessary or desirable to make this
Lease prior thereto. Tenant hereby consents to Landlord's ground leasing the
land underlying the Building or the Property and/or encumbering the Building
or the Property as security for future loans on such terms as Landlord shall
desire, all of which future ground leases, mortgages or deeds of trust shall
be subject to and subordinate to this Lease. However, if any lessor under any
such future ground lease or any lender holding such future mortgage or deed
of trust shall desire or require that this Lease be made subject to and
subordinate to such future ground lease, mortgage or deed of trust, then
Tenant agrees, within ten (10) days after Landlord's written request
therefor, to execute, acknowledge and deliver to Landlord any and all
documents or instruments reasonably requested by Landlord or by such lessor
or lender as may be necessary or proper to assure the subordination of this
Lease to such future ground lease, mortgage or deed of trust, but only if
such lessor or lender agrees to recognize Tenant's rights under this Lease
and agrees not to disturb Tenant's quiet possession of the Leased Premises so
long as Tenant is not in default under this Lease. If Landlord assigns the
Lease as security for a loan, Tenant agrees to execute such documents as are
reasonably requested by the lender and to provide reasonable provisions in
the Lease protecting such lender's security interest which are customarily
required by institutional lenders making loans secured by a deed of trust
provided that such documents do not materially increase Tenant's obligations
or diminish its rights or remedies under this Lease.

                                      24.

<PAGE>

13.4  TENANT'S ATTORNMENT UPON FORECLOSURE. Tenant shall, upon request,
attorn (i) to any purchaser of the Building or the Property at any
foreclosure sale or private sale conducted pursuant to any security
instruments encumbering the Building or the Property, (ii) to any grantee or
transferee designated in any deed given in lieu of foreclosure of any
security interest encumbering the Building or the Property, or (iii) to the
lessor under an underlying ground lease of the land underlying the Building
or the Property, should such ground lease be terminated; provided that such
purchaser, grantee or lessor recognizes Tenant's rights under this Lease.

13.5  MORTGAGEE PROTECTION. In the event of any default on the part of
Landlord, Tenant will give notice by registered mail to any Lender or lessor
under any underlying ground lease who shall have requested, in writing, to
Tenant that it be provided with such notice, and Tenant shall offer such
Lender or lessor a reasonable opportunity to cure the default, including time
to obtain possession of the Leased Premises by power of sale or judicial
foreclosure or other appropriate legal proceedings if reasonably necessary to
effect a cure.

13.6  ESTOPPEL CERTIFICATE. Each party (the "Responding Party"), within five
business days following any request by the other party (the "Requesting
Party"), will execute and deliver to the Requesting Party an estoppel
certificate substantially in form attached as Exhibit B, (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, (ii) stating the date to which the
rent and other charges are paid in advance, if any, (iii) acknowledging that
there are not, to the Responding Party's knowledge, any uncured defaults on
the part of the Requesting Party hereunder, or specifying such defaults if
any are claimed, and (iv) certifying such other information about this Lease
as may be reasonably requested by the Requesting Party, its Lender or
prospective lenders, investors or purchasers. Landlord and Tenant intend that
any statement delivered pursuant to this paragraph may be relied upon by any
Lender or purchaser.

13.7  TENANT'S FINANCIAL INFORMATION. Tenant shall, within ten business days
after Landlord's request therefor, deliver to Landlord a copy of Tenant's
(and any guarantor's) current publicly available financial statements and any
such other publicly available information reasonably requested by Landlord
regarding Tenant's financial condition. Landlord shall be entitled to
disclose such financial statements or other information to its Lender, to any
present or prospective principal of or investor in Landlord, or to any
prospective Lender or purchaser of the Building, the Property, or any portion
thereof or interest therein. Any such information which is marked
"confidential" or "company secrets" (or is otherwise similarly marked by
Tenant) shall be confidential and shall not be disclosed by Landlord to any
third party except as specifically provided in this paragraph and then only
if the person to whom disclosure is made first agrees to be bound by the
requirements of this Section 13.7, unless the same becomes a part of the
public domain without the fault of Landlord.

13.8  TRANSFER BY LANDLORD. Landlord and its successors in interest shall
have the right to transfer their interest in the Building, the Property, or
any portion thereof at any time and to any person or entity. In the event of
any such transfer, the Landlord originally named herein (and in the case of
any subsequent transfer, the transferor), from the date of such transfer, (i)
shall be automatically relieved, without any further act by any person or
entity, of all liability for the performance of the obligations of the
Landlord hereunder which may accrue after the date of such transfer so long
as the Security Deposit (or the remaining amount of such Security Deposit
after deductions made in accordance with Section 3.7 of this Lease) is
transferred to the transferee (or returned to the Tenant) and the transferee
has agreed to assume and perform all such obligations which may accrue after
the date of such transfer and (ii) shall be relieved of all liability for the
performance of the obligations of the Landlord hereunder which have accrued
before the date of transfer if its transferee agrees to assume and perform
all such prior obligations of the Landlord hereunder. Tenant shall attorn to
any such transferee. After the date of any such transfer, the term "Landlord"
as used herein shall mean the transferee of such interest in the Building or
the Property.

13.9  FORCE MAJEURE. Subject to express provisions to the contrary set forth
in this Lease, the obligations of each of the parties under this Lease (other
than the obligations to pay money) shall be temporarily excused if such party
is prevented or delayed in performing such obligations by reason of any
strikes, lockouts or labor disputes; government restrictions, regulations,
controls, action or inaction; civil commotion; or extraordinary weather, fire
or other acts of God.

13.10  NOTICES. Any notice required or permitted to be given under this Lease
shall be in writing and (i) personally delivered, (ii) sent by United States
mail, registered or certified mail, postage prepaid, return receipt

                                      25.

<PAGE>

requested, (iii) sent by Federal Express or similar nationally recognized
overnight courier service, or (iv) transmitted by facsimile with a hard copy
sent within one (1) business day by any of the foregoing means, and in all
cases addressed as follows, and such notice shall be deemed to have been
given upon the date of actual receipt or delivery (or refusal to accept
delivery) at the address specified below (or such other addresses as may be
specified by notice in the foregoing manner) as indicated on the return
receipt or air bill:

         IF TO LANDLORD:            Rotunda Partners II
                                    600 Grand Avenue, Suite 404
                                    Oakland, CA 94610
                                    Attention: Mark Moss

         WITH A COPY TO:            Rod Divelbiss, Esq.

                                    Divelbiss, Divelbiss & Bonzell, LLP

                                    100 Spear Street, Suite 1115

                                    San Francisco, CA 94105

         IF TO TENANT:              PRIOR TO COMMENCEMENT DATE:
                                    --------------------------

                                    Scientific Learning Corporation
                                    1995 University Avenue, Suite 400
                                    Berkeley , California  94704

                                    Attention:  General Counsel

                                    AFTER THE COMMENCEMENT DATE:
                                    ---------------------------

                                    At the Leased Premises.

                                    Attention:  General Counsel

         with a copy to:            Cooley Godward LLP
                                    One Maritime Plaza
                                    20th Floor
                                    San Francisco, California  94111
                                    Attention:  Anna Pope

Any notice given in accordance with the foregoing shall be deemed received
upon actual receipt or refusal to accept delivery.

13.11  ATTORNEYS' FEES. In the event any party shall bring any action,
arbitration proceeding or legal proceeding alleging a breach of any provision
of this Lease, to recover rent, to terminate this Lease, or to enforce,
protect, determine or establish any term or covenant of this Lease or rights
or duties hereunder of either party, the prevailing party shall be entitled
to recover from the non-prevailing party as a part of such action or
proceeding, or in a separate action for that purpose brought within one year
from the determination of such proceeding, reasonable attorneys' fees, expert
witness fees, court costs and other reasonable expenses incurred by the
prevailing party.

13.12  DEFINITIONS. Any term that is given a special meaning by any provision
in this Lease shall, unless otherwise specifically stated, have such meaning
wherever used in this Lease or in any Addenda or amendment hereto. In
addition to the terms defined in Article 1, the following terms shall have
the following meanings:

                                      26.

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         (a) REAL PROPERTY TAXES. The term "Real Property Tax" or "Real
Property Taxes" shall each mean (i) all taxes, assessments, levies and other
charges of any kind or nature whatsoever, general and special, foreseen and
unforeseen (including all instruments of principal and interest required to
pay any general or special assessments for public improvements and any
increases resulting from reassessments caused by any change in ownership or
new construction), now or hereafter imposed by any governmental or
quasi-governmental authority or special district having the direct or
indirect power to tax or levy assessments, which are levied or assessed for
whatever reason against the Property or any portion thereof, or Landlord's
interest herein, or the fixtures, equipment and other property of Landlord
that is an integral part of the Property and located thereon, or Landlord's
business of owning, leasing or managing the Property or the gross receipts,
income or rentals from the Property, (ii) all charges, levies or fees imposed
by any governmental authority against Landlord by reason of or based upon the
use of or number of parking spaces within the Property. If, at any time
during the Lease Term, the taxation or assessment of the Property prevailing
as of the Effective Date of this Lease shall be altered so that in lieu of or
in addition to any the Real Property Tax described above there shall be
levied, awarded or imposed (whether by reason of a change in the method of
taxation or assessment, creation of a new tax or charge, or any other cause)
an alternate, substitute, or additional use or charge (i) on the value, size,
use or occupancy of the Property or Landlord's interest therein or (ii) on or
measured by the gross receipts, income or rentals from the Property, or on
Landlord's business of owning, leasing or managing the Property or (iii)
computed in any manner with respect to the operation of the Property, then
any such tax or charge, however designated, shall be included within the
meaning of the terms "Real Property Tax" or "Real Property Taxes" for
purposes of this Lease. If any Real Property Tax is partly based upon
property or rents unrelated to the Property, then only that part of such Real
Property Tax that is fairly allocable to the Property shall be included
within the meaning of the terms "Real Property Tax" or "Real Property Taxes."
Notwithstanding the foregoing, the terms "Real Property Tax" or "Real
Property Taxes" shall not include estate, inheritance, transfer, gift or
franchise taxes of Landlord or the federal or state income tax imposed on
Landlord's income from all sources.

         (b) LANDLORD'S INSURANCE COSTS. The term "Landlord's Insurance
Costs" shall mean the costs to Landlord to carry and maintain the policies of
fire and property damage insurance for the Property and general liability and
any other insurance required or permitted to be carried by Landlord pursuant
to Article 9, together with any deductible amounts paid by Landlord upon the
occurrence of any insured casualty or loss. Any deductible amount in excess
of ten (10%) of the total casualty shall be amortized over the useful life of
the repair or replacement required to restore the Property after such
casualty, and the amortized portion shall be included on a monthly basis in
Landlord's Insurance Costs. Notwithstanding the foregoing, Landlord's
Insurance Costs shall not include the cost of any course of construction
insurance carried by Landlord for the construction of the Improvements.
Notwithstanding the foregoing, if Tenant terminates this Lease pursuant to
Section 10.4 hereof, Tenant shall not be required to pay for any insurance
deductibles as part of Landlord's Insurance Costs or otherwise.

         (c) PROPERTY MAINTENANCE COSTS. The term "Property Maintenance
Costs" shall mean all costs and expenses (except Landlord's Insurance Costs
and Real Property Taxes) paid or incurred by Landlord in protecting,
operating, maintaining, repairing and preserving the Property and all parts
thereof, including without limitation, (i) market rate professional
management fees of no more than five percent (5%) of Base Monthly Rent,
(ii) the amortizing portion of any costs incurred by Landlord in the making
of any modifications, alterations or improvements required by any
governmental authority as set forth in Article 6, which are so amortized
during the Lease Term, (iii) any and all on-going operation or maintenance
costs imposed on the Property by or through any development agreement, use
permit, site development agreement, traffic mitigation plan, entitlement, or
Private Restrictions (including but not limited to shuttle and emergency
transportation), (iv) such other costs as may be paid or incurred with
respect to operating, maintaining, and preserving the Property, repairing and
resurfacing paved areas, and repairing and replacing, when necessary,
electrical, plumbing, heating, ventilating and air conditioning systems
serving the Building, provided that the cost of any capital improvement shall
be amortized over the useful life of such improvement and the amortizing
portion of the cost shall be included in Property Maintenance Costs, and
(v) an expense reserve in the amount of $300,000 in the Base Year, subject to
a three percent (3%) annual increase for subsequent years. If any costs and
expenses are partly based upon property or rents unrelated to the Property,
then only that part of such Property Maintenance Costs that is fairly
allocable to the Property shall be included within the meaning of the terms
"Property Maintenance Costs." Notwithstanding the foregoing provisions of
this Section 13.12(c), the following are specifically excluded from the
definition of Property Maintenance Costs and Tenant shall have no obligation
to pay directly or reimburse Landlord for all or any portion of the following
except to the extent any of the foregoing are caused by the actions or
inaction of Tenant, or result from the failure of Tenant to comply with the
terms of the Lease: (a) costs of development or construction on the Property
(other than

                                      27.

<PAGE>

on-going operation or maintenance costs as set forth in (iii) above); (b) the
costs to repair or replace the structural portions of the Building or other
buildings on the Property, including, without limitation, the foundation,
footings, roof structure, roof screens, roof screen penetrations, and load
bearing and exterior walls of the Building or any other building located on
the Property; (c) depreciation, or amortization; (d) interest, charges and
fees incurred on debt, payments on mortgages and rent under ground leases;
(e) costs and expenses for which Tenant reimburses Landlord directly or which
Tenant pays directly to a third person or costs for which Landlord has a
right of reimbursement from others; (f) costs occasioned by the active
negligence or willful misconduct of Landlord or any other occupant of the
Property or violations of Law by Landlord or any other occupant of the
Property, (g) or costs to correct any construction defect in the Leased
Premises, the Building or the Property; or (h) capital costs incurred to
bring the Building or the Property into compliance with the Use Permit, any
CC&R's, underwriter's requirements, or Laws applicable to the Leased
Premises, the Building or the Property at the time the building permit for
the Improvements (as defined in the Work Letter) is issued.

         (d) PROPERTY OPERATING EXPENSES. The term "Property Operating
Expenses" shall mean and include all Real Property Taxes, plus all Landlord's
Insurance Costs, plus all Property Maintenance Costs.

         (e) LAW. The term "Law" shall mean any judicial decisions and any
statute, constitution, ordinance, resolution, regulation, rule,
administrative order, or other requirements of any municipal, county, state,
federal, or other governmental agency or authority having jurisdiction over
the parties to this Lease, the Leased Premises, the Building or the Property,
or any of them, in effect either at the Effective Date of this Lease or at
any time during the Lease Term, including, without limitation, any
regulation, order, or policy of any quasi-official entity or body (e.g. a
board of fire examiners or a public utility or special district).

         (f) LENDER. The term "Lender" shall mean the holder of any
promissory note or other evidence of indebtedness secured by the Property or
any portion thereof.

         (g) PRIVATE RESTRICTIONS. The term "Private Restrictions" shall mean
(as they may exist from time to time) any and all covenants, conditions and
restrictions, private agreements, easements, and any other recorded documents
or instruments affecting the use of the Property, the Building, the Leased
Premises, or the Outside Areas.

         (h) RENT. The term "Rent" shall mean collectively Base Monthly Rent
for the Original Build-out Space and any Designated Portion of the Expansion
Space once becomes due, and all Additional Rent.

13.13  GENERAL WAIVERS. One party's consent to or approval of any act by the
other party requiring the first party's consent or approval shall not be
deemed to waive or render unnecessary the first party's consent to or
approval of any subsequent similar act by the other party. No waiver of any
provision hereof, or any waiver of any breach of any provision hereof, shall
be effective unless in writing and signed by the waiving party. The receipt
by Landlord of any rent or payment with or without knowledge of the breach of
any other provision hereof shall not be deemed a waiver of any such breach.
No waiver of any provision of this Lease shall be deemed a continuing waiver
unless such waiver specifically states so in writing and is signed by both
Landlord and Tenant. No delay or omission in the exercise of any right or
remedy accruing to either party upon any breach by the other party under this
Lease shall impair such right or remedy or be construed as a waiver of any
such breach theretofore or thereafter occurring. The waiver by either party
of any breach of any provision of this Lease shall not be deemed to be a
waiver of any subsequent breach of the same or any other provisions herein
contained.

13.14  MISCELLANEOUS. Should any provisions of this Lease prove to be invalid
or illegal, such invalidity or illegality shall in no way affect, impair or
invalidate any other provisions hereof, and such remaining provisions shall
remain in full force and effect. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is
a factor. Any copy of this Lease which is executed by the parties shall be
deemed an original for all purposes. This Lease shall, subject to the
provisions regarding assignment, apply to and bind the respective heirs,
successors, executors, administrators and assigns of Landlord and Tenant. The
term "party" shall mean Landlord or Tenant as the context implies. If Tenant
consists of more than one person or entity, then all members of Tenant shall
be jointly and severally liable hereunder. This Lease shall be construed and
enforced in accordance with the Laws of the State in which the Leased
Premises are located. The captions in this Lease are for convenience only and
shall not be construed in the construction or interpretation of any provision
hereof. When the context of this Lease requires, the neuter gender includes
the masculine, the feminine, a

                                      28.

<PAGE>

partnership, corporation, limited liability company, joint venture, or other
form of business entity, and the singular includes the plural. The terms
"must," "shall," "will," and "agree" are mandatory. The term "may" is
permissive. When a party is required to do something by this Lease, it shall
do so at its sole cost and expense without right of reimbursement from the
other party unless specific provision is made therefor. Where Landlord's
consent is required hereunder, the consent of any Lender is also required.
Landlord and Tenant shall both be deemed to have drafted this Lease, and the
rule of construction that a document is to be construed against the drafting
party shall not be employed in the construction or interpretation of this
Lease. Where Tenant is obligated not to perform any act or is not permitted
to perform any act, Tenant is also obligated to restrain any others
reasonably within its control, including agents, invitees, contractors,
subcontractors and employees, from performing such act. Landlord shall not
become or be deemed a partner or a joint venturer with Tenant by reason of
any of the provisions of this Lease.

                                   ARTICLE 14

                               CORPORATE AUTHORITY
                          BROKERS AND ENTIRE AGREEMENT

14.1  CORPORATE AUTHORITY. Each individual executing this Lease on behalf of
either party represents and warrants that such party is validly formed and
duly authorized and existing, that it is qualified to do business in the
State in which the Leased Premises are located, that it has the full right
and legal authority to enter into this Lease, and that he or she is duly
authorized to execute and deliver this Lease on its behalf in accordance with
its terms.

14.2  BROKERAGE COMMISSIONS. Each party represents, warrants and agrees that
it has not had any dealings with any real estate broker(s), leasing agent(s),
finder(s) or salesmen, other than the Brokers (as named in Article 1) with
respect to the lease by it of the Leased Premises pursuant to this Lease,
agrees to indemnify, defend with competent counsel, and hold the other party
harmless from any liability for the payment of any real estate brokerage
commissions, leasing commissions or finder's fees claimed by any other real
estate broker(s), leasing agent(s), finder(s), or salesmen to be earned or
due and payable by reason of its agreement or promise (implied or otherwise)
to pay such a commission or finder's fee by reason of this Lease. Landlord
shall pay the commission due to Brokers pursuant to a separate agreement
between Brokers and Landlord

14.3  ENTIRE AGREEMENT. This Lease and the Exhibits (as described in Article
1), which Exhibits are by this reference incorporated herein, constitute the
entire agreement between the parties, and there are no other agreements,
understandings or representations between the parties relating to the lease
by Landlord of the Leased Premises to Tenant, except as expressed herein. No
subsequent changes, modifications or additions to this Lease shall be binding
upon the parties unless in writing and signed by both Landlord and Tenant.

14.4  LANDLORD'S REPRESENTATIONS. Tenant acknowledges that neither Landlord
nor any of its agents made any representations or warranties respecting the
Property, the Building or the Leased Premises, upon which Tenant relied in
entering into the Lease, which are not expressly set forth in this Lease.
Tenant further acknowledges that neither Landlord nor any of its agents made
any representations as to (i) whether the Leased Premises may be used for
Tenant's intended use under existing Law, or (ii) the suitability of the
Leased Premises for the conduct of Tenant's business and that Tenant relies
solely upon its own investigations with respect to such matters. Tenant
expressly waives any and all claims for damage by reason of any statement,
representation, warranty, promise or other agreement of Landlord or
Landlord's agent(s), if any, not contained in this Lease or in any Exhibit
attached hereto.

                                      29.

<PAGE>

                                   ARTICLE 15

                                OPTIONS TO EXTEND

15.1  OPTIONS. So long as Scientific Learning Corporation (or a Permitted
Transferee) is entitled to occupy the Leased Premises, and subject to the
condition set forth in clause (b) below, Tenant shall have two options to
extend the term of this Lease with respect to the entirety of the Leased
Premises, the first for a period of five (5) years from the expiration of the
last year of the Lease Term (the "First Extension Period"), and the second
(the "Second Extension Period") for a period of five (5) years from the
expiration of the First Extension Period, subject to the following conditions:

         (a) Each option to extend shall be exercised, if at all, by written
notice of exercise given to Landlord by Tenant not more than eighteen (18)
months nor less than six (6) months prior to the expiration of the last year
of the Lease Term or the expiration of the First Extension Period, as
applicable;

         (b) Anything herein to the contrary notwithstanding, if Tenant is in
default under any of the material terms, covenants or conditions of this
Lease beyond any applicable notice and cure period, either at the time Tenant
exercises either extension option or on the commencement date of the First
Extension Period or the Second Extension Period, as applicable, Landlord
shall have, in addition to all of Landlord's other rights and remedies
provided in this Lease, the right to terminate such option(s) to extend upon
written notice to Tenant.

15.2  FAIR MARKET RENT. In the event the applicable option is exercised in a
timely fashion, the Lease shall be extended for the term of the applicable
extension period upon all of the terms and conditions of this Lease, provided
that the Base Monthly Rent for each extension period shall be 95% of the "Fair
Markett Rent" for the Leased Premises, determined as set forth below.

15.3  DETERMINATION. Within 30 days after receipt of Tenant's notice of
exercise, Landlord shall notify Tenant in writing of Landlord's estimate of
the Base Monthly Rent for the first year of the applicable extension period.
For purposes hereof, "Fair Market Rent" shall mean the rent a willing tenant
would be willing to pay for similar space in similar buildings in similar
locations upon substantially the terms set forth in this Lease. Within 30
days after receipt of such notice from Landlord, Tenant shall have the right
either to (i) accept Landlord's estimate of Fair Market Rent or (ii) elect to
arbitrate Landlord's estimate of Fair Market Rent, such arbitration to be
conducted pursuant to the provisions hereof. Failure on the part of Tenant to
give written notice of its election to require arbitration of Fair Market
Rent within such 30-day period shall constitute acceptance of the Fair Market
Rent for the applicable extension period as calculated by Landlord. If Tenant
elects arbitration, the arbitration shall be concluded within 90 days after
the date of Tenant's election, subject to extension for an additional 30-day
period if a third arbitrator is required and does not act in a timely manner.
To the extent that arbitration has not been completed prior to the expiration
of any preceding period for which Base Monthly Rent has been determined,
Tenant shall pay Base Monthly Rent at the rate calculated by Landlord, with
the potential for an adjustment to be made once Fair Market Rent is
ultimately determined by arbitration.

15.4  ARBITRATION. In the event of arbitration, the judgment or the award
rendered in any such arbitration may be entered in any court having
jurisdiction and shall be final and binding between the parties. The
arbitration shall be conducted and determined in the City of Oakland in
accordance with the then prevailing rules of the American Arbitration
Association or its successor for arbitration of commercial disputes except to
the extent that the procedures mandated by such rules shall be modified as
follows:

         (a) Tenant shall make demand for arbitration in writing within 30 days
after service of Landlord's determination of Fair Market Rent given under
Paragraph 15.3 above, specifying therein the name and address of the person to
act as the arbitrator on its behalf. The arbitrator shall be qualified as a real
estate appraiser familiar with the Fair Market Rent of similar office space in
the San Francisco/Oakland area who would qualify as an expert witness over
objection to give opinion testimony addressed to the issue in a court of
competent jurisdiction. Failure on the part of Tenant to make a proper demand in
a timely manner for such arbitration shall constitute a waiver of the right
thereto. Within 15 days after the service of the demand for arbitration,
Landlord shall give notice to Tenant, specifying the name and address of the
person designated by Landlord to act as arbitrator on its behalf who

                                      30.

<PAGE>

shall be similarly qualified. If Landlord fails to notify Tenant of the
appointment of its arbitrator, within or by the time above specified, then
the arbitrator appointed by Tenant shall be the arbitrator to determine the
issue.

         (b) In the event that two arbitrators are chosen pursuant to
Paragraph 15.4(a) above, the arbitrators so chosen shall, within 15 days
after the second arbitrator is appointed determine the Fair Market Rent. If
the two arbitrators shall be unable to agree upon a determination of Fair
Market Rent within such 15-day period, they, themselves, shall appoint a
third arbitrator, who shall be a competent and impartial person with
qualifications similar to those required of the first two arbitrators
pursuant to Paragraph 15.4(a). In the event they are unable to agree upon
such appointment within seven days after expiration of such 15-day period,
the third arbitrator shall be selected by the parties themselves, if they can
agree thereon, within a further period of 15 days. If the parties do not so
agree, then either party, on behalf of both, may request appointment of such
a qualified person by the then Presiding Judge of the Superior Court of the
County of Alameda. The three arbitrators shall decide the dispute if it has
not previously been resolved by following the procedure set forth below.

         (c) Where an issue cannot be resolved by agreement between the two
arbitrators selected by Landlord and Tenant or settlement between the parties
during the course of arbitration, the issue shall be resolved by the three
arbitrators within 15 days of the appointment of the third arbitrator in
accordance with the following procedure. The arbitrator selected by each of
the parties shall state in writing his determination of the Fair Market Rent
supported by the reasons therefor with counterpart copies to each party. The
arbitrators shall arrange for a simultaneous exchange of such proposed
resolutions. The role of the third arbitrator shall be to select which of the
two proposed resolutions most closely approximates his determination of Fair
Market Rent. The third arbitrator shall have no right to propose a middle
ground or any modification of either of the two proposed resolutions. The
resolution he chooses as most closely approximating his determination shall
constitute the decision of the arbitrators and be final and binding upon the
parties.

         (d) In the event of a failure, refusal or inability of any
arbitrator to act, his successor shall be appointed by him, but in the case
of the third arbitrator, his successor shall be appointed in the same manner
as provided for appointment of the third arbitrator. The arbitrators shall
decide the issue within 15 days after the appointment of the third
arbitrator. Any decision in which the arbitrator appointed by Landlord and
the arbitrator appointed by Tenant concur shall be binding and conclusive
upon the parties. Each party shall pay the fee and expenses of its respective
arbitrator and both shall share the fee and expenses of the third arbitrator,
if any, and the attorneys' fees and expenses of counsel for the respective
parties and of witnesses shall be paid by the respective party engaging such
counsel or calling such witnesses.

         (e) The arbitrators shall have the right to consult experts and
competent authorities to obtain factual information or evidence pertaining to
a determination of Fair Market Rent. The arbitrators shall render their
decision and award in writing with counterpart copies to each party. The
arbitrators shall have no power to modify the provisions of this Lease.

15.5  IMPROVEMENT ALLOWANCE. Upon the commencement of any Extension Period,
Landlord shall pay to Tenant an amount up to $10.00 per rentable square feet,
which Tenant shall use pay or offset the costs to repaint and re-carpet the
Leased Premises, which shall otherwise be undertaken at Tenant's cost and
expense.

                                   ARTICLE 16

                                    EXPANSION

16.1  EXPANSION SPACE. So long as Scientific Learning Corporation (or a
Permitted Transferee) is entitled to occupy the Leased Premises as of its
exercise of the option granted herein, and subject to the conditions set
forth below, Tenant shall have an ongoing option to lease from Landlord (the
"Expansion Option"), all or portions of the 12,947 rentable square foot
delineated on Sheet X-9 of the Plans as "Future Tenant" (the "Expansion
Space"), which shall, subject to compliance with all Laws, be built by
Landlord to the same or substantially similar quality as the Improvements as
required by the Work Letter, based on the specifications for the Improvements:

         (a) The Expansion Option may be exercised, if at all, by one or a
series of written notices of exercise given to Landlord by Tenant at any time
prior to the expiration of the fifth year of the Term;

                                      31.

<PAGE>

         (b) Notwithstanding anything to the contrary contained herein, if
Tenant is in default under any of the material terms, covenants or conditions
of this Lease beyond any applicable notice and cure period at the time Tenant
exercises the Expansion Option, Landlord shall have, in addition to all of
Landlord's other rights and remedies provided in this Lease, the right to
terminate such Expansion Option upon notice to Tenant.

16.2  OPTION CONSIDERATION. Commencing on the Commencement Date, as
consideration for Landlord's agreement to build out the Expansion Space in
conformance with the requirements of the final plans and specifications for
the Improvements in accordance with the Work Letter, Tenant shall pay to
Landlord the following amounts, concurrently with the payment of each monthly
installment of Base Monthly Rent for the Original Build-out Space:

During the first year of the Term:      $.25 per month per rentable square
                                        foot in the Expansion Space not yet
                                        included in the Leased Premises

During the second year of the Term:     $.35 per month per rentable square
                                        foot in the Expansion Space not yet
                                        included in the Leased Premises

During the third year of the Term:      $.50 per month per rentable square
                                        foot in the Expansion Space not yet
                                        included in the Leased Premises

During the forth year of the Term:      $.70 per month per rentable square
                                        foot in the Expansion Space not yet
                                        included in the Leased Premises

During the fifth year of the Term:      $1.00 per month per rentable square
                                        foot in the Expansion Space not yet
                                        included in the Leased Premises

During the sixth year of the Term:      $1.30 per month per rentable square
                                        foot in the Expansion Space not yet
                                        included in the Leased Premises

During the seventh year of the Term:    $1.60 per month per rentable square
                                        foot in the Expansion Space not yet
                                        included in the Leased Premises

During the eighth year of the Term:     $1.90 per month per rentable square
                                        foot in the Expansion Space not yet
                                        included in the Leased Premises

16.3  BASE MONTHLY RENT FOR EXPANSION SPACE. Following each exercise of
Tenant's option to expand, and effective upon completion of Improvements by
Landlord of substantially similar quality and expense to the initial
Improvements, the portion of the Expansion Space designated in Tenant's
notice of exercise (which portion shall not be smaller than 2500 rentable
square feet and shall be referred to herein as the "Designated Portion(s) of
the Expansion Space) shall be deemed added to the Leased Premises. The Base
Monthly Rent for the Designated Portion(s) of the Expansion Space shall be
Two and 17/100 Dollars ($2.17) per rentable square foot per month, subject to
a three percent (3%) increase on each anniversary of the Commencement Date
compounded annually.

16.4  TENANT IMPROVEMENT ALLOWANCE FOR EXPANSION SPACE. Upon each exercise of
Tenant's right to lease any portion of the Expansion Space, Landlord shall
provide a tenant improvement allowance in the following amounts, and shall
construct tenant improvements in the Designated Portion of the Expansion
Space in accordance with the terms and conditions set forth in the Work
Letter. The Improvement Allowance shall be provided in the following amounts:

Substantial Completion within
18 months of Commencement Date:               $42/rsf of the Designated Portion
                                              of the Expansion Space

                                      32.

<PAGE>

Substantial Completion within                 $35/rsf of the Designated Portion
18+ months - 30 months:                       of the Expansion Space

Substantial Completion within                 $28/rsf of the Designated Portion
30+ months - 42 months:                       of the Expansion Space

Substantial Completion within                 $21/rsf of the Designated Portion
42+ months - 54 months:                       of the Expansion Space

Substantial Completion within                 $14/rsf of the Designated Portion
54+ months - 68 months:                       of the Expansion
Space

16.5  CORRIDOR FOR EXPANSION SPACE. If at any time Tenant elects to expand
into the Expansion Space, Tenant agrees that the remaining portion of the
Expansion Space (if any), after Tenant has identified the Designated
Expansion Space, will contain the double-door entry nearest the passenger
elevators.

