Document:

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                                                                  EXECUTION COPY

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

                          REGISTRATION RIGHTS AGREEMENT
                         -------------------------------

                                     Between

                                 ActivCard S.A.

                                       and

                             SCM MICROSYSTEMS, INC.

                          Dated as of February 7, 2000

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                                TABLE OF CONTENTS
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                                                                                                Page
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<S>                                                                                              <C>
SECTION 1. Definitions ................................................ ..........................1
SECTION 2. Notice of Proposed Transfer ................................ ..........................2
SECTION 3. Piggyback Registration ..................................... ..........................3
SECTION 4. Holdback Agreement ......................................... ..........................4
SECTION 5. Preparation and Filing ..................................... ..........................4
SECTION 6. Expenses ................................................... ..........................7
SECTION 7. Indemnification ............................................ ..........................7
SECTION 8. Underwriting Agreement ..................................... .........................10
SECTION 9. Information by Holders of Registrable Shares ............... .........................10
SECTION 10.Exchange Act Compliance .................................... .........................10
SECTION 11.No-Action Letter or Opinion of Counsel in Lieu of Registration........................11
SECTION 12.Termination ................................................ .........................11
SECTION 13.Successors and Assigns ..................................... .........................11
SECTION 14.Assignment ................................................. .........................11
SECTION 15.Entire Agreement ........................................... .........................13
SECTION 16.Notices .................................................... .........................13
SECTION 17.Modifications; Amendments; Waivers ......................... .........................14
SECTION 18.Counterparts; Facsimile Signatures ......................... .........................14
SECTION 19.Headings ................................................... .........................14
SECTION 20.Severability; Governing Law ................................ .........................14
SECTION 21.Survival..............................................................................14
</TABLE>

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                                                                   Exhibit 10.16

                  REGISTRATION RIGHTS AGREEMENT, dated as of February 7, 2000
(this

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"AGREEMENT"), between ActivCard S.A., a French SOCIETE ANONYME
("ACTIVCARD"), and SCM Microsystems, Inc., a California corporation ("SCM
Microsystems").

                                 R E C I T A L S

                  WHEREAS, pursuant to a stock purchase agreement dated the date
hereof (the "STOCK PURCHASE AGREEMENT"), SCM Microsystems has agreed to purchase
116,550 newly issued Ordinary Shares (as defined below) from ActivCard;

                  WHEREAS, the execution of this Agreement is a condition to the
purchase of the Ordinary Shares by SCM Microsystems pursuant to the Stock
Purchase Agreement;

                  NOW, THEREFORE, the parties hereby agree as follows:

                  SECTION 1. DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings:

                  "COMMISSION" means the U.S. Securities and Exchange Commission
or any successor agency.

                  "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder,
all as the same shall be in effect from time to time.

                  "ORDINARY SHARES" means the ordinary shares, FF 6.25 nominal
value per share, of ActivCard.

                  "OTHER SHARES" means at any time those Ordinary Shares which
do not constitute Primary Shares or Registrable Shares.

                  "PERSON" means an individual, corporation, partnership,
limited partnership, syndicate, person (including, without limitation, a
"person" as defined in Section 13(d)(3) of the Exchange Act), trust, association
or entity or government, political subdivision, agency or instrumentality of a
government.

                  "PRIMARY SHARES" means at any time the authorized but unissued
Ordinary Shares and Ordinary Shares held by ActivCard in its treasury.

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                  "REGISTRATION DATE" means the date upon which a registration
statement pursuant to which ActivCard shall have initially registered Ordinary
Shares under the Securities Act for sale to the public shall have been declared
effective.

                  "REGISTRABLE SHARES" means the Ordinary Shares issued to SCM
Microsystems pursuant to the Stock Purchase Agreement and any securities issued
with respect to such Ordinary Shares pursuant to any stock split, stock
dividend, recapitalization, substitution or other similar transaction. For
purposes of this Agreement, any Registrable Shares shall cease to be Registrable
Shares (i) when they have been registered under the Securities Act (the
registration statement in connection therewith has been declared effective) and
disposed of pursuant to such effective registration statement, (ii) when they
are sold by a person in a transaction in which the rights under the provisions
of this Agreement are not assigned, (iii) when they have been sold or
distributed pursuant to Rule 144 (including, without limitation, Rule 144(k)) or
(iv) on the last day of any three-month period within which they may be sold or
distributed without registration pursuant to Rule 144.

                  "RULE 144" means Rule 144 promulgated under the Securities Act
or any successor rule thereto or any complementary rule thereto (such as Rule
144A).

                  "SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder, all as
the same shall be in effect from time to time.

                  "STOCK PURCHASE AGREEMENT" has the meaning set forth in the
recitals to this Agreement.

                  SECTION 2. NOTICE OF PROPOSED TRANSFER.

                  Prior to any proposed transfer of any Registrable Shares
(other than under the circumstances described in Section 3 hereof), the holder
thereof shall have given written notice to ActivCard of its intention to effect
such transfer. Each such notice shall describe the manner of the proposed
transfer and, if requested by ActivCard, shall be accompanied by an opinion of
counsel satisfactory to ActivCard to the effect that the proposed transfer may
be effected without registration under the Securities Act, whereupon the holder
of such Registrable Shares shall be entitled to transfer such Registrable Shares
in accordance with the terms of its notice. Additionally, all such transfers
shall be made pursuant to the Letter Agreement dated the date hereof among
Paribas, ActivCard and SCM Microsystems, or any other similar letter agreement
required to be entered into by subsequent holders of the Registrable Shares. SCM
Microsystems' compliance with Section 3.5 of the Stock Purchase Agreement shall
be deemed to be compliance with the notice requirements of this Section 2.

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                  SECTION 3. PIGGYBACK REGISTRATION.

                  (a) If ActivCard at any time proposes for any reason to
register Ordinary Shares under the Securities Act (other than a registration
relating to the initial public offering of Ordinary Shares by Activcard
(including Ordinary Shares in the form of American Depositary Shares) in the
United States, a registration relating solely to employee benefit plans, or a
registration on registration statement Form F-4, Form S-4 or any registration
form which does not permit secondary sales or does not include substantially the
same information as would be required to be included in a registration statement
covering the sale of Registrable Securities, in each case, promulgated under the
Securities Act or any successor forms thereto), it shall give written notice to
the holders of Registrable Shares of its intention to so register such Ordinary
Shares at least 30 days before the initial filing of such registration
statement. Upon the written request of the holders of Registrable Shares to
include Registrable Shares in such registration (which request (i) must be
delivered to ActivCard within 15 days after delivery by ActivCard of any notice
pursuant to this Section 3(a), (ii) shall specify the number of Registrable
Shares proposed to be included in such registration and (iii) shall state that
such holders of Registrable Shares desire to sell such Registrable Shares in the
public securities markets), ActivCard shall use its best efforts to cause all
such Registrable Shares to be included in such registration on the same terms
and conditions as the securities otherwise being sold in such registration;
PROVIDED, HOWEVER, that if the managing underwriter advises ActivCard that the
inclusion of all Registrable Shares proposed to be included in such registration
would interfere with the successful marketing (including pricing) of the Primary
Shares or Other Shares proposed to be registered by ActivCard, then the number
of Primary Shares, Registrable Shares and/or Other Shares proposed to be
included in such registration shall be included in the following order:

                  (i) first, the Primary Shares and any other Ordinary Shares
         owned by Ken Fineman as of such date; and

                  (ii) second, the Registrable Shares and Other Shares requested
         to be included in such registration (or, if necessary, such Registrable
         Shares and Other Shares PRO RATA among the holders thereof based upon
         the aggregate number of Registrable Shares and Other Shares requested
         to be registered by each such holder).

                  (b) If the registration of which ActivCard gives notice is for
an underwritten registered public offering, ActivCard shall so advise the
holders as part of the written notice given pursuant to Section 3(a). In such
event, the right of any holder to registration pursuant to this Section 3 shall
be conditioned upon such holder's participation in such underwritten offering
and the inclusion of such holder's Registrable Securities in the underwritten
offering to the extent provided herein. All holders proposing to distribute
Registrable Shares through such underwritten offering shall (together with
ActivCard and the other shareholders distributing their securities through such
underwritten offering) enter into an underwriting agreement in customary form
with the underwriter selected by ActivCard. If any holder disapproves of the
terms of any such underwritten offering, he may elect to withdraw therefrom by
written notice to ActivCard

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and the underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwritten offering shall be withdrawn from such
registration.

                  (c) The number of requests permitted by the holders of
Registrable Shares pursuant to this Section 3 shall be unlimited.

                  SECTION 4. HOLDBACK AGREEMENT.

                  If ActivCard at any time shall register Ordinary Shares under
the Securities Act (including any registration pursuant to Section 3 hereof) for
sale to the public, SCM Microsystems shall not sell publicly or privately, make
any short sale of, grant any option for the purchase of, or otherwise dispose
publicly of, any Registrable Shares (other than those Ordinary Shares included
in such registration pursuant to Section 3 hereof) without the prior written
consent of ActivCard, for a period as shall be determined by the relevant
managing underwriters, which period shall begin not more than 10 days prior to
the initial filing of the registration statement pursuant to which such public
offering shall be made and shall not last more than 180 days after the effective
date of such registration statement; provided, however, that SCM Microsystems
shall be subject to the holdback restrictions of this Section 4 only once in any
twelve-month period during the term of this Agreement.

                  SECTION 5. PREPARATION AND FILING.

                  (a) If and whenever ActivCard is under an obligation pursuant
to the provisions of this Agreement to use its best efforts to effect the
registration of any Registrable Shares, ActivCard shall, as expeditiously as
practicable:

                  (i) use its best efforts to cause a registration statement
         that registers such Registrable Shares to become and remain effective
         for a period of 90 days or until all of such Registrable Shares have
         been disposed of (if earlier). ActivCard shall not be required to
         maintain the effectiveness of any registration statement that
         contemplates a distribution of securities on a delayed or continuous
         basis pursuant to Rule 415 under the Securities Act;

                  (ii) furnish, at least ten business days before filing a
         registration statement, to counsel designated by SCM Microsystems
         ("INVESTOR'S Counsel"), a copy of the registration statement proposed
         to be filed and the prospectus relating thereto or any amendments or
         supplements relating to such a registration statement or prospectus (it
         being understood that such ten-business-day period need not apply to
         successive drafts of the same document proposed to be filed so long as
         such successive drafts are supplied to the Investor's Counsel in
         advance of the proposed filing by a period of time that is reasonable
         under the circumstances);

                  (iii) prepare and file with the Commission such amendments and
         supplements

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         to such registration statement and the prospectus relating thereto as
         may be necessary to keep such registration statement effective for at
         least a period of 90 days or until all of such Registrable Shares have
         been disposed of (if earlier) and to comply with the provisions of the
         Securities Act with respect to the sale or other disposition of such
         Registrable Shares;

                  (iv) provide written notice to Investor's Counsel concerning
         (i) the receipt by ActivCard of any comments of the Commission with
         respect to such registration statement or prospectus or any amendment
         or supplement thereto or any request by the Commission for the amending
         or supplementing thereof or for additional information with respect
         thereto, (ii) the receipt by ActivCard of any notification with respect
         to the issuance by the Commission of any stop order suspending the
         effectiveness of such registration statement or prospectus or any
         amendment or supplement thereto or the initiation or threatening of any
         proceeding for that purpose and (iii) the receipt by ActivCard of any
         notification with respect to the suspension of the qualification of
         such Registrable Shares for sale in any jurisdiction or the initiation
         or threatening of any proceeding for such purposes;

                  (v) use its best efforts to register or qualify such
         Registrable Shares under such other securities or blue sky laws of such
         jurisdictions as the holders of the Registrable Shares reasonably
         request and do any and all other acts and things which may be
         reasonably necessary or advisable to enable such holders to consummate
         the disposition in such jurisdictions of such holders' Registrable
         Shares; PROVIDED, HOWEVER, that ActivCard will not be required (i) to
         qualify generally to do business, subject itself to general taxation or
         consent to general service of process in any jurisdiction where it
         would not otherwise be required to do so but for this paragraph (v),
         (ii) to provide any material undertaking or make any changes in its
         charter documents which the Board of Directors determines to be
         contrary to the best interests of ActivCard or (iii) to modify any of
         its contractual relationships then existing;

                  (vi) furnish to the holders of such Registrable Shares such
         number of copies of a summary prospectus, if any, or other prospectus,
         including a preliminary prospectus, in conformity with the requirements
         of the Securities Act, and such other documents as such holders may
         reasonably request in order to facilitate the public sale or other
         disposition of such Registrable Shares;

                  (vii) notify the holders of such Registrable Shares on a
         timely basis of the happening of any event as a result of which a
         prospectus included in the registration statement relating to such
         Registrable Shares, as then in effect, includes an untrue statement of
         a material fact or omits to state a material fact required to be stated
         therein or necessary to make the statements therein not misleading in
         light of the circumstances then existing and, at the request of such
         holders, prepare and furnish to such holders a reasonable number of
         copies of a supplement to or an amendment of such prospectus as
         may be necessary to cause such prospectus, as so supplemented or
         amended, not to include an untrue statement of a material fact or omit
         to state a material fact required to

<PAGE>

         be stated therein or necessary to make the statements therein not
         misleading in light of the circumstances then existing;

                  (viii) subject to the execution of confidentiality agreements
         in form and substance satisfactory to ActivCard and upon reasonable
         notice and during normal business hours, make available for inspection
         by the holders of such Registrable Shares, any underwriter
         participating in any disposition pursuant to such registration
         statement and any attorney, accountant or other agent retained by SCM
         Microsystems or the underwriter (collectively, the "INSPECTORS"), all
         pertinent financial and other records, pertinent corporate documents
         and properties of ActivCard (collectively, the "RECORDS"), as shall be
         reasonably necessary to enable them to exercise their due diligence
         responsibility, and cause ActivCard's officers, directors and employees
         to supply all information (together with the Records, the
         "INFORMATION") reasonably requested by any such Inspector in connection
         with such registration statement. Notwithstanding the foregoing, any of
         the Information which ActivCard determines in good faith to be
         confidential, and of which determination the Inspectors are so
         notified, shall not be disclosed to or by the Inspectors unless (i) the
         disclosure of such Information is necessary to avoid or correct a
         misstatement or omission in the registration statement, (ii) the
         release of such Information is ordered pursuant to a subpoena or other
         order from a court of competent jurisdiction or (iii) such Information
         is generally available to the public other than as a result of
         disclosure by the Inspectors; the holders of such Registrable Shares
         agree that they will, upon learning that disclosure of such Information
         is sought in a court of competent jurisdiction, give notice to
         ActivCard and allow ActivCard, at ActivCard's expense, to undertake
         appropriate action to prevent disclosure of the Information deemed
         confidential; and the Inspectors shall use best efforts to maintain the
         confidentiality of all information disclosed pursuant to this Section
         5(a)(viii);

                  (ix) use its best efforts to obtain from its independent
         certified public accountants "cold comfort" letters in customary form,
         at customary times and covering matters of the type customarily covered
         by cold comfort letters;

                  (x) use its best efforts to obtain from its counsel an opinion
         or opinions in customary form;

                  (xi) provide a transfer agent and registrar (which may be the
         same entity and which may be ActivCard) for such Registrable Shares;

                  (xii) list such Registrable Shares or American Depositary
         Shares representing such Registrable Shares, as the case may be, on any
         national securities exchange on which any Ordinary Shares or American
         Depositary Shares representing Ordinary Shares are listed;

                  (xiii) otherwise use its best efforts to comply with all
         applicable rules and regulations of the Commission and make available
         to its security holders, as soon as

<PAGE>

         reasonably practicable, earnings statements (which need not be audited)
         covering a period of 12 months beginning within three months after the
         effective date of the registration statement, which earnings statements
         shall satisfy the provisions of Section 11(a) of the Securities Act;
         and

                  (xiv) subject to all the other provisions of this Agreement,
         use its reasonable best efforts to take all other steps necessary to
         effect such registration of such Registrable Shares contemplated hereby
         (including, without limitation, if the method of distribution is by
         means of an underwriting agreement in customary form).

                  (b) Each holder of the Registrable Shares, upon receipt of any
notice from ActivCard of any event of the kind described in Section 5(a)(vii)
hereof, shall forthwith discontinue disposition of the Registrable Shares
pursuant to the registration statement covering such Registrable Shares until
such holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 5(a)(vii) hereof, and, if so directed by ActivCard, such
holder shall deliver to ActivCard all copies, other than permanent file copies
then in such holder's possession, of the prospectus covering such Registrable
Shares at the time of receipt of such notice.

                  SECTION 6. EXPENSES.

                  All expenses (other than underwriting discounts and
commissions relating to the Registrable Shares, as provided in the last sentence
of this Section 6) incurred by ActivCard in complying with Section 5, including,
without limitation, all registration and filing fees (including all expenses
incident to filing with the National Association of Securities Dealers, Inc.),
fees and expenses of complying with securities and blue sky laws, printing
expenses, fees and expenses of ActivCard's counsel and accountants and
reasonable fees and expenses (not to exceed U.S. $20,000) of the Investor's
Counsel, shall be paid by ActivCard; PROVIDED, HOWEVER, that all underwriting
discounts and selling commissions applicable to the Registrable Shares and Other
Shares shall be borne by the holders selling such Registrable Shares and Other
Shares, in proportion to the number of Registrable Shares and Other Shares sold
by each such holder.

                  SECTION 7. INDEMNIFICATION.

                  (a) In connection with any registration of any Registrable
Shares under the Securities Act pursuant to this Agreement, ActivCard shall
indemnify and hold harmless the holders of Registrable Shares, each
underwriter, broker or any other Person acting directly on behalf of the
holders of Registrable Shares in connection with the distribution thereof and
each other Person, if any, who controls any of the foregoing Persons within
the meaning of the Securities Act against any losses, claims, damages or
liabilities, joint or several (or actions in respect thereof), to which any
of the foregoing Persons may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
allegedly untrue statement of a material fact contained in the registration
statement under which such Registrable Shares were

<PAGE>

registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein or otherwise filed with the Commission, any
amendment or supplement thereto or any document incident to registration or
qualification of any Registrable Shares, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading
or, with respect to any prospectus, necessary to make the statements therein
in light of the circumstances under which they were made not misleading, or
any violation by ActivCard of the Securities Act or state securities or blue
sky laws applicable to ActivCard and relating to action or inaction required
of ActivCard in connection with such registration or qualification under such
state securities or blue sky laws; and ActivCard shall reimburse the holders
of Registrable Shares, such underwriter, such broker or such other Person
acting on behalf of the holders of Registrable Shares and each such
controlling Person for any legal or other expenses reasonably incurred by any
of them in connection with investigating or defending any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that ActivCard shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action (including any legal or other expenses incurred) arises
out of or is based upon an untrue statement or allegedly untrue statement or
omission or alleged omission made in said registration statement, preliminary
prospectus, final prospectus, amendment, supplement or document incident to
registration or qualification of any Registrable Shares in reliance upon and
in conformity with written information furnished to ActivCard through an
instrument duly executed by the holders of Registrable Shares or their
counsel or underwriter specifically for use in the preparation thereof;
PROVIDED FURTHER, HOWEVER, that the foregoing indemnity agreement is subject
to the condition that, insofar as it relates to any untrue statement,
allegedly untrue statement, omission or alleged omission made in any
preliminary prospectus but eliminated or remedied in the final prospectus
(filed pursuant to Rule 424 of the Securities Act), such indemnity agreement
shall not inure to the benefit of any holder of Registrable Shares,
underwriter, broker or other Person acting on behalf of holders of
Registrable Shares from whom the Person asserting any loss, claim, damage,
liability or expense purchased the Registrable Shares which are the subject
thereof, if a copy of such final prospectus had been made available to such
holder of Registrable Shares, underwriter, broker or other Person acting on
behalf of holders of the Registrable Shares and such final prospectus was not
delivered to such Person with or prior to the written confirmation of the
sale of such Registrable Shares to such Person, and the legal effect of
delivery of such final prospectus would have been to eliminate the liability
otherwise suffered or incurred by the Person asserting such loss, claim,
damage, liability or expense.

                  (b) In connection with any registration of Registrable Shares
under the Securities Act pursuant to this Agreement, each holder of
Registrable Shares shall severally and not jointly indemnify and hold
harmless ActivCard, each director of ActivCard, each officer of ActivCard who
shall sign such registration statement, each underwriter, broker or other
Person acting on behalf of the holders of Registrable Shares and each Person
who controls any of the foregoing Persons within the meaning of the
Securities Act against any losses, claims, damages or liabilities, joint or
several (or actions in respect thereof), to which any of the foregoing
Persons may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue

<PAGE>

statement or allegedly untrue statement of a material fact contained in the
registration statement under which such Registrable Shares were registered
under the Securities Act, any preliminary prospectus or final prospectus
contained therein or otherwise filed with the Commission, any amendment or
supplement thereto or any document incident to registration or qualification
of any Registrable Shares, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading or, with
respect to any prospectus, necessary to make the statements therein in light
of the circumstances under which they were made not misleading, if such
untrue statement or allegedly untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to ActivCard or such underwriter by or on behalf of such holder of
Registrable Shares specifically for use in connection with the preparation of
such registration statement, preliminary prospectus, final prospectus,
amendment, supplement or document; PROVIDED, HOWEVER, that the maximum amount
of liability in respect of such indemnification shall be limited, in the case
of each seller of Registrable Shares, to an amount equal to the net proceeds
actually received by such seller from the sale of Registrable Shares effected
pursuant to such registration.

                  (c) Promptly after receipt by an indemnified party of notice
of the commencement of any action involving a claim referred to in the
preceding paragraphs of this Section 7, such indemnified party will, if a
claim in respect thereof is made against an indemnifying party, give written
notice to the latter of the commencement of such action. The failure of any
indemnified party to notify an indemnifying party of any such action shall
not (unless such failure shall have a material adverse effect on the
indemnifying party) relieve the indemnifying party from any liability in
respect of such action that it may have to such indemnified party on account
of this Section 7. In case any such action is brought against an indemnified
party, the indemnifying party will be entitled to participate in and to
assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be responsible for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof; PROVIDED, HOWEVER, that if any
indemnified party shall have reasonably concluded that there may be one or
more legal or equitable defenses available to such indemnified party which
are additional to or conflict with those available to the indemnifying party,
or that such claim or litigation involves or could have an effect upon
matters beyond the scope of the indemnity agreement provided in this Section
7, the indemnifying party shall not have the right to assume the defense of
such action on behalf of such indemnified party (but shall have the right to
participate therein with counsel of its choice) and such indemnifying party
shall reimburse such indemnified party for that portion of the reasonable
fees and expenses of any counsel retained by the indemnified party which is
reasonably related to the matters covered by the indemnity agreement provided
in this Section 7. If the indemnifying party is not entitled to, or elects
not to, assume the defense of a claim or series of claims of all indemnified
parties, it will not be obligated to pay the fees and expenses of more than
one counsel with respect to all indemnified parties as to any claim or series
of related

<PAGE>

claims. The indemnifying party may not settle any such claim without the
consent of the indemnified party.

                  (d) If the indemnification provided for in this Section 7 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, claim, damage, liability or action referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amounts paid or payable by such
indemnified party as a result of such loss, claim, damage, liability or action
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions which resulted in such loss, claim,
damage, liability or action as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The parties agree that it would not be just
and equitable if contribution pursuant hereto were determined by PRO RATA
allocation or by any other method or allocation which does not take account of
the equitable considerations referred to herein. No Person guilty of fraudulent
misrepresentation shall be entitled to contribution from any Person.

                  SECTION 8. UNDERWRITING AGREEMENT.

                  Notwithstanding the provisions of Sections 4, 5, 6 and 7, to
the extent that the holders of Registrable Shares shall enter into an
underwriting or similar agreement, which agreement contains provisions covering
one or more issues addressed in such Sections, the provisions contained in such
agreement addressing such issue or issues shall control; PROVIDED, HOWEVER, that
any such agreement to which ActivCard is not a party shall not be binding upon
ActivCard. No holder may participate in any underwritten registration hereunder
unless such holder (a) agrees to sell such holders' securities on the basis
provided in any underwriting arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably and customarily required under the terms of such
underwriting arrangements.

                  SECTION 9. INFORMATION BY HOLDERS OF REGISTRABLE SHARES.

                  Each holder of Registrable Shares shall furnish to ActivCard
such written information regarding such Person and the distribution proposed by
such Person as ActivCard

<PAGE>

may reasonably request in writing and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
this Agreement.

<PAGE>

                  SECTION 10. EXCHANGE ACT COMPLIANCE.

                  From the Registration Date or such earlier date as a
registration statement filed by ActivCard pursuant to the Exchange Act relating
to any class of ActivCard's securities shall have become effective, ActivCard
shall comply with all of the reporting requirements of the Exchange Act
applicable to it and shall comply with all other public information reporting
requirements of the Commission which are conditions to the availability of Rule
144 for the sale of the Common Stock. ActivCard shall cooperate with each holder
of Registrable Shares in supplying such information as may be necessary for such
holder to complete and file any information reporting forms presently or
hereafter required by the Commission as a condition to the availability of Rule
144.

                  SECTION 11.  NO-ACTION LETTER OR OPINION OF COUNSEL
IN LIEU OF REGISTRATION.

                  Notwithstanding anything in this Agreement in the contrary, if
at any time after the date of ActivCard's initial public offering of its
securities under the Securities Act ActivCard shall have obtained from the
Commission a "no-action" letter in which the Commission has indicated that it
will take no action if, without registration under the Securities Act, any
holder disposes of Registrable Shares covered by any request for registration
made under this Agreement in the manner in which such holder proposes to dispose
of the Registrable Shares included in such request, or if in the opinion of
counsel for ActivCard concurred in by counsel for such holder no registration
under the Securities Act is required in connection with such disposition, the
Registrable Shares included in such request shall not be eligible for
registration under this Agreement; provided, however, with respect to any holder
who may deemed to be an "affiliate," as that term is defined under Rule 144, if,
notwithstanding the opinion of such counsel, the holder is unable to dispose of
all the Registrable Shares included in his request in the manner in which such
holder so proposes without registration, the Registrable Shares included in such
request shall be eligible for registration under this Agreement.

                  SECTION 12. TERMINATION.

                  All registration rights granted under this Agreement shall
terminate and be of no further force and effect upon the earlier of (i) two (2)
years after the Registration Date and (ii) the date on which all of the
Registrable Shares cease to be Registrable Shares hereunder.

                  SECTION 13. SUCCESSORS AND ASSIGNS.