                                   ARTICLE 17

                             RIGHT OF FIRST REFUSAL

17.1  RIGHT OF FIRST REFUSAL. So long as Scientific Learning Corporation (or
a Permitted Transferee) is entitled to occupy the Leased Premises as of its
exercise of the right of first refusal granted herein, and provided that
Tenant has elected to exercise its option to lease the Expansion Space,
Tenant shall have an ongoing right of first refusal to lease any available
space in the Building, other than retail space and other than space which is
encumbered by extension option rights in favor of the first tenants to occupy
the remainder of the Building, other than the Leased Premises (the "Remaining
Space") following completion of the Landlord's build-out of the Remaining
Space ("Available Space"). Promptly following Landlord's receipt of an offer
from a third party to lease any Available Space, Landlord shall deliver a
copy of such offer to Tenant. Following Tenant's receipt of such notice,
Tenant shall have five (5) business days within which to notify Landlord in
writing that it elects to lease the Available Space on the terms set forth in
such offer. In the event Tenant shall have failed to notify Landlord within
such period of its election to lease the Available Space, Tenant shall be
deemed to have elected not to lease such Available Space, and Landlord shall
be entitled to lease the space upon the same terms set forth in such offer to
any third party.

                                      33.

<PAGE>

         IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as
of the respective dates below set forth with the intent to be legally bound
thereby as of the Effective Date of this Lease first above set forth.

                               LANDLORD:

                               ROTUNDA PARTNERS II, a       LLC in California
                                                      -------------------------
                               By:          /s/ Mark A. Moss, Managing Member
                                         -------------------------------------
Dated:     3/20/00                          By:
      -------------------                      --------------------------------
                                            By:
                                               --------------------------------

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

                               TENANT:

                               SCIENTIFIC LEARNING CORPORATION, a Delaware
                               corporation

Dated:                         By:          /s/ Sheryle J. Bolton
      ------------------          ----------------------------------------------
                               Title:       CEO
                                     -------------------------------------------

Dated:     3/20/00             By:          /s/ Frank Mattson
      ------------------          ----------------------------------------------
                               Title:       COO
                                     -------------------------------------------

                                      34.

<PAGE>

                                    EXHIBIT "A"

                                    (GRAPHIC)

                                 Rotunda Building
                                       and
                              Planned Parking Garage
                                    Site Plan

                    (To be PROVIDED BY LANDLORD and attached)

<PAGE>

                                    EXHIBIT B

                                   WORK LETTER

         THIS WORK LETTER, dated concurrently with the Lease to which this
Work Letter is attached as Exhibit B, is entered into by and between ROTUNDA
PARTNERS II, a California limited liability company ("Landlord"), and
SCIENTIFIC LEARNING CORPORATION, a Delaware corporation ("Tenant"). On or
about the date hereof, Landlord and Tenant entered into that certain Lease
(the "Lease") for certain premises (the "Leased Premises") located at 1501
Broadway Avenue, Oakland, California. This Work Letter sets forth the
agreement of Landlord and Tenant with respect to the improvements to be
constructed in the Leased Premises, including the Original Build-out Space
and the Expansion Space. All defined terms used herein shall have the meaning
set forth in the Lease, unless otherwise defined in this Work Letter.

1.   CONSTRUCTION OF IMPROVEMENTS IN ORIGINAL BUILD-OUT SPACE. Landlord shall
retain Pankow Special Projects Limited, or other contractor selected by
Tenant and approved by Landlord (which approval shall not be unreasonably
withheld or delayed) ("Landlord's Contractor") to furnish and install within
the Original Build-out Space, certain items of general construction (the
"Improvements") as described by: (i) the plans prepared by Architectural
Dimensions, Inc. (the "Landlord's Architect") dated March 13, 2000 and
attached and incorporated herein as Schedule 1 to the Work Letter, and
approved by Hooks Design and Architecture, ("Tenant's Architect"); (ii) the
seven page untitled outline of Tenant's requirements for its build-out dated
"March 15, 2000 Revised", attached and incorporated herein as Schedule 2 to
the Work Letter; and (iii) Pankow Special Projects L.P.'s revised preliminary
budget estimate dated March 2, 2000, attached and incorporated herein as
Schedule 3 to the Work Letter. Landlord shall cause the Improvements to be
completed by December 31, 2000. . The Landlord's Architect and Tenant's
Architect are collectively referred to as "Architects".

2.   CONSTRUCTION OF IMPROVEMENTS IN EXPANSION SPACE. Following each exercise
of Tenant's expansion option pursuant to Article 16 of the Lease, Landlord
shall furnish and install within the Designated Portion of the Expansion
Space, certain items of general construction, substantially similar to the
Improvements, to be described by plans and specifications to be prepared by
an architect selected by Tenant and approved by Landlord (the "Expansion
Space Improvements"), subject to the tenant improvement allowance provisions
of Section 16.4.

3.   DEFINITION OF "TIS". The Improvements and the Expansion Space
Improvements are collectively referred to herein as the "TIs". The
quantities, character and manner of installation of all of the TIs shall be
subject to the limitations imposed by any applicable governmental regulations
relating to conservation of energy and by applicable building codes and
regulations. In addition, except as expressly provided by Schedule 2 to this
Work Letter, Tenant agrees that the TIs shall not require Landlord to perform
work which would require changes to structural components of the Building or
the exterior design of the Building.

4.   COMPLETION DATE OF IMPROVEMENTS. Landlord hereby agrees to construct the
Base Building Improvements in the Original Build-out Space and in the
Expansion Space in accordance with the Base Building Plans in good and
workmanlike manner and in compliance with all applicable laws and
regulations, at Landlord's sole cost and expense except as expressly set
forth in this Work Letter, and to complete the Improvements by December 31,
2000.

5.   PREPARATION AND APPROVAL OF SPACE PLAN. The plan for the Original
Build-out Space dated March 13, 2000 and attached as Schedule 1 to this Work
Letter, (the "Space Plan") has been approved by Landlord and Tenant. Upon
each exercise of Tenant's option to lease all or any portion of the Expansion
Space, the parties will follow a procedure similar to that which they
followed in developing the Space Plan to develop space plans for any
Designated Portion of the Expansion Space.

6.   APPROVAL OF WORKING DRAWINGS.

         (a)      Landlord's Architect shall prepare complete and coordinated
architectural plans and specifications required for the construction of the
tImprovements in conformance with Schedules 1, 2 and 3 attached to this Work
Letter (the "Working Drawings"), and to prepare drawings and specifications for
Changes (as defined below), if any, requested or required pursuant to Paragraph
8 below.

                                      1.

<PAGE>

         (b)      Landlord's Architect shall submit the completed and
coordinated Working Drawings to Tenant and Tenant's Architect for approval.
Tenant and Tenant's Architect will provide written approval or disapproval of
the Working Drawings within five (5) business days after such submission. If
Tenant or Tenant's Architect disapproves any part of the submission, the
disapproval shall include written instructions adequate for the Landlord's
Architect to revise the Working Drawings. Such revisions shall be subject to
Landlord's approval, which shall not be unreasonably withheld. Landlord's
failure to respond to request for approval within five business days
following delivery shall be deemed approval.

         (c)      If Tenant or Tenant's Architect fails to approve the
Working Drawings within the applicable periods set forth in subparagraph 5(b)
above, then (A) Landlord shall not be obligated to commence construction of
the Improvements, (B) Tenant shall be responsible for any resulting delay,
and the cost of such delay, in Landlord's completion of the Improvements and
delivery of the Leased Premises, and (C) any such delay shall be deemed a
Tenant Delay (as defined below).

         (d)      Upon each exercise of Tenant's option to lease all or any
portion of the Expansion Space, the parties will follow a similar procedure
to obtain approval of the working drawings for the Designated Portion of the
Expansion Space.

7.   COST OF TIs.

         (a)      Unless specified otherwise herein, Landlord shall bear and
pay the entire cost of the Improvements. Notwithstanding the foregoing,
Tenant shall pay any fee incurred by Tenant to Tenant's Architect.

         (b)      Upon each exercise of Tenant's option to lease all or any
portion of the Expansion Space, the Landlord will provide a tenant
improvement allowance as set forth in Section 16.4 of the Lease, and Tenant
shall pay the balance of the cost of the Expansion Space Improvements .

         (c)      In the event that the actual cost of the Improvements upon
Substantial Completion is less than $3,264,179.20, Tenant shall be entitled
to receive a credit against the Base Monthly Rent for the Original Build-out
Space in amount equal to the difference between $3,264,179.20 and the actual
cost of the Improvements.

8.   CHANGES.

         (a)      Any request by Tenant for a change in the TIs after
approval of the Working Drawings (a "Change") shall be accompanied by all
information necessary to clearly identify and explain the proposed Change. As
soon as practicable after receipt of such an Estimate Request form, Landlord
shall notify Tenant of the estimated cost of such Change as well as the
estimated increase in construction time caused by the Change, if any. Tenant
shall approve in writing such estimates within four (4) business days after
receipt of Landlord's notice. Upon receipt of such written request, Landlord
shall be authorized to cause the Contractor to proceed with the
implementation of the requested Change.

         (b)      The increased cost and time of all Changes, including the
cost of architectural and engineering services required to revise the Working
Drawings to reflect such Changes, the Contractor's overhead and fee shall be
treated as costs of the TIs, and shall be as determined by Landlord upon
completion of the TIs. If Changes result in an increase in the total cost of
the Improvements upon completion over the amount bid by the Contractor based
on the approved Working Drawings, Tenant shall reimburse Landlord for such
increased cost, subject only to Landlord's furnishing to Tenant appropriate
back-up information from the Contractor concerning the increased costs and
increased construction time satisfactory to Tenant and Tenant's Architect.

9.   TENANT'S WORK. Landlord and Tenant acknowledge and agree that certain
work required for Tenant's occupancy of the Leased Premises, including but
not limited to the procurement and installation of furniture, fixtures,
equipment, artwork and interior signage are beyond the scope of the TIs and
shall be performed by Tenant, Tenant's contractors approved by Landlord
(which approval shall not be unreasonably withheld or delayed) or Landlord's
contractors at Tenant's sole cost and expense. All such work ("Tenant's
Work") shall be subject to Landlord's prior written approval not to be
unreasonably withheld or delayed. Tenant shall adopt a construction

                                      2.

<PAGE>

schedule for Tenant's Work in conformance with the Contractor's schedule, and
shall perform Tenant's Work in such a way as not to hinder or delay the
operations of Landlord or the Contractor in the Building. Any costs incurred
by Landlord as a result of any interference with Landlord's operations by
Tenant or its contractors shall be promptly paid by Tenant to Landlord upon
demand. Landlord shall make all reasonable efforts to notify Tenant of any
such interference of which Landlord has actual knowledge, but failure to
provide such notice shall in no way limit Landlord's right to demand payment
for such costs. Tenant's Work shall comply with all of the following
requirements:

         (a)      Tenant's Work shall not proceed until Landlord has approved
in writing complete and detailed plans and specifications for Tenant's Work.

         (b)      Tenant's Work shall be performed in conformity with a valid
permit when required, a copy of which shall be furnished to Landlord before
such work is commenced. In any event, all Tenant's Work shall comply with all
applicable laws, codes and ordinances of any governmental entity having
jurisdiction over the Building. Landlord shall have no responsibility for
Tenant's failure to comply with such applicable laws. Any and all delay in
obtaining a certificate of occupancy due to Tenant's vendors is the
responsibility of Tenant and shall be a Tenant Delay.

         (c)      In connection with Tenant's Work, Tenant shall arrange for
any necessary hoisting or elevator service with Landlord.

         (d)      Tenant shall promptly pay Landlord upon demand for any
extra expense incurred by Landlord by reason of faulty work done by Tenant or
by reason of damage to existing work caused by Tenant or its contractors.

10.  COMPLETION; TENANT DELAY.

         (a)      As used herein, the term "Substantial Completion" of the
TIs shall be deemed to mean the date when all of the following shall have
occurred: (i) Landlord shall have delivered to Tenant a certificate of
occupancy issued by the City of Oakland for the relevant portion of the
Leased Premises, or Tenant may legally occupy the Leased Premises for the
operation of its business without violating any law or regulation or voiding
or adversely affecting its insurance coverage, whether pursuant to a
temporary certificate of occupancy or otherwise; and (ii) Tenant's Architect
shall have certified to Tenant that Landlord's Contractor has substantially
completed construction of all TIs substantially in accordance with the
Working Drawings, subject only to the completion of reasonable punch list
items which do not impair Tenant's ability to use the Leased Premises for the
conduct of its business. Without limiting the generality of the foregoing,
"Substantial Completion" of the TIs shall not be deemed to have been achieved
unless and until (i) the building systems, including roof, plumbing, HVAC,
sprinkler, electrical (including panels and outlets), doors (both personnel
and shipping), lighting, ceiling tiles, and window coverings are in good
working order, (ii) the interior and exterior of the Building are in
compliance with all applicable Laws, (iii) all debris and clutter has been
removed from the relevant portion of Leased Premises and final cleanup
completed, (iv) exterior windows are washed inside and out, and (v) Outside
Areas are in good condition and free of debris, clutter and all construction
equipment. After substantial completion of the Improvements in the Original
Build-out Space and delivery thereof to Tenant, Landlord and Tenant shall
execute a Commencement Date Certificate in the form attached as Exhibit "C"
to the Lease.

         (b)      If Landlord shall be delayed in substantially completing the
TIs as a result of:

                  (i)      Tenant's failure to approve the Working Drawings,
within the applicable time periods specified above unless such delay was
caused by the action or inaction of Landlord, its agents, Architect,
employees or contractors; or

                  (ii)     Any changes in the scope of the TIs from that set
forth in the Space Plans, or any Changes to the Working Drawings requested by
Tenant after approval thereof ; or

                  (iii)    Any interruption or interference in Landlord's
construction of the TIs caused by Tenant, its contractors or its vendors; or

                                      3.

<PAGE>

                  (iv)     Any other act, neglect, failure or omission of
Tenant, its agents, employees or contractors unless such delay was caused by
the action or inaction of Landlord, its agents, Architect employees or
contractors (items (i) through (v) above being collectively referred to as
"Tenant Delays");

then the date upon which the payment of applicable rental under the Lease,
shall commence shall be advanced by the cumulative duration of such Tenant
Delays.

11.  CONSTRUCTION WARRANTY. Landlord shall construct or cause the TIs to be
constructed substantially in accordance with this Work Letter and the Working
Drawings, all Laws and Private Restrictions, and in a good and workmanlike
manner, and all materials and equipment furnished will substantially conform
to said plans and shall be new and otherwise of good quality. Landlord's
Contractor and subcontractors shall be responsible for the correction of
defects in design, workmanship, materials and equipment supplied, and the
cost of correction shall not be charged against the Tenant or be a Property
Maintenance or Operating Expense.

12.  OWNERSHIP OF IMPROVEMENTS. All of the TIs which are constructed shall
remain the property of Landlord during the Term and shall not be removed or
altered by Tenant, except to the extent permitted by the Lease.

         IN WITNESS WHEREOF, Landlord and Tenant have executed this Work Letter
as of the respective dates set forth below.

                              LANDLORD:

                              ROTUNDA PARTNERS II, a     California LLC
                                                    ----------------------------
                              By:           /s/ Mark A. Moss, Managing Member
                                         ---------------------------------------

Dated:     3/20/00                         By:
      ---------------                         ----------------------------------
                                           By:
                                              ----------------------------------

                              TENANT:

                              SCIENTIFIC LEARNING CORPORATION, a Delaware
                              corporation

Dated:                        By:        /s/ Sheryle J. Bolton
      --------------             -----------------------------------------------
                              Title:     CEO
                                    --------------------------------------------

Dated:     3/20/00            By:        /s/ Frank Mattson
      --------------             -----------------------------------------------
                              Title:     COO
                                    --------------------------------------------

                                      4.

<PAGE>

                          [ATTACH SCHEDULES 1, 2 AND 3]

                                      1.

<PAGE>

                                    EXHIBIT C

                          COMMENCEMENT DATE CERTIFICATE

This Commencement Date Certificate is entered into by Landlord and Tenant
pursuant to the Work Letter attached as Exhibit B to the Lease.

1.       (a)  Landlord:          _____________________________________________
         (b)  Tenant:            _____________________________________________
         (c)  Lease:             Lease dated _______________ between Landlord
                                 and Tenant.
         (d)  Leased Premises:   1501 Broadway Avenue, Oakland, California

2.       CONFIRMATION OF COMMENCEMENT.

         Landlord and Tenant confirm that the Commencement Date is ____________
and the Expiration Date is ______________ and that Article 1 of the Lease is
amended accordingly.

         Landlord and Tenant have executed this Commencement Date Certificate as
of the dates set forth below.

                                 LANDLORD:

                                 ROTUNDA PARTNERS II

                                 By:
                                            ---------------------------------
Dated:                                    By:
      ------------------                     --------------------------------

                                 TENANT:

                                 SCIENTIFIC LEARNING CORPORATION, a Delaware
                                 corporation

Dated:                           By:
      ------------------            -----------------------------------------
                                 Title:
                                       --------------------------------------
Dated:                           By:
      ------------------            -----------------------------------------
                                 Title:
                                       --------------------------------------

                                      1.

<PAGE>

                                    EXHIBIT D

                          FORM OF ESTOPPEL CERTIFICATE

__________________, 19____

__________________________
__________________________
__________________________
__________________________

Re       1501 Broadway Avenue
         Oakland, California

Ladies and Gentlemen:

Reference is made to that certain Lease, dated as of _______________, between
_______________, a _______________ ("Landlord"), and the _______________
("Tenant") (herein referred to as the "Lease"). A copy of the Lease [and all
amendment thereto] is[are] attached hereto as EXHIBIT A. At the request of
_______________ in connection with [ State reasons for request for estoppel
certificate ], the undersigned hereby certifies to _______________ and to
[ State names of other parties requiring certification ] and each of your
respective successors and assigns as follows:

         1. The undersigned is the [tenant/landlord] under the Lease.

         2. The Lease is in full force and effect and has not been amended,
modified, supplemented or superseded except as indicated in Exhibit A.

         3. There is no defense, offset, claim or counterclaim by or in favor of
the undersigned against [Tenant/Landlord] under the Lease or against the
obligations of the undersigned under the Lease. The undersigned has no renewal,
extension or expansion option, no right of first offer or right of first refusal
and no other similar right to renew or extend the term of the Lease or expand
the property demised thereunder except as may be expressly set forth in the
Lease.

         4. The undersigned is not aware of any default now existing of the
undersigned or of [Landlord/Tenant] under the Lease, nor of any event which with
notice or the passage of time or both would constitute a default of the
undersigned or of [Landlord/Tenant] under the Lease except
____________________________________________.

         5. The undersigned has not received notice of a prior transfer,
assignment, hypothecation or pledge by [Landlord/Tenant] of any of
[Landlord's/Tenant's] interest in the Lease.

         6. The monthly rent due under the Lease is $____________ and has been
paid through __________________, and all additional rent due and payable under
the Lease has been paid through _________________.

         7. The term of the Lease commenced on __________________, and expires
on ___________________, unless sooner terminated pursuant to the provisions of
the Lease. Landlord has performed all work required by the Lease for the
Tenant's initial occupancy of the demised property.

         8. Tenant has deposited the sum of $____________ with Landlord as
security for the performance of its obligations as tenant under the Lease, and
no portion of such deposit has been applied by Landlord to any obligation under
the Lease.

         9. Except as set forth in the Lease, there is no free rent period
pending, nor is Tenant entitled to any Landlord's contribution.

                                      1.

<PAGE>

The above certifications are made to [Landlord/__________] and Lender knowing
that [Landlord/__________] and Lender will rely thereon in accepting an
assignment of the Lease.

Very truly yours,

__________________________, a ____________

By:_______________________________________
Name:_____________________________________
Title:____________________________________

                                      2.

<PAGE>

An extra section break has been inserted above this paragraph. Do not delete
this section break if you plan to add text after the Table of
Contents/Authorities. Deleting this break will cause Table of
Contents/Authorities headers and footers to appear on any pages following the
Table of Contents/Authorities.

                                      1.

<PAGE>

                            SCHEDULE 2 TO WORK LETTER

SCIENTIFIC LEARNING CORPORATION

THE ROTUNDA
OAKLAND, CA

MARCH 15, 2000 REVISED

FOLLOWING IS AN OUTLINE OF THE TENANT'S REQUIREMENTS FOR THEIR BUILDOUT AT
THE ROTUNDA. THESE NOTES SHOULD BE CONSIDERED IN CONJUNCTION WITH THE SPACE
PLAN PREPARED BY ARCHITECTURAL DIMENSIONS (DRAWINGS ATTACHED TO THE LEASE)
BASED ON THE REVIEWS HELD ON 3/9/00 AND 3/13/00. SLC UNDERSTANDS THAT THE
PLAN WILL BE REVIEWED WITH SLC AND POSSIBLY REVISED AGAIN PRIOR TO THE START
OF CONSTRUCTION DOCUMENTS BY ARCHITECTURAL DIMENSIONS. THE FOLLOWING NOTES
WILL BE USED TO COMPLETE THE PRICING AND THE CONSTRUCTION DOCUMENTS ONCE THE
PLAN IS AGREED UPON.

THE TURNKEY SCOPE OF WORK IS TO INCLUDE THE ITEMIZED SCOPE LISTED IN PANKOW'S
PRICING DATED 3/02/2000. THESE NOTES CLARIFY THAT LIST AND PROVIDE ADDITIONAL
DIRECTION FOR THE TENANT'S EXPECTATIONS FOR THE COMPLETED SPACE. TO THE
EXTENT THAT THERE IS ANY DISCREPANCY BETWEEN THE PANKOW PRICING DOCUMENT AND
EITHER THIS DOCUMENT OR THE SPACE PLAN, THIS DOCUMENT AND THE SPACE PLAN
SHALL GOVERN.

GENERAL NOTES

SINCE THE SPACE WILL BE BUILT FOR SLC ON A TURNKEY BASIS, THERE IS NO
DISTINCTION MADE HERE BETWEEN BASE BUILDING SHELL CONDITION AND THE TENANT
IMPROVEMENTS. tHE NOTES DESCRIBE THE TENANT'S EXPECTATIONS FOR THE COMPLETED
SPACE.

ELECTRICAL / LIGHTING / LIFE SAFETY / HVAC / AND PLUMBING SYSTEMS ALL
TO BE DESIGN BUILD BY THE SUBCONTRACTORS OR CONSULTANTS RETAINED BY THE
LANDLORD. ALL CONSULTING & AGENCY FEES FOR SUCH WORK ARE TO BE INCLUDED IN THE
TURNKEY BUILDOUT.

ARCHITECTURAL FEES FOR LANDLORD'S ARCHITECT ARE INCLUDED IN THE EXPENSES TO
BE PAID BY LANDLORD. NO FEES FOR TENANT'S ARCHITECT OR CONSULTANTS WILL BE
INCLUDED IN THE EXPENSES TO BE PAID BY LANDLORD.

HISTORICAL REQUIREMENTS.
SLC is aware that there are certain requirements for the tenant spaces
stemming from arrangements made with the government agencies regarding the
historic nature of the

<PAGE>

building. SLC expects that any special construction requirements are included
in the turnkey buildout.

SCIENTIFIC LEARNING CORPORATION

Scope of Work Notes

March 15, 2000
Page 2

DRYWALL / PARTITIONS / GLAZING
The space plan now includes the correct number of offices and conference rooms.
These rooms are to be primarily grouped in twos or threes and scattered within
the floor plates, surrounded by workstations, rather than at the rotunda or
perimeter.

Each office should have a sidelight, 18" wide, from floor to the top of the
door. The conference rooms and four of the offices should have full height
glazing the full width of the rooms. Sidelight glazing can be 1/4 " tempered
glass. Glass at the conference rooms should be 3/8 " tempered glass. Extent of
glazing at these rooms and others is as shown on the space plan.

1" miniblinds are to be provided at all interior glazing. Provide blinds on
exterior windows per building standards.

Door and glazing frames should be building standard.

Partitions should be building standard ceiling height except rated where
required by code.

Partitions at offices and conference rooms are to have insulation between the
studs as well as a blanket above the ceiling for 24" on each side of the
partition.

Note: Walls are to be built of studs sized appropriately for the height of
the partitions.

At Reception area on 5 and three conference rooms there should be a drywall
ceiling with soffitt.

Fur out columns to minimum dimension where required.

All drywall is to be smooth finish, level 4.

<PAGE>

SCIENTIFIC LEARNING CORPORATION

Scope of Work Notes

March 15, 2000
Page 3

Provide sheet metal backing in walls for all cabinets.

At partition intersections with exterior mullions, provide any acoustical
treatment required, based on other buildouts in the building, to achieve sound
separation between the offices.

DOORS / FRAMES / HARDWARE
Doors, frames and hardware are to be building standard.

Offices are to have office locksets. Storage rooms are to have storeroom
locksets.

Card key locks with appropriate door hardware are to be located as shown on the
revised space plan. These are to be compatible with the building's card key
system.

All other doors are to have passage latchsets.

There should be closers at all coffee, lunchroom, and copy room doors. Revised
plans will show these as enclosed rooms.

A keying schedule will be provided once the plan is complete.

SPRINKLERS
Sprinkler layouts to accommodate new construction. Design build by the
subcontractor or by engineers.

Provide high temperature heads at the server room.

HVAC
System is to be designed to accommodate new construction. Design build by the
subcontractor or landlord's engineers.

Separate zones at large conference rooms.

<PAGE>

SCIENTIFIC LEARNING CORPORATION

Scope of Work Notes

March 15, 2000
Page 4

Final sizing of HVAC unit for fileserver room to be determined based on tenant's
equipment loads. Approximately 14,000 VA (10,000 watts) snas phone system.

Exhaust fans at lunch rooms and production / copy rooms.

LIGHTING / CEILING
Building standard ceiling grid and tile except as noted above. Building standard
lighting except as noted below.

Building standard recessed downlights at the reception area and elevator
lobbies. Three downlights and two wallwashers at three conference rooms.

Include an allowance of $ 7500 for accent lighting, with location to be
determined.

At all coffee station millwork provide undercounter fluorescent strip lighting.

Switching to be building standard to accommodate construction and to meet Title
24.

LIFE SAFETY
Exit lights to meet code, as well as strobes and smoke detectors, and tie in to
building's life safety system. Design build or by landlord's engineer. Fire
extinguishers to be provided as required by Code.

ELECTRICAL

Provide secondary wiring closets for 5th and 7th floors and any areas beyond 100
meters from server room. Provide secondary closets with electrical and space for
racks.

Provide two 4" conduits in a path that would allow cabling to be routed from
files server room to other floors for distribution of cables. Provide a 2"
conduit from telco room to file server room. Provide 4" conduits to secondary
closets.

Provide 2" conduit raceway from roof down through all four floors to provide
path for cable to satellite dish and / or antenna for wireless equipment.
(Subject to landlord review and approval).

<PAGE>

SCIENTIFIC LEARNING CORPORATION

Scope of Work Notes

March 15, 2000
Page 5

Workstations will be electrified, three circuit, eight wire. Assume 3-4 amps
at each office, workstation, and conference room for electrical. Data /
communications outlet to consist of a mud ring and string. Provide wall boxes
or floor monuments to all electrical stations.

Note that, as previously described, these will be more dense than shown on
current plan. These will be 6 x 6 and 6 x 8.

At all work rooms and copy rooms there are to be at least two fourplex outlets
and two data / tel outlets.

At large rooms, such as product development there is to be one set of outlets
every 6 feet of wall space. Rooms without furniture shown are to receive pairs
of outlets every 8 feet.

Coffee / copy rooms are to have a wall phone.

Dedicated outlets are to be provided for copiers and large printers - assume
four per copy room.

Assume floor outlets for data/tel and power at three conference rooms.

Provide dedicated outlets for microwave, coffee machine, and toaster oven at
each coffee / lunch area. In addition, provide two GFI fourplex outlets at each
location, as well as power for all appliances (see below).

At large lunchroom provide electrical for three refrigerators and vending
machines as shown on plan.

Assume (15) 30amp twistlock circuits at file server room, plus power for the
HVAC equipment.

PLUMBING

New restrooms as included in prior pricing.

<PAGE>

SCIENTIFIC LEARNING CORPORATION

Scope of Work Notes

March 15, 2000
Page 6

New stainless steel sink and hardware at all coffee / lunch areas. 1/4: copper
line to coffee machine and refrigerator (for ice maker).

Provide reverse osmosis water filtration at all sink areas, filtering water to
sink and the two 1/4" lines listed above.

APPLIANCES
At one coffee / lunch area per floor install dishwasher plus full sized
refrigerator and microwave. At other locations (one per floor) install
undercounter refrigerator, microwave, and instahot. Tenant will provide
dishwashers, refrigerators, and microwaves, at Tenant's expense.

MILLWORK
At all coffee lunch areas provide p. lam. upper and lower cabinets and
countertop in a size appropriate to the space. Cabinets are to be drawer over
door configuration. Rolled edge at countertops. Undercabinet lighting at upper
cabinets. 4" brushed aluminum wire pulls. Budget premium laminates.

At work rooms / conference rooms see plan for extent of millwork. Lower
cabinets, similar to those at lunchrooms are to be provided.

At copy areas provide three plastic laminate shelves over copier. Heavy Duty KV
brackets and standards.

Provide pole and shelf at closets (in a number and size appropriate to the
space). See plan.

FINISHES
Paint throughout , eggshell finish, except as noted below, per building
standards.

Assume 25% of wall areas will be medium tone accent colors. Assume 25% of wall
areas will be deep tone accents.

Carpet throughout to be Interface Modular carpet - use the Aiki collection for
pricing.

VCT at appropriate areas, including kitchens, server room, storage rooms, copy
rooms. Assume Azrock premium in two color full tile pattern.

<PAGE>

SCIENTIFIC LEARNING CORPORATION

Scope of Work Notes

March 15, 2000
Page 7

Static dissipative tile at fileserver room.

Rubber base throughout, to be 4" Burke, premium color.

At Reception area and three conference rooms assume wallcovering on all walls.
Use $35 / yard, contractor net for 54" wide paper backed material - no repeat.

Provide recessed fire extinguisher cabinets for all floors. Location to be
determined in the field.

Building standard exterior window treatments.

STRUCTURAL

The space plan currently indicates that the three columns in the conference
rooms on the 7th floor remain in place. Tenant and Landlord will obtain a cost
estimate from Pankow for the removal of each of the columns. After receiving the
cost estimate, Tenant will determine whether it wishes to have any or all of the
columns removed. If Tenant elects to have any of the columns removed, Tenant
will pay the cost of such removal, except for the first $40,000 of the cost of
the column removal, which will be paid by Landlord.

Landlord will provide necessary improvements to extend private elevator and
stairs from 6th floor to 5th floor.

DECKS
Landlord will provide and install appropriate floor coverings and/or decking for
at least 30% of the space marked as Roof on the space plans (6th and 7th
floors), if needed so that Tenant will be able to place deck furniture on and
otherwise use the roof space as a deck without damaging the roof surface.

GENERAL

Certificate of insurance providing proof of Commercial General Liability at
least $1,000,000 and Builders Risk coverage naming SLC as additional insured to
be furnished prior to start date of Tenant's buildout.

<PAGE>

                           PANKOW SPECIAL PROJECTS, L.P.

                          A CALIFORNIA LIMITED PARTNERSHIP
                   2101 WEBSTER STREET, SUITE 750 - OAKLAND, CA 94612
                      TELEPHONE (510) 893 8337 - FAX (510) 893 8950
                            CONTRACTOR'S ISSUE NO. 726892

                                                                   03/02/2000

Mr. Phil Tagami
ROTUNDA PARTNERS, INC.
600 Grand Avenue, Suite 404
Oakland, CA 94612

RE:    The Rotunda Building
       300 Frank G. Ogawa Plaza
       Oakland, CA 94612
       Floors 5,6, and 7 - Scientific Learning

Dear Mr. Phil;

Enclosed please find our revised preliminary budget estimate for tenant
improvement work on the 5th, 6th, and 7th Floors at The Rotunda Building,
Oakland. Our budget price to perform this work is:

The Rotunda Building:

      Floors 5,6, and 7 - Scientific Learning     $4,080,224         $52.67/SF
                                                  ----------
                                                  ----------

Please reference the attached Exhibits A, B, C for proposal qualification.

The attached cost sheets represent a detailed breakdown of the work to be
conmpleted. We appreciate the opportunity to help you put this project
together. Please give me a call if you have any questions.

Sincerely,

PANKOW SPECIAL PROJECTS, L.P.
PANKOW OPERATING, INC. GENERAL PARTNER

/s/ Wally Naylor

Wally Naylor

  cc:    Richard Welterhouse - PSPL
         Dean Browning - PSPL
         File

<PAGE>

                                    EXHIBIT A

                              DOCUMENTS AND SCHEDULE

                               The Rotunda Building
                           Scientific Learning Tenant Space
                              300 Frank H. Ogawa Plaza
                                     03/02/2000

SCOPE OF WORK

Perform all work necessary to build-out the Scientific Learning Space on the
5th, 6th and 7th Floors at the Rotunda Building, Oakland. The scope of work
is defined by the following documents:

    - Architectural Dimensions drawings sheets X-0, X-1, X-2, X-3, X-4, and
      X-5 all undated.

    - Rotunda Building Tenant Build-Out Letter dated 10/1/99.

    - PSPL Exhibit A, B & C, attached.

SCHEDULE

The work shall be substantially complete twenty two (22) weeks from the date
notice to proceed is given and the receipt of finish materials, architectural
drawings, and issuance of the city building permit.

It is acknowledged that any costs needed to accelerate the work due to the
non-availability of a building permit standby time waiting for the City
inspections, or other causes not identifiable at the time subcontractor
bidding was solicited will be considred changes to the work.

<PAGE>

                                EXHIBIT B

                           SPECIAL CONDITIONS FOR

                         The Rotunda Building
                      Scientific Learning Tenant Space
                         300 Frank H. Ogawa Plaza
                              03/02/2000

I.    GENERAL

      A. All work is prices to be done on regular time.

      B. The project will be completed in one continuous phase.

      C. All construction utilities (power, HVAD, water, etc.) to be provided
         by Rotunda Partners, Inc.

      D. All permit fees, plan check fees, and other similar type fees are
         included.

      E. Signage and identifying device work is excluded.

      F. We have excluded all costs associated with installation and
         termination of new tel/data cable. Cross-over connections of phone
         lines at Main Riser must be performed by the Building Owner's
         telecommunications subcontractor. Please coordinate in advance with
         Building Management.

      G. We will coordinate NIC vendors into our construction schedule,
         however, we have not included removing and replacing ceiling tile or
         providing clean-up for them beyond their scheduled work period.

      H. All work in The Rotinda atrium, mechanical room, electrical room,
         stair room, Tel/Data room, and all core common areas is excluded.

      I. All Tel/Data work, signage, security and furniture is excluded.

      J. The new ceiling is assumed to be below the Column Capitals so that
         no work will be required to them.

      K. We have included appliance installation only. Dishwasher and other
         appliances to be furnished by others.

      L. The Storage Area on the 6th floor is priced to be unfurnished.

      M. We have included an allowance for structural support for a UPS
         system in the 6th floor Server Room pending further clarification.

II.   DEMOLTION

      A. Rotunda atrium window wall demolition at main entry locations to be
         by others.

III.  MILLWORK

      A. We have included refurbishing the existing wood base at perimeter
         and installing new wood base to match existing where required.

      B. New uppers and lowers for kitchens and copy areas are to be plastic
         laminate finish.

IV.   DOORS, FRAMES AND HARDWARE

      A. All doors are priced as building standard.

<PAGE>

V.    BLINDS

      A. Vertical blinds to be 3 1/2" pvc vanes.

      B. We have not included blinds at interior office windows and side
         files.

VI.   LATH AND PLASTER

      A. Existing plaster walls and columns to be patched and repaired and
         receive new finish coat.

VII.  GLASS - N/A

VIII. DRYWALL

      A. All new ceiling height walls are priced using tapeable lap track
         system.

      B. We have included new 1-hour Partitions as noted.

      C. We shall patch, finish tape and sand smooth for paint all existing
         unfinished and/or damaged drywall partitions.

IX.   ACOUSTICAL CEILING

      A. We have included new building standard ceiling grid and tile.

X.    PAINTING/WALLCOVERING

      A. We have included painting of all new and existing walls and drywall
         ceilings, and wood base within the space.

      B. We have included painting and/or staining of new and existing doors
         and frames.

XI.   CARPET/BASE

      A. We have included an allowance of $25/SY to furnish & install blue
         down carpet.

      B. We have included new rubber base throughout - except where wood base
         is specified.

XII.  PLUMBING

      A. All new kitchen sinks include a garbage disposal, cold water lines
         and Insta hots.

XIII. FIRE SPRINKLERS

      A. We have included engineered drawings for Oakland Fire Dept. permit.

      B. We have included new sprinkler heads as neccessary for this
         build-out.

      C. All work will be done on a Design Build basis.

XIV.  HVAC

      A. We have included air & water balancing.

      B. All work will be done on a Design Build basis.

<PAGE>

      C. We have include 10 tons of additional cooling for the Server room that
         will operate on a 24/7 basis.

XV.   ELECTRICAL

      A. Electrical Permit & Life Safety Permit are included.

      B. We have included ring & string outlets only for the Telephone/Data
         drops.

      C. New electrical panel and 225 AMP feeder are included.

      D. All work will be done on a Design Build basis.

<PAGE>

THE ROTUNDA BUILDING                              PANKOW SPECIAL PROJECTS, L.P.
300 Frank H. Ogawa Plaza                               TI CONSTRUCTION ESTIMATE
                                                 2101 Webster Street, Suite 750
                                                            Oakland, CA   94612
Square Footage:                                                  (510) 893-8337
    77,462                                                   (510) 893-8950 FAX
    03/02/2000

<TABLE>
<CAPTION>

Duration:               FLOORS 5,6 and 7
22 weeks                Scientific Learning
--------------------------------------------------------------------------------------------------------
                                               Total                                 Project
No. Description                             Quantity U/M        Unit Price    Ext.    Total      SF Cost
--------------------------------------------------------------------------------------------------------
<S>                                         <C>                 <C>          <C>      <C>        <C>
SOFT DEMOLITION - PSPL                                                                 $18,462     $0.24
--------------------------------------------------------------------------------------------------------
1  Remove Damaged Lath & Plaster                     50 hr         41.50       2075
2  Remove Damaged Flooring Substrate                180 hr         41.50       7470
3  Mlee Ceiling demo                                100 hr         41.50       4150
4  Haul-out Debris (20 cy)                           50 hr         41.50       2075
5  Debris Box                                         5 ea           400       2000
6  Demo partitions @ new entries                     26 lf            12        312
7  Door cut-ins                                       2 sf           200        400

--------------------------------------------------------------------------------------------------------
MISC. WORK - PSPL                                                                      $458,004    $5.89
--------------------------------------------------------------------------------------------------------
1  Repair Floor Substrate & Prep for
   Underlayment                                 77,482 sf           0.15      11619
2  Composite Board 4' x 4' x 3/8"
   Flooring Underlayment                        77,482 sf              2     154964
3  Plywood Telephone Backboards                     13 ss            250       3250
4  Open & Close Ceiling 4th Floor                    1 ls           1500       1500
5  Fire Extinguisher Cabinets                       27 ss            250       6750
6  Structural support for UPS
   system-Server Room                                1 sl          10000      10000
7  Remove existing stairs - 7th floor
   restroom                                          1 ls           1500       1500
8  New stairs between restrooms-7th floor
   restrooms                                         1 sl           2500       2500
9  Ramp for new restrooms                            1 sp           1800       1800
10 Manual Folding Partition                          1 ls          20000      20000
11 Exterior man lift                            77,462 sf              1      77462
12 Elevator                                          1 sf          65000      65000
13 New interconnecting stairs                        1 ls         100000     100000

--------------------------------------------------------------------------------------------------------
LEAD CONTAINMENT                                                                        320,000    $0.26
--------------------------------------------------------------------------------------------------------
1  Lead Containment                                  1 allow       20000      20000

--------------------------------------------------------------------------------------------------------
DOORS, FRAMES & HARDWARE - PSPL
--------------------------------------------------------------------------------------------------------
FURNISH ONLY                                $88,535.00
 * FURNISH DOORS                            $24,050.00
1  Door 3080 Bldg Sld                               61 ea           250       15250
2  Door 2680 Bldg Sld                                4 ea           250        1000
3  Door 8080 Bldg Sld                               13 ea           600        7800

* FURNISH FRAMES                            $14,565.00
1  Alum. Door Frame 3080                            61 ea           130        7930
2  Alum. Door Frame 2680                             4 ea           130         520
3  Alum. Glazing Frame                              93 lf            35        3255
4  Alum. Door Frame 5080                            13 ea           220        2860

 * FURNISH HARDWARE                         $29,920.00
1  Locksale Schlege L Series                        61 ea           250       18250
2  Cylinders                                        61 ea            25        1525
3  Lalchaeta Schlege L Series                        4 ea           210         840
4  Hinges                                          348 ea             9        3132
5  Floor Stops                                      93 ea             8         588
6  Closets                                          26 ea           110        2860
7  Double Door hardware                             13 ea           300        3900
8  Stainless Steel Kick Plates 24x44                 4 pr            75         300
9  Coal Hooks                                       61 ea            25        1525

 *INSTALL ONLY                              $34,016.00
1  Wood Door 3080                                   61 ea            75        4575
2  Wood Door 2880                                    4 ea            75         300
3  Entry Doors 5080 Red Oak                         13 ea           150        1950
4  Alum. Door Frames 3080                           61 ea            76        4576
5  Alum. Door Frames 2680                            4 ea            75         300
6  Alum. Glazing Frame                              93 lf            35        3255
7  Alum. Door Frames 6080                           13 ea           150        1950
8  Locksets                                         61 ea            55        3355
9  Latchsets                                         4 ea            30         120
10 Hinges                                          348 ea             5        1740
11 Floor Stops                                      98 ea            25        2450
12 Closers                                          26 ea            75        1950
13 Double Door hardware                             13 ea           300        3900
14 Stainless Steel Kick Plates 24x44                 4 ea            60         240
15 Coat Hooks                                       81 ea            15         915

</TABLE>

<PAGE>

THE ROTUNDA BUILDING                              PANKOW SPECIAL PROJECTS, L.P.
300 Frank H. Ogawa Plaza                               TI CONSTRUCTION ESTIMATE
                                                 2101 Webster Street, Suite 750
                                                            Oakland, CA   94612
Square Footage:                                                  (510) 893-8337
    77,462                                                   (510) 893-8950 FAX
    03/02/2000

<TABLE>
<CAPTION>

Duration:               FLOORS 5,6 and 7
22 weeks                Scientific Learning
--------------------------------------------------------------------------------------------------------
                                               Total                           Project
No. Description                             Quantity U/M  Unit Price    Ext.    Total      SF Cost
--------------------------------------------------------------------------------------------------------
<S>                                         <C>             <C>         <C>      <C>          <C>
16 Keying                                    81 ea            40         2440

--------------------------------------------------------------------------------------------------------
LATH & PLASTER                                                                   $55,858      $0.48
--------------------------------------------------------------------------------------------------------
1  Finish Coal at Existing Perimeter Wall 9082 sl            1.2        10898
2  Finish Coal at Existing Columns        9988 sl              3        24960

--------------------------------------------------------------------------------------------------------
MILL WORK                                                                       $184,988      $2.39
--------------------------------------------------------------------------------------------------------
1  P Lam Uppers & Lowers                   111 lf           480         53280
2  Storage Room Adjustable Shelves           9 lf            70           830
3  Plastic Laminate Countertop              58 lf            70          4080
4  Restroom counter                         38 lf           200          7200
5  Repair Exhaling Wood Base at Perimeter  918 lf             8          7329
6  Millwork doors                            3 ea          1000         33000
7  Wood windows                            285 lf           300         79500

--------------------------------------------------------------------------------------------------------
GLASS                                                                             $7,220      $0.09
--------------------------------------------------------------------------------------------------------
1  1/4" Clear Tempered Glass               744 sf          8.50          8324
2  Restroom Mirrors                         84 sf            14           396

--------------------------------------------------------------------------------------------------------
DRYWALL
--------------------------------------------------------------------------------------------------------
1  Perimeter ceiling at rotunda-
   6th floor                              2850 sf            10         28500
2  Perimeter ceiling at rotunda-
   5th floor                              2850 sf             2          8300
3  Sub Quote                                 1 ls        481520        481520

--------------------------------------------------------------------------------------------------------
CERAMIC TILE                                                                     $37,913      $0.49
--------------------------------------------------------------------------------------------------------
1  Restroom walls                         2300 sf          9.00         20700
2  Restroom floor                         1530 sf          1.28         17213

--------------------------------------------------------------------------------------------------------
ACOUSTICAL CEILING                                                              $172,186      $2.22
--------------------------------------------------------------------------------------------------------
1  New 2x2 Donn Fineline Cirrus          85402 sf          2.83         172185

--------------------------------------------------------------------------------------------------------
PAINTING & WC                                                                    $84,138      $1.09
--------------------------------------------------------------------------------------------------------
1  Walls                                131232 sf          0.48          50367
2  Ceilings                              20250 sf          0.73          14783
3  Doors                                    31 ea         40.10           4168
4  Restroom walls/ceilings                2850 sf          1.00           2860
5  Baseboards-Painted                     1720 lf          0.87           1889

--------------------------------------------------------------------------------------------------------
FLOORING                                                                           $213,195     $2.75
--------------------------------------------------------------------------------------------------------
1  Carpet                                 8001 sf          0.25         200023
2  Rubber Base                           10530 lf          1.25          13170

--------------------------------------------------------------------------------------------------------
TOILET PARTITIONS/ACCESSORIES                                                      $17,000      $0.22
--------------------------------------------------------------------------------------------------------
1  Toilet partitions                        20 ea        500.00          10000
2  Toilet accessories                        4 ea       1750.00           7000

--------------------------------------------------------------------------------------------------------
WINDOW TREATMENT                                                                  $31,840      $0.41
--------------------------------------------------------------------------------------------------------
1  3 1/2" Vertical Blinds at Perimeter     113 ea          280           31840

--------------------------------------------------------------------------------------------------------
PLUMBING                                                                          $98,480      $1.21
--------------------------------------------------------------------------------------------------------
1  New Sink Locations                        4 ea         8100           25800
2  Condense Drain/Secondary Drain @AC Units  2 ea         1200            2400
3  Install Dishwasher                        1 ea          400             400
4  Garbage Disposal                          4 ea          350            1400
5  Restrooms                              4.27 ea         5000           64050
6  Insta Hots                                4 ea          850            2800
7  Water Lines for Appliances                4 ea          850            2800

--------------------------------------------------------------------------------------------------------
SPRINKLERS                                                                        $205,274      $2.85
--------------------------------------------------------------------------------------------------------
1  New sprinkler distribution system     77462 sf         2.88           20527

--------------------------------------------------------------------------------------------------------
HVAC                                                                              $276,805      $3.57
--------------------------------------------------------------------------------------------------------
1  Cooling only zones w/Pneumatic
   Controls                                 48 ea       180000           89700
2  Reneal Zones w/pneumatic controls        34 ea       200000           15200
3  Exhaust Fan                               5 ea          750            3750
4  6 Tan Server Room                         2 ea         9400           10000
5  Fire/Smoke Dampers                        3 ea          750            2250

</TABLE>

<PAGE>

THE ROTUNDA BUILDING                              PANKOW SPECIAL PROJECTS, L.P.

300 Frank Ogawa Plaza                                     CONSTRUCTION ESTIMATE

Square Footage                                   2101 Webster Street, Suite 750
        77,462                                                Oakland, CA 94612
      03/02/00                                                   (510) 893 8337
                                                             (510) 893 8950 FAX

Duration:              FLOORS 5,6 AND 7

28 weeks               SCIENTIFIC LEARNING

<TABLE>

<CAPTION>

---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
                                         Total                                                      Project
---------------------------------------------------------------------------------------------------------------------------------
  No.     Description                    Quantity             U/M            Unit Price         Ext.         Total        SF Cost
---------------------------------------------------------------------------------------------------------------------------------
  <S>         <C>                          <C>                <C>                <C>            <C>           <C>           <C>

   6     Hotwater Pipe Extension          1085                 oa                 21             22785
   7     Pipe Extension Insulation        1085                 ls                  4              4866
   8     After Hours Control Switch          7                 ls             510.00              4200
   9     Engineering                     72200                 sf               0.25             18050
   10    Air and Water Balance              80                 ea                150             12000
   11    Permit                              1                 es                400               400
   12    Restrooms                           2                 ea               2500              5000

---------------------------------------------------------------------------------------------------------------------------------
   ELECTRICAL                                                                                               $797,838       $8.53
---------------------------------------------------------------------------------------------------------------------------------
   1     Subquotes                           1                 la             737938            737938
---------------------------------------------------------------------------------------------------------------------------------
   FINAL CLEAN - PSPL                                                                                       $  9,818       $0.13
---------------------------------------------------------------------------------------------------------------------------------
   1     Final clean                     66482                 sf               0.15              9819

</TABLE>

<PAGE>

THE ROTUNDA BUILDING                              PANKOW SPECIAL PROJECTS, L.P.
300 Frank H. Ogawa Plaza                               TI CONSTRUCTION ESTIMATE
                                                 2101 Webster Street, Suite 750
                                                            Oakland, CA   94612
Square Footage:                                                  (510) 893-8337
    77,462                                                   (510) 893-8950 FAX
    03/02/2000

<TABLE>
<CAPTION>

Duration:               FLOORS 5,6 and 7
22 weeks                Scientific Learning
--------------------------------------------------------------------------------------------------------
                                               Total                           Project
No. Description                             Quantity U/M  Unit Price    Ext.    Total      SF Cost
--------------------------------------------------------------------------------------------------------
<S>                                         <C>             <C>         <C>    <C>          <C>
SUBTOTAL                                                                       $53,222,761

BUILDING PERMIT                                                                    548,341

GENERAL CONDITIONS                                                                $196,266

PL/PD                                                                              $58,948

G.R.T.                                                                              $6,947

SUBTOTAL                                                                        $3,532,862

FEE                                                                               $176,633

CONTINGENCY                                                                       $370,929

TOTAL PRICE                                                                     $4,080,224   $62.57

</TABLE><PAGE>

                                    VALUATION

                            Marker International GmbH
                                      As of
                                 March 31, 2000

                                   Prepared by

                           HOULIHAN VALUATION ADVISORS
                          111 East Broadway, Suite 1220
                            Salt Lake City, UT 84111
                    Tel: (801) 322-3300; FAX: (801) 322-3310

<PAGE>

                                  July 12, 2000

Mr. Kevin Hardy, CEO
MKR Holdings
P.O. Box 26548
Salt Lake City, UT 84126

                   RE: VALUATION OF MARKER INTERNATIONAL GMBH

Dear Mr. Hardy:

Attached is the valuation report on Marker International GmbH (hereinafter
referred to as "Marker" or "the Company") which Houlihan Valuation Advisors
("HVA") has completed at the request of MKR Holdings. The purpose of the
valuation is to determine the value of a 15% interest in the Company held by MKR
Holdings. Pursuant to the terms of the Operating Agreement dated November 30,
1999 among Marker International GmbH, CT Sports Holdings AG and Marker
International (subsequently renamed MKR Holdings), the valuation of the 15%
interest "shall not take into account any minority discounts with respect to the
Oldco (MKR Holdings) equity interest."

The report has been prepared in accordance with the Uniform Standards of
Professional Appraisal Practice and the Business Valuation Standards I through
VII set forth by the American Society of Appraisers.

The term "fair market value" is defined as the value at which a willing buyer
and willing seller, neither being compelled to act and both being well informed
of the relevant facts and conditions which might be anticipated, would effect a
sale of an asset at "arm's length" on a given date.

The business valuation study was undertaken using widely accepted principles of
financial analysis and valuation. In particular, we observed the principles set
forth in Internal Revenue Ruling 59-60, 1959-1 CB 237. The book value,
transaction value, market value and income value methods of valuation were
utilized in arriving at an estimate of the fair market value of the common stock
of Marker.

In preparing the report, we have used information provided by the Company. It
has been represented by the Company that the information is reasonably complete
and accurate. We did not make independent examinations of information prepared
by Company management which was relied upon and, accordingly, we make no
representations or warranties nor do we express any opinion regarding the
accuracy or reasonableness of such. All of the information made available to us
was carefully analyzed and reasonable attempts were made to find additional
information which would be helpful in this study.

All financial projections relied upon were prepared by Marker management, which
has represented to us that such projections reflect its best estimates as to the
future potential of the Company. It should be emphasized that forecasting the
future is at best a difficult and tenuous process. There will undoubtedly be
disparities between the projected figures and actual results, since events and
circumstances frequently do not occur as expected, and those disparities may be
material.

This report has been prepared for the specific purpose of determining the value
of a 15% interest in the Company held by MKR Holdings as of March 31, 2000, and
is intended for no other use. The report is not to be copied or given to
unauthorized persons without the direct written consent of HVA.
<PAGE>

Since valuation is an imprecise science, HVA does not purport to be a guarantor
of value. Reasonable people can differ in their estimates of value. HVA does
certify that this valuation study was conducted and the conclusions arrived at
independently using conceptually sound and commonly accepted methods of
valuation.

Our study has concluded that a reasonable estimate of the fair market enterprise
value of the equity of Marker as of March 31, 2000 is $24.1 million. The
estimated value of a 15% interest in the Company on that date is $3.6 million
based on the Agreement whereby a minority interest discount is not applicable to
MKR Holdings' 15% interest in the Company.

Neither HVA or its principals have any present or intended interest in Marker.
HVA's fees for this valuation are based on professional time charges, and are in
no way contingent upon the final valuation figure determined.

HOULIHAN VALUATION ADVISORS

By: /S/ Fredric L. Jones
    ---------------------------
    Frederic L. Jones, ASA
    Accredited Senior Appraiser

<PAGE>

TABLE OF CONTENTS

<TABLE>
<S>                                                                           <C>
TABLE OF CONTENTS................................................................1

PREFACE..........................................................................3

BASIC PRINCIPLES OF VALUATION....................................................4

INTRODUCTION.....................................................................5

PURPOSE..........................................................................5
SCOPE............................................................................5
METHODOLOGY......................................................................5

COMPANY BACKGROUND...............................................................6

OVERVIEW.........................................................................6
MKR HOLDINGS.....................................................................6
COMPANY HISTORY..................................................................7
PRODUCTS.........................................................................8
SALES............................................................................8
MARKETING........................................................................9
PRODUCT DEVELOPMENT AND INTELLECTUAL PROPERTY....................................9
COMPETITION.....................................................................10
PROPERTY, PLANT AND EQUIPMENT...................................................10
MANAGEMENT......................................................................10
EMPLOYEES AND LABOR RELATIONS...................................................11
STRATEGY........................................................................11
OPERATIONAL DIRECTIVES..........................................................11

ECONOMIC OVERVIEW AND OUTLOOK...................................................13

OVERVIEW U.S. NATIONAL ECONOMY..................................................13
JAPANESE ECONOMIC OVERVIEW......................................................15
EUROPEAN ECONOMIC OVERVIEW......................................................16

INDUSTRY OVERVIEW - SPORTING GOODS MANUFACTURING................................17

U.S. OUTDOOR SPECIALTY MARKET OVERVIEW..........................................17
WORLDWIDE ALPINE SPORTS EQUIPMENT OVERVIEW......................................19

FINANCIAL REVIEW................................................................21

CROSS SECTIONAL ANALYSIS........................................................23

ESTIMATES OF VALUE..............................................................24

OVERVIEW........................................................................24
NATURE OF THE SECURITY..........................................................24
NORMALIZATION OF EARNINGS.......................................................25
BOOK VALUE......................................................................26
TRANSACTION VALUE...............................................................27
MARKET VALUE....................................................................27
INCOME VALUE....................................................................28

SUMMARY AND CONCLUSION..........................................................31

EXHIBITS

EXHIBIT #1............................................HISTORICAL INCOME STATEMENTS
EXHIBIT #2................................INCOME STATEMENT ITEMS AS A % OF REVENUE

</TABLE>

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                           PAGE 1
<PAGE>

<TABLE>
<S>                               <C>
EXHIBIT #3.......................................................................INCOME STATEMENT ITEM GROWTH RATES
EXHIBIT #4................................................................................SELECTED FINANCIAL RATIOS
EXHIBIT #5................................................................................HISTORICAL BALANCE SHEETS
EXHIBIT #6.....................................................................BALANCE SHEET ITEMS AS A % OF ASSETS
EXHIBIT #7...................................SELECTED STATISTICS FOR MARKER AND OTHER SPORTING  GOODS MANUFACTURERS
EXHIBIT #8..............................................................................PROJECTED INCOME STATEMENTS
EXHIBIT #9......................................................PROJECTED INCOME STATEMENTS AS A % OF TOTAL REVENUE
EXHIBIT #10......................................................................INCOME STATEMENT ITEM GROWTH RATES
EXHIBIT #11........................................................INDUSTRY SAMPLE GROUP - DESCRIPTION OF COMPANIES
EXHIBIT #12..............................................................INDUSTRY SAMPLE GROUP - PUBLIC MARKET DATA
EXHIBIT #13........................................................MARKET VALUE RATIOS OF THE INDUSTRY SAMPLE GROUP
EXHIBIT #14..........................HISTORICAL STRUCTURE OF YIELDS OBSERVABLE AND AVAILABLE ON SELECTED SECURITIES
EXHIBIT #15.............................................COMPUTATION OF APPLICABLE DISCOUNT AND CAPITALIZATION RATES
EXHIBIT #16........................................................................WEIGHTED AVERAGE COST OF CAPITAL

APPENDICES

APPENDIX A............................................................................................CERTIFICATION
APPENDIX B.........................................................................STATEMENT OF LIMITING CONDITIONS
APPENDIX C....................................................................................REVENUE RULING #59-60
APPENDIX D.................................................................................PROFESSIONAL CREDENTIALS

</TABLE>

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                           PAGE 2
<PAGE>

PREFACE

This valuation study was conducted by Houlihan Valuation Advisors ("HVA") at the
request of MKR Holdings to provide an estimate of the fair market enterprise
value of the equity of Marker International GmbH (hereinafter "the Company" or
"Marker") as of March 31, 2000. The purpose of the valuation is to determine the
value of a 15% interest in the Company held by MKR Holdings. Pursuant to the
terms of the Operating Agreement dated November 30, 1999 among Marker
International GmbH, CT Sports Holdings AG and Marker International (subsequently
renamed MKR Holdings), the valuation of the 15% interest "shall not take into
account any minority discounts with respect to the Oldco (MKR Holdings) equity
interest."

This valuation report has been prepared in accordance with the Uniform Standards
of Professional Appraisal Practice as well as Business Valuation Standards I
through IX set forth by the American Society of Appraisers.

In preparing this report, information provided by the Company was used.
Management has represented the information as being reasonably complete and
accurate, and as fairly presenting the financial position, prospects and related
facts of the Company. HVA is not in a position to certify the accuracy of basic
data provided by management, and the validity of this valuation study is
dependent upon the accuracy of such data. HVA does certify that conceptually
sound methods were used in the valuation.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                           PAGE 3
<PAGE>

BASIC PRINCIPLES OF VALUATION

The principles that have governed this analysis provide a basis for the
determination of value where an active market for a company's securities is
lacking. The valuation procedure attempts to analyze the earning power of a
company and the ability of the company to convert this earning power into value.
Earning power is related to the rates of return expected in the financial
markets for various types of investment alternatives, with consideration given
to past history, expected growth rates and risk. This report provides a direct
comparison between Marker's operations and those of companies operating in the
same industry. From this comparison, certain reasonable conclusions concerning
the relative financial position and performance of the Company may be drawn.

Fair market value is that value at which a willing buyer and willing seller,
neither being compelled to act and both being well informed of the relevant
facts and conditions which might be anticipated, would effect a sale of an asset
at "arm's-length" on a given date.

The value of securities of a corporation in the hands of its stockholders and
the value of the underlying assets of the corporation are often only
incidentally related. The value of securities that are freely traded in a public
market is influenced as much by external factors beyond the control of the
company as it is by internal factors within the control of management. Such
external factors include:

     -    General economic conditions;

     -    Conditions existing within a specific industry (e.g., degree of risk,
          stability or rate of growth);

     -    Public attitude and investor sentiment toward particular industries
          and companies.

Fair market value of securities that enjoy an active public market is determined
by actual market quotations on a particular date, unless the market for a
security is affected by some abnormal influence or condition. Determination of
fair market value of securities of a closely held corporation, however, cannot
be determined as precisely, thus creating a need for independent professional
business valuation. Principal weight must be given to evidences of earning
power, book value, dividend paying capacity, financial and competitive position,
and other facts and circumstances which a potential buyer and seller would
consider. Also, prices realized in actual sales of similar companies on or about
the valuation date afford a realistic measure of value.

Professional valuation of a closely held company cannot be considered an exact
science; however, experience has shown that comprehensive and thorough valuation
analyses can generate ranges of value that are reasonable and relevant.

The various techniques used in this report are based on different concepts and
assumptions. As a result, their application produces a range of possible values.
A single number within that range is given as a reasonable estimate of value as
of the valuation date. It should be emphasized that, as is the case with
publicly traded securities, when expectations for Marker change over time, so
does its value. Further, the value of a firm may fluctuate over time even though
its internal operating characteristics remain essentially unchanged. The
securities market places different significance on income and risk properties of
companies as general economic conditions vary.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                           PAGE 4
<PAGE>

INTRODUCTION

PURPOSE

The purpose of the valuation is to determine the value of a 15% interest in the
Company held by MKR Holdings. Pursuant to the terms of the Operating Agreement
dated November 30, 1999 among Marker International GmbH, CT Sports Holdings AG
and Marker International (subsequently renamed MKR Holdings), the valuation of
the 15% interest "shall not take into account any minority discounts with
respect to the Oldco (MKR Holdings) equity interest."

SCOPE

Both internal and external factors that influence the value of Marker have been
analyzed and interpreted. Internal factors include the firm's performance and
financial structure, as well as the size and marketability of the interest being
valued. External factors include, among others, the health of the industry and
the position of the Company therein, economic trends, and conditions in the
securities markets.

METHODOLOGY

The report first looks at the background and operating characteristics of
Marker. It next provides overviews of the national and international economies
and the sporting goods manufacturing industry, each important as a description
of the environment in which the Company operates.

A financial analysis of the Company, as well as a comparative analysis of the
performance of the Company with that of the industry, follows. Next, the report
determines explicit values for the Company via the application of alternative
valuation techniques. Four valuation methods are utilized: book value,
transaction value, market value (derived from market value ratios of similar
firms), and income value (based on the present value of future benefits). After
considering the assumptions and relative justification of each valuation method,
the results are synthesized into a fair market value estimate of the Company's
common stock.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                           PAGE 5
<PAGE>

COMPANY BACKGROUND

OVERVIEW

Marker is a designer, developer, manufacturer and marketer of alpine ski
bindings in North America, Europe and Asia. Marker is a holding company that
operates through its subsidiaries, Marker Deutschland GmbH ("Marker Germany"),
Marker USA, Marker Japan Co., Ltd. ("Marker Japan"), Marker Austria GmbH
("Marker Austria") and Marker Canada, Ltd. ("Marker Canada").

Substantially all of the Company's ski bindings are manufactured by Marker
Germany in Eschenlohe, Germany. In addition to manufacturing the bindings,
Marker Germany also distributes bindings in Germany, sells bindings to
subsidiaries of the Company and sells to independent distributors in Europe and
other countries where the Company does not have a distribution subsidiary. The
production of Junior bindings is outsourced to a third party manufacturer in the
Czech Republic. Marker USA and Marker Japan each have their own sales forces and
marketing departments for sales and marketing of bindings and related parts
directly to retailers in the United States and to both retailers and wholesalers
in Japan, respectively. In January 1998, Marker Canada began distributing Marker
ski bindings along with other brand name sporting equipment, including Tecnica
ski boots, in-line skates, trekking boots and Volkl skis and tennis equipment.
Marker Austria distributes the Company's ski bindings in Austria through an
independent sales force.