                  This Agreement shall bind and inure to the benefit of
ActivCard and SCM Microsystems and, subject to Section 15, their respective
successors and assigns.

                  SECTION 14. ASSIGNMENT.

                  SCM Microsystems may assign its rights hereunder to any of its
affiliates to

<PAGE>

which it transfers Registrable Shares; PROVIDED, HOWEVER, that such transferee
shall, as a condition to the effectiveness of such assignment, be required to
execute a counterpart to this Agreement agreeing to be treated as a holder of
Registrable Shares whereupon such purchaser or transferee shall have the
benefits of, and shall be subject to the restrictions contained in, this
Agreement as if such transferee had originally been a party hereto; and
PROVIDED, FURTHER, that such transferee shall not be a competitor of ActivCard
(as reasonably determined by the Board of Directors of ActivCard).

                  SECTION 15. ENTIRE AGREEMENT.

                  This Agreement, the Stock Purchase Agreement and the other
writings referred to herein and therein or delivered pursuant hereto or thereto,
contain the entire agreement among SCM Microsystems, ActivCard and any other
parties to each of the foregoing with respect to the subject matter hereof and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.

                  SECTION 16. NOTICES.

                  (a) All notices, requests, consents and other communications
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in person or sent by telecopy,
nationally-recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter be designated in
writing by such party to the other parties:

                  (i)      if to ActivCard, to:

                           ActivCard S.A.
                           6531 Dumbarton Circle
                           Fremont, CA  94555
                           Telephone: (510) 574-0100
                           Telecopy: (510) 574-0128
                           Attention: George Wikle;

                           with a copy to:

                           Shearman & Sterling
                           599 Lexington Avenue
                           New York, NY 10022
                           Telephone: (212) 848-7620
                           Telecopy: (212) 848-7179
                           Attention: Richard B. Vilsoet;

<PAGE>

                  (ii)     if to SCM Microsystems, to:

                           SCM MicroSystems
                           131 Albright Way
                           Los Gatos, CA 95032
                           Telephone: (408) 370-488_
                           Telecopy:  [_______]
                           Attention: Chief Financial Officer;
 .

                           with a copy to:

                           Wilson Sonsini Goodrich & Rosati
                           650 Page Mill Road
                           Palo Alto, CA 94086
                           Telephone: (650) 493-9300
                           Telecopy: (650) 493-6811
                           Attention: Kurt Bermy

                  (b) All such notices, requests, consents and other
communications shall be deemed to have been delivered (a) in the case of
personal delivery or delivery by telecopy, on the date of such delivery, (b) in
the case of dispatch by nationally-recognized overnight courier, on the next
business day following such dispatch and (c) in the case of mailing, on the
third business day after the posting thereof.

                  SECTION 17. MODIFICATIONS; AMENDMENTS; WAIVERS.

                  The terms and provisions of this Agreement may not be modified
or amended, nor may any provision be waived, except pursuant to a writing
signed, in the case of an amendment or modification, by holders of more than 50%
of the Registrable Shares that are entitled to registration rights hereunder, or
in the case of a waiver, by the party against whom the waiver is to be
effective.

                  SECTION 18. COUNTERPARTS; FACSIMILE SIGNATURES.

                  This Agreement may be executed in any number of counterparts
(including by telecopy), and each such counterpart hereof shall be deemed to be
an original instrument, but all such counterparts together shall constitute but
one agreement.

                  SECTION 19. HEADINGS.

                  The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.

<PAGE>

                  SECTION 20. SEVERABILITY; GOVERNING LAW.

                  It is the desire and intent of the parties that the provisions
of this Agreement be enforced to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Agreement shall be adjudicated
by a court of competent jurisdiction to be invalid, prohibited or unenforceable
for any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of California applicable to
contracts made and to be performed wholly therein.

                  SECTION 21.  SURVIVAL.

                  The respective agreements, covenants, indemnities and other
statements set forth in Section 7 hereof shall remain in full force and effect,
regardless of any termination or cancellation of this Agreement.

                  IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.

                                 ActivCard S.A.

                                     By: /s/ GEORGE R. WIKLE
                                       ------------------------------
                                     Name:  George R. Wikle
                                     Title: Chief Financial Officer

                                 SCM MICROSYSTEMS, INC.

                                       By: /s/ STEVEN HUMPHREYS
                                          ------------------------------
                                       Name:  Steven Humphreys
                                       Title: Chairman

<PAGE>

The Parties agree to submit all disputes in connection with or arising out of
the validity, interpretation, performance, termination or annulment of this
Agreement to an accredited arbitrator satisfactory to both parties.

Executed at                 this 7th day of February, 2000 in two (2) original
copies.

For ACTIVCARD                          For SCM MICROSYSTEMS

/s/ GEORGE R. WIKLE                    /s/ STEVEN HUMPHREYS
-------------------------------        -----------------------------
Name:   George R. Wikle                Name:   Steven Humphreys
Title:  Chief Financial Officer        Title:  Chairman<PAGE>

LEASE AGREEMENT ENTERED INTO BY AND BETWEEN PARQUE INDUSTRIAL MEXICALI, S.A. DE
C.V., (HEREINAFTER REFERRED TO AS PIMSA), HEREIN REPRESENTED BY MR. EDUARDO
MANUEL MARTINEZ PALOMERA, PARTY OF THE FIRST PART, AND BY COASTCAST CORPORATION,
S.A., (HEREINAFTER REFERRED TO AS COMPANY), HEREIN REPRESENTED BY MR. WILLIAM
LAWRENCE OSBORN, PARTY OF THE SECOND PART, PURSUANT TO THE FOLLOWING RECITALS
AND CLAUSES:

                                R E C I T A L S

I.   PIMSA HEREBY DECLARES THAT:

     A.   IT IS A COMPANY ORGANIZED AND EXISTING UNDER THE MEXICAN GENERAL
CORPORATION LAW, AS PER PUBLIC INSTRUMENT NUMBER 20,032, EXECUTED BEFORE
ATTORNEY FERNANDO DIAZ CEBALLOS, NOTARY PUBLIC NUMBER 4 OF THE CITY OF MEXICALI,
BAJA CALIFORNIA, MEXICO.

     B.   EDUARDO MANUEL MARTINEZ PALOMERA IS ITS ATTORNEY-IN-FACT, AS IT
APPEARS IN PUBLIC INSTRUMENT NUMBER 31,019, VOLUME 569, EXECUTED ON NOVEMBER
26, 1997, BEFORE ATTORNEY FERNANDO DIAZ CEBALLOS, NOTARY PUBLIC NUMBER 4 OF
THE CITY OF MEXICALI, BAJA CALIFORNIA, MEXICO.

     C.   PIMSA'S REGISTRATION NUMBER AT THE FEDERAL REGISTRY OF TAXPAYERS IS:
PIM-790807-D96.

     D.   THE ADDRESS AT WHICH IT HAS ITS PRINCIPAL PLACE OF BUSINESS IS AVENIDA
GALAXIA NUMBER 18-B, PARQUE INDUSTRIAL MEXICALI I, MEXICALI, BAJA CALIFORNIA,
MEXICO.

     E.   PIMSA HAS DEVELOPED THE MEXICALI INDUSTRIAL PARK I AND THE MEXICALI
INDUSTRIAL PARK II, AND IS DEVELOPING THE MEXICALI INDUSTRIAL PARK III AND THE
MEXICALI INDUSTRIAL PARK IV. THE MEXICALI INDUSTRIAL PARK I, HEREINAFTER
REFERRED TO AS THE INDUSTRIAL PARK, IS MORE SPECIFICALLY SHOWN AND DESCRIBED ON
EXHIBIT "A", WHICH IS ATTACHED HERETO AND MADE A PART HEREOF.

     F. THE PARTIES DESIRE TO ENTER INTO A LEASE OF LOTS 3, 4, 5, 9 AND A
PORTION OF LOT 10 OF BLOCK 6, LOCATED IN THE MEXICALI INDUSTRIAL PARK I, AT
CALLE MARTE NUMBER 162, AND OF CERTAIN IMPROVEMENTS CONSTRUCTED ON THE LAND. THE
LAND AND PIMSA'S IMPROVEMENTS TOGETHER SHALL HEREINAFTER BE REFERRED TO AS THE
LEASED PROPERTY.

     G.   THAT IT HAS PREVIOUSLY APPLIED FOR AND OBTAINED FINANCIAL LOANS
THROUGH MEXICAN AND FOREIGN BANKING AND LENDING INSTITUTIONS, WITH WHICH FUNDS,
BUILDINGS AND IMPROVEMENTS LOCATED IN THE INDUSTRIAL JPARKS HAVE BEEN, ARE BEING
AND WILL BE CONSTRUCTED.

<PAGE>

                                                                               2

II.  COMPANY HEREBY DECLARES THAT:

     A.   IT IS A COMPANY ORGANIZED UNDER THE MEXICAN GENERAL CORPORATION LAW AS
PER PUBLIC INSTRUMENT NUMBER 28,658, VOLUME 478, EXECUTED ON JANUARY 26, 1994,
BEFORE ATTORNEY FERNANDO DIAZ CEBALLOS, NOTARY PUBLIC NUMBER 4 OF THE CITY OF
MEXICALI, BAJA CALIFORNIA, MEXICO.

     B.   MR. WILLIAM LAWRENCE OSBORN VERIFIES HIS CAPACITY AS GENERAL DIRECTOR
OF OPERATIONS AND GENERAL MANAGER OF COMPANY AS PER PUBLIC INSTRUMENT NUMBER
31,457, VOLUME 577, EXECUTED ON NOVEMBER 09, 1998, BEFORE ATTORNEY FERNANDO DIAZ
CEBALLOS, NOTARY PUBLIC NUMBER 4 OF THE CITY OF MEXICALI, BAJA CALIFORNIA,
MEXICO.

     C.   COMPANY'S REGISTRATION NUMBER AT THE FEDERAL REGISTRY OF TAXPAYERS IS:
CCO-821123-QA1.

     D.   THE ADDRESS AT WHICH IT HAS ITS PRINCIPAL PLACE OF BUSINESS IS CALLE
MERCURIO NUMBER 70, MEXICALI INDUSTRIAL PARK I, MEXICALI, BAJA CALIFORNIA,
MEXICO.

PURSUANT TO THE ABOVE, THE PARTIES AGREE AS FOLLOWS:

                                  C L A U S E S

I.   SCOPE OF LEASE AGREEMENT.

     ON THE EXPRESS TERMS AND CONDITIONS SET FORTH HEREINAFTER, THE SCOPE OF
THIS LEASE AGREEMENT IS AS FOLLOWS: PIMSA HEREBY LEASES TO COMPANY AND COMPANY
HEREBY LEASES FROM PIMSA THE LAND IN THE INDUSTRIAL PARK AS DESCRIBED ON EXHIBIT
"B", WHICH IS ATTACHED HERETO AND MADE A PART HEREOF, AND PIMSA'S IMPROVEMENTS
AS MORE SPECIFICALLY DESCRIBED HEREINAFTER IN THIS LEASE AGREEMENT.

II.  CONSTRUCTION BY PIMSA.

     A.   PIMSA HAS, AT ITS EXPENSE, CONSTRUCTED ON THE LAND CERTAIN
IMPROVEMENTS WHICH SHALL HEREINAFTER BE REFERRED TO AS PIMSA'S IMPROVEMENTS.
SAID PIMSA'S IMPROVEMENTS HAVE BEEN CONSTRUCTED IN ACCORDANCE WITH PLANS AND
SPECIFICATIONS WHICH HAVE BEEN APPROVED BY PIMSA AND COMPANY AND SUCH APPROVAL
IS HEREBY ACKNOWLEDGED BY THE PARTIES.

<PAGE>

                                                                               3

     B.   PIMSA HAS CONSTRUCTED ALL PIMSA'S IMPROVEMENTS IN ACCORDANCE WITH
ALL LAWS, ORDINANCES, REGULATIONS, AND ORDERS OF GOVERNMENTAL AUTHORITIES,
AND INDUSTRIAL PARK REGULATIONS WHICH ARE ATTACHED HERETO AS EXHIBIT "C". THE
TERM "IMPROVEMENTS" SHALL, DEPENDING ON THE CONTEXT, REFER TO EITHER "PIMSA'S
IMPROVEMENTS", "COMPANY'S IMPROVEMENTS" OR BOTH. THE TERM "COMPANY'S
IMPROVEMENTS" SHALL REFER TO THOSE IMPROVEMENTS IDENTIFIED IN PARAGRAPH
III.A. BELOW.

     C.   THE LEASED PROPERTY IS CONSIDERED READY FOR OCCUPANCY.

     D.   UPON PRIOR WRITTEN CONSENT OF PIMSA, COMPANY MAY AT ANY TIME PRIOR TO
THE COMMENCEMENT OF THE TERM HEREOF, AT ITS SOLE RISK, ENTER UPON AND INSTALL
SUCH TRADE FIXTURES AND EQUIPMENT IN THE LEASED PROPERTY AS IT MAY ELECT;
PROVIDED, HOWEVER THAT, (I) COMPANY SHALL PROVIDE EVIDENCE OF INSURANCE
SATISFACTORY TO PIMSA.

III. INSTALLATIONS BY COMPANY.

     A.   COMPANY MAY, AT ITS EXPENSE, INSTALL ON THE LEASED PROPERTY, SUCH
TRADE FIXTURES, EQUIPMENT AND FURNITURE AS IT MAY DEEM NECESSARY; PROVIDED
THAT SUCH ITEMS ARE INSTALLED AND ARE REMOVABLE WITHOUT DAMAGE TO THE
STRUCTURAL INTEGRITY OF PIMSA'S IMPROVEMENTS. SAID TRADE FIXTURES, EQUIPMENT
AND FURNITURE SHALL REMAIN COMPANY'S PROPERTY AND UNLESS COMPANY IS IN
DEFAULT HEREUNDER, SHALL BE REMOVED BY COMPANY ON OR BEFORE THE EXPIRATION
DATE OF THE TERM HEREOF. COMPANY MAY ALSO INSTALL TEMPORARY IMPROVEMENTS IN
THE INTERIOR OF PIMSA'S IMPROVEMENTS UPON THE LEASED PROPERTY PROVIDED THAT
SUCH COMPANY'S IMPROVEMENTS ARE INSTALLED AND ARE REMOVABLE WITHOUT DAMAGE TO
THE STRUCTURE OF THE PIMSA'S IMPROVEMENTS. SUCH COMPANY'S IMPROVEMENTS SHALL
REMAIN PROPERTY OF COMPANY AND, UNLESS COMPANY IS IN DEFAULT HEREUNDER, SHALL
BE REMOVED BY COMPANY UPON EXPIRATION OF THE TERM HEREOF OR EARLIER
TERMINATION OF THIS LEASE. COMPANY SHALL REPAIR, AT ITS SOLE EXPENSE, ALL
DAMAGE CAUSED BY THE INSTALLATION OR REMOVAL OF TRADE FIXTURES, EQUIPMENT,
FURNITURE OR TEMPORARY COMPANY'S IMPROVEMENTS, REASONABLE WEAR AND TEAR
EXCEPTED.

     B.   COMPANY SHALL PERFORM ALL INSTALLATIONS IN ACCORDANCE WITH ALL LAWS,
ORDINANCES, REGULATIONS, ORDERS OF GOVERNMENTAL AUTHORITIES, AND THE INDUSTRIAL
PARK REGULATIONS WHICH ARE ATTACHED HERETO AS EXHIBIT "C".

<PAGE>

                                                                               4

IV.  LEASE TERM AND COMMENCEMENT DATE.

     A.   LEASE AGREEMENT. THIS LEASE AGREEMENT SHALL BE EFFECTIVE FROM THE
COMMENCEMENT DATE UNTIL THE SAME IS TERMINATED AS PROVIDED HEREINAFTER, THE
COMPLETE PERIOD OF TENANCY BEING REFERRED TO HEREIN AS THE "LEASE TERM".

     B.   INITIAL LEASE TERM. THE INITIAL TERM OF THIS LEASE ("INITIAL TERM")
SHALL COMMENCE ON FEBRUARY 01, 2000 ("COMMENCEMENT DATE") AND SHALL END ON THE
LAST DAY OF THE SEVENTY SEVENTH (77TH) CONSECUTIVE MONTH (JUNE 30, 2006).

     C.   LEASE YEAR. THE TERM "LEASE YEAR" AS USED HEREIN, SHALL MEAN A PERIOD
OF TWELVE (12) CONSECUTIVE FULL CALENDAR MONTHS. THE FIRST LEASE YEAR SHALL
BEGIN ON THE COMMENCEMENT DATE OF THE TERM HEREOF, IF THE COMMENCEMENT DATE OF
THE TERM HEREOF SHALL OCCUR ON THE FIRST (1ST) DAY OF A CALENDAR MONTH; IF NOT
THEN THE FIRST LEASE YEAR SHALL COMMENCE UPON THE FIRST (1ST) DAY OF THE
CALENDAR MONTH NEXT FOLLOWING THE COMMENCEMENT DATE OF THE TERM HEREOF. EACH
SUCCEEDING LEASE YEAR SHALL COMMENCE UPON THE ANNIVERSARY DATE OF THE FIRST
LEASE YEAR.

     D.   OPTION TO RENEW. COMPANY SHALL HAVE THE RIGHT TO EXTEND THE TERM OF
THIS LEASE AGREEMENT UPON THE TERMS, CONDITIONS AND RENTALS SET FORTH HEREIN,
FOR ONE (1) ADDITIONAL PERIOD OF FIVE (5) YEARS, ("RENEWAL TERMS"), BY GIVING
WRITTEN NOTICE TO PIMSA NOT LESS THAN SIX (6) MONTHS PRIOR TO THE EXPIRATION OF
THE INITIAL TERM OF THIS LEASE AGREEMENT, SO LONG AS COMPANY IS NOT THEN IN
DEFAULT HEREUNDER.

V.   RENT

     A.   INITIAL TERM. AS MINIMUM MONTHLY RENT FOR THE LEASE OF THE LEASED
PROPERTY DURING THE LEASE TERM HEREOF, COMPANY SHALL PAY TO PIMSA AT THE
ADDRESS OF PIMSA STATED ABOVE, THE MONTHLY SUM IN PESOS, MEXICAN CURRENCY, EQUAL
TO THE MONTHLY PAYMENTS IN DOLLARS, UNITED STATES CURRENCY, PAYABLE AS FOLLOWS:

          1.   $29,682.00 DOLLARS, UNITED STATES CURRENCY, (TWENTY NINE THOUSAND
SIX HUNDRED EIGHTY TWO DOLLARS 00/100, UNITED STATES CURRENCY), UPON THE
EXECUTION OF THIS CONTRACT WHICH SUM SHALL BE APPLIED TO THE LAST THREE (3)
MONTHS OF THE INITIAL TERM.

          2.   SEVENTY FOUR (74) EQUAL MONTHLY PAYMENTS OF $9,894.00 DOLLARS
(NINE THOUSAND EIGHT HUNDRED NINETY FOUR DOLLARS 00/100, UNITED STATES
CURRENCY), EACH PAYABLE IN ADVANCE ON THE FIRST (1ST) DAY OF EACH MONTH DURING
THE INITIAL TERM, COMMENCING ON THE FIRST (1ST) MONTH OF THE INITIAL TERM.

<PAGE>

                                                                               5

          3.   INCREASE OF MONTHLY RENT COMMENCING ON THE THIRD LEASE YEAR. ON
THE FIRST (1ST) DAY OF THE THIRD LEASE YEAR THE MONTHLY RENT SHALL BE INCREASED
BY AN AMOUNT WHICH IS EQUAL TO THE PRODUCT OF:

               a.   THE MONTHLY RENT THEN BEING PAID FOR THE IMMEDIATELY
PRECEDING LEASE YEAR, IN ACCORDANCE TO CLAUSE V.A.2., HEREINABOVE, MULTIPLIED BY

               b.   THE PERCENTAGE INCREASE IN THE INDEX (AS HEREINAFTER
DEFINED) DURING THE IMMEDIATELY PRECEDING LEASE YEAR.

                    1)   MAXIMUM RENT INCREASE; NO DECREASE. NOTWITHSTANDING
ANYTHING HEREIN CONTAINED TO THE CONTRARY, THE MONTHLY RENT FOR THE THIRD,
FOURTH AND FIFTH LEASE YEARS SHALL NOT BE INCREASED BY AN AMOUNT GREATER THAN
TEN PERCENT (10%) OF THE RENT FOR THE IMMEDIATELY PRECEDING MONTH. IN NO EVENT
SHALL THE MONTHLY RENT FOR THE THIRD, FOURTH AND FIFTH LEASE YEARS BE DECREASED
BELOW THE MONTHLY RENT FOR THE IMMEDIATELY PRECEDING LEASE YEAR.

                    2)   INDEX DEFINED. THE TERM "INDEX" SHALL MEAN THE UNITED
STATES BUREAU OF LABOR STATISTICS CONSUMER PRICE INDEX FOR ALL URBAN CONSUMERS
(ALL ITEMS, LOS ANGELES-RIVERSIDE-ORANGE COUNTY, CALIFORNIA AREA,
1982-1984=100).

                         IF THE COMPILATION OR PUBLICATION OF THE INDEX IS
TRANSFERRED TO ANY OTHER DEPARTMENT, BUREAU OR AGENCY OF THE UNITED STATES
GOVERNMENT OR IS DISCONTINUED, THEN THE INDEX MOST SIMILAR TO THE INDEX SHALL
BE USED TO CALCULATE THE RENT INCREASES PROVIDED FOR HEREIN. IF PIMSA AND
COMPANY CANNOT AGREE ON A SIMILAR ALTERNATE INDEX, THEN THE MATTER SHALL BE
SUBMITTED FOR DECISION TO THE AMERICAN ARBITRATION ASSOCIATION IN ACCORDANCE
WITH THE THEN RULES OF SUCH ASSOCIATION, AND THE DECISION OF THE ARBITRATORS
SHALL BE BINDING UPON THE PARTIES. THE COST OF SUCH ARBITRATION SHALL BE
DIVIDED EQUALLY BETWEEN PIMSA AND COMPANY.

     B.   ADDITIONAL RENT. WITH THE EXCEPTION OF INCOME TAX IMPOSED UPON PIMSA,
AND ANY TAX ASSOCIATED WITH THE SALE OR TRANSFER OF THE LEASED PROPERTY OR
PIMSA'S IMPROVEMENTS, WHICH SHALL BE BORNE BY PIMSA, COMPANY WILL PAY TO PIMSA,
AS ADDITIONAL RENT, AN AMOUNT EQUAL TO THE SUM OF ALL TAXES AND ASSESSMENTS OF
EVERY KIND WHICH ARE OR MAY BE AT ANY TIME DURING THE LEASE TERM, LEVIED AGAINST
THE LEASED PROPERTY OR THE LEASE AGREEMENT, INCLUDING BUT NOT LIMITED TO GROSS
SALES TAX, VALUE ADDED TAX OR STAMP TAX, PROPERTY TAX AND ALL SUCH TAXES AND
ASSESSMENTS, LEVIED BY ANY FEDERAL, STATE OR

<PAGE>
                                                                               6

MUNICIPAL GOVERNMENT, OR ANY GOVERNMENTAL AUTHORITY. ALL SUCH TAXES AND
ASSESSMENTS SHALL BE PAID BY PIMSA AND REIMBURSED BY COMPANY WITHIN TEN (10)
DAYS AFTER THE RECEIPT SHOWING THE PAYMENT THEREOF IS PRESENTED TO COMPANY BY
PIMSA.

          IN CALCULATING THE AMOUNT OF COMPANY'S REIMBURSEMENT, ALL TAXES WHICH
SHALL BECOME DUE FOR THE FIRST AND LAST YEARS OF THE LEASE TERM SHALL BE
APPORTIONED PRORATA BETWEEN PIMSA AND COMPANY IN ACCORDANCE WITH THE RESPECTIVE
NUMBER OF MONTHS DURING WHICH EACH PARTY SHALL BE IN POSSESSION OF THE LEASED
PROPERTY.

     C.   RENEWAL TERMS.

          1.   GRANT OF OPTION AND MANNER OF EXERCISE. COMPANY SHALL HAVE THE
OPTION TO EXTEND THE TERM OF THIS LEASE FOR ONE (1) PERIOD OF FIVE (5) YEARS,
(THE "EXTENDED TERM"). COMPANY SHALL GIVE WRITTEN NOTICE TO PIMSA NOT LESS THAN
SIX (6) MONTHS PRIOR TO THE EXPIRATION OF THE INITIAL TERM, IF COMPANY ELECTS TO
EXERCISE THE OPTION TO EXTEND GRANTED HEREIN.

          2.   RENT. THE MONTHLY RENT FOR EACH LEASE YEAR OF THE EXTENDED TERM
SHALL BE EQUAL TO THE MONTHLY RENT FOR THE IMMEDIATELY PRECEDING LEASE YEAR,
PLUS AN AMOUNT WHICH IS EQUAL TO THE PRODUCT OF:

               a.   THE MONTHLY RENT PAID BY COMPANY DURING THE IMMEDIATELY
PRECEDING LEASE YEAR, MULTIPLIED BY

               b.   THE PERCENTAGE INCREASE IN THE INDEX (AS HEREINABOVE
DEFINED) DURING THE IMMEDIATELY PRECEDING LEASE YEAR.

          NOTWITHSTANDING ANYTHING HEREIN CONTAINED TO THE CONTRARY, THE
MONTHLY RENT FOR EACH LEASE YEAR OF THE EXTENDED TERM SHALL NOT BE INCREASED BY
AN AMOUNT GREATER THAN TEN PERCENT (10%) OF THE MONTHLY RENT FOR THE IMMEDIATELY
PRECEDING LEASE YEAR. IN NO EVENT SHALL THE MONTHLY RENT FOR ANY LEASE YEAR OF
THE EXTENDED TERM BE DECREASED BELOW THE MONTHLY RENT FOR THE IMMEDIATELY
PRECEDING LEASE YEAR.

     D.   COMPANY WILL PAY THE RENT PROVIDED FOR IN THE ABOVE PARAGRAPH A. IN
PESOS, MEXICAN CURRENCY, AT THE RATE OF EXCHANGE EFFECTIVE IN THE FREE FOREIGN
MARKET ON THE DATE SUCH SUMS ARE PAID, OR IN DOLLARS, UNITED STATES CURRENCY, AS
LAW AND FOREIGN EXCHANGE RULES ALLOW, AS PIMSA MAY ELECT.