Until March 1999, Marker Ltd., a subsidiary of the Company, designed,
distributed and sold to retailers Marker branded clothing, gloves and luggage
products for skiing and other recreational activities. On March 8, 1999, MKR
Holdings and Marker Ltd. granted Ski & Sports Recreations Company, L.L.C. an
exclusive, worldwide right to manufacture, market and sell Marker Ltd.'s apparel
and luggage products utilizing the "Marker" tradename in return for royalty
payments equal to a percentage of net sales, which ranges from 3% to 5%. Marker
has the right to terminate the license agreement in the event annual net sales
fall below a certain level. In addition, Marker and Marker Ltd. may, at any time
before March 21, 2001, acquire by assignment all of the rights of Ski & Sports
Recreation Company under the license agreement. Marker and Marker Ltd. also have
the right of first refusal through March 31, 2002 as to any sale or transfer of
the business or assets used by Ski & Sports Recreation Company, L.L.C. for the
manufacture, sale and marketing of the apparel business.

MKR HOLDINGS

Prior to November 30, 1999, the Company's business was owned and operated by MKR
Holdings. MKR Holdings was a holding company that operated its business through
its subsidiaries, Marker Germany, Marker USA, Marker Ltd., Marker Japan, Marker
Austria and Marker Canada. MKR Holdings and its subsidiaries were a leading
designer, developer, manufacturer and marketer of alpine ski bindings in North
America, Europe and Asia. Substantially all of MKR Holdings' ski bindings were
manufactured by Marker Germany, which also distributed bindings in Germany, to
subsidiaries of MKR Holdings, and to independent distributors in countries where
MKR Holdings did not have a distribution subsidiary.

On November 30, 1999 (the "Closing Date"), the MKR Holdings sold substantially
all of its assets (including the equity securities of its subsidiaries) to
Marker, a GmbH organized under the laws of Switzerland, pursuant to an asset
purchase agreement (as amended by the Amendment to the Asset Purchase Agreement
dated as of September 20, 1999, the "Purchase Agreement") between the Company
and MKR Holdings. In exchange, Marker assumed substantially all of the
liabilities of MKR Holdings and MKR Holdings received a 15% equity interest in
Marker. The remaining 85% equity interest in Marker is held by CT Sports Holding
AG ("CT"), a joint venture between Tecnica S.p.A. and H.D. Cleven, the principal
shareholder of the Volkl Group. Pursuant to the Purchase Agreement, CT was
required to contribute to Marker $15,000,000 in cash for its 85 % equity
interest in Marker. As a result of CT's purchase of 66.66% of Marker Canada in

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                           PAGE 6
<PAGE>

June 1999 for $1,025,501, CT's actual contribution to Marker, which was a
combination of debt and equity, totaled $13,974,499.

In connection with the Purchase Agreement, MKR Holdings and CT entered into an
operating agreement which, among other things, grants CT an option (the
"Option") to purchase MKR Holdings' 15% equity interest in Marker at any time on
or after November 30, 2001, at the then fair market value, subject to reduction
in an amount equal to the sum of: (a) any indemnity obligations of MKR Holdings
to Marker, (b) all unreimbursed advances from Marker for operating and
administrative expenses (currently estimated to be approximately $300,000 per
year) and costs of defending indemnifiable claims, if any, incurred by Marker,
together with interest thereon, (c) all advances by Marker to MKR Holdings to
pay any income tax liability, together with interest thereon, plus (d) $775,000.
Thereafter, MKR Holdings will be liquidated and the net proceeds of the exercise
of the Option will be distributed to the shareholders of MKR Holdings in
liquidation. In determining fair market value, all of CT's $15,000,000 transfer
has been considered equity.

In connection with the Purchase Agreement, MKR Holdings reached
agreements-in-principle regarding the restructuring of its debt and the
treatment of such debt under a plan of reorganization with substantially all of
its creditors that were impaired under the plan of reorganization. On August 19,
1999, MKR Holdings, DNR North America, Inc. and DNR USA, Inc. (collectively, the
"Debtors") filed voluntary petitions for relief under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"). On September 22, 1999, the Debtors filed the
First Amended Joint Chapter 11 Plan of Reorganization (as amended by the
Amendment to the First Amended Joint Chapter 11 Plan of Reorganization, dated as
of October 25, 1999, the "Plan") and a related disclosure statement (the
"Disclosure Statement"). By order dated September 22, 1999, the Bankruptcy Court
approved the Disclosure Statement as containing adequate information. The
Disclosure Statement and the Plan were subsequently distributed to the Debtors'
creditors and shareholders for approval, which approval was subsequently
obtained. On October 27, 1999, the Plan was confirmed by order of the Bankruptcy
Court (the "Confirmation Order"). Pursuant to the Confirmation Order, the
Bankruptcy Court approved the Plan and the Purchase Agreement on October 27,
1999. MKR Holdings did not distribute any securities in connection with the
plan.

As a result of the events described above, MKR Holdings is no longer engaged in
the conduct of business and operates for the sole purpose of holding and
subsequently liquidating its assets (which consists almost entirely of its
equity interest in Marker). MKR Holdings is required to dissolve and liquidate
all of its assets no earlier than November 30, 2002, and no later than November
30, 2004. If the Option is not exercised prior to liquidation, then upon
liquidation, the shareholders of MKR Holdings will receive an equity interest in
Marker equal to each shareholder's pro rata share of MKR Holdings' 15% equity
interest in Marker.

COMPANY HISTORY

Marker was originally founded in 1952 by ski binding pioneer Hannes Marker in
Garmisch-Partenkirchen, Germany. Northwest Energy Corp. acquired the Company in
1981 and its headquarters were moved to Salt Lake City, Utah. Williams Companies
subsequently acquired Northwest in 1983. In 1984, Willaims Companies sold Marker
to Hank Tauber, a former head coach of the United States Women's Ski Team. The
Company went public in August 1994, selling 2.66 million shares at an offering
price of $7.00 per share.

In June 1995, the Company entered the snowboard business through a 25% equity
interest in DNR Sportsystem ("DNR"). An additional 55% of the common shares of
DNR was purchased in 1996, bringing Marker's total ownership in DNR to 80%. The
acquisition was financed through a combination of bank debt and the proceeds of
a secondary equity offering (June 1996). The Company formed DNR USA in 1997 to
manufacture snowboards at a newly constructed 56,608 square foot snowboard
manufacturing facility located in Salt Lake City. In addition, the Company
formed DNR North America and DNR Japan, as distribution companies for snowboards
and related products in the United States and Japan, respectively.

Due to a combination of slumping market growth, industry over capacity and the
Company's own financial difficulties, the Company decided to dispose of its
snowboard manufacturing operations, including the sale of its manufacturing
facility in

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                           PAGE 7
<PAGE>

Salt Lake City, and exit the snowboarding business in September 1998. Marker's
total loss from snowboarding was approximately $38 million.

In June 1998, Hank Tauber stepped down as the Company's chief executive officer.
Prior to the Board's appointment of Peter Weaver as Marker's President and Chief
Executive Officer in October 1998, a turnaround consultant was hired to serve as
interim chief operating officer and to renegotiate the Company's bank
facilities.

PRODUCTS

The Company designs, develops, manufactures and distributes ski bindings
consisting of more than 25 high quality models. The models range from high
performance racing models, such as the Logic M9.2 Turbo SC Racing and other
top-end models featuring the Company's patented Selective Control System,
Biometric Programmed Upward Release and Comshock Piston, to the children's M1.2
model. Suggested retail prices in the United States of such models range from
$120 to $395.

In addition to a ski binding's primary function of attaching a ski to a ski
boot, the binding serves as a safety mechanism. The timing of a binding's
release mechanism is significant in both its retention and release functions.
When a skier applies an amount of force to a ski binding that exceeds the safety
setting of the binding, the binding is designed to release the ski boot from the
ski in order to decrease the risk of injury to the skier. Therefore, a binding
must be designed to recognize specific levels of force exerted against it.

Marker bindings feature Logic, BioMetric, Edge Pressure System and Gliding AFD
technology. The Company's patented technology tightly couples the ski boot and
binding, resulting in a binding system that is designed not to be affected by
contamination between the ski boot and binding and provide more power to the
ski, less fatigue to the skier and added protection from injury.

SALES

Approximately 60% of the Company's total ski binding orders for each fiscal year
ending March 31 are obtained through its "Pre-Season Sales Program," which runs
from February 1st through September 15th. Marker bindings ordered under the
Pre-Season Sales Program are shipped to retailers from July through November and
are recorded by the Company as sales on the date of shipment. This results in
the recording of the majority of the Company's annual sales during its second
and third fiscal quarters. Although certain of Marker's customers have
contributed significantly to the Company's sales, no customer represented more
than 10% of its sales in any of the last three years.

Approximately 35% of the Company's total ski binding orders for each fiscal year
are obtained through its "Reorder Program," which includes products ordered
after September 15th and shipped before March 31st of each year. Bindings sold
under the Reorder Program usually include models in the Company's existing
inventory and products, which will be discontinued in the upcoming season. The
success of the Reorder Program primarily affects the Company's third and fourth
fiscal quarter results.

Approximately 5% of the Company's total ski binding orders for a fiscal year are
obtained through its Shop and Pro Programs, which offer reduced pricing on the
Company's products to retail ski shop employees, ski instructors and other
professionals in the industry. The Company believes recommendations from sales
persons and professional skiers can be an important factor in influencing
consumer decisions to purchase a particular binding brand.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                           PAGE 8
<PAGE>

MARKETING

The Company actively advertises and markets its products. The Company spends the
majority of its advertising budget on advertisements in ski magazines such as
SKIING MAGAZINE, SKI MAGAZINE, AND POWDER MAGAZINE in the United States, and
similar magazines in foreign markets.

To increase brand recognition, in addition to offering technologically advanced
bindings, the Company aggressively markets the Marker brand name. To influence
its presence in retail shops, the Company devotes resources to maintaining and
improving its relationships with retailers and shop personnel. By conducting
in-shop sales clinics, shop employees are encouraged to recommend Marker
products to their retail customers. In addition, the Company, as part of the
United States Authorized Retailer Program, requires that all authorized retail
shops employ a technician who has been trained and certified by the Company
concerning the installation and adjustment of Marker bindings. Lastly, the
Company sells its bindings to the sales staff of its retailers and to
professional skiers at special prices so that they will be able to recommend the
Company's products as a result of personal experience.

To foster the recognition of the Marker brand name, the Company also establishes
endorsement relationships with national ski teams and racing professionals.
These endorsement contracts, which typically run from one to two years and
provide for a base payment to the racer, with additional payments for placing in
a competition. Racers endorsing and using Marker bindings have won many Olympic,
World Cup and professional ski competitions.

PRODUCT DEVELOPMENT AND INTELLECTUAL PROPERTY

In order to maintain its leadership position and to continue to offer
technologically advanced ski bindings, the Company devotes resources to
improving and developing its current and future products. The research,
development and design of its ski bindings is performed by the Company's
Research and Development Department at its plant in Eschenlohe, Germany. The
Company has developed substantially all of its proprietary technology used in
manufacturing Marker ski bindings.

Product development is a result of the integrated efforts of the Company's R&D,
Manufacturing and Sales departments, all of which work together to generate new
ideas to be incorporated into its products. The Company also regularly receives
suggestions from ski racers who use the Company's products. After the Company
decides to use a new component in a product, the R&D Department, with the
assistance of machine shop personnel, integrates the mechanical process and
refines the product design and mechanism of the developing product.
Simultaneously with the development of the internal mechanisms of its products,
the Company usually engages an external design firm to assist in the
determination of colors and the integration of shape with the new technology.

The Company has a state-of-the-art laboratory used for testing products in the
development stage as well as products currently on the market. Additionally, the
laboratory technicians regularly test products produced by the Company's
competitors.

The R&D Department continually develops new components for which the Company may
obtain patents. The Company typically files its patent applications in the name
of Marker International or the appropriate subsidiary. Patent applications have
been filed in the United States, Germany, Japan and, in certain cases, the
countries in which the Company's competitors manufacture ski bindings. The
Company has filed more than 40 patent applications over the past three years and
currently has over 130 families of patents and patent applications covering its
technology filed in numerous countries around the world, of which over 35 are
devoted to technology currently used by the Company.

The Company markets its products under a number of trademarks registered in
various countries throughout the world. The Company believes that the Marker
trademark is widely known as identifying high-quality, high-technology ski
bindings

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                           PAGE 9
<PAGE>

and is deemed to be a valuable asset of the Company. The Company is not aware of
any third party violations of its trademarks.

COMPETITION

The Company competes on the basis of the quality, technology, brand name
recognition and performance of its ski bindings and related products. Other
competitive factors include marketing and distribution methods, customer service
and the management of sales promotion activities. Marker's competitors in alpine
ski bindings include Adidas-Salomon ("Salomon" brand), Atomic ("ESS" brand), HTM
("Tyrolia" brand) and Rossignol (formerly "Geze" and "Look" brands).

PROPERTY, PLANT AND EQUIPMENT

The Company leases a 26,000 square foot combined office and western United
States distribution facility located in Salt Lake City, Utah on a short-term
basis. The lease is expires in June 2001. The Company also leases an 8,600
square foot warehouse in Manchester, New Hampshire for use as its eastern United
States distribution hub.

The Company leases a 124,146 square foot office, research and development and
manufacturing facility in Eschenlohe, Germany. Nearly all of the Company's
binding products are manufactured at this facility which houses technologically
advanced production and quality assurance machinery. The Company believes that
the facility is well suited to meet the manufacturing needs of the Company; it
is presently utilized at approximately 65% of total capacity. The lease for the
manufacturing facility expires in October 2012. Marker has an option to purchase
the facility for DM 11.8 million in September 2004. The lease was purchased by a
related party in 2000 at a discount. However, as of March 31, 2000, the terms of
the lease to Marker remained unchanged.

The Company also leases three offices in Japan from which sales and distribution
activities are directed. These offices are located in the cities of Tokyo,
Sapporo and Osaka and comprise approximately 3,500, 500 and 675 square feet,
respectively. In addition, Marker Japan leases warehouse space for inventory
storage in Tokyo and Osaka totaling approximately 12,900 and 1,075 square feet,
respectively. Management believes that these facilities are suitable for the
required operational needs of Marker Japan.

The Company also leases a 4,700 square foot facility in St-Laurent, Quebec to
house sales and administration staff for Marker Canada. Warehouse space in
Canada is leased as needed from a public warehouse.

MANAGEMENT

In October 1998, Marker's Board appointed Peter Weaver as President and Chief
Executive Officer. Mr. Weaver previously worked for Marker before leaving for a
seven-year stint as President of Easton Technical Products. At Easton, he was
responsible for growing the company's archery and mountain product lines. During
his previous tenure at Marker, Mr. Weaver's roles included President of Marker
USA and Managing Director of Marker Germany. Peter has been involved with
sporting goods manufacturing and marketing since 1973. He holds a BA from
Amherst College and a MS from University of Pennsylvania.

INGRID GENAU IS A MANAGING DIRECTOR AND CHIEF FINANCIAL OFFICER OF MARKER
GERMANY. She has been the CFO of the operations company in Germany since
September 1999. Ms. Genau is a business and accounting executive with over 15
years of experience in aerospace and sporting goods. Her prior experience
includes CFO of Mistral/North Sails, a manufacturer and marketer of sailboards,
sails, and clothing. Prior to Mistral/North Sales, she was a controller for
Dornier, a German aircraft company.

SHAUN MORRIS IS THE PRESIDENT OF MARKER CANADA. Mr. Morris is the former
President of Benetton in Canada. He is also a long time ski industry executive,
experienced with skis, boots, bindings, accessories and apparel.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 10
<PAGE>

EIICHI ISOMURA IS THE PRESIDENT OF MARKER JAPAN. He is also the president of two
other Japanese companies, Isomura Sangyo Kaisha Ltd. and Isomura. He was trained
as an engineer in Germany. Mr. Isomura has a strong background in operations
over the last 35 years.

EMPLOYEES AND LABOR RELATIONS

Marker's non-unionized workforce consists of approximately 344 full-time
employees and 19 part-time employees. Of these, 229 employees are involved in
production, 61 in selling, 13 in warehousing and shipping, 47 in general
administration, and 13 in research and development.

STRATEGY

To meet the Company's goal of returning to profitability, generating an
operating profit margin of at least 12%, and growing the Company through
strategic partnerships in the winter sports business and brand licensing, Mr.
Weaver has communicated the following strategic imperatives:

     -    Renewed emphasis on alpine ski bindings as the core business.

     -    Maintaining Marker's position as the technological leader in alpine
          bindings.

     -    Operational planning and control will be shifted to the Company's
          manufacturing and product development facilities in Eschenlohe,
          Germany. Marker Germany will assume centralized planning authority as
          a means of assuring integral linkage among global forecasts, demand,
          production and inventory management.

     -    Marker International will function only as a holding company to
          account for group activities.

     -    The apparel business (previously operated as Marker Ltd.) has been
          licensed to and financed by third parties, with a buy back provision
          included in the licensing agreement.

OPERATIONAL DIRECTIVES

Going forward, Marker intends to operate under the following assumptions:

     -    Pricing to be established by local subsidiaries or distributors based
          upon competitive factors at price points in each market.

     -    Maintenance of market share levels will not be at the expense of
          supporting reasonable operating margins.

     -    Aggressive reorganization of the German assembly operations to match
          industry demand requirements and increase plant efficiency. The recent
          automation of the heel assembly process has yielded substantial
          efficiencies and the toe assembly process has been targeted as the
          next area for improvement. A highly reputed independent German
          consulting group has been hired to lead the production reorganization
          initiative. Annual cost savings after investment have been estimated
          at $6.3 million and will reach full run rate by fiscal year 2003.

     -    Production levels will be continuously monitored against actual sales,
          to maximize flexibility in maintaining reasonable minimal inventory
          levels.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 11
<PAGE>

     -    Overhead and operating expenses will be reduced to levels commensurate
          with projected sales levels and target profitability.

     -    R&D expenditures will be maintained at current levels (2.8% of sales).

     -    Intercompany charges will be utilized only for product transfer in the
          ordinary course of business and fee payments.

     -    Potential inventory obsolescence to be covered by establishing and
          maintaining prudent inventory reserves.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 12
<PAGE>

ECONOMIC OVERVIEW AND OUTLOOK

OVERVIEW U.S. NATIONAL ECONOMY

The United States economy sailed into 2000 with a strong tail wind behind it. In
fact, underpinned by higher stock prices, rising personal income levels,
increasing real estate values, and a tightening job market (all of which are
contributing to a sense of well being throughout the country), there wasn't even
the slightest hint of a slowdown in growth as the year got under way. The 5.7
percent and 6.9 percent growth rates that were recorded in last year's third and
fourth quarters, respectively, will probably not be matched in the months ahead.
Nevertheless, there could well be enough momentum still in place for growth to
approximate 4 percent in the first quarter of 2000 and 3.5-3.7 percent for the
year as a whole.

The uptrend is still broadbased. In fact, relatively few sectors are not
participating. Global competition, for example, is still intense in industries,
such as steel, tires, and machinery, and the resultant pressure on pricing is
constraining profitability. But even in these areas, consumption remains high
enough so that once supply and demand come into better balance on the world
stage - as international growth accelerates - these struggling sectors should
revive. Elsewhere, the picture is brighter, as the trends in earnings continue
to stay healthy. Indeed, the so-called new economy, covering such areas as the
Internet, computer software, electronics, telecommunications equipment, and
semicondutors, is doing particularly well, with demand in these areas very often
now outstripping the available supply.

The expansion of the U.S. economy is traceable to several factors. First, and
foremost, there is the staying power of the bull market, with the unprecedented
increase in equity prices over the past decade putting a vast store of spending
power in the hands of the public. Rising real estate values have created added
wealth, as have high employment levels and steadily increasing personal income.
The so-called wealth effect has led to consistently high levels of spending on
autos, houses, and retail goods. The foregoing strength in consumer demand is
helping to keep industrial production and factory utilization at elevated
levels.

These increases have not come in a straight line, however. Indeed, there have
been periods in which growth slackened noticeably. On balance, though, the
benefits of low inflation, stable interest rates, and significant improvements
in productivity have made this expansion one of the most durable on record.

VALUE LINE expects the business expansion will continue in the months ahead, but
not at the hectic pace seen over the past several months. The principal reason
for caution is the increase in interest rates over the past year. Specifically,
long-term rates, which largely reflect inflationary expectations, and which are
here represented by the 30-year Treasury bond, have increased from around 4.75
percent in late 1998 to currently about 6.1 percent. Short-term rates, including
the Federal Funds rate, are set by the Federal Reserve. They've jumped sharply
as well, as the Fed has tightened the monetary reins on four separate occasions
over the past year.

The lead bank, which functions as the nation's inflationary watchdog, has
tightened its monetary grip because it is worried that the sharp increases in
business activity over the last several quarters will result in a rise in
inflation before too much longer. The Fed is not only concerned about the jump
in oil prices (such quotations recently surged above $30 a barrel for the first
time since the end of the Persian Gulf War in 1991), but is also concerned about
the sharp rise in the Employment Cost Index during the fourth quarter. (That
index rose by a strong 1.0 percent during the period, with fringe benefit costs
gaining 1.4 percent, the largest increase in that category in seven years.)

The increase in interest rates should help to slow the rate of GDP growth by
making it more costly to borrow to finance a car, a home, and an array of other
retail purchases. Industrial activity, too, should slacken, as lower consumer
demand will place limits on any increases in industrial production. Finally,
higher interest rates hurt the performance of equities. Stocks, in fact, have
been under pressure for much of the year so far. Should that persist, the wealth
effect, so pivotal in providing support for the business up cycle, would
suddenly become less of a factor.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 13

<PAGE>

According to VALUE LINE, the Fed is tightening in small increments now to avoid
having to take more drastic action later on. The Fed is expected to raise rates
two more times in the next few months. (In his recent Humphrey-Hawkins
testimony, Fed Chairman Greenspan suggested strongly that the bank would again
be increasing rates.) Such pre-emptive moves should gradually bring growth back
down to the 3 percent range. That's where the lead bank would probably be most
comfortable. Price inflation, with the help of a projected increase in oil
production in the spring, should remain fairly muted going forward.

A key risk, albeit not a major one as yet, is that the Fed will raise rates too
aggressively in its efforts to curb growth and, in the process, bring on a
recession. VALUE LINE believes that the inflation threat is as dire as some of
the pessimists contend, as pricing power remains limited because of the intense
level of overseas competition and the aggressive cost cutting in key domestic
high-tech markets.

ECONOMIC GROWTH

As noted above, growth really stepped up a notch in the final half of 1999, and
it will likely stay strong in the opening quarter of this year with GDP probably
increasing by around 4 percent. Thereafter, the combination of higher long-term
rates and the aforementioned tightening moves by the Federal Reserve Board
should cause growth in the areas of housing, retail spending, industrial
production, and employment to slow sufficiently for growth to average 3.5-3.7
percent for the year as a whole.

INFLATION

Notwithstanding the strong rate of GDP growth cited above, VALUE LINE does not
expect inflation to increase. The surge in oil prices is discomforting, as are
the increases in labor costs. On the whole, though, the price indexes continue
to behave well, with the latest data on producer and consumer prices being
especially reassuring. Moreover, it is not expected that things will change much
over the balance of 2000, unless the aforementioned rise in oil prices has
further to go or unexpected shortages on the labor front evolve. Overall, it is
forecasted that the Producer Price Index will rise by 2.2 percent this year, and
that the companion Consumer Price Index will increase by 2.5 percent.

INTEREST RATES

Here, too, comparative stability is expected to prevail in the months ahead. At
most, two more rate increases by the Fed will occur, if forecasted GDP growth
stays on track. Thirty-year Treasury bond rates, which have declined by nearly
three-quarters of a percentage point in recent weeks (and now yield about 6.1
percent), could well ease further in the months ahead if the pessimists' worst
fears on inflation are not realized.

CORPORATE PROFITS

Corporate profits were up nicely last year, especially in the second half.
What's more, strong demand in most sectors, superb cost controls, sufficient
pricing flexibility, and rising productivity in a high-tech driven age are
likely to help promote further gains in the current year. Of course some
pressures would likely evolve as growth slows, in line with forecasts. But if
this deceleration is as modest and orderly as expected, the damage will be
contained. In all, profits are estimated to increase by 5-10 percent in the
aggregate in 2000, a rate that shouldn't prove especially disruptive to the
financial markets.

STOCK MARKET

Equity investing, which has been a most profitable endeavor for much of the past
decade, has been far less rewarding thus far this year. The Dow Jones
Industrials and the Standard & Poor's 500 are lower for the year to date,
although the NASDAQ, buoyed by buying in the high techs, is up, as is the
Russell 2000, the principal small-cap proxy. Overall, however, investors
continue to be rather skittish, with a lot of equity market participants
concerned about excessive GDP growth, the threat of higher inflation, the
potential for a bevy of interest rate increases by the Federal Reserve, and the
possibility of developing pressures on corporate profits if the Fed overreacts
on the credit front, as is possible.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 14
<PAGE>

This having been said, however, VALUE LINE believes that the long bull market,
supported by benign global economic conditions, still has further to go. Stock
prices, of course, are still quite high, especially in the technology sector,
and these elevated quotations increase the potential for sharp price declines in
the event of unsettling news. On the whole, though, VALUE LINE remains positive
for the long term, but caution that the months ahead could well be volatile as
Fed monetary policy unfolds.

SOURCE: Value Line Investment Survey, March 3, 2000

JAPANESE ECONOMIC OVERVIEW

The Japanese economy has not yet got out of the severe situation, as the
recovery of aggregate demand remains weak. However, activities continue to
improve moderately, through the influence of various policy measures and of the
Asian economic recovery. As positive activities by firms have begun to be
observed, there are gradual movements towards an autonomous recovery.

Personal consumption remains recovered from a decline at the end of last year,
but it is not yet in an increasing trend. This is because income is sluggish.
The level of housing investment is higher than a year ago, but is decreasing
from the high level seen at the beginning of the year, mainly because of
owner-occupied housing. The decrease in investment in plant and equipment is
coming to an end. Firms, especially those in the manufacturing sector, have
become more positive toward investments and recoveries are spreading.

The level of public works is considerably lower than the high level seen a year
ago, although the effects of the second supplementary budget are coming out.
Inventory adjustments have broadly finished, and industrial production keeps
gradually increasing. The employment situation remains severe, with the
unemployment rate recorded at its highest level, despite continued increases in
overtime hours worked and in job offers. Corporate profits are improving, and
confidence has further improved, although it remains at a low level. Domestic
wholesale prices remain almost at the same level, while consumer prices are also
stable.

The Japanese Government aims to realize a smooth baton pass, toward a full-scale
recovery, from public to private demand and to establish a new solid foundation
for economic development in the 21st century.

Exports and imports, especially those to and from Asia, are increasing. As for
the balance of international payments, surpluses registered in the trade and
service account remained flat, although an increase was seen after a decline at
the end of last year. The exchange rate of the yen against the U.S. dollar
(interbank spot central rate) depreciated to the 107 level after appreciating to
the 105 level in mid-March, but ended the month at the 105 level.

FINANCIAL SITUATION

Short-term interest rates remained constant until mid-March when they first rose
and then declined slightly later on in the month. Long-term interest rates
declined slightly in early March before rising and then declining slightly again
later on in the month. Stock prices fell until mid-March, and thereafter rose.
The money supply showed a year-on-year increase of 2.1 percent in February.
Although the feeling of stringent corporate financing has been mitigated,
lending by financial institutions remains stagnant.

SOURCE: European Institute of Japanese Studies, April 2000

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 15

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EUROPEAN ECONOMIC OVERVIEW

In a speech to a European Parliament committee in Brussels, European Central
Bank President Wim Duisenberg said increasing euro-zone employment, higher rates
of capacity utilization and strong growth abroad support predictions that
economic expansion in the currency block will exceed 3 percent this year and
next, up from 2.4 percent in 1999.

Mr. Duisenberg continued the bank's warnings on inflation. The rise in oil
prices will continue to put pressure on consumer prices, which rose 1.9 percent
in May. Interest rates haven't likely peaked yet, though a pause in tightening
is likely. The euro-zone's two economic laggards were Germany and Italy, though
both countries are now showing signs of recovery.

AUSTRIA

Real GDP growth in Austria was 2.0 percent in 1996, then decreased to 1.2
percent in 1997. GDP growth rebounded in 1998 to 2.9 percent, and is expected to
be at 2.0 percent for 1999. The deterioration of the international economy led
to a considerable slowdown in the second half of 1998, although it was offset
partially by strong domestic demand. There was only a gradual recovery during
the first half of 1999, but the stabilization of the international economy and
continued buoyancy of domestic demand led to a massive jump by 1.7 percent on
the quarter in seasonally adjusted terms in the third quarter of last year.

Private consumption in 1999 was partially driven by a moderate rise in
unemployment and by low inflation driving up the increase of purchasing power.
Inflation accelerated somewhat in the fourth quarter but this was probably more
than offset by an acceleration of labor demand. Consequently, no significant
slowing down of private consumption growth in the fourth quarter is expected and
estimated private consumption growth for 1999 is 2.4 percent.

FRANCE

French industry has grown more competitive in recent years, fueling
stronger-than-average growth. However, government reforms are still needed to
assure that the good times continue. France's economy grew 2.9 percent last
year, compared with 2.4 percent in the entire euro zone, and outpaced all other
large economies in Europe. The healthy growth rate helped push the jobless rate
down to 10.6 percent from 11.5 percent in 1998. It has since continued to
decline, hitting 9.8 percent in April, the lowest level since 1991.

GERMANY

GDP growth in Germany is looking optimistic. Western German firms felt in May
that business conditions were at the best level in more than nine years.
Germany's main economic barometer, the Ifo survey of business sentiment, rose to
102.1 points, more than the expected 101.4, and up form April's reading of
101.2. That is the highest level since March 1991, when the economy boomed
following reunification of West and East Germany. GDP growth in Germany in the
first quarter of 2000 was 0.7 percent.

ITALY

Italian gross domestic product grew in the first quarter by 1.0 percent and 3.0
percent on the year 2000, well above consensus forecasts of 0.6 percent and 2.4
percent, respectively. That was also a faster pace than Germany and France's 0.7
percent rise. Together, Germany and Italy form half of the currency block's
output. In 1999, Italy's GDP grew 1.4 percent, confirming Italy as the worst
euro-zone performer alongside Germany last year.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 16

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INDUSTRY OVERVIEW  - SPORTING GOODS MANUFACTURING

Marker designs, develops, manufactures and markets alpine ski bindings in North
America, Europe and Asia. The Company is part of the larger outdoor specialty
market and, as such, the following will provide a brief overview of this
industry.

U.S. OUTDOOR SPECIALTY MARKET OVERVIEW

According to a survey conducted by OUTDOOR RETAILER magazine, the primary
activities marketed by the U.S. specialty sporting goods sector include:

     -    Backpacking (reported by 59 percent of all retailers)

     -    Camping (55 percent)

     -    Paddlesports (34 percent)

     -    Snowshoeing (34 percent)

     -    Adventure Travel (32 percent)

     -    Rock Climbing (32 percent)

     -    Fly-Fishing (29 percent)

     -    Mountaineering (29 percent)

     -    Nordic Skiing (29 percent)

     -    Mountain Biking (28 percent)

     -    Hunting (26 percent)

     -    Trail Running (26 percent)

     -    Snowboarding (23 percent)

     -    Alpine Skiing (22 percent)

     -    Bait Fishing (17 percent)

     -    Nature Observation/Birding (17 percent)

     -    Inline Skating (12 percent)

     -    Team Sports (9 percent)

     -    Scuba (8 percent)

     -    Outdoor Photography (6 percent)

In 1998, the outdoor specialty industry reported total sales of $4.8 billion,
down from $5.2 billion in 1996. With respect to specific categories, gear
comprised the largest individual market segment (at 31 percent), followed by
apparel (30 percent), footwear (22 percent) and accessories (17 percent). Of
those retailers who recorded sales increases in 1998, 70 percent generated
growth of less than 10 percent, while 26 percent enjoyed an 11 to 30 percent
gain. Finally, the remaining 4 percent experienced a rise of 31 percent or
higher. In terms of sales decreases, 83 percent of affected retailers endured
losses of 10 percent or less, while only 17 percent reported a decline between
11 and 30 percent.