<PAGE>

                                                                             7

    THE FOREGOING WILL NOT BE CONSIDERED TO IMPEDE OR HINDER PIMSA'S
POSSIBILITIES AND RIGHTS UNDER CLAUSE XII TO NEGOTIATE OR ASSIGN THIS
AGREEMENT TO MEXICAN, UNITED STATES OR OTHER FOREIGN BANKING OR LENDING
INSTITUTIONS.

    E.  PRORATION.  THE RENT FOR ANY PARTIAL MONTH SHALL BE PRORATED.

    F.  LIQUIDATED DAMAGES.  IN THE EVENT THIS LEASE AGREEMENT IS TERMINATED
BY PIMSA DUE TO A DEFAULT OF COMPANY PRIOR TO OR DURING THE FIRST (1ST) SIX
(6) MONTHS OF THE LEASE TERM, PIMSA SHALL BE ENTITLED TO KEEP AND RETAIN AS
LIQUIDATED DAMAGES ALL SUMS PAID OR DEPOSITED BY COMPANY, AS PREPAID RENT OR
AS A SECURITY DEPOSIT, IN ADDITION TO ANY OTHER RIGHTS OF PIMSA PROVIDED FOR
HEREIN.

    G.  SETOFF.  THE PAYMENT OF ANY RENT DUE UNDER THIS LEASE SHALL NOT BE
WITHHELD OR REDUCED FOR ANY REASON WHATSOEVER, AND COMPANY AGREES TO ASSERT
ANY CLAIM, DEMAND, OR OTHER RIGHT AGAINST PIMSA ONLY BY AN INDEPENDENT
PROCEEDING.

VI.  USE.

    THE LEASED PROPERTY SHALL BE USED AND OCCUPIED FOR ANY LAWFUL INDUSTRIAL
PURPOSE NOT IN VIOLATION OF THE INDUSTRIAL PARK REGULATIONS ATTACHED HERETO
AS EXHIBIT "C". COMPANY SHALL PROMPTLY AND ADEQUATELY COMPLY WITH ALL LAWS,
ORDINANCES AND ORDERS OF ALL GOVERNMENTAL AUTHORITIES AFFECTING THE LEASED
PROPERTY, AND ITS CLEANLINESS, SAFETY AND LABOR FACILITIES APPLICABLE TO THE
COMPANY'S USE OF THE LEASED PROPERTY. COMPANY SHALL NOT PERFORM OR OMIT ANY
ACTS THAT MAY DAMAGE THE LEASED PROPERTY, OR BE A NUISANCE, OR MENACE TO
OTHER OCCUPANTS OF THE INDUSTRIAL PARK.

VII.  INSURANCE.

    A.  COMPREHENSIVE LIABILITY INSURANCE.  DURING THE LEASE TERM,
COMPANY SHALL, AT ITS OWN EXPENSE, OBTAIN AND MAINTAIN IN FULL FORCE A POLICY
OF COMPREHENSIVE LIABILITY INSURANCE INCLUDING PROPERTY DAMAGE, THAT INSURES
COMPANY AND PIMSA (AND SUCH OTHER AGENTS OR EMPLOYEES OF PIMSA, PIMSA'S
SUBSIDIARIES OR AFFILIATES, OR PIMSA'S ASSIGNEES OR ANY NOMINEE OF PIMSA
HOLDING ANY INTEREST IN THE LEASED PROPERTY, INCLUDING WITHOUT LIMITATION,
THE HOLDER OF ANY MORTGAGE ENCUMBERING THE LEASED PROPERTY) AGAINST LIABILITY
FOR INJURY TO PERSONS AND PROPERTY AND FOR DEATH OF ANY PERSONS OCCURRING IN
OR ABOUT THE LEASED PROPERTY, THE LIABILITY TO SUCH INSURANCE SHALL BE IN THE
AMOUNT OF $100,000.00 (ONE HUNDRED THOUSAND DOLLARS 00/100, UNITED STATES
CURRENCY).

<PAGE>
                                                                             8

    B.  FIRE AND OTHER INSURANCE.  DURING THE LEASE TERM, COMPANY AT ITS SOLE
EXPENSE, SHALL OBTAIN AND MAINTAIN IN FULL FORCE, IN THE AMOUNT OF
$720,000.00 DOLLARS (SEVEN HUNDRED TWENTY THOUSAND DOLLARS 00/100, UNITED
STATES CURRENCY), OR AS MODIFIED HEREIN, A POLICY OR POLICIES OF INSURANCE
FOR FIRE, LIGHTNING, EXPLOSION, FALLING AIRCRAFT, SMOKE, WINDSTORM,
EARTHQUAKE, HAIL, VEHICLE DAMAGE, VOLCANIC ERUPTION, STRIKES, CIVIL
COMMOTION, VANDALISM, RIOTS, MALICIOUS MISCHIEF, DEBRIS REMOVAL, STEAM BOILER
OR PRESSURE OBJECT OR MACHINERY BREAKAGE IF APPLICABLE, AND FLOOD INSURANCE,
ON ALL THE LEASED PROPERTY, INCLUDING BUT NOT LIMITED TO THE SHELL BUILDING
AND INTERIOR FIT-UP. COMPANY SHALL ALSO OBTAIN AND MAINTAIN ANNUAL RENTAL
INSURANCE IN THE AMOUNT OF THE ANNUAL RENT PROVIDED FOR HEREIN IN FAVOR OF
PIMSA. COMPANY SHALL BE RESPONSIBLE FOR MAINTAINING INSURANCE ON ALL OF
COMPANY'S OWN PROPERTY. EXCEPT FOR INSURANCE UPON COMPANY'S PROPERTY, PIMSA
OR ITS APPOINTEE SHALL BE NAMED THE COMPANY'S BENEFICIARY OF ANY AND ALL
PROCEEDS FROM ANY SUCH POLICY OR POLICIES, AS THEIR INTERESTS MAY APPEAR.

    C.  FORM AND DELIVERY OF POLICIES.  EACH INSURANCE POLICY REFERRED TO IN
THE PRECEDING PARAGRAPHS SHALL BE IN A FORM APPROVED BY THE DEPARTMENT OF
FINANCE AND PUBLIC CREDIT AND WRITTEN WITH ONE OR MORE COMPANIES LICENSED TO
DO INSURANCE IN MEXICALI, BAJA CALIFORNIA, MEXICO, AND SHALL PROVIDE THAT IT
SHALL NOT BE SUBJECT TO CANCELLATION OR CHANGE EXCEPT AFTER AT LEAST THIRTY
(30) DAYS PRIOR WRITTEN NOTICE TO PIMSA. THE POLICIES, OR DULY EXECUTED
CERTIFICATES FOR THEM, TOGETHER WITH COPIES OF RECEIPTS FOR PAYMENT OF THE
PREMIUMS THEREOF, SHALL BE DELIVERED TO PIMSA PRIOR TO THE COMMENCEMENT DATE
OF THE LEASE TERM, AS PROVIDED IN CLAUSE IV HEREOF; ALL DOCUMENTS VERIFYING
THE RENEWAL OF SUCH POLICIES SHALL BE DELIVERED TO PIMSA AT LEAST THIRTY (30)
DAYS PRIOR TO THE EXPIRATION OF THE TERM OF SUCH COVERAGE. PRIOR TO THE
COMMENCEMENT DATE OF THE LEASE TERM, EACH PARTY SHALL PROCURE AND MAINTAIN
SUCH INSURANCE COVERING ITS OWN LIABILITY AND PROPERTY AS EACH DEEMS
APPROPRIATE.

    D.  ADDITIONAL INSURANCE.  COMPANY SHALL OBTAIN AND MAINTAIN IN FULL
FORCE AND EFFECT SUCH ADDITIONAL AMOUNTS OF INSURANCE AS MAY BE REQUIRED BY
PIMSA, FROM TIME TO TIME, IN ACCORDANCE WITH THE PROVISIONS OF THIS CLAUSE
VII, AND IN ORDER TO ADEQUATELY AND PROPERLY INSURE PIMSA OF AND FOR THE THEN
CURRENT REPLACEMENT VALUE OF THE LEASED PROPERTY.

<PAGE>
                                                                             9

    E.  WAIVER OF SUBROGATION.  THE PARTIES RELEASE EACH OTHER, AND THEIR
RESPECTIVE AUTHORIZED REPRESENTATIVES, FROM ANY CLAIMS FOR DAMAGE TO ANY
PERSON OR TO THE PREMISES AND TO THE FIXTURES, PERSONAL PROPERTY, TENANT'S
IMPROVEMENTS, AND ALTERATIONS OF EITHER PIMSA OR COMPANY IN OR ON THE
PREMISES THAT ARE CAUSED BY OR RESULT FROM RISKS INSURED AGAINST UNDER ANY
INSURANCE POLICIES CARRIED BY THE PARTIES AND IN FORCE AT THE TIME OF ANY
SUCH DAMAGE. IF EITHER PARTY PURCHASES INSURANCE, THE POLICY SHALL PROVIDE
THAT THE INSURANCE COMPANY WAIVES ALL RIGHT OF RECOVERY BY WAY OF SUBROGATION
AGAINST EITHER PARTY IN CONNECTION WITH ANY DAMAGE COVERED BY ANY POLICY. IF
A PARTY HERETO CANNOT OBTAIN SUCH WAIVER OF SUBROGATION THROUGH REASONABLE
EFFORTS, IT SHALL OBTAIN INSURANCE NAMING THE OTHER PARTY AS A COINSURED
UNDER ITS POLICY IN ORDER TO ACCOMPLISH THE INTENT OF THIS PROVISION.

VIII.  TAXES AND ASSESSMENTS.

    COMPANY AGREES TO PAY ALL TAXES AND ASSESSMENTS OF EVERY KIND LEVIED UPON
ANY AND ALL PERSONAL PROPERTY OF COMPANY, ITS SUCCESSORS AND ASSIGNS, WHETHER
SAME SHALL BE OR MAY BECOME A LIEN UPON THE LEASED PROPERTY. ALL SUCH TAXES
AND ASSESSMENTS SHALL BE PAID BY COMPANY BEFORE THE SAME BECOME DELINQUENT.
IN THE EVENT THAT THIS CONTRACT IS RECORDED AT THE PUBLIC REGISTRY OF
PROPERTY, COMPANY SHALL PAY ALL COSTS OF SUCH RECORDATION, INCLUDING, BUT NOT
LIMITED TO, NOTARY FEES, CHARGES, TAXES AND STAMPS REQUIRED IN CONNECTION
THEREWITH.

IX.  REPAIRS, ALTERATIONS AND IMPROVEMENTS.

    A.  PIMSA

         1.  AFTER RECEIPT OF WRITTEN NOTICE FROM COMPANY, PIMSA AT ITS
EXPENSE, SHALL WITH THE MINIMUM INTERFERENCE WITH COMPANY'S NORMAL USE OF THE
LEASED PROPERTY, DILIGENTLY PROCEED TO REPAIR ANY STRUCTURAL DEFECTS IN THE
ROOF OR EXTERIOR BEARING WALLS, EXCEPTING NORMAL USE, WEAR AND DAMAGE. PIMSA
SHALL NOT BE LIABLE FOR ANY DAMAGES, AND SHALL NOT BE OBLIGATED TO MAKE ANY
REPAIRS, CAUSED BY ANY NEGLIGENT ACT OR OMISSIONS OF COMPANY, ITS EMPLOYEES,
AGENTS, INVITEES, OR CONTRACTORS. PIMSA SHALL HAVE NO OTHER OBLIGATION TO
MAINTAIN OR REPAIR ANY OTHER PORTION OF THE LEASED PROPERTY. PIMSA SHALL NOT
BE LIABLE TO COMPANY FOR ANY DAMAGE RESULTING FROM PIMSA'S FAILURE TO MAKE
ANY REPAIRS, UNLESS COMPANY HAS NOTIFIED PIMSA OF THE NEED FOR SUCH REPAIRS,
AND PIMSA HAS FAILED TO COMMENCE SUCH REPAIRS WITHIN TEN (10) DAYS AFTER SAID
NOTICE HAS BEEN GIVEN AND FAILED TO COMPLETE THE SAME IN A DILIGENT MANNER.

<PAGE>                                                                      10

         2.  IF PIMSA FAILS TO MAKE THE REPAIRS DESCRIBED IN CLAUSE IX.A.,
COMPANY MAY, BUT SHALL NOT BE REQUIRED TO, MAKE OR CAUSE SUCH REPAIRS, TO BE
MADE, AND PIMSA SHALL, ON DEMAND, IMMEDIATELY PAY TO COMPANY THE ACTUAL COST
OF THE REPAIRS.