On a broader scale, nearly a third (28 percent) of all outdoor specialty
retailers generated between $250,000 and $500,000 in annual sales volume in 1998
(compared to 16 percent in 1997), while another 26 percent earned $500,000 to $1
million (a 2 percent increase over the previous year's level). On the upper and
lower extremes of the market, 23 percent produced annual sales volumes of over
$1 million, while the same number (23 percent) registered $250,000 or less in
revenues.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 17
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MARKET SEGMENTS - GEAR

At 31 percent (or $1.49 billion) of total industry sales volume, gear was the
largest individual market segment in 1998. With respect to particular companies,
The North Face remained the number-one gear vendor, followed by Lowe Alpine
Systems and Mountain Hardwear (in a tie for second place). Cascade Designs was
third, edging out Marker, Dana Design, and Sierra Designs (who all finished tied
for third place in 1997). Other runners-up included Johnson Worldwide
Associates, Marmot, Osprey, and Trek. All told, 33 percent of outdoor retailers
earn $50,000 or less from gear, while 57 percent make between $50,000 and
$500,000. Elsewhere, only 10 percent earn $500,000 or more from gear sales.

MARKET SEGMENTS - APPAREL

At 30 percent (or $1.44 billion) of total sales volume, apparel was the
second-largest market segment in 1998. Columbia Sportswear was the leading
apparel vendor, followed by Patagonia and The North Face (who tied for second).
Woolrich bounced back from a sub-par 1997 to reclaim third place, while other
runners-up included Gramicci, Lowe Alpine Systems, Marmot Mountain Ltd.,
Mountain Hardwear, and Royal Robbins. In addition, Filson and Walls also enjoyed
good years, primarily due to strong popular enthusiasm for hunting and
fly-fishing. In terms of revenues, 40 percent of outdoor retailers earn $50,000
or less from apparel, while 48 percent make between $50,000 and $500,000.
Elsewhere, 12 percent earn $500,000 or more from apparel sales.

MARKET SEGMENTS - FOOTWEAR

At 22 percent (or $1.06 billion) of total sales volume, footwear was the
third-largest sector in 1998. Vasque, Salomon, and Hi-Tec were the top three
footwear vendors, with the latter company replacing Nike in the top three. Other
runners-up included Adidas, Asolo, Merrell, Nike, and Teva. All told, 57 percent
of outdoor retailers earn $50,000 or less from footwear, while 34 percent make
between $50,000 and $500,000. Elsewhere, only 9 percent earn $500,000 or more
from footwear sales.

MARKET SEGMENTS - ACCESSORIES

At 17 percent ($816 million) of total sales volume, accessories was the smallest
individual market segment in 1998. With respect to specific companies, Peregrine
Outfitters was the number-one accessory vendor, with Adventure 16 in second
place (a reversal of 1997, when Adventure 16 took first and Peregrine Outfitters
was second). Liberty Mountain/ABC and Outdoor Research tied for third place,
replacing Cascade Designs, who joined fellow runners-up Eagle Creek and Smith
Sport Optics. In terms of revenues, 51 percent of outdoor retailers earn $50,000
or less from accessories, while 46 percent make between $50,000 and $500,000.
Elsewhere, a mere 3 percent earn $500,000 or more from accessory sales.

U.S. CUSTOMER PROFILE

The core customer base for the outdoor specialty industry continues to be males
and females aged 26 to 40. Recently, however, a younger crowd has entered the
market, with 11 percent of retailers reporting growth in the under-18 male
customer segment and 12 percent reporting an increase in females from this same
age group. Although these totals may seem small, they represent a one- percent
increase for males and a five- percent increase for females. Additionally, 48
percent of retailers noted larger numbers of male customers age 19 to 25, while
41 percent reported more females from this age bracket. All told, figures for
both males and females aged 19 to 25 are up 10 percent from the 1997 total.
Lastly, outdoor specialty shops are also attracting more business from the 41
and older crowd, with 44 percent of merchants observing an increase in the
number of male customers aged 41 to 55 years old. With respect to females in
this category, 39 percent of retailers reported growth, nearly doubling last
year's percentage. Furthermore, the senior customer base also rose by about 7
percent.

In order to attract and retain customers, outdoor specialty shops utilize a wide
variety of marketing tactics, from conducting demonstrations (68 percent of all
reporting establishments) to sponsoring in-store promotions (60 percent), with
or without vendor or sales representative support. In addition, 58 percent hold
clinics, while another 32 percent present slide shows and lectures.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 18
<PAGE>

END OF SEASON UPDATE - RETAIL SALES IN THE UNITED STATES

A solid March following a super February propelled retail sales of all snow
sports products to a new high water mark of $2.3 billion and put the 1999-00
winter season 4.2 percent ahead of the prior year. The last three months of the
season (January through March) saw the industry recover from a 7.2 percent
deficit at the end of December to post a positive gain by the end of the year,
according to the fifth and final SIA Topline Retail Audit of the winter. The
SnowSports Industries America Retail Audit tracks sales of winter sports
products at the retail level.

Leading the late season surge -- as they had all season -- were sales of
snowboard equipment and apparel. Sales of snowboard related merchandise the past
winter was up 33.7 percent compared to last year, to $338.9 million, and
snowboard products accounted for 15 percent of all snow sports sales. Growth in
snowshoes and helmets also contributed to the boom.

Total dollars recorded at combined specialty store and chain store outlets this
past winter was $2.3 billion. All equipment sold at retail was $895.3 million
while all apparel was $772.7 million and all accessories were $659.4 million.
The two hottest categories for the year were helmets, with combined sales of
$53.3 million, and snowshoes that checked in with $16.3 million.

All equipment sales at specialty ski and snowboard shops were up 1.4 percent in
dollars while apparel was up 9.3 percent and accessories were up 11 percent
compared to last year. But, alpine equipment fell 3.3 percent with skis up 2.7
percent and boots down 11.3 percent. Snowboard equipment was up 32.2 percent
with boots up 35.9 percent and boards showing a 28.8 percent gain.

All equipment at chain stores showed a 29.1 percent decrease while all apparel
was up 4.6 percent and accessories jumped 29 percent. Alpine equipment had a
43.6 percent drop in the chains and skis went downhill with a 40.6 percent
decrease. On the other hand, snowboard gear displayed a 58.6 percent increase
with boards up 65.8 percent and boots topping out with a 71.1 percent increase.

The SIA Retail Audit captures cash register receipts from more than 700 retail
outlets. The data is extrapolated to generate retail sales activity for the U.S.
snow sports retail market.

WORLDWIDE ALPINE SPORTS EQUIPMENT OVERVIEW

ALPINE SKI EQUIPMENT MARKET

A decline in worldwide participation has hampered the alpine ski equipment
market. This trend has been driven by four key factors: (1) aging global
population (participation dramatically declines in the over 50 age group), (2)
migration to snowboarding, at the expense of alpine skiing, especially among new
participants, (3) continued escalation of costs related to the ski experience
(transportation, lodging, lift tickets, etc.) combined with the increased
competitiveness for the entertainment dollar and (4) an increasing percentage of
participants who are renting rather than buying skis. As a result, the alpine
ski equipment market has been flat to slightly declining over the last five
years.

Ski sales have fallen 0%-2%, even with the introduction of parabolic and carving
skis. Boot sales have fallen from between 3%-5%, with excess inventory buildup
and the absence of product innovation. Sales of bindings have fallen the most
from between 5%-8%, also partly attributable to excess inventory and lack of
product innovation.

WORLDWIDE SKI BINDING MARKET

The worldwide alpine binding market is currently estimated at 4.1 million pairs
or $220 million in wholesale value. From the 93/94 season to the 97/98 season,
sales of bindings in the United States, Germany and Japan fell from 3.65 million
units

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 19
<PAGE>

to 2.1 million units, with the value falling from $308.9 million to $163.8
million. Second tier markets, including Austria, Canada, France, Italy and
Scandinavia, have also experienced declines over the same period.

Alpine ski bindings are generally characterized as a commodity product. Market
research shows aesthetics as the dominant customer-buying trait across most
price points, with technological advantages having a greater impact on higher
end products. The market is segmented by category and established price points,
requiring product offerings for each price point in all segments (adult, junior
and rental markets).

Shifts in retailers' historic buying patterns have pressured manufacturing
(compression in product delivery lead times) and distribution operations,
negatively impacting profit margins. Large carryover inventory levels at
retailers have depressed wholesale sales volumes and pressured prices. In
addition, retailers have become increasingly reluctant to hold and finance
inventory, resulting in a larger proportion of product being ordered in Reorder
(October-February) and Closeout (January-March) periods.

Historically, industry profitability has been constrained by high fixed costs
with the bulk of industry manufacturing located in high labor cost countries and
outsourcing not being used as an effective means of cost reduction. Increases in
sales and marketing and R&D expenditure requirements necessary to combat falling
demand have yielded a decline in industry operating margins from 12% to 8%.

Analysts' forecasts call for a gradual flattening out of industry performance
through the 1999/2000 season, with total units sold falling from 0%-5%. Limited
top-line growth opportunities increase the importance of differentiating
commodity products through brand name awareness, brand extension and product
innovation. In addition, the binding and broader ski and winter sports equipment
market will follow the continued consolidation of the overall global sporting
goods market. For acquirers, consolidation offers removal of capacity by
acquiring competitors, leveraging of strong brand names over multiple segments
to yield greater power with retailers, and allocation of distribution, R&D, and
sales and marketing costs over a larger revenue base. Other trends driving
industry consolidation include the slowing of sales in core markets for
traditional footwear and apparel giants (Adidas-Salomon, FILA, Nike and Reebok)
and sporting goods distributor and retailer consolidation (resulting from excess
retailer capacity and inventory, exacerbated by the emergence of the
"superstore" concept).

MARKER'S WORLDWIDE MARKET SHARE

Total pairs of ski bindings sold worldwide in 1999 were estimated to be
4,176,000. In 2000, total ski bindings sold worldwide declined approximately
4.6% to 3,985,000 units. Marker expreienced a similar decline in total pairs of
ski bindings sold, with total units sold worldwide declining from 949,671 in
1999 to 910,414 in 2000, which was a decline of 4.1%. Marker's worldwide market
share remained fairly constant in 1999 and 2000. Marker's worldwide market share
in 1999 was 22.7% compared to 22.8% in 2000.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 20
<PAGE>

FINANCIAL REVIEW

The financial performance of Marker deteriorated during the period examined in
this report, comprised of the fiscal years ended March 31, 1995-2000. Exhibit #1
presents the historical income statements of the Company for the period. Exhibit
#2 reflects income statement data as a percent of sales, while Exhibit #3
reflects income statement item growth rates. Selected financial ratios for the
Company are presented in Exhibit #4.

Sales during the 1995-2000 period decreased from $83.96 million to $56.24
million. Over the period examined, sales decreased at a compound annual rate of
7.7%. Sales had grown at a rapid rate from the time of the Company's inception
through 1995. In 1995, the Company entered the snowboard business through a 25%
equity interest in DNR Sportsystem ("DNR"). An additional 55% of the common
shares of DNR was purchased in 1996, bringing Marker's total ownership in DNR to
80%. Due to a combination of slumping market growth, industry over capacity and
the Company's own financial difficulties, the Company decided to dispose of its
snowboard manufacturing operations and exit the snowboard business in September
1998. By the time the Company exited the snowboard manufacturing business in
1999, it had lost a total of approximately $38 million.

During the 1997-2000 period, the sale of the Company's primary products, ski
bindings, also slumped. Total units sold declined from 1.29 million pair in 1997
to 905,300 pair in 2000. The value of ski binding sales declined from
approximately $72 million in 1995 to approximately $46 million in 2000. Several
factors contributed to the decline in the sale of the Company's ski bindings.
Generally, retail sales of ski equipment declined during the 1995-2000 period.
Also, the Company had a functional problem with its rental binding, which
impacted the sales in that market segment in the past two years.

During the 1995-2000 period, earnings decreased from $4.1 million in 1995 to a
loss of $48.0 million in 1999. In 2000, the Company had a loss of $7.7 million.
Cost of sales as a percent of revenues increased from 58.2% in 1995 to 72.6% in
2000, averaging 65.3% for the six-year period. Gross margin decreased
correspondingly during the period, from 41.8% in 1995 to 27.4% in 2000. Selling
and administrative expenses as a percent of total revenue increased from 31.2%
in 1995 to 38.8% in 2000. Income from operations declined between 1995 and 2000
from 10.6% in 1995 to a loss of 11.4% in 2000. Net margin also declined during
the six-year period from a positive net margin of 4.9% in 1995 to a negative net
margin of 13.7% in 2000.

Marker's total asset turnover ratio, which measures the efficiency with which
the assets of the firm are utilized, improved somewhat during the six-year
period, from 1.0 times in 1995 to 1.3 times in 1999. In 2000, the asset turnover
ratio was 1.1 times, averaging 1.0 times for the six-year period. Receivables
turnover trended downward from 3.9 times in 1995 to 3.2 times in 2000, averaging
3.5 times for the six-year period. Inventory turnover, however, trended upward
during the six-year period, increasing from 1.7 times in 1995 to 2.6 times in
2000, averaging 2.0 times for the period. The Company's net fixed asset turnover
ratio also improved somewhat between 1995 and 2000, increasing from 6.5 times in
1995 to 10.0 times in 2000.

Marker was profitable in three of the six years examined in this report. Net
income as a percent of sales was 4.9% in 1995, 3.9% in 1996 and 5.5% in 1997. In
1998-2000, however, the Company reported significant losses. Net loss as a
percent of sales was 21.3% in 1998, 64.7% in 1999 and 13.7% in 2000.

Exhibit #5 presents the Company's balance sheets as of March 31, 1995-2000.
Exhibit #6 presents balance sheet data as a percent of total assets. The balance
sheets reflect an increase in the Company's financial risk over the period.
Total debt as a percent of total assets increased from 77.9% in 1995 to 84.6% in
2000 (adjusted). The Company's long-term debt to equity also increased during
the period, from 1.2 times in 1995 to 1.4 times in 2000 (adjusted). The
Company's liquidity, as measured by the current ratio, declined during the
1995-2000, decreasing from 1.6 times in 1995 to 1.2 times in 2000. The Company's
interest coverage ratio declined over the 1995-2000 period, from 2.1 times in
1995 to a negative 1.5 times in 2000.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 21
<PAGE>

In summary, the Company experienced a significant decline in revenue and
profitability over the six-year period examined in this report. In addition, the
Company's financial risk increased somewhat during the period. The overall
financial performance of the Company was poor for the three-year period of
1998-2000.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 22
<PAGE>

CROSS SECTIONAL ANALYSIS

To acquire a better impression of Marker's fiscal 2000 performance, its record
is compared with the average experience of other sporting goods manufacturers.
Financial data on companies in the sporting goods manufacturing industry is
collected by Robert Morris Associates, Philadelphia, Pennsylvania, and published
in that company's Annual Statement Studies. Although the activities of the
companies in the group may not be totally consistent with those of Marker, the
information is nevertheless considered representative of firms engaged in the
same types of activities as the Company. As such, the data provide a reasonable
backdrop for a comparative analysis of the Company's performance.

Exhibit #7 displays selected 2000 statistics for Marker and the average of other
sporting goods manufacturing companies. Several interesting differences are
evident. The Company had a somewhat different asset composition in 2000 when
compared with the industry average, with more cash as a percent of total assets
(10.4% vs. 4.9%), higher accounts receivable as a percent of assets (33.8% vs.
28.1%) and higher inventory as a percent of assets (30.7% vs. 27.7%). As a
result, the Company's total current assets as a percent of total assets were
higher than the industry average (76.7% vs. 63.2%) and the Company's net fixed
assets as a percent of total assets were lower than the industry average (10.9%
vs. 18.1%).

The Company's 2000 capital structure was significantly different than that of
the industry average. The Company's total debt (adjusted) as a percent of assets
was significantly higher than the industry average (84.6% compared to 55.1%).
The Company's long-term liabilities as a percent of assets were also greater
than the industry average (21.0% vs. 16.1%) as were current liabilities as a
percent of assets (63.6% vs. 34.9%). As a result, the Company's adjusted net
worth as a percent of assets was significantly lower than the industry average
(15.4% vs. 44.9%).

Marker's 2000 gross margin was lower than the industry average (27.4% vs. 34.6%)
and the Company's operating expenses as a percent of sales were higher than the
industry average (38.8% vs. 27.9%). As a result, Marker's operating income as a
percent of sales was negative at 11.4% compared to the industry average positive
operating income margin of 6.7%. Likewise, the Company's loss before tax as a
percent was 13.6% compared to the industry average income before tax as a
percent of sales of 4.6%.

Accounts receivable turnover for Marker was lower than that of the industry
average (3.2 times vs. 4.8 times), as was the Company's inventory turnover ratio
(2.6 times vs. 3.6 times). The Company's fixed asset turnover was somewhat
higher than the industry average (10.0 times vs. 9.0 times). The Company's total
asset turnover ratio, however, was somewhat lower than the industry average (1.1
times vs. 1.3 times).

The 2000 profitability of the Company, as measured by before-tax return on
assets, was significantly inferior to the industry average. The Company reported
a before-tax loss as a percent of assets of 14.8% compared to an industry
average pre-tax profit as a percent of sales of 5.4%.

Finally, Marker's overall financial risk appears to be greater than that of the
industry average. The Company's liquidity, as measured by the current ratio, was
lower than the average of the industry (1.2 times vs. 2.1 times), as was its
quick ratio (0.7 times vs. 1.1 times). The Company's total debt to equity ratio
was significantly higher than the industry average (5.5 times vs. 1.7 times).
Finally, the Company's interest coverage ratio was negative at 1.5 times
compared to the industry average positive interest coverage ratio of 2.3 times.

In summary, the overall 2000 financial performance of the Company was inferior
to that of the average company in the industry in many respects. The Company
reported a significant loss compared to the overall profitability of the
industry sample group. The Company's receivables turnover ratio was somewhat
lower than the industry average, as was its inventory turnover ratio. Finally,
the financial risk of the Company, as measured by total debt to equity, current,
quick and interest coverage ratios, was significantly inferior to the industry
averages.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 23
<PAGE>

ESTIMATES OF VALUE

OVERVIEW

Four widely recognized approaches are used to estimate the fair market value of
Marker's common stock as of March 31, 2000: book value, transaction value,
market value (derived from market value ratios of similar firms), and income
value (based on the present value of future benefits). As previously stated, the
uncertainty inherent in the valuation process most likely will cause these
differing methods of valuation to produce different estimates of value. Before
estimates of value can be made, however, the nature of the security being valued
and the expected income of Marker must be discussed.

NATURE OF THE SECURITY

The value of a security is influenced by many of its characteristics, including
control and marketability.

CONTROL: The market value of public securities normally reflects the minority
interest being traded. The price of a successful tender offer seeking control is
usually higher than previous minority trades and reflects the value of the
premium for control. This report determines the value of the Company on a
controlling interest basis. Thus, a control premium is applicable.

CONTROL PREMIUM

The value of control depends on the shareholder's ability to exercise any or all
of a variety of rights typically associated with control. Common prerogatives of
control include:

     -    Elect directors and appoint management

     -    Determine management compensation and perquisites

     -    Set policy and change the course of business

     -    Acquire or liquidate assets

     -    Select people with whom to do business and award contracts

     -    Make acquisitions of other companies

     -    Liquidate, dissolve, sell out, or recapitalize the company

     -    Sell or acquire treasury shares

     -    Register the company's stock for public offering

     -    Declare and pay dividends

     -    Change the articles of incorporation or bylaws

In reviewing the prerogatives of control, it is apparent that the owner of a
controlling interest in a company enjoys some very valuable rights that the
owner of a minority interest does not have. There are many factors, however,
which may limit the ability of a majority owner to exercise those rights.
Therefore, even if a shareholder or group of shareholders owns more than 50% of
a company's stock, it may not have all of the benefits of control. In addition,
minority owners may enjoy some significant rights through their ability to cast
important swing votes. It is therefore not enough to say that a control value is
appropriate for any ownership of more than 50%, nor is an interest of less than
50% always valued strictly as a minority interest. The extent of control premium
or minority discount in a given situation is often a matter of degree. Factors
that affect the degree of control that can be exercised include the following: o

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 24
<PAGE>

     -    Cumulative versus noncumulative voting

     -    Contractual restrictions

     -    Effects of regulation, including state statutes

     -    Financial condition of the business

     -    Effects of distribution of ownership

CONTROL PREMIUM STUDIES: The thousands of daily transactions on stock exchanges
are minority interest transactions. Each year, a controlling interest in a few
hundred of these public companies is purchased. In almost all cases, the prices
paid for the stock of these companies represent a premium over the market price
at which the stock previously traded as a minority interest. MERGERSTAT REVIEW
publishes data on control premiums based on acquisition activity in the public
markets. This source indicates that since 1983, the average control premium paid
has been approximately 40%, the median control premium has been approximately
30%, and the implied average minority interest discount has ranged from 27% to
29%. It should be noted, however, that these premiums are based on a company's
stock price shortly before the announcement date of a merger transaction.
Because stock prices have a tendency to rise shortly before such transactions,
the premiums may be understated. It should also be noted that a portion of the
control premium may be related to other factors. For example, an acquiring
company may pay a premium in order to acquire an important supplier of its raw
materials.

QUANTIFYING CONTROL PREMIUMS: The value of a control premium relates to the
extent that the owners were able to exercise the prerogatives of control listed
above as well as the ownership structure of the firm. Some potential adjustments
that would affect the size of the control premium include:

     -    Size of the block being valued (absolute versus operating control)

     -    Actual dividends paid

     -    Quality and attractiveness of the company being valued

     -    Prerogatives of control available to the equity holders

     -    The degree of leverage

APPLICATION TO MARKER: The purpose of this study is to value Marker on a
controlling interest basis pursuant to the Operating Agreement. Given the degree
of control that is inherent in a 100% interest in Marker and absent any
provisions existing that limit the prerogatives of control, HVA has selected a
control premium of 35% for purposes of estimating the value of the Company on a
controlling interest basis.

MARKETABILITY: The market value and income value methods of valuation are based
on comparisons with current values of securities traded on national exchanges.
There are, however, certain marketability differences between Marker securities
and publicly traded securities. An owner of publicly traded securities can know
at all times the market value of his holding. He can sell that holding on
virtually a moment's notice and receive cash net of brokerage fees within five
working days.

Such is not the case with Marker, being a privately held company. Although
selling a controlling interest in a private company is inherently more
marketable than the sale of a minority interest in the same company, liquidating
an equity position in the Company could well be a more costly and time-consuming
process than liquidating stock in publicly traded firms. Therefore, a small
marketability discount (10%) is applicable to the common stock of Marker.

NORMALIZATION OF EARNINGS

The reported net income of a typical firm is subject to random fluctuations as
well as external and internal shocks. Thus, some "normalization" procedure
generally must be applied to smooth the data series and reveal the underlying,
stabilized trend in net income. Normalization of net income is required to
project earnings figures to be used in calculating the income value estimate, as
well as in providing a realistic earnings figure to which to apply the market
value approach.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 25
<PAGE>

Normalization of earnings involves two steps. The first is the elimination of
extraordinary items which impact the firm's earnings but which are not expected
to repeat or persist.

The second step involves identification of the trend in the normalized earnings
to eliminate  random  fluctuations  in any particular year and to project future
expected earnings.

Several procedures are used to normalize and project earnings. These approaches
include statistical trend line and logarithmic analysis of past earnings
(regression analysis); past net margins applied to statistically derived sales
estimates, and income statement projections.

PAST AVERAGES: One method of normalizing and projecting income is to use past
averages, both an historical average growth rate and an average net margin.
Essentially, the procedure applies an historical average or expected future net
margin to sales forecasts to derive net income forecasts. The rationale is that
sales tend to be more stable than net income.

Marker has gone through significant transitions in recent years. In an effort to
broaden its product line, the Company invested heavily in acquiring and building
a snowboard manufacturing facility. Their timing to enter the market, however,
coincided with a decline in growth in the snowboard market and significant
excess manufacturing capacity in the industry. As a result, the Company
abandoned its venture into the snowboard business in 1998-99. At the same time,
the market for the Company's primary product line - ski bindings - has been
going through a transition. A general decline in sales of ski hardgoods has
characterized the market worldwide for the past several years. As a result, the
Company went through a major restructuring in late 1999. The restructuring
consolidated the debts of the Company and aligned it with a major ski boot
manufacturer and a major ski manufacturer. It is anticipated by management that
the synergies of aligning these three companies will result in increased sales
and market penetration for all three products.

Consequently, the recent history of Marker is not necessarily representative of
the future prospects of the restructured Company. Therefore, adjustments to the
historical operating statements of the Company to predict probable future
results is neither particularly meaningful nor legitimate in HVA's opinion.

COMPANY PROJECTIONS: Marker's management has prepared financial projections for
the five year period of 2001 to 2005, which are summarized in Exhibits #8-#10.
Management has represented the projections as reflecting its best estimate as to
the future prospects of the Company.

PROJECTED CASH FLOW: The projected income statements contained in Exhibit #8 are
deemed to be the most reliable estimates as to the future prospects of the
Company, and are therefore utilized for valuation purposes. This approach yields
projected net free cash flow on a debt-free basis of $2,613,000 in 2001,
$3,756,000 in 2002, $4,353,000 in 2003, $4,817,000 in 2004, and $5,173,000 in
2005.

Marker's management has represented the projections as being reasonable and as
reflecting its best estimates as to the future prospects of the Company.
However, it should be emphasized that forecasting the future is at best a
difficult and tenuous process. There will undoubtedly be disparities between the
projected figures and actual results, since events and circumstances frequently
do not occur as expected, and those disparities may be material.

BOOK VALUE

The book value of a company's assets reflects their depreciated historical cost,
rather than their fair market value. As such, book value normally bears only a
tenuous relationship to the market value of a company. A useful accounting
concept, it has a somewhat limited role in the valuation process. For
informational purposes, the adjusted book value (unaudited) - in

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 26
<PAGE>

which the Parent Company loan of $12.247 million is considered equity for
purposes of this valuation - of Marker as of March 31, 2000 was $7,987,000. A
common alternative measure of book value is the liquidation value of a company.
A quitting concern concept, liquidation value is not entirely applicable to the
valuation of a typical going concern. The value of a company is typically not a
function of what its assets could be sold for (net of liabilities), but is
rather a function of how they can be utilized in generating revenue and net
income. In addition, the analysis contained herein indicates that the Company
will generate significant positive cash flow on an operating basis in the
foreseeable future.

TRANSACTION VALUE

Transaction value is the value at which shares of the Company were recently
sold. A recent sale of a security is an indicator of value for both legal and
economic purposes. If an examination of all the relevant facts reveals that the
transaction took place at arm's-length, i.e., that neither buyer nor seller was
forced to deal and both had adequate information and that the transaction was
for reasonable consideration, the value established in such a transaction would
be difficult to contest.

On November 30, 1999, MKR Holdings sold substantially all of its assets to
Marker. In exchange, Marker assumed substantially all of the liabilities of MKR
Holdings and MKR Holdings received a 15% equity interest in Marker. Prior to the
sale to Marker, MKR Holdings had filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code.

As of December 31, 1999, Marker's 85% interest was valued at $15 million
(Source: MKR Holdings 10-Q; Period Ended December 31, 1999). This valuation
would indicate a value of 100% of the equity of approximately $17.65 million as
of that date.

Marker is privatly held entity. Since November 30, 1999, there have been no
arm's length transactions in the Company's equity.

MARKET VALUE

The market value approach attempts to determine the value of Marker by comparing
it with other comparable firms traded in active, public markets. This is
accomplished by determining a comparative price-earnings ratio, which is the
ratio of the market price of a share of stock to the earnings per share; a
comparative price to revenue ratio, which is the ratio of the market price of a
share of stock to the dollar sales per share; and a comparative price to book
ratio, which is the ratio of the market price of a share of stock to the book
value per share. Appropriate ratios for Marker can be determined by comparing
the firm with others in the same industry and, from its relative standing in the
industry, inferring market value ratios based on ratios in the industry.

The price-earnings ratio is an important determinant of value because it
reflects the expectations of market participants. Generally speaking, investors
are willing to pay a higher price for today's earnings if they expect earnings
to grow in the future. Conversely, they will pay a lower price if they
anticipate earnings to decline. Not only is the price-earnings ratio a reading
of the market's psychology, but is also represents the consensus of the
marketplace as to the worth of a security. This is significant for three
reasons. First, the market is competitive, with participating investors seeking
to enhance their wealth. Second, the market is informed, with investors seeking
to deepen their understanding of the companies and industries in which they have
positions. Finally, the market is rational, since investors act upon the
information acquired to further their objectives. All three factors contribute
much weight to the resulting valuation in spite of imperfections in the market.
Similar arguments can be made for the other market value ratios.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 27
<PAGE>

Ideally, market value ratios for Marker should be inferred from ratios of
similar firms whose stocks are traded actively in public markets. Unfortunately,
many sporting goods manufacturing companies with operations similar to those of
theCompany are small, closely held businesses for which no market value has been
established. Since these companies are not publicly traded, it is impossible to
use them as a basis for making inferences regarding the market value of Marker.
Therefore, a group of larger publicly traded sporting goods manufacturing
companies has been selected as being representative of the industry in which the
Company operates.

Exhibit #11 presents the names and brief descriptions of a sample group of
eighteen sporting goods manufacturing companies considered representative of the
industry of which Marker is a member. Although these companies obviously differ
somewhat from Marker, in that they produce products for different markets and
some are much larger and enjoy economies of scale and synergies that may not be
available to smaller companies such as Marker, the differences are not of prime
significance here, since a direct comparison is not intended but rather a
relative comparison that reflects an aggregate appraisal of the industry. To the
extent that the firms in the industry sample group and Marker are affected by
similar fundamental economic factors, investors' expectations regarding the
long-term growth and success of the former are justifiably imputable to the
future of the latter.

Exhibit #12 presents the market data for the industry sample group and compares
that data to Marker. Marker is a significantly smaller company than the median
of the sample group, with sales of $56.2 million compared to the median sales of
the sample group of $183.6 million and with total assets of $51.9 million
compared to median total assets of the sample group of $154.2 million. Marker's
negative net margin of 13.7%, however, was significantly inferior to the median
positive net margin of the sample group of 1.6%, as was its return on assets and
return on equity (-14.8% and -96.3% vs. 2.4% and 4.5%, respectively). Marker
also was more highly leveraged than the median of the sample group as measured
by the debt to equity ratio (136.5% vs. 20.8%) and debt to total capitalization
ratio (57.7% vs. 18.0%). Overall, Marker represents an inferior investment
opportunity compared to the sample group because of its significantly smaller
size, lack of profitability, and higher leverage.

Exhibit #12 displays the March 31, 2000 market value ratios of the companies in
the publicly traded sample group. To the industry sample's mean price-forward
earnings ratio of 9.5, mean price to revenue ratio of 50.0%, and mean price to
book ratio of 90.0%, a 10% discount is applied to reflect the relative lack of
marketability of Marker's shares. To the resulting figure is applied an
additional 5% discount to reflect a discount for the smaller size of the Company
compared to the companies in the sample group, and a further discount of 10% to
reflect the greater financial risk of the Company compared to the sample group
of companies. In addition, a premium of 35% is applied to reflect valuation of a
controlling interest (compared to minority positions represented by the
multiples of the sample group of companies). The net result is an adjustment
factor of 103.9% applicable to the mean market value ratios of the sample group
in valuing Marker. The price to revenue ratio is further adjusted to reflect the
Company's lack of profitability compared to the median of the sample group. A
further discount of 15.0% is applied to the price to revenue ratio to reflect
this difference.

Application of the price-earnings ratio of 9.9 to Marker's projected 2001
adjusted earnings of $384,000 yields a market value estimate of $3,800,000.
Application of the resulting price to revenue ratio of 44.0% to Marker's 2000
revenue of $56,241,000 yields a market value estimate of $24,746,000. Finally,
application of the resulting price to book ratio of 93.0% to Marker's adjusted
book value as of March 31, 2000 of $7,987,000 yields a market value estimate of
$7,428,000.

Each of these market value figures is as of March 31, 2000, and each will be
considered in arriving at a final estimate of the fair market value of the
common stock of Marker on a controlling interest basis as of that date.

INCOME VALUE

The income approach to valuation estimates the worth of a company's stock by
determining the present value of the future income stream expected to accrue to
the stockholders. This is accomplished by, first, forecasting the firm's future
income stream and the disposition of such and, second, discounting it at a rate
commensurate with the risk to which it is exposed.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 28
<PAGE>

The present value of future income depends on the amount and timing of that
income. Since both the amount and timing are uncertain, income might be less
than expected and/or income might materialize later than expected, this
uncertain must be quantified and incorporated into a discount rate. Thus, given
the amount and timing of a future income stream, high uncertainty necessitates a
high discount rate and results in a relatively low present value, while low
uncertainty merits a low discount rate and a relatively high present value.