    B.  COMPANY

         1.  COMPANY, AT ITS EXPENSE, SHALL KEEP AND MAINTAIN IN GOOD ORDER
AND REPAIR, EXCEPT FOR NORMAL USE AND WEAR, ALL OF THE LEASED PROPERTY,
EXCEPT FOR THOSE OBLIGATIONS OF PIMSA STATED IN PARAGRAPH A.1., OF THIS
CLAUSE, INCLUDING BUT NOT LIMITED TO, ALL PLUMBING, SEWAGE, AND OTHER UTILITY
FACILITIES THAT ARE WITHIN THE LEASED PROPERTY, AS WELL AS FIXTURES,
PARTITIONS, WALLS (INTERIOR AND EXTERIOR, INCLUDING PAINTING AS OFTEN AS
NECESSARY), FLOORS, CEILINGS, SIGNS, ALL AIR CONDITIONING, HEATING AND
SIMILAR EQUIPMENT, DOORS, WINDOW, PLATE GLASS AND ALL OTHER REPAIRS OF EVERY
KIND AND CHARACTER TO THE LEASED PROPERTY. COMPANY AT ITS EXPENSE, SHALL
REPAIR ALL LEAKS EXCEPT THOSE CAUSED BY STRUCTURAL DEFECTS. THE PLUMBLING
FACILITIES SHALL NOT BE USED FOR ANY OTHER PURPOSE THAN THAT FOR WHICH THEY
WERE CONSTRUCTED. THE EXPENSE OF ANY BREAKAGE, STOPPAGE OR DAMAGE RESULTING
FROM A VIOLATION OF THIS PROVISION, SHALL BE BORNE BY COMPANY. COMPANY SHALL
STORE ALL TRASH ONLY TEMPORARILY WITHING THE LEASED PROPERTY, AND SHALL
ARRANGE FOR THE REGULAR PICK UP OF TRASH AT COMPANY'S EXPENSE. COMPANY SHALL
NOT BURN ANY TRASH OF ANY KIND IN OR ABOUT THE LEASED PROPERTY OR THE
INDUSTRIAL PARK.

         2.  COMPANY SHALL REQUIRE WRITTEN CONSENT TO MAKE ANY ALTERATION,
IMPROVEMENT OR ADDITION TO THE EXTERIOR WALLS AND ROOF OF THE LEASED PROPERTY
WITH A  COST EXCEEDING $5,000.00 (FIVE THOUSAND DOLLARS 00/100, UNITED
STATES CURRENCY; AND COMPANY SHALL NOT DAMAGE ANY FLOORS, WALLS, CEILINGS,
PARTITIONS, OR ANY WOOD, STONE, OR IRONWORK ON OR ABOUT THE LEASED PROPERTY.

         3.  COMPANY SHALL KEEP THE LEASED PROPERTY FREE AND CLEAR OF ALL
ENCUMBRANCES AND LIENS ARISING OUT OF ACTS OR OMISSIONS OF COMPANY,
INCLUDING THOSE ARISING OUT OF ACTS OR CONSTRUCTION DONE OR ORDERED BY
COMPANY. HOWEVER, IF BY REASON OF ANY WORK PERFORMED, MATERIALS FURNISHED OR
OBLIGATIONS INCURRED BY COMPANY  WITH ANY THIRD PARTY, OR ANY OTHER ACT OR
OMISSION BY COMPANY, PIMSA IS MADE LIABLE OR INVOLVED IN LITIGATION, COMPANY
SHALL HOLD HARMLESS AND INDEMNIFY PIMSA INCLUDING ANY COSTS AND EXPENSES, AND
ATTORNEY'S FEES INCURRED BY REASON THEREOF. SHOULD COMPANY FAIL FULLY TO
DISCHARGE ANY SUCH ENCUMBRANCES OR LIENS WITHIN THIRTY (30) DAYS AFTER THE
DATE IT HAS BEEN INSTITUTED, OR

<PAGE>
                                                                            11

FAIL TO PROVIDE A BOND ACCEPTABLE TO PIMSA IN THE EVENT OF CONTEST, PIMSA, AT
ITS OPTION, MAY PAY ALL OR ANY PART THEREOF. IF PIMSA PAYS ANY SUCH LIEN OR
ENCUMBRANCES OR ANY PART THEREOF, COMPANY SHALL, ON DEMAND, IMMEDIATELY PAY
PIMSA THE AMOUNT SO PAID, TOGETHER WITH INTEREST AT THE RATE OF TWENTY
PERCENT (20%) PER ANNUM FROM THE DATE OF PAYMENT. NO LIEN OR ENCUMBRANCE OF
ANY CHARACTER WHATSOEVER CREATED BY AN ACT OR OMISSION BY COMPANY SHALL IN
ANY WAY ATTACH OR AFFECT THE RIGHTS OF PIMSA ON THE LEASED PROPERTY.

X.  UTILITY SERVICES.

    DURING THE TERM OF THIS LEASE AGREEMENT, COMPANY SHALL PROMPTLY PAY FOR
ANY AND ALL PUBLIC AND OTHER UTILITIES AND RELATED SERVICES FURNISHED TO THE
LEASED PROPERTY, INCLUDING BUT NOT LIMITED TO, WATER, GAS, ELECTRICITY AND
TELEPHONE CHARGES.

XI.  RIGHT-OF-WAY.

    PIMSA IS HEREBY GRANTED A RIGHT-OF-WAY UPON, ACROSS, OVER, AND UNDER THE
LEASED PROPERTY FOR INGRESS, EGRESS, INSTALLATIONS, REPLACING, REPAIRING AND
MAINTAINING ALL UTILITIES, INCLUDING BUT NOT LIMITED TO WATER, GAS,
TELEPHONES, AND ALL ELECTRICITY AND ANY TELEVISION OR RADIO ANTENNA SYSTEM
SERVING THE LEASED PROPERTY. BY VIRTUE OF THIS RIGHT-OF-WAY IT SHALL BE
EXPRESSLY PERMISSIBLE FOR THE PROVIDING ELECTRICAL AND/OR TELEPHONE COMPANY
TO ERECT AND MAINTAIN THE NECESSARY POLES AND OTHER NECESSARY EQUIPMENT ON
THE LEASED PROPERTY; PROVIDED THAT IN EXERCISING ANY RIGHT PIMSA MAY HAVE
UNDER THIS CLAUSE XI, PIMSA AGREES TO CAUSE ONLY A MINIMUM INTERFERENCE WITH
COMPANY'S USE AND POSSESSION OF THE LEASED PROPERTY.

XII.  ASSIGNMENT AND SUBLETTING.

    A.  COMPANY SHALL HAVE THE RIGHT, UPON PRIOR WRITTEN NOTICE TO PIMSA, TO
ASSIGN OR TRANSFER THIS LEASE AGREEMENT, OR ANY INTEREST THEREIN, OR PERMIT
THE USE OF THE LEASED PROPERTY BY ANY INDIVIDUAL, CORPORATION, OR ENTITY, OR
SUBLEASE ALL OR PART OF THE LEASED PROPERTY, PROVIDED, HOWEVER, THAT IN THE
EVENT OF ANY SUCH ASSIGNMENT, TRANSFER OR SUBLEASE, COMPANY AND ITS GUARANTOR
SHALL REMAIN LIABLE FOR ALL ITS OBLIGATIONS UNDER THE LEASE AGREEMENT.

    B.  PIMSA SHALL HAVE THE RIGHT TO ASSIGN AND REASSIGN, FROM TIME TO TIME,
ANY OR ALL OF THE RIGHTS AND OBLIGATIONS OF PIMSA IN THIS LEASE AGREEMENT, OR
ANY INTEREST THEREIN, WITHOUT COMPANY'S CONSENT, PROVIDED THAT NO SUCH
ASSIGNMENT OR REASSIGNMENT SHALL IMPAIR ANY OF THE RIGHTS OF

<PAGE>

                                                                             12

COMPANY HEREIN, AND PROVIDED FURTHER, THAT PIMSA SHALL REMAIN LIABLE FOR ALL
OF ITS OBLIGATIONS UNDER THIS LEASE AGREEMENT. IN THE EVENT OF AN ASSIGNMENT
OR REASSIGNMENT, COMPANY SHALL NOT DIMINISH OR WITHHOLD ANY OF THE RENTS
PAYABLE HEREUNDER BY ASSERTING AGAINST SUCH ASSIGNEE ANY DEFENSE, SETOFF, OR
COUNTERCLAIMS WHICH COMPANY MAY HAVE AGAINST PIMSA OR ANY OTHER PERSON.
COMPANY HEREBY SPECIFICALLY WAIVES, WITH RESPECT TO WITHHOLDING OF RENT, ANY
PREVENTATIVE MEASURES TO GUARANTEE PAYMENT OF A CLAIM, AS PROVIDED BY THE
CODE OF CIVIL PROCEDURE.

XIII.  SUBORDINATION.

     DURING THE TERM OF THIS LEASE AGREEMENT, PIMSA SHALL HAVE THE RIGHT TO
ENCUMBER ITS INTEREST IN THE LEASED PROPERTY OR IN THIS LEASE AGREEMENT FOR
ANY PURPOSE IT DEEMS CONVENIENT, AND COMPANY SHALL AND HEREBY DOES
SUBORDINATE ITS INTEREST IN THIS LEASE AGREEMENT AND IN THE LEASED PROPERTY
TO SUCH ENCUMBRANCE. HOWEVER, IN THE EVENT SUCH ENCUMBRANCE IS FORECLOSED OR
JUDICIALLY ENFORCED, THE ONE WHO HOLDS THE ENCUMBRANCE SHALL AGREE TO HONOR
THIS LEASE AGREEMENT AND ACCEPT THE PERFORMANCE BY COMPANY OF ITS
OBLIGATIONS HEREUNDER. COMPANY SHALL EXECUTE ANY AGREEMENT WHICH MAY BE
REQUIRED BY PIMSA IN CONFIRMATION OF SUCH SUBORDINATION AND SUBMIT WHATEVER
PUBLIC FINANCIAL DATA MAY NORMALLY BE REQUESTED BY ANY TRUST, INSURANCE
COMPANY, BANK OR OTHER RECOGNIZED LENDING INSTITUTION.

     ONCE THAT PIMSA SHALL HAVE NOTIFIED COMPANY IN WRITING THAT IT HAS
ASSIGNED ITS INTEREST IN THIS LEASE AGREEMENT TO ANY LENDING INSTITUTION AS
SECURITY FOR A DEBT OR OTHER OBLIGATION OF PIMSA, PIMSA SHALL NOT HAVE THE
POWER TO AMEND THIS LEASE AGREEMENT SO AS TO REDUCE THE RENT, DECREASE THE
TERM OR MODIFY OR NEGATE ANY SUBSTANTIAL OBLIGATION OF COMPANY HEREUNDER, OR
TO ACCEPT A RESCISSION OF THIS CONTRACT, WITHOUT THE WRITTEN CONSENT OF SUCH
LENDING INSTITUTION. SUCH OBLIGATION SHALL CONTINUE UNTIL THE LENDING
INSTITUTION SHALL HAVE NOTIFIED COMPANY IN WRITING THAT SUCH ASSIGNMENT HAS
BEEN TERMINATED, ON THE UNDERSTANDING THAT IF PIMSA FAILS TO OBTAIN SUCH
LENDING INSTITUTION'S APPROVAL TO CARRY OUT THE FOREGOING, THE AMENDMENT OF
THE TERM ABOVE MENTIONED SHALL HAVE NO EFFECT WHATSOEVER AS AGAINST SUCH
LENDING INSTITUTION.

     IN ADDITION, IF THE LENDING INSTITUTION SHOULD NOTIFY COMPANY IN WRITING
REQUIRING THE PAYMENT OF RENTS HEREUNDER DIRECTLY TO SUCH LENDING INSTITUTION
OR ITS REPRESENTATIVE, THEN COMPANY SHALL BE OBLIGATED TO PAY TO SUCH LENDING
INSTITUTION OR ITS REPRESENTATIVE EACH SUBSEQUENT MONTHLY RENTAL COMING DUE
UNDER THIS LEASE AGREEMENT (TOGETHER WITH

<PAGE>

                                                                             13

ANY UNPAID RENT THEN PAST DUE), UNTIL THE DATE ON WHICH SUCH LENDING
INSTITUTION NOTIFIES COMPANY AUTHORIZING PAYMENT OF RENT TO PIMSA OR OTHER
PARTY ENTITLED THERETO. COMPANY UNDERSTANDS AND AGREES THAT EXCEPT FOR THE
ADVANCED RENTAL PAYMENTS PROVIDED FOR IN PARAGRAPH A.1. OF CLAUSE V OF THIS
LEASE AGREEMENT, PIMSA MAY NOT COLLECT ANY RENT MORE THAN ONE (1) MONTH IN
ADVANCE AND COMPANY, AT THE REQUEST OF PIMSA, SHALL PROVIDE A STATEMENT THAT
NO SUCH ADVANCED PAYMENT HAS BEEN MADE; SUCH DOCUMENT SHALL BE BINDING UPON
COMPANY AS AGAINST THE LENDING INSTITUTION TO WHICH THIS LEASE AGREEMENT MAY
BE ASSIGNED. IN ADDITION, THE LENDING INSTITUTION SHALL NOT BE BOUND TO
RECOGNIZE THOSE PAYMENTS MADE TO PIMSA AFTER THE COMPANY HAS RECEIVED NOTICE
REQUIRING PAYMENTS TO BE MADE TO SUCH LENDING INSTITUTIONS.

XIV.  ACCESS TO LEASED PROPERTY.

     WITHOUT UNDUE INTERFERENCE TO COMPANY'S OPERATION, PIMSA OR ITS
AUTHORIZED REPRESENTATIVE SHALL HAVE THE RIGHT TO ENTER THE LEASED PROPERTY
DURING ALL COMPANY BUSINESS HOURS, AND IN EMERGENCIES AT ALL TIMES, TO
INSPECT THE LEASED PROPERTY AND TO MAKE REPAIRS, ADDITIONS, OR ALTERATIONS TO
THE LEASED PROPERTY. FOR A PERIOD COMMENCING NINETY (90) DAYS PRIOR TO THE
TERMINATION OF THIS LEASE AGREEMENT, PIMSA SHALL HAVE ACCESS TO THE LEASED
PROPERTY FOR THE PURPOSE OF EXHIBITING IT TO PROSPECTIVE CLIENTS AND MAY POST
USUAL FOR SALE OR FOR LEASE SIGNS UPON THE LEASED PROPERTY. EXCEPT IN CASE OF
EMERGENCY, PIMSA SHALL GIVE NOTICE TO COMPANY BEFORE ENTERING THE LEASED
PROPERTY, AND COMPANY SHALL HAVE THE RIGHT TO ACCOMPANY ANY REPRESENTATIVES
OF PIMSA AND PROSPECTIVE CLIENTS.