The appropriate discount rate, that is, the minimum rate of return required by
an investor purchasing the firm's stock, must have as its foundation the yields
available on competing financial assets in the public markets. This follows from
the observations noted below.

     -    Securities with different risk characteristics provide different rates
          of return commensurate with those uncertainties. This hierarchy of
          risk and reward furnishes benchmarks from which a suitable discount
          rate may be selected for an income stream of known risk properties.

     -    A particular investor, due perhaps to his aversion to risk, may find
          market returns inadequate at every level of risk. In a competitive
          market, however, he is a "price taker" and, as such, is limited to
          either investing at the going rates or not investing at all.

     -    On the other hand, there will always be a buyer and seller willing to
          deal at the market rates, precisely because the market rates represent
          the consensus of many investors.

Thus, it is possible to estimate an "objective" valuation of a company based on
a discount rate derived from the market.

DEBT-FREE VALUATION METHOD

Debt-free valuation methodology is used to minimize the impacts of a particular
capital structure that is deemed to be unrepresentative of what would be
considered a normal capital structure. In the case of Marker, the Company
purchased the assets of MKR Holdings through restructuring proceedings. As a
result, portions of the assumed debt had been restructured. In addition, the
capital structure of the Company was highly leveraged (57.5% debt to 42.3%
equity) as of the valuation date compared to the median of the industry.

To determine the "normal" capital structure of the Company, HVA examined the
capital structure of other companies in the sporting goods manufacturing
industry. The analysis indicated a wide range of capital structures, with debt
ranging from 0% to 83% of the capital structure, with a median of 18% (see
Exhibit #12). HVA also reviewed the capital structure of K2, which is a company
whose primary products are ski related. The capital structure of K2 was
approximately 35% debt and 65% equity. HVA selected the capital structure of K2
as being reasonably representative of a "normalized" capital structure for
Marker.

EQUITY DISCOUNT RATE BASED ON HISTORICAL DATA: Exhibit #14 presents an
historical structure of rates of return observable and available (and, in the
long run, "required") on selected classes of securities. As can be seen, the
rate of return required on "typical" publicly traded common stocks is
approximately 9.5% above the prevailing risk-free rate (or 15.3%, assuming a
risk-free rate of return, as represented by the March 31, 2000 three month
Treasury Bill rate, of 5.9%). An investor would require from his holding of a
controlling interest in Marker common stock a return estimated to be 2.5% above
the average yield available in the common stock market, due to valuation on a
controlling interest basis. It is reasonable for him to require a premium on the
general market because of industry and Company-specific risk characteristics
(e.g., the smaller size of the Company and limited markets for the Company's
products). An offsetting premium for control of 35% was applied. The resultant
estimated required rate of return of 11.8% is a function of the returns
available in the market for publicly traded common stocks, as quantitatively
estimated by the Capital Asset Pricing Model and the HVA discount rate build-up
method, plus a risk premium for the Company-specific risk characteristics
previously alluded to.

COST OF DEBT: The Company does business in Europe, Japan, the United States and
Canada. In each of its primary markets, it finances inventory and receivables
utilizing short-term revolving loans. Lending rates vary significantly between
the

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 29
<PAGE>

countries in which the Company does business. In an attempt to estimate the
average cost of debt for such a multi-national operation, the prime lending
rates of each company have been weighted by the percentage of the Company's
business that is represented by each of the companies. The weighted average
prime rate as of March 31, 2000 was 5.9%. Management estimates that on average,
the Company's short-term lending rate is approximately 150 basis points above
prime. Therefore, the average cost of short-term debt has been estimated to be
7.4%.

In addition to short-term debt, the Company utilizes long-term debt to finance
capital assets. Most of these assets are related to the Company's manufacturing
operation in Germany. The prime rate in Germany as of the valuation date was
4.5%. Existing long-term financing carries rates ranging from 4.95% to 6.1%.
Based on existing financing, a long-term rate of prime plus 125 basis points
appears to be the market rate for such financing. Therefore, the long-term cost
of debt is estimated to be 5.75%.

Currently, approximately 67% of the Company's interest bearing debt is
short-term debt, with 33% being long-term debt. Weighting the cost of short-term
and long-term debt by the percentage of each type of debt results in a weighted
average cost of debt estimate for the Company of 6.9% (see Exhibit #16)

Interest expense, however, is a pre-tax expense. Management estimates that the
average tax rate applicable to the consolidated company is approximately 40%.
Therefore, the weighted average after-tax cost of debt is estimated to be 4.1%.

WEIGHTED AVERAGE COST OF CAPITAL: Marker's estimated weighted average cost of
capital (e.g., the overall required rate of return on total invested capital
used to discount the Company's future projected pre-debt service net free cash
flow) is derived by multiplying the after-tax cost of debt by the debt-financed
portion of the purchase price, then adding that figure to the product of the
cost of equity and the equity-financed portion of the purchase price, assuming a
capital structure of 35% debt and 65% equity (see Exhibit #12). The resulting
estimated weighted average cost of capital is 9.2% (see Exhibit #16).

INCOME VALUE ESTIMATE: The income valuation model used is based on the
assumption that a company's cash flow is retained in total and dividend payments
deferred until a specified year when the company begins paying all of its cash
flow out as dividends and does so indefinitely into the future. Once these
dividend payments begin to occur, the basis for the company's internally
financed growth ceases. In the absence of new external financing, the company
reaches a "steady state" and cash flow remains constant indefinitely thereafter,
growing only in nominal terms in step with inflation. While it is not necessary
that the firm actually so behaves, this is a necessary specification for the
valuation formula to be technically correct. Basically, what is being specified
is the firm's dividend-paying ability. Only dividends can correctly be used in
the income valuation approach for a common stock.

If it is assumed that all of Marker's projected net free cash flow will be
available to be paid out as dividends to shareholders from the valuation date
forward, and if it is further assumed that post-2005 net free cash flow will
grow at a compound annual rate of 3% from the projected 2005 level, an income
value estimate of the common stock of the Company on a controlling interest
basis as of March 31, 2000 of $41,274,000 is derived (see Exhibit #8). This
figure will be considered in arriving at a final estimate of the fair market
value of the Company on a controlling interest basis as of that date.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 30
<PAGE>

SUMMARY AND CONCLUSION

Four approaches  have been  considered in estimating the fair market  enterprise
value of the  equity of Marker as of March 31,  2000:  book  value,  transaction
value, market value and income value. The outcomes are summarized below.

                            ESTIMATES OF EQUITY VALUE
                              MARKER INTERNATIONAL
                                 MARCH 31, 2000

<TABLE>
<CAPTION>

                                                                                        Implied
                                                       Equity Value                   Equity Value
                                                         Estimate           Weight    Contribution
                                                       ------------         ------    ------------
<S>                                                    <C>                  <C>       <C>
COST
Book Value (Adjusted)                                     7,987              0.0%             0
MARKET
Price/Earnings                                            3,800             20.0%           760
Price/Revenue                                            24,746             20.0%         4,949
Price/Adjusted Book                                       7,428              5.0%           371
TRANSACTION VALUE                                        17,647             20.0%         3,529
INCOME VALUE                                             41,274             35.0%        14,446
                                                                           ------       -------
Total                                                                      100.0%       $24,056
ROUNDED                                                                                 $24,100

Estimated Value of 15% Interest (per Agreement)                                           3,615

ESTIMATED VALUE OF 15% INTEREST - ROUNDED                                               $ 3,600
                                                                                        =======

</TABLE>

Considering the assumptions of each method and weighing the relative
justification of each, it is our opinion that a reasonable estimate of the fair
market enterprise value of the equity of Marker as of March 31, 2000 is $24.1
million. The estimated value of a 15% interest in the Company on that date is
$3.6 million based on the Agreement whereby a minority interest discount is not
applicable to MKR Holdings' 15% interest in the Company.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 31

<PAGE>

                                   EXHIBIT #1

                              MARKER INTERNATIONAL
                          HISTORICAL INCOME STATEMENTS
                     FISCAL YEARS ENDED MARCH 31, 1995-2000
                             1995-2000 U.S. DOLLARS
                                     (000's)

<TABLE>
<CAPTION>
                                                   1995         1996          1997          1998          1999          2000
                                                  ------       ------        ------        ------        ------        ------
<S>                                               <C>          <C>           <C>          <C>            <C>          <C>
Net Sales                                         83,962       87,911        83,076        81,401        74,167        56,241

Cost of Sales                                     48,878       52,608        50,441        54,460        54,638        40,831
                                                  ------       ------        ------        ------        ------        ------
GROSS MARGIN                                      35,084       35,303        32,635        26,941        19,529        15,410

OPERATING EXPENSES
Selling                                           13,049       14,592        14,730        13,065        15,275        11,460
General and Administrative                         9,314       10,559         8,616         7,475        15,401         6,826
Research & Development                             2,349        2,762         2,996         3,003         2,756         1,698
Warehouse & Shipping                               1,455        1,566         1,617         1,660         2,020         1,843
                                                  ------       ------        ------        ------        ------        ------
TOTAL OPERATING EXPENSES                          26,167       29,479        27,959        25,203        35,452        21,827
                                                  ------       ------        ------        ------        ------        ------

INCOME FROM OPERATIONS                             8,917        5,824         4,676         1,738       (15,923)       (6,418)

OTHER INCOME AND EXPENSE
Interest Expense                                  (4,999)      (5,193)       (5,109)       (5,746)       (6,637)       (3,110)
Exchange Gain (Loss)                                   0            0             0             0             0         2,676
Investment in Unconsolidated Subsidiary                0        1,595             0             0             0             0
Other                                              1,584        2,072         2,814            33         1,508          (822)
                                                  ------       ------        ------        ------        ------        ------
TOTAL OTHER INCOME AND EXPENSE                    (3,415)      (1,526)       (2,295)       (5,713)       (5,129)       (1,255)
                                                  ------       ------        ------        ------        ------        ------

INCOME (LOSS) BEFORE INCOME TAX                    5,502        4,298         2,381        (3,975)      (21,052)       (7,673)

Income Tax Provision (Benefit)                     1,395          609           700         1,158         1,458            21
Income From Disc. Oper. - Snowboard                    0            0         2,921       (12,196)      (25,508)            0
Cummulative Effect of Accounting Change                0          266             0             0             0             0
                                                  ------       ------        ------        ------        ------        ------
Net Income                                         4,107        3,423         4,602       (17,329)      (48,018)       (7,694)
                                                  ======       ======        ======        ======        ======        ======

Euro Conversion - 1 Euro = USD (3/31/00)           0.961

</TABLE>

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 32

<PAGE>

                                   EXHIBIT #2

                              MARKER INTERNATIONAL
                          COMMON SIZE INCOME STATEMENTS
                     FISCAL YEARS ENDED MARCH 31, 1995-2000

<TABLE>
<CAPTION>
                                               1995         1996         1997         1998         1999         2000      Average
                                               -----        -----        -----        -----        -----        -----     -------
<S>                                            <C>          <C>          <C>          <C>          <C>          <C>       <C>
NET SALES                                      100.0%       100.0%       100.0%       100.0%       100.0%       100.0%     100.0%

Cost of Sales                                   58.2%        59.8%        60.7%        66.9%        73.7%        72.6%      65.3%
                                               -----        -----        -----        -----        -----        -----      -----
GROSS MARGIN                                    41.8%        40.2%        39.3%        33.1%        26.3%        27.4%      34.7%

OPERATING EXPENSES
Selling                                         15.5%        16.6%        17.7%        16.1%        20.6%        20.4%      17.8%
General and Administrative                      11.1%        12.0%        10.4%         9.2%        20.8%        12.1%      12.6%
Research & Development                           2.8%         3.1%         3.6%         3.7%         3.7%         3.0%       3.3%
Warehouse & Shipping                             1.7%         1.8%         1.9%         2.0%         2.7%         3.3%       2.3%
                                               -----        -----        -----        -----        -----        -----      -----
TOTAL OPERATING EXPENSES                        31.2%        33.5%        33.7%        31.0%        47.8%        38.8%      36.0%
                                               -----        -----        -----        -----        -----        -----      -----

INCOME FROM OPERATIONS                          10.6%         6.6%         5.6%         2.1%       (21.5%)      (11.4%)     (1.3%)

OTHER INCOME AND EXPENSE
Interest Expense                                (6.0%)       (5.9%)       (6.1%)       (7.1%)       (8.9%)       (5.5%)     (6.6%)
Exchange Gain (Loss)                             0.0%         0.0%         0.0%         0.0%         0.0%         4.8%       0.8%
Investment in Unconsolidated Subsidiary          0.0%         1.8%         0.0%         0.0%         0.0%         0.0%       0.3%
Other                                            1.9%         2.4%         3.4%         0.0%         2.0%        (1.5%)      1.4%
                                               -----        -----        -----        -----        -----        -----      -----
TOTAL OTHER INCOME AND EXPENSE                  (4.1%)       (1.7%)       (2.8%)       (7.0%)       (6.9%)       (2.2%)     (4.1%)
                                               -----        -----        -----        -----        -----        -----      -----

INCOME (LOSS) BEFORE INCOME TAX                  6.6%         4.9%         2.9%        (4.9%)      (28.4%)      (13.6%)     (5.4%)

Income Tax Provision (Benefit)                   1.7%         0.7%         0.8%         1.4%         2.0%         0.0%       1.1%
Income From Disc. Oper. - Snowboard              0.0%         0.0%         3.5%       (15.0%)      (34.4%)        0.0%      (7.6%)
Cummulative Effect of Accounting Change          0.0%         0.3%         0.0%         0.0%         0.0%         0.0%       0.1%
                                               -----        -----        -----        -----        -----        -----      -----
NET INCOME                                       4.9%         3.9%         5.5%       (21.3%)      (64.7%)      (13.7%)    (14.2%)
                                               =====        =====        =====        =====        =====        =====      =====

</TABLE>

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 33

<PAGE>

                                   EXHIBIT #3

                              MARKER INTERNATIONAL
                       INCOME STATEMENT ITEM GROWTH RATES
                     FISCAL YEARS ENDED MARCH 31, 1995-2000

<TABLE>
<CAPTION>
                                                                                                                   1995-00
                                                                                                                   Compound
                                            1995       1996         1997         1998         1999       2000      Growth
                                            ----      ------      -------      -------      -------     -------    --------
<S>                                         <C>       <C>         <C>          <C>          <C>         <C>        <C>
Net Sales                                    --         4.7%       (5.5%)       (2.0%)      (10.7%)     (30.9%)     (7.7%)

Cost of Sales                                --         7.6%       (4.1%)        8.0%         8.3%      (25.0%)     (3.5%)
                                            ----      -----       -----        -----        -----       -----      -----
GROSS MARGIN                                 --         0.6%       (7.6%)      (17.4%)      (40.2%)     (42.8%)    (15.2%)

OPERATING EXPENSES
Selling                                      --        11.8%        0.9%       (11.3%)        3.7%      (12.3%)     (2.6%)
General and Administrative                   --        13.4%      (18.4%)      (13.2%)       78.7%       (8.7%)     (6.0%)
Research & Development                       --        17.6%        8.5%         0.2%        (8.0%)     (43.5%)     (6.3%)
Warehouse & Shipping                         --         7.6%        3.3%         2.7%        24.9%       11.0%       4.8%
                                            ----      -----       -----        -----        -----       -----      -----
TOTAL OPERATING EXPENSES                     --        12.7%       (5.2%)       (9.9%)       26.8%      (13.4%)     (3.6%)
                                            ----      -----       -----        -----        -----       -----      -----
INCOME FROM OPERATIONS                       --       (34.7%)     (19.7%)      (62.8%)        nmf         nmf        nmf

OTHER INCOME AND EXPENSE
Interest Expense                             --         3.9%       (1.6%)       12.5%        29.9%      (45.9%)     (9.1%)
Exchange Gain (Loss)                         --         nmf         nmf          nmf          nmf          nmf       nmf
Investment in Unconsolidated Subsidiary      --         nmf         nmf          nmf          nmf          nmf       nmf
Other                                        --        30.8%       35.8%       (98.8%)        nmf          nmf       nmf
                                            ----      -----       -----        -----        -----       -----      -----
TOTAL OTHER INCOME AND EXPENSE               --       (55.3%)      50.4%       148.9%       123.5%      (78.0%)      nmf
                                            ----      -----       -----        -----        -----       -----      -----
INCOME (LOSS) BEFORE INCOME TAX              --       (21.9%)     (44.6%)        nmf        429.6%      (63.6%)      nmf

Income Tax Provision (Benefit)               --       (56.3%)      14.9%        65.4%       108.3%      (98.2%)      nmf
Income From Disc. Oper. - Snowboard          --         nmf         nmf          nmf          nmf          nmf       nmf
Cummulative Effect of Accounting Change      --         nmf         nmf          nmf          nmf          nmf       nmf
                                            ----      -----       -----        -----        -----       -----      -----
NET INCOME                                   --       (16.7%)      34.4%         nmf        177.1%      (84.0%)      nmf
                                            ====      =====       =====        =====        =====       =====      =====

</TABLE>

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 34

<PAGE>

                                   EXHIBIT #4

                              MARKER INTERNATIONAL
                            SELECTED FINANCIAL RATIOS

<TABLE>
<CAPTION>
                                                                                                                     1995-00
                                            1995       1996        1997        1998         1999         2000        Average
                                            ----       ----        ----       ------        -----        -----       -------
<S>                                        <C>       <C>         <C>          <C>          <C>         <C>        <C>
GROWTH
Sales Growth (%)                            --          4.7%       (5.5%)       (2.0%)      (10.7%)      (30.9%)      (7.7%)
Operating Income Growth (%)                 --        (34.7%)     (19.7%)      (62.8%)        nmf          nmf          nmf
Earnings Growth (%)                         --        (16.7%)      34.4%         nmf        177.1%       (84.0%)        nmf

COST CONTROL
Cost of Sales/Sales (%)                     58.2%      59.8%       60.7%        66.9%        73.7%        72.6%       65.3%
Operating Expenses/Sales (%)                31.2%      33.5%       33.7%        31.0%        47.8%        38.8%       36.0%
Operating Margin (%)                        10.6%       6.6%        5.6%         2.1%       (21.5%)      (11.4%)      (1.3%)
Interest Expense/Sales (%)                   6.0%       5.9%        6.1%         7.1%         8.9%         5.5%        6.6%

TURNOVER RATIOS
Sales/Total Assets (x)                       1.0        1.0         0.7          0.8          1.3          1.1         1.0
Accounts Receivable Turnover (x)             3.9        4.3         3.5          2.6          3.3          3.2         3.5
Inventory Turnover (x)                       1.7        1.6         1.5          1.5          2.9          2.6         2.0
Fixed Asset Turnover (x)                     6.5        6.7         4.3          4.6          6.6         10.0         6.4

PROFITABILITY
Return on Sales (%)                          4.9%       3.9%        5.5%       (21.3%)      (64.7%)      (13.1%)     (14.1%)
Return on Assets (%)                         4.9%       3.9%        3.9%       (16.5%)      (81.4%)      (14.8%)     (16.7%)
Return on Equity (%)                        22.4%      16.5%       14.5%      (139.7%)      161.2%       180.6%       42.6%

RISK
Adjusted Total Debt/Total Assets (%)        77.9%      76.2%       72.9%        88.2%       150.5%        84.6%       91.7%
Adjusted Long-Term Debt/Equity (%)           1.2        0.7         0.9          1.8         (0.2)         1.4         1.0
Current Ratio (x)                            1.6        1.3         1.4          1.1          0.6          1.2         1.2
Interest Coverage (x)                        2.1        1.8         2.0         (1.8)        (6.0)        (1.5)       (0.6)

</TABLE>

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 35

<PAGE>

                                   EXHIBIT #5
                              MARKER INTERNATIONAL
                            HISTORICAL BALANCE SHEETS
                               MARCH 31, 1995-2000
                        1995-1999 U.S. DOLLARS/2000 EUROS
                                     (000's)

<TABLE>
<CAPTION>
                                                1995          1996           1997          1998         1999          2000
                                               ------        ------         ------        ------       ------        ------
<S>                                            <C>           <C>            <C>           <C>          <C>           <C>
ASSETS
CURRENT ASSETS
Cash & Equivalents                             12,281         6,189         13,532         4,241        5,547         5,377
Accounts Receivable                            21,270        20,422         24,025        31,710       22,392        17,556
Other Receivables                                   0             0              0             0            0           291
Related Party Receivables                           0             0              0             0            0           269
Inventories                                    28,259        32,668         33,879        37,223       18,752        15,947
Prepaid and Other Current Assets                5,046         5,313          6,628         4,440          391           412
                                               ------        ------        -------       -------      -------        ------
TOTAL CURRENT ASSETS                           66,856        64,592         78,064        77,614       47,082        39,852

PROPERTY, PLANT AND EQUIPMENT
Land                                                                                       1,050          386
Building and Improvements                                                                  7,581        4,645
Machinery and Equipment                                                                   21,222       20,096
Furniture, Fixtures and Office Equipment                                                   4,582        4,797
Less: Accumulated Depreciation                                                           (16,733)     (18,725)
                                               ------        ------        -------       -------      -------        ------
NET PROPERTY, PLANT AND EQUIPMENT              12,919        13,121         19,278        17,702       11,199         5,641

OTHER ASSETS
Net Intangibles                                     0             0         17,475         8,322          244         5,931
Other Assets                                    3,223         9,552          2,115         1,482          448           510
                                               ------        ------        -------       -------      -------        ------
TOTAL OTHER ASSETS                              3,223         9,552         19,590         9,804          692         6,442
                                               ------        ------        -------       -------      -------        ------
TOTAL ASSETS                                   82,998        87,265        116,932       105,120       58,973        51,934
                                               ======        ======        =======       =======      =======        ======

LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES
Notes Payable                                  30,100        30,556         38,929        48,645       46,062        20,460
Current Maturities LTD                          3,818        11,076          3,038         3,512        5,595         1,762
Current Maturities Series A Bonds                   0             0              0         4,500       11,399             0
Accounts Payable                                3,097         2,899          4,513         6,381        5,948         1,758
Related Party Payable                               0             0              0             0            0         4,279
Accrued Expenses & Deferred Income                  0             0              0             0            0         1,490
Other Current Liabilities                       5,469         6,514         10,427         7,830       12,937         3,297
                                               ------        ------        -------       -------      -------        ------
TOTAL CURRENT LIABILITIES                      42,484        51,045         56,907        70,868       81,941        33,046

LONG-TERM DEBT                                 22,189        15,452         28,297        14,898        3,821        10,902

PARENT COMPANY LOAN                                 0             0              0             0            0        12,247

</TABLE>

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 36

<PAGE>

<TABLE>
<S>                                            <C>           <C>            <C>           <C>          <C>           <C>
SERIES A BONDS                                      0             0              0         5,500            0             0

STOCKHOLDER LOAN                                    0             0              0             0            0             0

REDEEMABLE SERIES B PREFERRED STOCK                 0             0              0             0        3,000             0

MINORITY INTEREST                                   0             0              0         1,447            0             0
                                               ------        ------        -------       -------      -------        ------
TOTAL LIABILITIES                              64,673        66,497         85,204        92,713       88,762        56,194

SHAREHOLDERS' EQUITY
Common Stock                                                                                 111          111         1,200
Translation Adjustments                             0             0              0             0           0            (29)
Additional Paid-in-Capital                                                                36,299       36,311             0
Accumulated Deficit                                                                      (16,471)     (64,658)       (5,432)
Accumulated other Comprehensive Loss                                                      (7,532)      (1,553)            0
                                               ------        ------        -------       -------      -------        ------
TOTAL SHAREHOLDERS' EQUITY                     18,325        20,768         31,697        12,407      (29,789)       (4,260)

TOTAL LIABILITIES & SHAREHOLDERS' EQUITY       82,998        87,265        116,901       105,120       58,973        51,934
                                               ======        ======        =======       =======      =======        ======

Euro Conversion - 1 Euro = USD (3/31/00)        0.961

</TABLE>

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 37

<PAGE>

                                   EXHIBIT #6
                              MARKER INTERNATIONAL
                           COMMON SIZE BALANCE SHEETS
                               MARCH 31, 1995-2000

<TABLE>
<CAPTION>
                                                 1995        1996        1997        1998         1999         2000       Average
                                                ------      ------      ------      ------       ------       ------      -------
<S>                                             <C>         <C>         <C>         <C>          <C>          <C>         <C>
ASSETS
CURRENT ASSETS
Cash & Equivalents                               14.8%        7.1%       11.6%        4.0%         9.4%        10.4%         9.5%
Accounts Receivable                              25.6%       23.4%       20.5%       30.2%        38.0%        33.8%        28.6%
Other Receivables                                 0.0%        0.0%        0.0%        0.0%         0.0%         0.6%         0.1%
Related Party Receivables                         0.0%        0.0%        0.0%        0.0%         0.0%         0.5%         0.1%
Inventories                                      34.0%       37.4%       29.0%       35.4%        31.8%        30.7%        33.1%
Prepaid and Other Current Assets                  6.1%        6.1%        5.7%        4.2%         0.7%         0.8%         3.9%
                                                -----       -----       -----       -----        -----        -----        -----
TOTAL CURRENT ASSETS                             80.6%       74.0%       66.8%       73.8%        79.8%        76.7%        75.3%

PROPERTY, PLANT AND EQUIPMENT
Land                                              0.0%        0.0%        0.0%        1.0%         0.7%         0.0%         0.3%
Building and Improvements                         0.0%        0.0%        0.0%        7.2%         7.9%         0.0%         2.5%
Machinery and Equipment                           0.0%        0.0%        0.0%       20.2%        34.1%         0.0%         9.0%
Furniture, Fixtures and Office Equipment          0.0%        0.0%        0.0%        4.4%         8.1%         0.0%         2.1%
Less: Accumulated Depreciation                    0.0%        0.0%        0.0%      (15.9%)      (31.8%)        0.0%        (7.9%)
                                                -----       -----       -----       -----        -----        -----        -----
NET PROPERTY, PLANT AND EQUIPMENT                15.6%       15.0%       16.5%       16.8%        19.0%        10.9%        15.6%

OTHER ASSETS
Net Intangibles                                   0.0%        0.0%       14.9%        7.9%         0.4%        11.4%         5.8%
Other Assets                                      3.9%       10.9%        1.8%        1.4%         0.8%         1.0%         3.3%
                                                -----       -----       -----       -----        -----        -----        -----
TOTAL OTHER ASSETS                                3.9%       10.9%       16.8%        9.3%         1.2%        12.4%         9.1%
                                                -----       -----       -----       -----        -----        -----        -----
TOTAL ASSETS                                    100.0%      100.0%      100.0%      100.0%       100.0%       100.0%       100.0%
                                                =====       =====       =====       =====        =====        =====        =====
                                                                                                                         =====

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable                                    36.3%       35.0%       33.3%       46.3%        78.1%        39.4%        44.7%
Current Maturities LTD                            4.6%       12.7%        2.6%        3.3%         9.5%         3.4%         6.0%
Current Maturities Series A Bonds                 0.0%        0.0%        0.0%        4.3%        19.3%         0.0%         3.9%
Accounts Payable                                  3.7%        3.3%        3.9%        6.1%        10.1%         3.4%         5.1%
Related Party Payable                             0.0%        0.0%        0.0%        0.0%         0.0%         8.2%         1.4%
Accrued Expenses & Deferred Income                0.0%        0.0%        0.0%        0.0%         0.0%         2.9%         0.5%
Other Current Liabilities                         6.6%        7.5%        8.9%        7.4%        21.9%         6.3%         9.8%
                                                -----       -----       -----       -----        -----        -----        -----
TOTAL CURRENT LIABILITIES                        51.2%       58.5%       48.7%       67.4%       138.9%        63.6%        71.4%

LONG-TERM DEBT                                   26.7%       17.7%       24.2%       14.2%         6.5%        21.0%        18.4%

PARENT COMPANY LOAN                               0.0%        0.0%        0.0%        0.0%         0.0%        23.6%         3.9%

SERIES A BONDS                                    0.0%        0.0%        0.0%        5.2%         0.0%         0.0%         0.9%

</TABLE>

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 38
<PAGE>

<TABLE>
<S>                                             <C>         <C>         <C>         <C>          <C>          <C>         <C>
STOCKHOLDER LOAN                                  0.0%        0.0%        0.0%        0.0%         0.0%         0.0%         0.0%

REDEEMABLE SERIES B PREFERRED STOCK               0.0%        0.0%        0.0%        0.0%         5.1%         0.0%         0.8%

MINORITY INTEREST                                 0.0%        0.0%        0.0%        1.4%         0.0%         0.0%         0.2%
                                                -----       -----       -----       -----        -----        -----        -----
TOTAL LIABILITIES                                77.9%       76.2%       72.9%       88.2%       150.5%       108.2%        95.7%

SHAREHOLDERS' EQUITY
Common Stock                                      0.0%        0.0%        0.0%        0.1%         0.2%         2.3%         0.4%
Translation Adjustments                           0.0%        0.0%        0.0%        0.0%         0.0%        (0.1%)       (0.0%)
Additional Paid-in-Capital                        0.0%        0.0%        0.0%       34.5%        61.6%         0.0%        16.0%
Accumulated Deficit                               0.0%        0.0%        0.0%      (15.7%)     (109.6%)      (10.5%)      (22.6%)
Accumulated other Comprehensive Loss              0.0%        0.0%        0.0%       (7.2%)       (2.6%)        0.0%        (1.6%)
                                                -----       -----       -----       -----        -----        -----        -----
TOTAL SHAREHOLDERS' EQUITY                       22.1%       23.8%       27.1%       11.8%       (50.5%)       (8.2%)        4.3%

TOTAL LIABILITIES & SHAREHOLDERS' EQUITY        100.0%      100.0%      100.0%      100.0%       100.0%       100.0%       100.0%
                                                =====       =====       =====       =====        =====        =====        =====
</TABLE>

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 39

<PAGE>

                                   EXHIBIT #7

                              MARKER INTERNATIONAL
                  SELECTED STATISTICS FOR MARKER INTERNATIONAL
                     AND OTHER SPORTING GOODS MANUFACTURERS

<TABLE>
<CAPTION>
                                                                                   Median of
                                                                                    Other
                                                             Marker (a)          Companies (b)
                                                             ----------          -------------
<S>                                                          <C>                 <C>
Number of Companies                                                 1                   49
Total Assets (000s)                                           $51,934              $61,353 (c)

BALANCE SHEET ITEMS
Current Assets as a % of Assets                                  76.7%               63.2%
Cash as a % of Assets                                            10.4%                4.9%
Accounts Receivable as a % of Assets                             33.8%               28.1%
Inventory as a % of Assets                                       30.7%               27.7%
Net Fixed Assets as a % of Assets                                10.9%               18.1%

Current Liabilities as a % of Assets                             63.6%               34.9%
Long-Term Liabilities (adjusted) as a % of Assets                21.0%               16.1%
Total Debt (adjusted) as a % of Assets                           84.6%               55.1%
Net Worth (adjusted) as a % of Assets                            15.4%               44.9%

INCOME STATEMENT ITEMS
Annual Sales (000s)                                           $56,241              $88,280 (c)

Gross Margin as a % of Sales                                     27.4%               34.6%
Operating Expenses as a % of Sales                               38.8%               27.9%
Operating Income as a % of Sales                                (11.4%)               6.7%
Income Before Tax as a % of Sales                               (13.6%)               4.6%

TURNOVER RATIOS
Accounts Receivable Turnover (x)                                  3.2                 4.8
Inventory Turnover (x)                                            2.6                 3.6
Fixed Asset Turnover (x)                                         10.0                 9.0
Total Asset Turnover (x)                                          1.1                 1.3

PROFITABILITY
Before-Tax Return on Assets (%)                                 (14.8%)               5.4%
Before-Tax Return on Adjusted Equity (%)                        (96.3%)              16.0%

RISK
Current Ratio (x)                                                 1.2                 2.1
Quick Ratio (x)                                                   0.7                 1.1
Total Debt/Equity (x)                                             5.5                 1.7
Interest Coverage Ratio                                          (1.5)                2.3