XV.  DAMAGE OR DESTRUCTION.

     A.  TOTAL. IN THE EVENT THAT THE WHOLE OR A SUBSTANTIAL PART OF THE
LEASED PROPERTY IS DAMAGED OR DESTROYED BY FIRE, ACT OF NATURE, OR ANY OTHER
CAUSE, SO AS TO MAKE COMPANY UNABLE TO CONTINUE THE OPERATION OF ITS
BUSINESS, PIMSA SHALL, WITHIN FIFTEEN (15) DAYS FROM SUCH DESTRUCTION,
DETERMINE WHETHER THE LEASED PROPERTY CAN BE RESTORED WITHIN SIX (6) MONTHS,
AND NOTIFY COMPANY OF SAID DETERMINATION. IF PIMSA DETERMINES THAT THE LEASED
PROPERTY CANNOT BE RESTORED WITHIN SIX (6) MONTHS, EITHER PIMSA OR COMPANY
SHALL HAVE THE RIGHT AND OPTION TO IMMEDIATELY TERMINATE THIS LEASE
AGREEMENT, BY ADVISING THE OTHER THEREOF BY WRITTEN NOTICE. IF PIMSA
DETERMINES THAT THE LEASED PROPERTY CAN BE RESTORED WITHIN SAID SIX (6)
MONTHS, PIMSA SHALL, AT ITS OWN EXPENSE, TO THE EXTENT OF THE FUNDS AWARDED
TO PIMSA FROM THE PROCEEDS OF THE INSURANCE REQUIRED UNDER CLAUSE VII
HEREINABOVE,

<PAGE>

                                                                             14

PROCEED DILIGENTLY TO RECONSTRUCT PIMSA'S IMPROVEMENTS, AND IN SUCH EVENT,
PIMSA SHALL ACCEPT IN LIEU OF RENT DURING THE PERIOD WHEN COMPANY IS
SUBSTANTIALLY DEPRIVED OF THE USE OF THE LEASED PROPERTY ANY RENTAL INSURANCE
PROCEEDS WHICH MAY BE PAYABLE PURSUANT TO RENTAL INSURANCE PROVIDED FOR
HEREINABOVE.

     B.  PARTIAL.  IN THE EVENT THE SAID DAMAGE CAUSED TO THE LEASED PROPERTY
DOES NOT PREVENT COMPANY FROM CONTINUING THE NORMAL OPERATION OF ITS BUSINESS
ON THE LEASED PROPERTY, PIMSA AND COMPANY SHALL REPAIR SAID DAMAGE, EACH
PARTY RECONSTRUCTING THAT PORTION OF THE BUILDING AND INTERIOR INSTALLATIONS
FOR WHICH IT WAS RESPONSIBLE DURING THE ORIGINAL CONSTRUCTION; PROVIDED THAT
EXCLUDING DAMAGE OR DESTRUCTION TO THE PARKING LOT DURING THE PERIOD REQUIRED
FOR SUCH REPAIR WORK OF PIMSA'S IMPROVEMENTS OR THE IMPROVEMENTS, RENTAL
PAYABLE HEREUNDER BY COMPANY SHALL BE EQUITABLY PRORATED TO THE PROPORTIONED
INTERFERENCE WITH COMPANY'S USE AND POSSESSION OF THE LEASED PROPERTY
OCCASIONED BY SUCH DAMAGE AND REPAIR, AND IN SUCH EVENT, PIMSA SHALL ACCEPT
IN LIEU OF THE EQUITABLY PRORATED RENT PAYABLE HEREUNDER, DURING THE PERIOD
WHEN COMPANY IS PARTIALLY DEPRIVED OF THE USE AND POSSESSION OF THE LEASED
PROPERTY, ANY RENTAL INSURANCE PROCEEDS ATTRIBUTABLE TO RENT WHICH MAY BE
PAYABLE PURSUANT TO SAID INSURANCE PROVIDED FOR HEREINABOVE.

XVI.  LIMITATION OF LIABILITY.

     EXCEPT FOR INTENTIONAL OR NEGLIGENT ACTS OR OMISSIONS OF PIMSA, ITS
AGENTS OR EMPLOYEES, PIMSA SHALL NOT BE LIABLE TO COMPANY OR TO ANY OTHER
PERSON WHATSOEVER FOR ANY LOSS OR DAMAGE OF ANY KIND OR NATURE CAUSED BY THE
INTENTIONAL OR NEGLIGENT ACTS OR OMISSIONS OF COMPANY OR OTHER OCCUPANTS OF
THE INDUSTRIAL PARK OR OF ADJACENT PROPERTY, OR THE PUBLIC, OR OTHER CAUSES
BEYOND THE CONTROL OF PIMSA, INCLUDING BUT NOT LIMITED TO, ANY FAILURE TO
FURNISH, OR ANY INTERRUPTION OF ANY UTILITY OR OTHER SERVICES IN OR ABOUT THE
LEASED PROPERTY. COMPANY RECOGNIZES THAT ADDITIONS, REPLACEMENTS, AND REPAIRS
TO THE INDUSTRIAL PARK WILL BE MADE FROM TIME TO TIME, PROVIDED THAT THE SAME
SHALL NOT SUBSTANTIALLY INTERFERE WITH COMPANY'S USE AND ENJOYMENT OF THE
LEASED PROPERTY.

XVII.  INDEMNIFICATION.

     COMPANY AGREES TO INDEMNIFY AND SAVE PIMSA HARMLESS FROM ANY AND ALL
CLAIMS FOR DAMAGES OR LOSSES OF ANY NATURE WHATSOEVER, ARISING FROM NEGLIGENT
ACT OR OMISSION OF COMPANY OR ITS CONTRACTORS, LICENSEES, AGENTS, INVITEES,
OR EMPLOYEES, OR ARISING FROM ANY ACCIDENT, INJURY OR DAMAGE WHATSOEVER
CAUSED TO ANY PERSON OR PROPERTY OCCURRING IN OR ABOUT THE

<PAGE>

                                                                            15

LEASED PROPERTY, OR THE AREAS ADJOINING THE LEASED PROPERTY AND FROM AND
AGAINST ALL COSTS AND EXPENSES, INCLUDING ATTORNEYS' FEES, INCURRED THEREBY.

     PIMSA INDEMNIFIES AND HOLDS COMPANY HARMLESS FROM ANY INJURY OR DAMAGE
TO COMPANY OR ITS AGENTS OR EMPLOYEES AND FROM ANY AND ALL LIABILITY FOR
INJURY TO THIRD PERSONS OR DAMAGE TO THE PROPERTY OF THIRD PERSONS WHILE
LAWFULLY UPON THE LEASED PROPERTY OCCURRING BY REASON OF ANY NEGLIGENT ACT OR
OMISSION OF PIMSA, ITS CONTRACTORS, LICENSEES, INVITEES, AGENTS OR EMPLOYEES.

XVIII.  NOTICES.

     ALL NOTICES UNDER THIS LEASE AGREEMENT SHALL BE FORWARDED TO THE
ADDRESSES MENTIONED IN THE RECITALS ABOVE, WITH A COPY TO THE GUARANTOR OF
THIS LEASE AGREEMENT, OR SUCH OTHER ADDRESSES AS MAY FROM TIME TO TIME BE
FURNISHED BY THE PARTIES HERETO.  SAID NOTICES SHALL BE IN WRITING AND IF
MAILED, SHALL BE DEEMED GIVEN TEN (10) DAYS AFTER THE DATE OF MAILING
THEREOF. DUPLICATE NOTICES SHALL BE SENT BY CERTIFIED AIRMAIL, POSTAGE
PREPAID, TO SUCH ADDITIONAL ADDRESSES AS MAY FROM TIME TO TIME BE REQUESTED
IN WRITING BY THE PARTIES HERETO.

XIX.  COMPANY'S DEFAULT.

     A.  EACH OF THE FOLLOWING SHALL BE A DEFAULT OF COMPANY.

         1.  VACATION OR ABANDONMENT OF LEASED PROPERTY.

         2.  FAILURE TO PAY ANY INSTALLMENT OF RENT DUE AND PAYABLE HEREUNDER
UPON THE DATE WHEN SAID PAYMENT IS DUE, SAID FAILURE CONTINUING FOR A PERIOD
OF TEN (10) DAYS.

         3.  DEFAULT IN THE PERFORMANCE OF ANY OF COMPANY'S COVENANTS,
AGREEMENTS OR OBLIGATIONS HEREUNDER, SAID DEFAULT, EXCEPT DEFAULT IN THE
PAYMENT OF ANY INSTALLMENT OF RENT, CONTINUING FOR FIFTEEN (15) DAYS AFTER
WRITTEN NOTICE THEREOF IS GIVEN FROM PIMSA TO COMPANY;

         4.  A GENERAL ASSIGNMENT BY COMPANY FOR THE BENEFIT OF CREDITORS;

         5.  THE FILING OF A VOLUNTARY PETITION IN BANKRUPTCY BY COMPANY OR
THE FILING OF AN INVOLUNTARY PETITION BY COMPANY'S CREDITORS, SAID PETITION
REMAINING UNDISCHARGED FOR A PERIOD OF NINETY (90) DAYS.

<PAGE>

                                                                            16

         6.  THE APPOINTMENT OF A RECEIVER TO TAKE POSSESSION OF
SUBSTANTIALLY ALL OF COMPANY'S ASSETS OR OF THIS LEASEHOLD, SAID RECEIVERSHIP
REMAINING UNDISCHARGED FOR A PERIOD OF (90) DAYS.

         7.  ATTACHMENT, EXECUTION OR OTHER JUDICIAL SEIZURE OF SUBSTANTIALLY
ALL OF COMPANY'S ASSETS OR THIS LEASEHOLD, SUCH ATTACHMENT, EXECUTION OR
OTHER SEIZURE REMAINING UNDISMISSED OR UNDISCHARGED FOR A PERIOD OF NINETY
(90) DAYS AFTER THE LEVY HEREOF.

      B.  IN ADDITION TO THE ABOVE, EACH OF THE FOLLOWING SHALL BE CONSIDERED
A DEFAULT OF THE COMPANY, IF THERE IS IN RESPECT TO GUARANTOR:

          1.  A GENERAL ASSIGNMENT BY GUARANTOR FOR THE BENEFIT OF CREDITORS;

          2.  THE FILING OF A VOLUNTARY PETITION IN BANKRUPTCY BY GUARANTOR
OR THE FILING OF AN INVOLUNTARY PETITION BY GUARANTOR'S CREDITORS, SAID
PETITION REMAINING UNDISCHARGED FOR A PERIOD OF NINETY (90) DAYS;

          3.  THE APPOINTMENT OF A RECEIVER TO TAKE POSSESSION OF
SUBSTANTIALLY ALL OF GUARANTOR'S ASSETS OR OF THIS LEASEHOLD, SAID
RECEIVERSHIP REMAINING UNDISSOLVED FOR A PERIOD OF NINETY (90) DAYS OR;

          4.  ATTACHMENT, EXECUTION OR OTHER JUDICIAL SEIZURE OF
SUBSTANTIALLY ALL OF GUARANTOR'S ASSETS OR THIS LEASEHOLD, SUCH ATTACHMENT,
EXECUTION OR OTHER SEIZURE REMAINING UNDISMISSED OR UNDISCHARGED FOR A PERIOD
OF NINETY (90) DAYS AFTER THE LEVY THEREOF.

      C.  UPON OCCURRENCE OF ANY ONE OF THE FOREGOING DEFAULTS, PIMSA SHALL
HAVE THE RIGHT, AT ITS OPTION, AND IN ADDITION TO OTHER RIGHTS OR REMEDIES
GRANTED BY LAW, INCLUDING THE RIGHT TO CLAIM DAMAGE, TO DO EITHER OF THE
FOLLOWING:

          1.  IMMEDIATELY RESCIND THIS LEASE AGREEMENT AND EJECT COMPANY FROM
THE LEASED PROPERTY.

          2.  CLAIM SPECIFIC PERFORMANCE. IN THE CASE OF DEFAULT AS SPECIFIED
ABOVE, PIMSA SHALL, IN ADDITION TO ALL OTHER REMEDIES, HAVE THE RIGHT TO
DECLARE THE ENTIRE UNPAID BALANCE OF RENT TO THE END OF THE SEVENTY SEVEN
(77) MONTH LEASE TERM THEN IN EFFECT, AND ALL OTHER SUMS DUE TO PIMSA,
IMMEDIATELY DUE AND PAYABLE, PLUS INTEREST AT THE RATE OF TWENTY PERCENT
(20%) PER ANNUM OF SAID SUMS FROM THE DATE OF SUCH DECLARATION UNTIL PAYMENT
IN FULL, PROVIDED THAT PIMSA SHALL DILIGENTLY PROCEED TO LEASE THE LEASED
PROPERTY TO

<PAGE>

                                                                             17

ANOTHER TENANT OR OTHERWISE MAKE BENEFICIAL USE THEREOF IN MITIGATION OF
DAMAGES, RENT AND ALL OTHER SUMS DUE OR PAYABLE TO PIMSA.