</TABLE>

Notes: (a)  Fiscal year ended March 31, 2000
       (b)  Fiscal year ended March 31, 1999
       (c)  Mean

Source: Annual Statement Studies, 1999-00 Edition, Robert Morris Associates,
Philadelphia, PA

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 40
<PAGE>

                                   EXHIBIT #8

                              MARKER INTERNATIONAL
                        PROJECTED INCOME STATEMENTS (USD)
                      FOR YEARS ENDING MARCH 31, 2001-2005

<TABLE>
<CAPTION>
                                      ACTUAL                                   PROJECTED
                                      ------           ---------------------------------------------------------
                                       2000             2001             2002             2003             2004             2005
                                      ------           ------           ------           ------           ------           ------
<S>                                   <C>              <C>              <C>              <C>              <C>              <C>
SALES
Marker                                55,442           46,106           50,405           52,769           54,352           55,983
Tecnica                                    0            8,629           10,049           10,495           10,741           10,998
Volkl                                      0            7,117            8,543            9,847           10,824           11,574
Other                                      0            1,103              484              484              484              484
                                      ------           ------           ------           ------           ------           ------
TOTAL SALES                           55,442           62,955           69,482           73,595           76,401           79,040

COST OF SALES
Marker                                39,334           27,811           32,017           33,077           33,766           34,573
Tecnica                                    0            6,291            7,012            7,235            7,304            7,479
Volkl                                      0            3,900            4,815            5,728            6,295            6,730
Other                                      0              773              334              334              334              334
                                      ------           ------           ------           ------           ------           ------
TOTAL COST OF SALES                   39,334           38,774           44,178           46,374           47,698           49,115

GROSS MARGIN
Marker                                16,108           18,295           18,388           19,692           20,586           21,410
Tecnica                                    0            2,338            3,037            3,260            3,437            3,519
Volkl                                      0            3,217            3,728            4,119            4,530            4,844
Other                                      0              331              150              150              150              150
                                      ------           ------           ------           ------           ------           ------
TOTAL GROSS MARGIN                    16,108           24,181           25,303           27,221           28,703           29,924

EXPENSES
Selling                               11,662            9,579            9,950           10,400           10,766           11,080
Warehouse & Shipping                   1,839            1,685            1,659            1,743            1,807            1,861
General & Administration               6,484            7,650            6,894            7,225            7,466            7,688
Research & Development                 1,697            1,276            1,164            1,222            1,259            1,297
License Fees                             166                0                0                0                0                0
Management Fees                          177               (2)              (0)              (0)              (0)              (0)
                                      ------           ------           ------           ------           ------           ------
TOTAL OPERATING EXPENSES              22,025           20,188           19,667           20,590           21,298           21,926

OPERATING INCOME (LOSS)               (5,917)           3,993            5,636            6,631            7,405            7,998

OTHER INCOME (EXPENSE)
Interest (Expenses) Income            (2,720)          (3,665)          (2,843)          (2,876)          (2,869)          (2,856)
Exchange Gains (Losses)                2,677             (261)               0                0                0                0
Other Income (Expense)                (2,276)               0                0                0                0                0
                                      ------           ------           ------           ------           ------           ------
TOTAL OTHER INCOME (EXPENSE)          (2,318)          (3,927)          (2,843)          (2,876)          (2,869)          (2,856)

NET INCOME BEFORE TAX                 (8,235)              66            2,793            3,754            4,537            5,141
Provisions for Income Taxes               22                0                0                0                0                0
                                      ------           ------           ------           ------           ------           ------
NET INCOME (LOSS)                     (8,257)              66            2,793            3,754            4,537            5,141
                                      ======           ======           ======           ======           ======           ======
                                                                                                                          =======
</TABLE>

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 41
<PAGE>

                               EXHIBIT #8, Page #2

                              MARKER INTERNATIONAL
                           PROJECTED INCOME STATEMENTS

<TABLE>
<S>                                                 <C>             <C>             <C>             <C>              <C>
DEBT-FREE APPROACH

ADJUSTMENTS TO PROJECTED INCOME STATEMENTS
Net Income Before Tax                                   66           2,793           3,754           4,537            5,141
Plus: Interest Expense                               3,665           2,843           2,876           2,869            2,856
                                                    ------          ------          ------          ------           ------
Adjusted Net Income Before Tax                       3,732           5,636           6,631           7,405            7,998
Provision for Income Taxes(1)                       (1,493)         (2,255)         (2,652)         (2,962)          (3,199)
                                                    ------          ------          ------          ------           ------
ADJUSTED NET INCOME                                  2,239           3,382           3,979           4,443            4,799

CASH FLOW ANALYSIS
Adjusted Debt-Free Net Income                        2,239           3,382           3,979           4,443            4,799
Plus: Depreciation/Amortization(2)                   2,759           2,759           2,759           2,759            2,759
Less: Capital Expenditures(2)                       (2,385)         (2,385)         (2,385)         (2,385)          (2,385)
                                                    ------          ------          ------          ------           ------
NET FREE CASH FLOW                                   2,613           3,756           4,353           4,817            5,173
Terminal Value(3)                                                                                                    88,369
                                                    ------          ------          ------          ------           ------
TOTAL NET FREE CASH FLOW                             2,613           3,756           4,353           4,817           93,542

Present Value of Net Free Cash Flow                  2,406           3,185           3,399           3,464           61,943

NPV OF NET FREE CASH FLOW                           74,397
Less: Interest Bearing Debt (Adjusted)              33,124
                                                    ------
ESTIMATED ADJUSTED EQUITY VALUE(4)                  41,274

</TABLE>

(1)  Average rate estimated by Marker management

(2)  Differential between Depreciation/Amortization and Capital Expenditures
     projected by Management to remain constant

(3)  Assumption in terminal value caculation is that depreciation/amortization
     expense = capital expenditures over long term

(4)  Parent Company loan of $12.744 million is considered equity for purposes of
     this calculation, per the Agreement.

<TABLE>
<S>                                                 <C>             <C>             <C>             <C>              <C>
Periods                                                  1               2               3               4                5

Euro Conversion - 1 Euro = USD (3/31/00)             0.961

</TABLE>

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 42
<PAGE>

                                   EXHIBIT #9

                              MARKER INTERNATIONAL
                     COMMON SIZE PROJECTED INCOME STATEMENTS
                      FOR YEARS ENDING MARCH 31, 2000-2005

<TABLE>
<CAPTION>
                                     2000         2001         2002         2003         2004         2005       Average
                                    ------       ------       ------       ------       ------       ------      -------
<S>                                 <C>          <C>          <C>          <C>          <C>          <C>         <C>
SALES
Marker                              100.0%        73.2%        72.5%        71.7%        71.1%        70.8%        76.6%
Tecnica                               0.0%        13.7%        14.5%        14.3%        14.1%        13.9%        11.7%
Volkl                                 0.0%        11.3%        12.3%        13.4%        14.2%        14.6%        11.0%
Other                                 0.0%         1.8%         0.7%         0.7%         0.6%         0.6%         0.7%
                                    -----        -----        -----        -----        -----        -----        -----
Total                               100.0%       100.0%       100.0%       100.0%       100.0%       100.0%       100.0%

COST OF SALES
Marker                               70.9%        44.2%        46.1%        44.9%        44.2%        43.7%        49.0%
Tecnica                               0.0%        10.0%        10.1%         9.8%         9.6%         9.5%         8.2%
Volkl                                 0.0%         6.2%         6.9%         7.8%         8.2%         8.5%         6.3%
Other                                 0.0%         1.2%         0.5%         0.5%         0.4%         0.4%         0.5%
                                    -----        -----        -----        -----        -----        -----        -----
Total                                70.9%        61.6%        63.6%        63.0%        62.4%        62.1%        64.0%

GROSS MARGIN
Marker                               29.1%        29.1%        26.5%        26.8%        26.9%        27.1%        27.6%
Tecnica                               0.0%         3.7%         4.4%         4.4%         4.5%         4.5%         3.6%
Volkl                                 0.0%         5.1%         5.4%         5.6%         5.9%         6.1%         4.7%
Other                                 0.0%         0.5%         0.2%         0.2%         0.2%         0.2%         0.2%
                                    -----        -----        -----        -----        -----        -----        -----
Total                                29.1%        38.4%        36.4%        37.0%        37.6%        37.9%        36.0%

EXPENSES
Selling                              21.0%        15.2%        14.3%        14.1%        14.1%        14.0%        15.5%
Warehouse & Shipping                  3.3%         2.7%         2.4%         2.4%         2.4%         2.4%         2.6%
General & Administration             11.7%        12.2%         9.9%         9.8%         9.8%         9.7%        10.5%
Research & Development                3.1%         2.0%         1.7%         1.7%         1.6%         1.6%         2.0%
License Fees                          0.3%         0.0%         0.0%         0.0%         0.0%         0.0%         0.0%
Management Fees                       0.3%        (0.0%)       (0.0%)       (0.0%)       (0.0%)       (0.0%)        0.1%
                                    -----        -----        -----        -----        -----        -----        -----
TOTAL OPERATING EXPENSES             39.7%        32.1%        28.3%        28.0%        27.9%        27.7%        30.6%

OPERATING INCOME (LOSS)             (10.7%)        6.3%         8.1%         9.0%         9.7%        10.1%         5.4%

OTHER INCOME (EXPENSE)
Interest (Expenses) Income           (4.9%)       (5.8%)       (4.1%)       (3.9%)       (3.8%)       (3.6%)       (4.3%)
Exchange Gains (Losses)               4.8%        (0.4%)        0.0%         0.0%         0.0%         0.0%         0.7%
Other Income (Expense)               (4.1%)        0.0%         0.0%         0.0%         0.0%         0.0%        (0.7%)
                                    -----        -----        -----        -----        -----        -----        -----
TOTAL OTHER INCOME (EXPENSE)         (4.2%)       (6.2%)       (4.1%)       (3.9%)       (3.8%)       (3.6%)       (4.3%)

NET INCOME BEFORE TAX               (14.9%)        0.1%         4.0%         5.1%         5.9%         6.5%         1.1%

PROVISIONS FOR INCOME TAXES           0.0%         0.0%         0.0%         0.0%         0.0%         0.0%         0.0%
                                    -----        -----        -----        -----        -----        -----        -----
NET INCOME (LOSS)                   (14.8%)        0.1%         4.0%         5.1%         5.9%         6.5%         1.1%
                                    =====        =====        =====        =====        =====        =====        =====

</TABLE>

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 43
<PAGE>

                                   EXHIBIT #10
                              MARKER INTERNATIONAL
                  PROJECTED INCOME STATEMENT ITEM GROWTH RATES
                      FOR YEARS ENDING MARCH 31, 2000-2005
<TABLE>
<CAPTION>
                                                                                                    Compound
                                                                                                     Annual
                                 2000       2001        2002        2003       2004        2005      Growth
                                 ----      ------      ------      ------     ------      ------    --------
<S>                              <C>       <C>         <C>         <C>        <C>         <C>       <C>
SALES
Marker                            --        (16.8%)       9.3%        4.7%       3.0%        3.0%      0.2%
Tecnica                           --          nmf        16.5%        4.4%       2.3%        2.4%      nmf
Volkl                             --          nmf        20.0%       15.3%       9.9%        6.9%      nmf
Other                             --          nmf       (56.1%)       0.0%       0.0%        0.0%      nmf
                                 ----      ------      ------      ------     ------      ------    ------
Total                             --         13.6%       10.4%        5.9%       3.8%        3.5%      7.3%

COST OF SALES
Marker                            --        (29.3%)      15.1%        3.3%       2.1%        2.4%     (2.5%)
Tecnica                           --          nmf        11.5%        3.2%       0.9%        2.4%      nmf
Volkl                             --          nmf        23.5%       18.9%       9.9%        6.9%      nmf
Other                             --          nmf       (56.8%)       0.0%       0.0%        0.0%      nmf
                                 ----      ------      ------      ------     ------      ------    ------
Total                             --         (1.4%)      13.9%        5.0%       2.9%        3.0%      4.5%

GROSS MARGIN
Marker                            --         13.6%        0.5%        7.1%       4.5%        4.0%      5.9%
Tecnica                           --          nmf        29.9%        7.3%       5.4%        2.4%      nmf
Volkl                             --          nmf        15.9%       10.5%      10.0%        6.9%      nmf
Other                             --          nmf       (54.6%)       0.0%       0.0%        0.0%      nmf
                                 ----      ------      ------      ------     ------      ------    ------
Total                             --         50.1%        4.6%        7.6%       5.4%        4.3%     13.2%

EXPENSES
Selling                           --        (17.9%)       3.9%        4.5%       3.5%        2.9%     (1.0%)
Warehouse & Shipping              --         (8.4%)      (1.5%)       5.1%       3.7%        3.0%      0.2%
General & Administration          --         18.0%       (9.9%)       4.8%       3.3%        3.0%      3.5%
Research & Development            --        (24.8%)      (8.8%)       5.0%       3.0%        3.0%     (5.2%)
License Fees                      --       (100.0%)       nmf         nmf        nmf         nmf       nmf
Management Fees                   --       (101.1%)     (83.3%)      29.0%     (34.1%)     (96.1%)     nmf
                                 ----      ------      ------      ------     ------      ------    ------
TOTAL OPERATING EXPENSES          --         (8.3%)      (2.6%)       4.7%       3.4%        3.0%     (0.1%)

OPERATING INCOME (LOSS)           --       (167.5%)      41.1%       17.6%      11.7%        8.0%      nmf

OTHER INCOME (EXPENSE)
Interest (Expenses) Income        --         34.8%      (22.4%)       1.2%      (0.3%)      (0.4%)     1.0%
Exchange Gains (Losses)           --       (109.8%)    (100.0%)       nmf        nmf         nmf       nmf
Other Income (Expense)            --       (100.0%)       nmf         nmf        nmf         nmf       nmf
                                 ----      ------      ------      ------     ------      ------    ------
TOTAL OTHER INCOME (EXPENSE)      --         69.4%      (27.6%)       1.2%      (0.3%)      (0.4%)     4.3%

NET INCOME BEFORE TAX             --       (100.8%)    4052.3%       34.4%      20.8%       13.3%      nmf

PROVISIONS FOR INCOME TAXES       --       (100.0%)       nmf         nmf        nmf         nmf       nmf
                                 ----      ------      ------      ------     ------      ------    ------

NET INCOME (LOSS)                 --       (100.8%)    4052.3%       34.4%      20.8%       13.3%      nmf
                                 ====      ======      ======      ======     ======      ======    ======

</TABLE>

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 44
<PAGE>

                                   EXHIBIT #11

                              MARKER INTERNATIONAL

ADAMS GOLF: Adams Golf designs and manufactures golf clubs. The company's
principal products are the Tight Lies fairway woods. Its other clubs include the
Air Assault Drive and the Assault-VMI irons. As of March 31, 1998, the company
had a 27% market share in the single fairway woods category. Approximately 79%
of the company's sales are at the retail level and 6% of its sales are
international. Adams Golf's target market is men and women golfers of various
ages and ability levels.

ALDILA: Aldila manufactures graphite golf shafts. The company offers standard
and customized shafts designed for various performance specifications and sold
at a range of prices. It supplies shafts to golf-club manufactures such as
Callaway Golf. Sales to Callaway Golf make up approximately 26% of the company's
total sales. Sales of customized graphite shafts account for about 85% of the
company's total sales. Adila also sells its products to pro shops, custom club
shops, and repair shops. The company operates production facilities in the U.S.,
Mexico, and China.

BRUNSWICK: Brunswick manufactures marine and recreation products its marine
products, which include Bayliner marine-propulsion systems, Sea Ray luxury
yachts, and Mercury and Mariner boat motors are sold to the marina and
boat-building industries, The company's recreational products include Zebco
fishing reels and accessories, Mongoose bicycles and camping products, Igloo ice
and beverage coolers, and Brunswick bowling equipment and billiard tables. In
addition, Brunswick solely or jointly operates 125 recreation centers, primarily
bowling centers, in the United States and abroad.

CALLAWAY GOLF: Callaway Golf manufactures golf clubs. It sells its line of Big
Bertha, Great Big Bertha, and Biggest Big Bertha oversized metal woods and
conventional-style metal woods, irons, wedges, and putters. These clubs, as well
as those marketed under other trademarks, are sold to intermediate and advanced
golfers at premium prices through retailer of professional-quality golf clubs in
the United States and overseas. Sales of metal woods account for approximately
56% of the company's total sales Foreign sales account for about 38% of Callaway
Golf's total sales.

CANNONDALE BIKE: Cannondale manufactures bicycles. The company uses lightweight
aluminum as a material for its bicycle frames, and all of its 59 bicycle models
are hand-assembled and constructed with hand weight aluminum frames. Its
bicycles are marketed under the Cannondale brand name and carry the Handmade in
USA logo. Cannondale's products are sold through specialty bicycle retailer in
the United States and in more than 60 countries worldwide. The company also
manufactures bicycle accessories, which includes clothing, packs and bags, bike
trailers, and other components.

COASTCAST: Coastcast primarily manufactures golf equipment. Its products include
stainless-steel and titanium golf clubheads and metal woods, irons, and putters.
Coastcast's golf clubheads are used in Callaway, Tommy Armour, Odyssey,
Titleist, Cleveland, Cobra, Wilson, Lynx, Ping, Ray Cook, Taylor Made, and
Spaulding brand-name gold clubs. Sales to Callaway Golf account for
approximately 46% of the company's total sales. In addition, Coastcast produces
orthopedic implants and surgical tools for use in the manufacture of replacement
hip and knee joints in humans and small animals.

CYBEX INTERNATIONAL: Cybex International designs, develops, and manufactures
strength-training and cardiovascular exercise equipment used in fitness
conditioning, sports medicine, and rehabilitation. These products are marketed
under various trademarks, primarily CYBEX. The company's customers include
fitness facilities, sports teams, research and educational centers, hospitals,
private-practice physical-therapy clinics, and rehabilitation centers.
Approximately 57% of Cybex's revenues are for its weight-training machines.

DIRECT FOCUS: Direct Focus develops and markets athletic equipment. The company
designs home-fitness equipment that it sells under the Bowflex brand name. In
addition, Direct Focus designs fitness equipment, knees and wrist wraps,
dumbbells, hand grips, ankle and wrist weights, workout mats, and jump ropes
that it markets under the Nautilus brand

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 45
<PAGE>

name. It is also developing airbeds that are sold under the Instant Comfort and
Nautilus Sleep Systems labels. The company markets its products though the
Internet, television infomercials, direct mail, and distributors.

ESCALADE: Escalade produces sporting goods and office and graphic-arts products.
Its sporting goods include table-tennis and pool tables, archery equipment,
basketball backboards, darts, and dart cabinets. Escalade's office and
graphic-arts products, which include checksigners, paper shredders, catalog
racks, bindery carts, stamp affixers, and letter openers, are sold under private
lables and brand names such as Premier, Martin Yale and Master Products. The
company makes sporting goods for Sears Roebuck, which account for approximately
38% of Escalade's total sales.

HUFFY: Huffy designs and markets recreational products. Its Huffy Bicycle
subsidiary designs a wide variety of bicycles for children and adults that are
marketed under the Huffy, Royce Union, and Airborne brand names and under
private labels. The company's Huffy Sports subsidiary produces basketball
backboards, goals, and related products designed for home use. Huffy also offers
inventory, assembly, and repair services for its products. The company operates
manufacturing facilities overseas.

JOHNSON OUTDOORS: Johnson Outdoors manufactures recreational products. Its
fishing and camping products include Minn Kota and Neptune electric fishing
motors, Mitchell reels and rods, Johnson reels, Beetle Spin soft-body lures,
Johnson spoons, Eureka! And Camp Trails backpacks and tents, Old Town canoes,
Silva compasses, Spider Wire and Spider Wire Fusion fishing lines, and Jack
Wolfskin camping tents, backpacks, and outdoor clothing. The company also
manufactures Scubapro diving products. It agreed to sell its fishing-products
operations to Berkley in 2000. K2: K2 produces recreational and industrial
products. Its products include snow skis sold under the K2 and Olin brand names;
Shakespeare fishing rods; Stearns water-safety vests, jackets, and suits; Girvin
and k2 mountain bikes; Morrow and Ride snowboards; in-line skates and snowboards
sold under the k2 name; and sportswear. The company's industrial products
include nylon and polymer monofilaments, used in fishing line and weed-trimmers;
fiberglass antennas and light poles; and paperboard products.

OAKLEY: Oakley manufactures high-performance athletic gear. The company's
products currently include sunglasses, goggles, footwear, and watches. Its line
of sunglasses includes products marketed under the M Frames, Zeros, Wires,
Romeo, and eye jackets brand names. Oakley's targeted clientele are skiers,
cyclists, runners, surfers, golfers, tennis players, and motorcyclists, as well
as general fashion-oriented consumers. Foreign sales account for approximately
27% of Oakley's revenues.

PLAYCORE: Playcore manufactures wooden home and institutional playground
equipment to the do-it-yourself market. Its equipment includes swing set,
climbing units, plastic slides, and related accessories. The company also
produces the Tuff Kids playground systems and playhouses, designed for use in
school playgrounds and public recreation areas. Playcore markets its products
under brand names such as Cool Wave Slide, Twin Towers, Wiggle Wave Slide, and
Mustang through home-improvement centers, building-supply stores, and hardware
stores throughout the United States.

RAWLINGS SPORTING GOODS: Rawlings Sporting Goods supplies sports equipment in
North America, and baseball equipment and uniforms in Japan. It sells its
products though various distribution channels, including mass merchandisers,
sporting-good stores, and institutional sporting-goods dealers. Rawlings also
has the exclusive right to use the logos of certain sports organizations,
including professional baseball's National and American Leagues, All-Star Game,
and World Series, and the National Collegiate Athletic Association. It is the
exclusive supplier of baseballs to the professional leagues.

RIDDELL SPORTS: Riddell Sports manufactures sports equipment and products and
licenses others to use its trademark on clothing, footwear, and other
nonathletic products. Its products include football helmets, shoulder pads,
baseball helmets, ice-hockey pads, and other sports equipment. In addition, the
company sells sports-collectible products and reconditions helmets. It also
manufactures cheerleading and dance-team uniforms. Riddell Sports sells its
products under the Riddell and MacGregor brand names to professional, college,
and high-school sports teams in North American.

STURM RUGER: Sturm, Ruger & Company manufactures and sells firearms. The company
offers products in all four firearm categories: pistols, revolvers, rifles, and
shotguns. These guns, sold under the Ruger name, consist of 22 caliber
rimfire-autoloading pistols, centerfire-autoloading pistols in various calibers,
single-action and double-action revolvers in

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 46
<PAGE>

various calibers, single-shot, autoloading, and bolt-action rifles in various
hunting calibers, and shotguns in two gauges. The company also manufactures
ferrous, aluminum, and titanium investment casting for various industries.

VARIFLEX: Variflex markets skates and other products used by skaters and
skateboarders. Its protective equipment includes wrist guards, elbow pads, knee
pads, and safety helmets. The company also sells traditional roller skates, and
a variety of skateboards. Variflex designs and develops its products which are
then manufactured to the company's specifications by independent contractors.
Its skates are sold internationally under the Assault, Alien, Comet XT, Crystal,
Dasher, Excell, Firebird, Fury, GX-2, Maverick, Mystic, Nighthawk, Ranger,
Reactor, and Shadow names.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 47
<PAGE>

                                   EXHIBIT #12

                              MARKER INTERNATIONAL
                           PUBLIC COMPANY COMPARABLES
                            SELECTED CHARACTERISTICS
                              AS OF MARCH 31, 2000

<TABLE>
<CAPTION>
                                                                 Revenue
                                  Market                         Growth %      Net Margin    Net Margin     Long-Term
Company Name                  Capitalization      Revenue         3 Year          TTM          Year 1      Liabilities      Equity
------------                  --------------      -------         ------       ----------    ----------    -----------      ------
<S>                           <C>                 <C>             <C>          <C>           <C>           <C>              <C>
Adams Golf                           37.2            54.0         322.1         (19.6)         14.8            2.6            82.7
Aldila                               30.0            45.1           3.4          (4.7)          4.5           15.4            79.1
Brunswick                         1,738.8         4,349.8          10.7           0.9           0.9          966.2         1,300.2
Callaway Golf                     1,179.1           735.3           8.0           7.7          (3.8)          19.6           500.9
Cannondale                           50.6           163.9           6.6           1.5           3.4           67.6            73.9
Coastcast                           134.9           130.5          23.9           7.9           5.3            0.5            83.3
Cybex International                  36.3           123.8          42.9           3.2           0.8           35.9            41.0
Direct Focus                        289.9           137.8         129.0          16.8          21.8            0.1            43.5
Escalade                             48.2            90.8          (0.2)          6.7           6.8            3.6            26.4
Huffy                                44.5           561.0           7.3          (5.9)         (0.1)          33.3            49.5
Johnson Outdoors                     50.3           353.0           1.9          (4.0)          1.9           69.4            98.4
K2                                  142.1           635.1           8.6           1.6           0.8          106.7           212.3
Oakley                              751.0           272.2          10.3           7.7          10.4           21.6           184.7
Playcore                             53.6           191.9          36.6           3.7           4.1           60.2            24.1
Rawlings Sporting Goods              35.6           175.2           3.4          (2.8)         (2.0)           9.0            40.7
Riddell Sports                       27.8           207.0          40.7          (1.3)         (3.8)         148.6            33.6
Sturm Ruger                         235.5           241.7           3.2          14.0          11.1           17.5           161.3
Variflex                             26.3            38.3         (19.8)          0.9           2.1            0.0            31.6

MEDIAN                               50.5           183.6           8.3           1.6           2.8           20.6            76.5

MARKER                                 NA            56.2         (16.9)        (13.7)        (13.7)          10.9             8.0

</TABLE>

<TABLE>
<CAPTION>
                                   Total         Current       Debt to       Debt to     Return on     Return on
                                   Assets         Ratio        Equity       Total Cap     Assets        Equity          Beta
                                   ------        -------       -------      ---------    ---------     ---------        ----
<S>                              <C>             <C>           <C>          <C>          <C>           <C>            <C>
Adams Golf                           91.3         10.2           3.1%          0.0         12.9          14.2             NA
Aldila                              108.6          2.2          19.5%         16.6          2.4           3.5           0.82
Brunswick                         3,354.8          1.5          74.3%         32.4          1.1           2.9           1.46
Callaway Golf                       639.2          1.8           3.9%          0.0         (4.1)         (5.9)          1.38
Cannondale                          166.7          3.6          91.5%         42.7          3.6           7.9          (0.04)
Coastcast                            92.3          8.5           0.6%          0.0          9.2           9.9           0.57
Cybex International                 105.0          1.6          87.6%         46.8          0.9           2.6           0.27
Direct Focus                         59.2          3.4           0.2%          0.0         51.2          70.7             NA
Escalade                             54.0          1.5          13.6%         19.3          9.7          23.0           0.03
Huffy                               244.0          1.1          67.3%         24.2         (0.2)         (0.7)          0.43
Johnson Outdoors                    297.6          1.6          70.5%         36.5          2.3           5.5           0.27
K2                                  430.5          2.6          50.3%         35.4          1.1           2.4           0.23
Oakley                              242.3          2.1          11.7%         10.7         10.7          14.9           0.48
Playcore                            141.5          1.0         249.8%         75.1          4.5          28.6             NA
Rawlings Sporting Goods             141.6          1.1          22.1%          0.3         (2.8)         (8.0)          0.06
Riddell Sports                      210.3          2.3         442.3%         83.3         (3.8)        (28.1)          0.61
Sturm Ruger                         217.0          5.1          10.8%          0.0         11.9          15.2           0.27
Variflex                             38.7          7.7           0.0%          0.0          2.0           2.3           0.21
MEDIAN                              154.2          2.2          20.8%         18.0          2.4           4.5           0.3
MARKER                               51.9          1.2         136.5%         57.7        (14.8)        (96.3)            NA

</TABLE>

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 48

<PAGE>

EXHIBIT #12, Page #2

MARKER INTERNATIONAL
PUBLIC COMPANY COMPARABLES
SELECTED CHARACTERISTICS
AS OF MARCH 31, 2000

<TABLE>
<CAPTION>
                                                         Price/Cash
                                 Forward      Price/     Flow Ratio    Price/    Market Cap./
                                 PE Ratio      Book        Current    Revenue      Assets
                                 --------     ------     ----------   -------    ------------
<S>                              <C>          <C>        <C>          <C>        <C>
Adams Golf                         NMF         0.5           NA         0.7         0.4
Aldila                            96.9         0.4          6.5         0.7         0.3
Brunswick                          7.0         1.3          5.8         0.4         0.5
Callaway Golf                     13.8         2.4          8.5         1.7         1.8
Cannondale                        13.0         0.7          3.8         0.3         0.3
Coastcast                           NA         1.6          7.4         1.1         1.5
Cybex International                 NA         0.9          8.6         0.3         0.3
Direct Focus                      11.2         6.7         13.9         2.4         4.9
Escalade                            NA         1.8          4.2         0.6         0.9
Huffy                              7.3         0.9          0.5         0.1         0.2
Johnson Outdoors                   5.2         0.5          1.8         0.1         0.2
K2                                 7.2         0.7          3.9         0.2         0.3
Oakley                            23.6         4.1         18.2         2.9         3.1
Playcore                            NA         2.2          8.9         0.3         0.4
Rawlings Sporting Goods            7.8         0.9          2.5         0.2         0.3
Riddell Sports                      NA         0.8           NA         0.1         0.1
Sturm Ruger                         NA         1.5          4.6         1.0         1.1
Variflex                            NA         0.8           NA         0.7         0.7

MEDIAN                             9.5         0.9          5.8         0.5         0.4

</TABLE>

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 49
<PAGE>

                                   EXHIBIT #13

                              MARKER INTERNATIONAL
                MARKET VALUE RATIOS OF THE INDUSTRY SAMPLE GROUP
                              AS OF MARCH 31, 2000

<TABLE>
<CAPTION>
                Price/
               Forward      Price/        Price/
               Earnings      Book         Revenue
               --------     ------        -------
<S>            <C>          <C>           <C>
Median           9.5         90.0%         50.0%
</TABLE>

                          ADJUSTMENTS TO MARKET RATIOS

<TABLE>
<CAPTION>
                                                                 Market
                                                                 Value
                                                               Adjustment
                                                               ----------
<S>                                                            <C>
Relative Lack of Marketability Discount                          10.0%
Smaller Size of Company Discount                                  5.0%
Financial Risk                                                   10.0%
Premium for Control                                              35.0%

NET ADJUSTMENT FACTOR APPLIED TO MARKET RATIOS *                103.9%

ADDITIONAL DISCOUNT APPLICABLE TO PRICE/REVENUE RATIO
Lack of Profitability                                            15.0%

</TABLE>

* Adjustment factors are multiplicative

<TABLE>
<CAPTION>
                                   Price/      Price/         Price/
                                  Earnings      Book         Revenue
                                  --------     ------        -------
<S>                               <C>          <C>           <C>
Adjusted Ratios                     9.9         93.5%         44.2%
Adjusted Ratios - Rounded           9.9         93.0%         44.0%

</TABLE>

                              MARKER INTERNATIONAL
                             INDICATED MARKET VALUES
                                     ($000s)

<TABLE>
<CAPTION>
                                                                         Indicated
                                                                          Market
                                             Marker          Ratio         Value
                                             ------          -----       ---------
<S>                                          <C>            <C>         <C>
Projected 2001 Earnings (Adjusted)              384            9.9         3,800
2000 Revenue                                 56,241           44.0%       24,746
March 31, 2000 Book Value (Adjusted)          7,987           93.0%        7,428

</TABLE>

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 50
<PAGE>

                                   EXHIBIT #14

                    HISTORICAL STRUCTURE OF YIELDS OBSERVABLE
                       AND AVAILABLE ON SELECTED SECURTIES

<TABLE>
<CAPTION>
                                              Historical
                                                Return                                     Differential
                                              ----------                                   ------------
<S>                                           <C>               <C>                        <C>
U.S. Treasury Bills                              3.8%
                                                                Maturity Premium               1.7%
Long-Term Government Bonds                       5.5%
                                                                Default Premium                0.4%
Long-Term Corporate Bonds                        5.9%
                                                                Ownership Premium              7.4%
Common Stocks                                   13.3%

DIFFERENTIAL                                                                                   9.5%

</TABLE>

Note: Differential represents the difference between returns (e.g., maturity
premium = return on long-term government bonds less return on treasury bills).