              IN THE EVENT THE LEASED PROPERTY IS LEASED TO ANOTHER TENANT
DURING THE AFORESAID SEVENTY SEVEN (77) MONTH LEASE TERM OR OTHERWISE USED
IN A BENEFICIAL MANNER:

              a.  PIMSA SHALL PROMPTLY REFUND TO COMPANY THAT PORTION OF RENT
AND INTEREST PAID BY COMPANY PURSUANT TO THIS PARAGRAPH 2. WHICH IS ALLOCABLE
TO THE PERIOD OF THE LEASE TERM DURING WHICH THE LEASED PROPERTY WAS LEASED
TO ANOTHER TENANT OR OTHERWISE USED IN A BENEFICIAL MANNER AS WELL AS ANY
OTHER ALLOCABLE SUMS PAID BY COMPANY TO PIMSA, LESS ANY LOSS OR DAMAGE
INCURRED BY PIMSA AS A RESULT OF COMPANY'S DEFAULT, OR;

              b.  IF SUCH RENT OR OTHER SUMS HAVE NOT BEEN PAID BY COMPANY TO
PIMSA, PIMSA SHALL CREDIT SUCH AMOUNT(S) TO COMPANY.

XX.  RIGHT TO CURE DEFAULTS.

     IN THE EVENT OF COMPANY'S BREACH OR DEFAULT OF ANY TERM OR PROVISION
HEREIN, PIMSA MAY, WITHOUT ANY OBLIGATION TO DO SO, AT ANY TIME AFTER TEN
(10) DAYS WRITTEN NOTICE, CURE SUCH BREACH OR DEFAULT, OR MAKE REPAIRS TO THE
LEASED PROPERTY, FOR THE ACCOUNT AND AT THE EXPENSE OF COMPANY. IF PIMSA, BY
REASON OF SUCH BREACH OR DEFAULT, PAYS ANY MONEY, OR IS COMPELLED TO INCUR ANY
EXPENSE, INCLUDING ATTORNEYS' FEES, THE SUMS SO PAID OR INCURRED BY PIMSA
WITH ALL INTEREST, COSTS, AND DAMAGES, SHALL BE PAID BY COMPANY TO PIMSA ON
THE FIRST (1ST) DAY OF THE MONTH FOLLOWING THE INCURRING OF SUCH EXPENSES. IF
ANY INSTALLMENT OF RENT OR ANY OTHER PAYMENT IS NOT PROMPTLY PAID WHEN DUE,
IT SHALL BEAR INTEREST OF TWENTY (20%) PER ANNUM FROM THE DATE ON WHICH IT
BECOMES DUE UNTIL PAID; BUT THIS PROVISION IS NOT INTENDED TO RELIEVE THE
COMPANY FROM FULFILLING ITS OBLIGATIONS HEREUNDER IN THE TIME AND IN THE
MANNER SPECIFIED IN THIS AGREEMENT.  THE FOREGOING INTEREST, EXPENSES AND
DAMAGES SHALL BE RECOVERABLE FROM COMPANY BY EXERCISE OF PIMSA'S REMEDIES
HEREINABOVE SET FORTH.  EFFORTS BY PIMSA TO MITIGATE THE DAMAGES CAUSED BY
COMPANY'S BREACH OF THIS LEASE SHALL NOT BE CONSTRUED TO BE A WAIVER OF
PIMSA'S RIGHT TO RECOVER DAMAGES UNDER THIS CLAUSE XX. NOTHING IN THIS
CLAUSE XX AFFECTS THE RIGHT OF PIMSA TO INDEMNIFICATION BY COMPANY IN
ACCORDANCE WITH CLAUSE XVII HEREINABOVE FOR LIABILITY ARISING PRIOR TO THE
TERMINATION OF THIS LEASE FOR PERSONAL INJURIES OR PROPERTY DAMAGE.

<PAGE>

                                                                             18

XXI.  WAIVER.

     In the event PIMSA or COMPANY does not compel the other to comply with
any of the obligations hereunder, such action or omission shall not be
construed as a waiver of a subsequent breach of the same or any other
provision. Any consent or approval shall not be deemed to waive or render
unnecessary the consent or approval of any subsequent or similar act by
COMPANY or PIMSA.

XXII.  CERTIFICATES.

     COMPANY shall, within ten (10) days of receipt of a written request made
by PIMSA, deliver to PIMSA a statement in writing certifying that this Lease
Agreement is unmodified and in full force and effect (or if there have been
modifications, that the same are in full force and effect as modified); the
dates to which the rent and any other charges have been paid in advance, and
that PIMSA'S Improvements have been satisfactorily completed. It is intended
that any such statement may be relied upon by any person, prospective
purchaser, or lending institution interested in the Leased Property.

XXIII.  HOLDING OVER.

     If COMPANY should remain in possession of the Leased Property after the
expiration of this Lease, COMPANY shall pay a minimum monthly rent equal to
twice the then minimum monthly rent then paid in the month immediately
preceding the month in which the holdover period began until COMPANY has
delivered to PIMSA the Leased Property, or executed a new Lease Agreement.
This provision shall not be construed as granting any right to COMPANY to
remain in possession of the Leased Property after the expiration of the Lease
Term. COMPANY shall indemnify PIMSA against any loss or liability resulting
from delay by COMPANY in surrendering the Leased Property, if such loss or
liability is founded on said delay, less any amounts paid pursuant to this
clause. The parties agree that COMPANY shall quit and surrender the Leased
Property at the expiration of this Lease Agreement, waiving the right
provided by law.

XXIV.  SURRENDER.

     A.  On the last day of the term of this Lease Agreement, or the sooner
termination thereof pursuant to other provisions hereof, COMPANY shall quit
and surrender the Leased Property in the same conditions as received by
COMPANY, and restore the premises to a clean and good condition (normal

<PAGE>

                                                                             19

wear and tear excepted) together with PIMSA's Improvements that may have been
made in the same. Prior to termination of this Lease Agreement, COMPANY shall
have removed all of its property in accordance with Clause III hereof and all
property not removed shall be deemed abandoned by COMPANY. COMPANY shall
repair and restore the Leased Property to a good and clean condition, normal
wear and tear excepted, while removing the COMPANY's property.

XXV.  QUIET ENJOYMENT.

     PIMSA agrees that COMPANY, upon paying the rent and all other charges
provided for herein and upon complying with all of the terms and provisions
of this Lease Agreement, shall lawfully and quietly occupy and enjoy the
Leased Property during the Lease Term.

XXVI.  ATTORNMENT.

     COMPANY shall, in the event any proceedings are brought for the
foreclosure of, or in the event of exercise of the power of sale under, any
mortgage or deed of trust made by PIMSA, its successors or assigns,
encumbering the Leased Property, or any part thereof, if so requested, attorn
to the purchaser upon such foreclosure or sale and recognize such purchaser
as the lessor under this Lease.

XXVII.  ENVIRONMENTAL PROTECTION LAW.

     PIMSA hereby states that the Leased Property, its soil and underground are
free and clear of any hazardous materials, wastes or contaminants.
Nevertheless, PIMSA shall indemnify and save the COMPANY harmless from and
against losses, demands, claims, payments, suits, actions and judgments of
any nature and description brought against it by reason of the fact that
contaminants existed on the Leased Property, soil and/or underground, or were
deposited there, prior to date of signature of this Agreement. The COMPANY
will be responsible for any losses, damages or injuries caused by the
contaminants which are deposited on the Leased Property, soil or underground
after date of signature of this Agreement.

   It will be the sole responsibility of the COMPANY to comply with all
Federal, State or Municipal environmental laws, rules and dispositions, which
must be complied with by the COMPANY pursuant with the industrial activities
it will perform in the Leased Property and therefore, must obtain the
required licenses, authorizations, permits and any other document that it
must possess pursuant with the aforestated environmental rules.

<PAGE>

                                                                             20

   Furthermore, the COMPANY will be solely and exclusively responsible for
any demand, claim, or proceeding initiated against PIMSA, and which results
from acts or omissions by the COMPANY, regarding the handling of hazardous or
toxic materials or wastes located in or moved to, from or through the Leased
Property. The COMPANY in these cases, shall indemnify and save PIMSA harmless
from and against losses, demands, claims, payments, suits, actions and
judgments of any competent environmental authority.

XXVIII.  MISCELLANEOUS

     A.  This document contains all of the agreements and conditions made
between the parties, and may not be modified orally in any manner other than
by a written agreement signed by the authorized representative of the parties.

     B.  If any term, covenant, condition or provision of this Lease
Agreement, or the application thereof to any person or circumstance, shall to
any extent be held by a court of competent jurisdiction, to be invalid, void
or unenforceable, the remainder of the terms, covenants, conditions or
provisions of this Lease Agreement, or the application thereof to any person
or circumstance, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.

     C.  In the event that either party should bring an action against the
other party for the possession of the Leased Property, or for the recovery of
any sum due hereunder, or because of the breach or default of any
covenant in this Lease Agreement, the prevailing party shall have the right
to collect from the other party its costs and expense, including attorneys'
fees.

     D.  Every payment and performance required by this Lease Agreement,
shall be paid and performed precisely on the date specified for such for such
payment or performance and no delay or extension thereof shall be permitted.

     E.  The titles and subtitles in these clauses of this document shall
have no effect on the interpretation of the terms and provisions contained in
this Lease Agreement.

     F.  The parties agree that this Lease Agreement be governed by the Laws
of the State of Baja California. For everything pertaining to the
interpretation and compliance of this Lease Agreement the parties thereby
expressly submit to the jurisdiction of the Civil Courts of the City of
Mexicali, State of Baja California, waiving any other jurisdiction which
might be applicable by reason of their present or future domiciles or
otherwise.

<PAGE>

                                                                             21

     G.  This Lease Agreement shall be executed in Spanish and English.
However, in the event a dispute or other inconsistency should arise
regarding interpretation or meaning of this Lease Agreement, the English
version shall control.

     H.  Whenever the prior consent of either party, written or otherwise, is
required as a condition for any act by the other party under this Lease
Agreement, such party agrees not to arbitrarily or unreasonably withhold such
consent.

     I.  Each party shall execute such further documents as shall be
requested by the other  party, but only to the extent that the effect of said
documents is to give legal effect to rights set forth in the Lease Agreement.

     J.  COMPANY hereby covenants to PIMSA, and PIMSA relies upon said
covenant as a material inducement to enter into this Lease, that COMPANY
will deliver to PIMSA, concurrently with the execution and delivery hereof a
Guaranty of this Lease in the form attached hereto as EXHIBIT "D", executed
by, COASTCAST CORPORATION, or by such other Guarantor as may be acceptable to
PIMSA.

     K.  Submission of this instrument for examination or signature by
COMPANY does not constitute a reservation of or option to Lease, and it is
not effective as a Lease or otherwise until execution and delivery by both
PIMSA and COMPANY.

     L.  This Lease and each of its covenants and conditions shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns, subject to the provisions hereof.
Whenever in this Lease Agreement a reference is made to PIMSA, such reference
shall be deemed to refer to the person in whom the interest of the lessor
hereunder shall be vested.  Any successor or assignee of COMPANY who accepts
an assignment or the benefit of this Lease Agreement and enters into
possession or enjoyment hereunder shall thereby assume and agree to perform
and be bound by the covenants and conditions thereof.

     M.  In the event the Government of Mexico or any subdivision thereof
appropriates, forcibly buys or in any other way takes over the assets or
business of the lessee, and without due cause by COMPANY prevents COMPANY
from doing business in Mexico, the COMPANY may upon written notice to PIMSA
terminate this Lease Agreement without liability or penalty for such
termination and without further liability for

<PAGE>

                                                                             22

rental payments due under this Lease Agreement but without prejudice to the
rights of PIMSA and COMPANY to claim from the corresponding authority the
damages caused.

XXIX.  Rider number I, PIMSA's Improvements, is attached hereto and by this
reference made a part hereof.

XXX.  This Lease Agreement is in lieu of Lease Agreement dated January 22,
1996.

IN WITNESS WHEREOF, the parties have executed this Lease Agreement as of the
tenth day of december nineteen hundred ninety nine.

"PIMSA"                                 "COMPANY"

/s/ Eduardo Manuel Martinez Palomera    /s/ William Lawrence Osborn
------------------------------------    -----------------------------

PARQUE INDUSTRIAL MEXICALI,             COASTCAST CORPORATION,   S.A.
S.A. DE C. V.                           Mr. William Lawrence Osborn
Mr. Eduardo Manuel Martinez             General Director of Operations
Palomera                                and General Manager
Executive Vice President

                         W  I  T  N  E  S  S  E  S

/S/ ILLEGIBLE                           /S/ Hans H. Buehler
--------------------------              --------------------------------

<PAGE>

                                                                             23

                                RIDER NUMBER 1

                           TO LEASE AGREEMENT BETWEEN
                   PARQUE INDUSTRIAL MEXICALI, S.A. DE C.V.
                                     AND
                         COASTCAST CORPORATION, S.A.

                               PIMSA'S NUMBERS

     The following improvements will be included in this Lease Agreement:

     1.  300 kva electrical substation.

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