SOURCE: Ibbotson Associates, 2000 Stocks, Bonds, Bills, and Inflation Yearbook

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 51
<PAGE>
                                   EXHIBIT #15

                              MARKER INTERNATIONAL
        COMPUTATION OF EQUITY DISCOUNT RATE - CONTROLLING INTEREST BASIS

                               HVA BUILD-UP METHOD

<TABLE>
<S>                                                        <C>      <C>
DISCOUNT RATE:
  MARKET FACTORS
Risk-Free Rate - U. S. Treasury Bills                         5.9%  3/31/00
Common Stock Premium                                          9.5%  Exhibit #14
                                                             -----
                                                             15.4%  Represents minority position
COMPANY-SPECIFIC RISKS
Size of Company                                               2.0%
Limited markets for specialized product line                  0.5%
                                                             -----
ADJUSTED RATE FOR COMPANY SPECIFIC RISKS                     17.9%

MARKET ADJUSTEMENT FOR CONTROL PREMIUM                       35.0%

MARKET ADJUSTMENT FOR LACK OF MARKETABILITY                  10.0%

BUILD-UP DISCOUNT RATE                                       14.7%       12.8%
</TABLE>

                         DISCOUNT RATE DETERMINED BY THE
                       CAPITAL ASSET PRICING MODEL (CAPM)

CAPM = (RISK FREE RATE + BETA(COMMON STOCK PREMIUM) + COMPANY SPECIFIC RISK
       ADJUSTMENT + LACK OF MARKETABILITY DISCOUNT - CONTROL PREMIUM ADJUSTMENT

<TABLE>
<S>                                                        <C>      <C>
Risk Free Rate (T-Bill Rate)                                  5.9%  3/31/00
Beta                                                          0.3
Common Stock Premium                                          9.5%  Exhibit #14
Control Premium-Market Rate Adjustment                       35.0%
Lack of Marketability Discount                               10.0%

COMPANY-SPECIFIC RISK:
Size of Company                                               2.0%
Limited markets for specialized product line                  0.5%

CAPM =                                                        7.8%
                                                             =====
</TABLE>

                     DISCOUNT RATE - AVERAGE OF TWO METHODS

<TABLE>
<S>                                                    <C>
  Build-Up Rate                                        14.7%
  CAPM Rate                                             7.8%
                                                       -----
Total                                                  22.6%

Average Discount Rate                                  11.3%
Average Discount Rate  - Rounded                       11.0%
                                                       =====
</TABLE>

                               CAPITALIZATION RATE
        (Capitalization rate = Discount rate less long term growth rate)

<TABLE>
<S>                                                    <C>
Disount Rate                                           11.0%
Less: Long-Term Growth Rate                             3.0%
                                                       -----
Equity Capitalization Rate                              8.0%
                                                       =====
</TABLE>

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 52
<PAGE>

                                   EXHIBIT #16

                              MARKER INTERNATIONAL
                        WEIGHTED AVERAGE COST OF CAPITAL

<TABLE>
<S>                                              <C>         <C>       <C>
COST OF DEBT
------------
Weighted Average Cost of Debt                    6.9%
NET COST OF DEBT AFTER TAX(1)                    4.1%

CAPITAL STRUCTURE
-----------------
Debt as % of Total Capital(2)                    35%
Equity as % of Total Capital                     65%

WEIGHTED AVERAGE COST OF CAPITAL                                        Weighted
--------------------------------                Weight       Cost         Cost
                                                ------      -----       --------
Debt                                             35%         4.1%         1.4%
Equity                                           65%        11.0%         7.2%
                                                                         ----
WEIGHTED AVERAGE COST OF CAPITAL                                          8.6%

WEIGHTED AVERAGE CAPITALIZATION RATE
------------------------------------
Weighted Average Cost of Capital                                          8.6%
Less: Long-Term Growth Rate                                               3.0%
WEIGHTED AVERAGE CAPITALIZATION RATE                                      5.6%

</TABLE>

<TABLE>
                                                                            Weighted
PRIME RATE                              Rate       Sales       % Sales       Average
----------                             ------     -------      -------      --------
<S>                                    <C>        <C>          <C>          <C>
United States                           9.00%     13,944        40.4%          3.6%
Germany                                 4.50%     13,271        38.5%          1.7%
Canada                                  7.00%      1,625         4.7%          0.3%
Japan                                   1.38%      5,668        16.4%          0.2%
                                                  ------       -----          ----
                                                  34,508       100.0%          5.9%

DEBT MIX
--------
Short-Term Debt                        22,222      67.1%
Long-Term Debt                         10,902      32.9%
                                       ------     ------
Total Debt                             33,124     100.0%

SHORT-TERM RATE
---------------
  Weighted Average Prime                 5.9%
  Premium                                1.5%
                                       ------
SHORT-TERM RATE                          7.4%

LONG-TERM RATE
--------------
  German Prime                          4.50%
  Premium                               1.25%
                                       ------
LONG-TERM RATE                          5.75%

</TABLE>
<TABLE>
                                                                Weighted
WEIGHTED AVERAGE COST OF DEBT            Rate      Weight         Rate
-----------------------------            ----      ------       --------
<S>                                      <C>       <C>          <C>
  Short-Term                             7.4%      67.1%          5.0%
  Long-Term                              5.8%      32.9%          1.9%
                                                                 -----
WEIGHTED AVERAGE COST OF DEBT                                     6.9%

</TABLE>

(1)  Tax rate =                           40%
(2)  Similar to K2

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 53
<PAGE>

                                   APPENDIX A

                                  Certification

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 54
<PAGE>

                                  CERTIFICATION

I certify that, to the best of my knowledge and belief:

     -    the statements of fact contained in this report are true and correct.

     -    the report analyses, opinions, and conclusions are limited only by the
          reported assumptions and limiting conditions, and are my personal,
          unbiased professional analyses, opinions, and conclusions.

     -    I have no present or prospective interest in the company that is the
          subject of this report, and I have no personal interest or bias with
          respect to the parties involved.

     -    my compensation is not contingent upon the reporting of a
          predetermined value or direction in value that favors the cause of the
          client, the amount of the value estimate, the attainment of a
          stipulated result, or the occurrence of a subsequent event.

     -    my analysis, opinions, and conclusions were developed, and this report
          has been prepared, in conformity with the Uniform Standards of
          Professional Appraisal Practice.

     -    no one provided significant professional assistance to the person
          signing this certification.

                                       /S/ Fredric L. Jones
                                       -----------------------------
                                       Frederic L. Jones, ASA

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 55
<PAGE>

                                   APPENDIX B

                        Statement of Limiting Conditions

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 56
<PAGE>

STATEMENT OF LIMITING CONDITIONS

THE FOLLOWING CONDITIONS ARE AN INTEGRAL PART OF THIS VALUATION OF MARKER
INTERNATIONAL, GMBH ("THE COMPANY") PREPARED BY HOULIHAN VALUATION ADVISORS
("HVA"):

     Neither HVA nor its principals have any present or intended interest in the
     Company. HVA's fees for this valuation are based on professional time
     charges and are in no way contingent upon the final valuation figure
     determined herein.

     This report is intended only for the specific use and purpose stated
     herein. It is intended for no other use and is not to be copied or given to
     unauthorized persons without the direct written consent of HVA. The value
     opinion expressed herein is valid only for the stated purpose and the date
     of the valuation. The report and information and conclusions contained
     therein should in no way be construed to be investment advice.

     HVA does not purport to be a guarantor of value. Valuation is an imprecise
     science, with value being a question of informed judgement, and reasonable
     persons can differ in their estimates of value. HVA does certify that this
     valuation study was conducted and the conclusion arrived at independently
     using conceptually sound and commonly accepted methods of valuation.

     In preparing the valuation report, we used information provided by the
     Company. It has been represented by the Company that the information is
     reasonably complete and accurate. We did not make independent examinations
     of any financial statements, projections, or other information, prepared or
     provided by Company management which were relied upon and, accordingly, we
     make no representations or warranties nor do we express any opinion
     regarding the accuracy or reasonableness of such.

     The valuation conclusions derived herein implicitly assume that the
     existing management of the Company will maintain the character and
     integrity of the Company through any sale, reorganization, or diminution of
     the owners' participation.

     Publicly available information utilized herein, (e.g., economic, industry,
     statistical and/or investment information) has been obtained from sources
     deemed to be reliable. It is beyond the scope of this report to verify the
     accuracy of such information, and we make no representations as to its
     accuracy.

     This engagement is limited to the production of the report and conclusions
     contained herein. HVA has no obligation to provide future services (e.g.,
     expert testimony in court or before governmental agencies) related to the
     contents of this report unless arrangements for such future services have
     been made.

     This valuation report and the conclusions contained herein are necessarily
     based on market and economic conditions as they existed at the date of
     valuation.

     The principals of HVA assigned to this engagement are Accredited Senior
     Appraisers in good standing with the American Society of Appraisers, a
     national organization that certifies business appraisers. HVA conforms to
     the Uniform Standards of Professional Appraisal Practice for purposes of
     business valuations. HVA also conforms to the business valuation standards
     I through IX set forth by the American Society of Appraisers.

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 57
<PAGE>

                                   APPENDIX C

                          Internal Revenue Ruling 59-60

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 58
<PAGE>

                              REVENUE RULING #59-60

SECTION 2031.  DEFINITION OF GROSS ESTATE

26 CFR 20.2031-2; Valuation of stocks and bonds.
(Also Section 2512.)
(Also Part II, Sections 811 (k), 1005
Regulations 105, Section 81.10.)

     In valuing the stock of closely held corporations, or the stock of
     corporations where market quotations are not available, all other available
     financial data, as well as all relevant factors affecting the fair market
     value, must be considered for estate tax and gift tax purposes. No general
     formula may be given that is applicable to the many different valuation
     situations arising in the valuation of such stock. However, the general
     approach, methods, and factors which must be considered in valuing such
     securities are outlined.

     Revenue Ruling 54-77, C.B. 1954-1, 187, superseded.

Section 1. Purpose

The purpose of this Revenue Ruling is to outline and review in general the
approach, methods and factors to be considered in valuing shares of the capital
stock of closely held corporations for estate tax and gift tax purposes. The
methods discussed herein will apply likewise to the valuation of corporate
stocks on which market quotations are either unavailable or are of such scarcity
that they do not reflect the fair market value.

Section 2. Background and Definitions

     .01 All valuations must be made in accordance with the applicable
     provisions of the Internal Revenue Code of 1954 and the Federal Estate Tax
     and Gift Tax Regulations. Sections 2031(a), 2032 and 2512(a) of the 1954
     Code (sections 811 and 1005 of the 1939 Code) require that the property to
     be included in the gross estate, or made the subject of a gift, shall be
     taxed on the basis of the value of the property at the time of death of the
     decedent, the alternate date if so elected, or the date of gift.

     .02 Section 20.2031-1(b) of the Estate Tax Regulations (section 81.10 of
     the Estate Tax Regulations 105) and section 25.2512-1 of the Gift Tax
     Regulations (section 86.19 of Gift Tax Regulations 108) define fair market
     value, in effect, as the price at which the property would change hands
     between a willing buyer and a willing seller when the former is not under
     any compulsion to buy and the latter is not under any compulsion to sell,
     both parties having reasonable knowledge of relevant facts. Court decisions
     frequently state in addition that the hypothetical buyer and seller are
     assumed to be able, as well as willing, to trade and to be well informed
     about the property and concerning the market for such property.

     .03 Closely held corporations are those corporations the shares of which
     are owned by a relatively limited number of stockholders. Often the entire
     stock issue is held by one family. The result of this situation is that
     little, if any, trading in the shares takes place. There is, therefore, no
     established market for the stock and such sales as occur at irregular
     intervals seldom reflect all of the elements of a representative
     transaction as defined by the term "fair market value."

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 59
<PAGE>

Section 3. Approach to Valuation

     .01 A determination of fair market value, being a question of fact, will
     depend upon the circumstances in each case. No formula can be devised that
     will be generally applicable to the multitude of different valuation issues
     arising in estate and gift tax cases. Often, an appraiser will find wide
     differences of opinion as to the fair market value of a particular stock.
     In resolving such differences, he should maintain a reasonable attitude in
     recognition of the fact that valuation is not an exact science. A sound
     valuation will be based upon all the relevant facts, but the elements of
     common sense, informed judgement and reasonableness must enter into the
     process of weighing those facts and determining their aggregate
     significance.

     .02 The fair market value of specific shares of stock will vary as general
     economic conditions change from "normal" to "boom" or "depression," that
     is, according to the degree of optimism or pessimism with which the
     investing public regards the future at the required date of appraisal.
     Uncertainty as to the stability or continuity of the future income from a
     property decreases its value by increase the risk of loss of earnings and
     value in the future. The value of shares of stock of a company with very
     uncertain future prospects is highly speculative. The appraiser must
     exercise his judgement as to the degree of risk attaching to the business
     of the corporation which issued the stock, but that judgement must be
     related to all of the other factors affecting value.

     .03 Valuation of securities is, in essence, a prophesy as to the future and
     must be based on facts available at the required date of appraisal. As a
     generalization, the prices of stocks which are traded in volume in a free
     and active market by informed persons best reflect the consensus of the
     investing public as to what the future holds for the corporations and
     industries represented. When a stock is closely held, is traded
     infrequently, or is traded in an erratic market, some other measure of
     value must be used. In many instances, the next best measure may be found
     in the prices at which the stocks of companies engaged in the same or a
     similar line of business are selling in a free and open market.

Section 4. Factors to Consider

     .01 It is advisable to emphasize that in the valuation of the stock of
     closely held corporations or the stock of corporations where market
     quotations are either lacking or too scarce to be recognized, all available
     financial data, as well as all relevant factors affecting the fair market
     value, should be considered. The following factors, although not
     all-inclusive, are fundamental and require careful analysis in each case:

          (a)  The nature of the business and the history of the enterprise from
               its inception.

          (b)  The economic outlook in general and the condition and outlook of
               the specific industry in particular.

          (c)  The book value of the stock and the financial condition of the
               business.

          (d)  The earning capacity of the company.

          (e)  The dividend-paying capacity.

          (f)  Whether or not the enterprise has goodwill or other tangible
               value.

          (g)  Sales of the stock and the size of the block to be valued.

          (h)  The market price of stocks of corporations engaged in the same or
               a similar line of business having their stocks actively traded in
               a free and open market, either on an exchange or
               over-the-counter.

     .02 The following is a brief discussion of each of the foregoing factors:

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 60
<PAGE>

          (a)  The history of a corporate enterprise will show its past
               stability or instability, its growth or lack of growth, the
               diversity or lack of diversity of its operations, and other facts
               needed to form an opinion of the degree of risk involved in the
               business. For an enterprise which changed its form of
               organization but carried on the same or closely similar
               operations of its predecessor, the history of the former
               enterprise should be considered. The detail to be considered
               should increase with approach to the required date of appraisal,
               since recent events are of the greatest help in predicting the
               future; but a study of gross and net income, and of dividends
               covering a long prior period, is highly desirable. The history to
               be studied should include but need not be limited to the nature
               of the business, its products or services, its operating and
               investment assets, capital structure, plant facilities, sales
               records and management, all of which should be considered as of
               the date of the appraisal, with due regard for recent significant
               changes. Events of the past that are unlikely to recur in the
               future should be discounted, since value has a close relation to
               future expectancy.

          (b)  A sound appraisal of a closely held stock must consider current
               and prospective economic conditions as of the date of appraisal,
               both in the national economy and in the industry or industries
               with which the corporation is allied. It is important to know
               that the company is more or less successful than its competitors
               in the same industry, or that it is maintaining a stable position
               with respect to competitors. Equal or even greater significance
               may attach to the ability of the industry with which the company
               is allied to compete with other industries. Prospective
               competition which has not been a factor in prior years should be
               given careful attention. For example, high profits due to the
               novelty of its product and the lack of competition often lead to
               increasing competition. The public's appraisal of the future
               prospects of competitive industries or of competitors within an
               industry may be indicated by price trends in the markets for
               commodities and for securities. The loss of the manager of a
               so-called "one-man" business may have a depressing effect upon
               the value of the stock of such business, particularly if there is
               a lack of trained personnel capable of succeeding to the
               management of the enterprise. In valuing the stock of this type
               of business, therefore, the effect of the loss of the manager on
               the future expectancy of the business and the absence of
               management-succession potentialities are pertinent factors to be
               taken into consideration. On the other hand, there may be factors
               which offset, in whole or in part, the loss of the manager's
               services. For instance, the nature of the business and of its
               assets may be such that they will not be impaired by the loss of
               the manager's services. Furthermore, the loss may be adequately
               covered by life insurance, or competent management might be
               employed on the basis of the consideration paid for the former
               manager's services. These, or other offsetting factors, if found
               to exist, should be carefully weighed against the loss of the
               manager's services in valuing the stock of the enterprise.

          (c)  Balance sheets should be obtained, preferably in the form of
               comparative annual statements for two or more years immediately
               preceding the date of appraisal, together with a balance sheet at
               the end of the month preceding that date, if corporate accounting
               will permit. Any balance sheet descriptions that are not
               self-explanatory and balance sheet items comprehending diverse
               assets or liabilities should be clarified in essential detail by
               supporting supplemental schedules. These statements usually will
               disclose to the appraiser: (1) liquid position (ratio of current
               assets to current liabilities); (2) gross and net book value of
               principal classes of fixed assets; (3) working capital; (4)
               long-term indebtedness; (5) capital structure; and (6) net worth.
               Consideration also should be given to any assets not essential to
               the operation of the business, such as investments in securities,
               real estate, etc. In general, such nonoperating assets will
               command a lower rate of return than do the operating assets,
               although in exceptional cases the reverse may be true. In
               computing the book value per share of stock, assets of the
               investment type should be revalued on the basis of their market
               price and the book value adjusted accordingly. Comparison of the
               company's balance sheets over several years may reveal, among
               other facts, such developments as the acquisition of additional
               production facilities or subsidiary companies, improvement in
               financial position, and details as to recapitalizations and other
               changes in the capital structure of the corporation. If the
               corporation has more than one class of stock outstanding, the
               charter or

VALUATION OF MKR HOLDINGS AS OF MARCH, 31 2000                          PAGE 61
<PAGE>

               certificate of incorporation should be examined to ascertain the
               explicit rights and privileges of the various stock issues,
               including: (1) voting powers, (2) preference as to dividends, and
               (3) preference as to assets in the event of liquidation.

          (d)  Detailed profit-and-loss statements should be obtained and
               considered for a representative period immediately prior to the
               required date of appraisal, preferably five or more years. Such
               statements should show (1) gross income by principal items; (2)
               principal deductions from gross income including major prior
               items of operating expenses, interest and other expense on each
               item of long-term debt, depreciation and depletion if such
               deductions are made, officers' salaries, in total if they appear
               to be reasonable or in detail if they seem to be excessive,
               contributions (whether or not deductible for tax purposes) that
               the nature of its business and its community position require the
               corporation to make, and taxes by principal items, including
               income and excess profit taxes; (3) net income available for
               dividends; (4) rates and amounts of dividends paid on each class
               of stock; (5) remaining amount carried to surplus; and (6)
               adjustments to and reconciliation with surplus as stated on the
               balance sheet. With profit and loss statements of this character
               available, the appraiser should be able to separate recurrent
               from nonrecurrent items of income and expense, to distinguish
               between operating income and investment income, and to ascertain
               whether or not any line of business in which the company is
               engaged is operated consistently at a loss and might be abandoned
               with benefit to the company. The percentage of earnings retained
               for business expansion should be noted when dividend-paying
               capacity is considered. Potential future income is a major factor
               in many valuations of closely-held stocks, and all information
               concerning past income which will be helpful in predicting the
               future should be secured. Prior earnings records usually are the
               most reliable guide as to the future expectancy, but resort to
               arbitrary five- or ten-year averages without regard to current
               trends or future prospects will not produce a realistic
               valuation. If, for instance, a record of progressively increasing
               or decreasing net income is found, then greater weight may be
               accorded the most recent years' profits in estimating earning
               power. It will be helpful, in judging risk and the extent to
               which a business is a marginal operation, to consider deductions
               from income and net income in terms of percentage of sales. Major
               categories of cost and expense to be so analyzed include the
               consumption of raw materials and supplies in the case of
               manufacturers, processors and fabricators; the cost of purchased
               merchandise in the case of merchants; utility services,
               insurance; taxes; depletion or depreciation; and interest.

          (e)  Primary consideration should be given to the dividend-paying
               capacity of the company rather than to dividends actually paid in
               the past. Recognition must be given to the necessity of retaining
               a reasonable portion of profits in a company to meet competition.
               Dividend-paying capacity is a factor that must be considered in
               an appraisal, but dividends actually paid in the past may not
               have any relation to dividend-paying capacity. Specifically, the
               dividends paid by a closely held family company may be measured
               by the income needs of the stockholders or by their desire to
               avoid taxes on dividend receipts, instead of by the ability of
               the company to pay dividends. Where an actual or effective
               controlling interest in a corporation is to be valued, the
               dividend factor is not a material element, since the payment of
               such dividends is discretionary with the controlling
               stockholders. The individual or group in control can substitute
               salaries and bonuses for dividends, thus reducing net income and
               understating the dividend-paying capacity of the company. It
               follows, therefore, that dividends are less reliable criteria of
               fair market value than other applicable factors.

          (f)  In the final analysis, goodwill is based upon earning capacity.
               The presence of goodwill and its value, therefore, rests upon the
               excess of net earnings over and above a fair return on the net
               tangible assets. While the element of goodwill may be based
               primarily on earnings, such factors as the prestige and renown of
               the business, the ownership of a trade or brand name, and a
               record of successful operation over a prolonged period in a
               particular locality also may furnish support for the inclusion of
               intangible value. In some instances it may not be possible to
               make a separate appraisal of the tangible and intangible assets
               of the business. The enterprise has a value as an

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               entity. Whatever intangible value there is, which is supportable
               by the facts, may be measured by the amount by which the
               appraised value of the intangible assets exceeds the net book
               value of such assets.

          (g)  Sales of stock of a closely held corporation should be carefully
               investigated to determine whether they represent transactions at
               arm's length. Forced or distress sales do not ordinarily reflect
               fair market value nor do isolated sales in small amounts
               necessarily control as the measure of value. This is especially
               true in the valuation of a controlling interest in a corporation.
               Since, in the case of closely held stocks, no prevailing market
               prices are available, there is no basis for making an adjustment
               for blockage. It follows, therefore, that such stocks should be
               valued upon a consideration of all the evidence affecting the
               fair market value. The size of the block of stock itself is a
               relevant factor to be considered. Although it is true that a
               minority interest in an unlisted corporation's stock is more
               difficult to sell than a similar block of listed stock, it is
               equally true that control of a corporation, either actual or in
               effect, representing as it does an added element of value, may
               justify a higher value for a specific block of stock.

          (h)  Section 2031(b) of the Code states, in effect, that in valuing
               unlisted securities the value of stock or securities of
               corporations engaged in the same or a similar line of business
               which are listed on an exchange should be taken into
               consideration along with all factors. An important consideration
               is that the corporations to be used for comparisons have capital
               stocks which are actively traded by the public. In accordance
               with section 2031(b) of the Code, stocks listed on an exchange
               are to be considered first. However, if sufficient comparable
               companies whose stocks are listed on an exchange cannot be found,
               other comparable companies which have stocks actively traded in
               on the over-the-counter market also may be used. The essential
               factor is that whether the stocks are sold on an exchange or
               over-the-counter there is evidence of an active, free public
               market for the stock as of the valuation date. In selecting
               corporations for comparative purposes, care should be taken to
               use only comparable companies. Although the only restrictive
               requirement as to comparable corporations specified in the
               statute is that their lines of business be the same or similar,
               yet it is obvious that consideration must be given to other
               relevant factors in order that the most valid comparison possible
               will be obtained. For illustration, a corporation having one or
               more issues of preferred stock, bonds or debentures in addition
               to its common stock should not be considered to be directly
               comparable to one having only common stock outstanding. In like
               manner, a company with a declining business and decreasing
               markets is not comparable to one with a record of current
               progress and market expansion.

Section 5. Weight to be Accorded Various Factors

The valuation of closely held corporate stock entails the consideration of all
relevant factors as stated in Section 4. Depending upon the circumstances in
each case, certain factors may carry more weight than others because of the
nature of the company's business. To illustrate:

          (a)  Earnings may be the most important criterion of value in some
               cases whereas asset value will receive primary consideration in
               others. In general, the appraiser will accord primary
               consideration to earnings when valuing stocks of companies which
               sell products or services to the public; conversely, in the
               investment or holding type of company, the appraiser may accord
               the greatest weight to the assets underlying the security to be
               valued.

          (b)  The value of the stock of a closely held investment or real
               estate holding company, whether or not family owned, is closely
               related to the value of the assets underlying the stock. For
               companies of this type the appraiser should determine the fair
               market values of the assets of the company. Operating expenses of
               such a company and the cost of liquidating, if any, merit
               consideration when appraising the relative values of the stock
               and the underlying assets. The market values of the underlying
               assets give due weight to potential earnings and dividends of the
               particular items of

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<PAGE>

               property underlying the stock, capitalized at rates deemed proper
               by the investing public at the date of appraisal. A current
               appraisal by the investing public should be superior to the
               retrospective opinion of an individual. For these reasons,
               adjusted net worth should be accorded greater weight in valuing
               the stock of a closely held investment or real estate holding
               company, whether or not family owned, than any of the other
               customary yardsticks of appraisal, such as earnings and dividend
               paying capacity.

Section 6. Capitalization Rates

In the application of certain fundamental valuation factors, such as earnings
and dividends, it is necessary to capitalize the average or current results at
some appropriate rate. A determination of the proper capitalization rate
presents one of the most difficult problems in valuation. That there is no ready
or simple solution will become apparent by a cursory check of the rates of
return and dividend yields in terms of the selling prices of corporate shares
listed on the major exchanges in the country. Wide variations will be found even
for companies in the same industry. Moreover, the ratio will fluctuate from year
to year depending upon economic conditions. Thus, no standard tables of
capitalization rates applicable to closely held corporations can be formulated.
Among the more important factors to be taken into consideration in deciding upon
a capitalization rate in a particular case are: (1) the nature of the business;
(2) the risk involved; and (3) the stability or irregularity of earnings.

Section 7. Average of Factors

Because valuations cannot be made on the basis of a prescribed formula, there is
no means whereby the various applicable factors in a particular case can be
assigned mathematical weights in deriving the fair market value. For this
reason, no useful purpose is served by taking an average of several factors (for
example, book value, capitalized earnings and capitalized dividends) and basing
the valuation on the result. Such a process excludes active consideration of
other pertinent factors, and the end result cannot be supported by a realistic
application of the significant facts in the case except by mere chance.

Section 8. Restrictive Agreements

Frequently, in the valuation of closely held stock for estate and gift tax
purposes, it will be found that the stock is subject to an agreement restricting
its sale or transfer. Where shares of a stock were acquired by a decedent
subject to an option reserved by the issuing corporation to repurchase at a
certain price, the option price is usually accepted as the fair market value for
estate tax purposes (see Revenue Ruling 54-76, C.B. 1954-1, 194.) However, in
such cases the option price is not determinative of fair market value for gift
tax purposes. Where the option or buy and sell agreement is the result of
voluntary action by the stockholders and is binding during the life as well as
at the death of the stockholders, such agreement may or may not, depending upon
the circumstances of each case, fix the value for estate tax purposes. However,
such agreement is a factor to be considered, with other relevant factors, in
determining fair market value. Where the stockholder is free to dispose of his
shares during life and the option is to become effective only upon his death,
the fair market value is not limited to the option price. It is always necessary
to consider the relationship of the parties, the relative number of shares held
by the decedent, and other material facts, to determine whether the agreement
represents a bona fide business arrangement or is a device to pass the
decedent's shares to the natural objects of his bounty for less than an adequate
and full consideration in money or money's worth. (In this connection, see
Revenue Ruling 157 C.B. 1953-2, 255, and Revenue Ruling 189, C.B. 1953-2, 294.)

Section 9. Effect on Other Documents

Revenue Ruling 54-77, C.B. 1954-1, 187, is hereby superseded.(1)

-------------------
(1)  Source: INTERNAL REVENUE BULLETIN; Cumulative Bulletin 1959-1, January -
     June 1959, pp. 237-244.

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<PAGE>

                                   APPENDIX D

                        Credentials of HVA Professionals

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<PAGE>

                             FREDERIC L. JONES, ASA
                              SALT LAKE CITY OFFICE                    [LOGO]

PROFESSIONAL
--------------------------------------------------------------------------------
DESIGNATIONS                                   Accredited Senior Appraiser (ASA)
                    Senior Member of the American Society of Appraisers,
                    Business Valuation Registered Appraiser, State of Utah

ACADEMIC DEGREES    B.A., DARTMOUTH COLLEGE, ECONOMICS
                    M.B.A., Dartmouth College, Amos Tuck School of Business
                    Administration

EMPLOYMENT          HOULIHAN VALUATION ADVISORS
                    PRINCIPAL - 1988 TO PRESENT
                    THE FIRM PROVIDES FINANCIAL OPINIONS, SECURITIES VALUATION,
                    AND CORPORATE ADVISORY SERVICES TO CORPORATIONS,
                    INSTITUTIONS, AGENCIES, FIDUCIARIES, PARTNERSHIPS AND
                    INDIVIDUALS REQUIRING EXPERT OPINION ON PRICING, STRUCTURE,
                    FAIRNESS, OR SOLVENCY IN CONNECTION WITH: MERGERS,
                    ACQUISITIONS, DIVESTITURES, RECAPITALIZATIONS, EQUITY
                    ALLOCATION, LBO'S, ESOP'S, TAXES LITIGATION, INTANGIBLE
                    ASSETS AND FRAUDULENT TRANSFERS.

                    SKI COUNTRY ADVISORS, A DIVISION OF HOULIHAN VALUATION
                    ADVISORS
                    PRINCIPAL - 188 TO PRESENT
                    THE FIRM PROVIDES BUSINESS VALUATION, BUSINESS PLANNING,
                    FINANCIAL RESTRUCTURING AND FEASIBILITY ANALYSES TO THE SKI
                    INDUSTRY.

                    SUGARBUSH RESORT (VERMONT)
                    PRESIDENT AND CHIEF EXECUTIVE OFFICER - 1985 TO 1987

                    KIRKWOOD RESORT (CALIFORNIA)
                    PRESIDENT AND CHIEF EXECUTIVE OFFICER - 1980 TO 1985

                    COPPER MOUNTAIN (COLORADO)
                    VICE PRESIDENT OF OPERATIONS - 1973 TO 1980

                    WATERVILLE VALLEY RESORT (NEW HAMPSHIRE)
                    GENERAL MANAGER AND VICE PRESIDENT - 1969 TO 1973

                    MACK MOLDING COMPANY
                    PRODUCTION MANAGER AND VICE PRESIDENT - 1964 TO 1965, 1967
                    TO 1969

EXPERIENCE          SIGNIFICANT EXPERIENCE IN BUSINESS VALUATION AND BUSINESS
                    PLANNING, AS WELL AS FINANCIAL ANALYSIS AND RESTRUCTURING.
                    OVER 20 YEARS OF EXPERIENCE IN OPERATING AND RESTRUCTURING
                    SMALL TO MEDIUM SIZE COMPANIES IN THE RECREATION/LEISURE AND
                    MANUFACTURING INDUSTRIES. EXTENSIVE BACKGROUND IN STRATEGIC
                    PLANNING, DEVELOPMENT, OPERATION, FINANCING AND MANAGEMENT
                    OF BUSINESSES. HIS BUSINESS TRAINING AND PRACTICAL
                    EXPERIENCE GIVE HIM A BROAD PERSPECTIVE FROM WHICH TO
                    PROVIDE ASSISTANCE TO CLIENTS IN A WIDE VARIETY OF
                    BUSINESSES.

PROFESSIONAL        AMERICAN SOCIETY OF APPRAISER - VICE PRESIDENT SALT LAKE
SOCIETIES           CITY CHAPTER, 1993 TO 1994; PRESIDENT, 1994 TO 1995
                    NATIONAL SKI AREAS ASSOCIATION

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