Document:

Exhibit 4.02

 

Exhibit 4.02

THE FLAGSHIP GROUP, INC.

NOTICE OF GRANT OF STOCK OPTION

     Notice is hereby given of the following option grant (the “Option”) to
purchase shares of the Common Stock of The Flagship Group, Inc. (the
“Corporation”):

	 	 	 	 	 
	Optionee:	 	 	 	 
	 
	Grant Date:	 	 	 	 
	 
	Vesting Commencement Date:	 	 	 	 
	 
	Exercise Price:	 	 	 	 
	 
	Number of Option Shares:	 	 	 	 
	 
	Expiration Date:	 	 	 	 
	 
	Type of Option:	 	 

	 	Incentive Stock Option
	 	 	 

	 	Non-Statutory Stock
        Option
	 
	Date Exercisable:	 	 	 	 
	 
	Vesting Schedule:	 	 	 	 

     Optionee understands and agrees that the Option is granted subject to and
in accordance with the terms of The Flagship Group, Inc. 1999 Stock
Option/Stock Issuance Plan (the “Plan”). Optionee further agrees to be bound
by the terms of the Plan and the terms of the Option as set forth in the Stock
Option Agreement attached hereto asExhibit A. Optionee understands that any
Option Shares purchased under the Option will be subject to the terms set forth
in the Stock Purchase Agreement attached hereto asExhibit B. Both the Company
and Optionee agree and acknowledge that the Option Shares are granted solely in
consideration for future services to be provided by Optionee subsequent to the
date hereof.

     Optionee hereby acknowledges receipt of a copy of the Plan in the form
attached hereto asExhibit C.

 

 

     REPURCHASE RIGHTS. OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES ACQUIRED
UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO CERTAIN REPURCHASE RIGHTS
AND RIGHTS OF FIRST REFUSAL EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS.
THE TERMS OF SUCH RIGHTS ARE SPECIFIED IN THE ATTACHED STOCK PURCHASE
AGREEMENT.

     No Employment or Service Contract. Nothing in this Notice or in the
attached Stock Option Agreement or Plan shall confer upon Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of Optionee, which rights are
hereby expressly reserved by each, to terminate Optionee’s Service at any time
for any reason, with or without cause.

     Definitions. All capitalized terms in this Notice shall have the meaning
assigned to them in this Notice or in the attached Stock Option Agreement.

	 	 	 	 	 
	     Dated:  	

        
	 	THE FLAGSHIP GROUP, INC.
	 	 	 	By:	
	 	 	 	 	

        
[Title]
	 
	 	 	 	OPTIONEE
	 
	 	

	 	 	 	Address:	

        

	 
	 	

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Exhibit A

THE FLAGSHIP GROUP, INC.

STOCK OPTION AGREEMENT

RECITALS

A. The Board has adopted the Plan for the purpose of retaining the services of
selected Employees, non-employee members of the Board or the board of directors
of any Parent or Subsidiary and consultants and other independent advisors who
provide services to the Corporation (or any Parent or Subsidiary).

B. Optionee is to render valuable services to the Corporation (or a Parent or
Subsidiary), and this Agreement is executed pursuant to, and is intended to
carry out the purposes of, the Plan in connection with the Corporation’s grant
of an option to Optionee.

C. All capitalized terms in this Agreement shall have the meaning assigned to
them in the attached Appendix.

AGREEMENT

     NOW, THEREFORE, it is hereby agreed as follows:

     1. Grant of Option. The Corporation hereby grants to Optionee, as of the
Grant Date, an option to purchase up to the number of Option Shares specified
in the Grant Notice. The Option Shares shall be purchasable from time to time
during the option term specified in Paragraph 2 at the Exercise Price.

     2. Option Term. This option shall have a term of ten (10) years measured
from the Grant Date and shall accordingly expire at the close of business on
the Expiration Date, unless sooner terminated in accordance with Paragraph 5 or
17.

     3. Limited Transferability. This option shall be neither transferable nor
assignable by Optionee other than by will or by the laws of descent and
distribution following Optionee’s death and may be exercised, during Optionee’s
lifetime, only by Optionee.

     4. Dates of Exercise. This option shall become exercisable for the Option
Shares in one or more installments as specified in the Grant Notice. As the
option becomes exercisable for such installments, those installments shall
accumulate and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 17.

     5. Cessation of Service. The option term specified in Paragraph 2 shall
terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:

          (a) Should Optionee cease to remain in Service for any reason (other than
death or Permanent Disability) while this option is outstanding, then Optionee
shall have a

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period of three (3) months (commencing with the date of such cessation of
Service) during which to exercise this option, but in no event shall this
option be exercisable at any time after the Expiration Date.

          (b) Should Optionee die while this option is outstanding, then the
personal representative of Optionee’s estate or the person or persons to whom
the option is transferred pursuant to Optionee’s will or in accordance with the
laws of descent and distribution shall have the right to exercise this option.
Such right shall lapse and this option shall cease to be outstanding upon the
earlier of (i) the expiration of the twelve (12)-month period measured from
the date of Optionee’s death or (ii) the Expiration Date.

          (c) Should Optionee cease Service by reason of Permanent Disability while
this option is outstanding, then Optionee shall have a period of twelve (12)
months (commencing with the date of such cessation of Service) during which to
exercise this option. In no event shall this option be exercisable at any time
after the Expiration Date.

          (d) During the limited period of post-Service exercisability, this option
may not be exercised in the aggregate for more than the number of vested Option
Shares for which the option is exercisable at the time of Optionee’s cessation
of Service. Upon the expiration of such limited exercise period or (if
earlier) upon the Expiration Date, this option shall terminate and cease to be
outstanding for any vested Option Shares for which the option has not been
exercised. To the extent Optionee is not vested in the Option Shares at the
time of Optionee’s cessation of Service, this option shall immediately
terminate and cease to be outstanding with respect to those shares.

          (e) In the event of a Corporate Transaction, the provisions of Paragraph 6
shall govern the period for which this option is to remain exercisable
following Optionee’s cessation of Service and shall supersede any provisions to
the contrary in this paragraph.

     6. Corporate Transaction.

          (a) In the event of any Corporate Transaction, this option shall be (i)
assumed by the successor corporation (or parent thereof) or (ii) replaced with
a comparable option to purchase shares of the capital stock of the successor
corporation (or parent thereof) or with a cash incentive program of the
successor corporation which preserves the spread existing on the unvested
option shares at the time of the Corporate Transaction and provides for
subsequent payout in accordance with the same vesting schedule applicable to
such option. However, to the extent the successor corporation (or parent
thereof) does not effect such assumption or replacement, this option shall
automatically accelerate, and the Corporation’s repurchase rights with respect
to the unvested Option Shares shall terminate, so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock.

          (b) All outstanding repurchase rights shall also be assigned to the
successor corporation (or parent thereof) in the event of any Corporate
Transaction. However, to the extent the successor corporation (or parent
thereof) does not accept such assignment, the outstanding

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repurchase rights shall terminate automatically, and the shares of Common Stock
subject to those terminated rights shall immediately vest in full, upon the
consummation of the Corporate Transaction, except to the extent such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the repurchase right is issued.

          (c) Immediately following the consummation of the Corporate Transaction,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).

          (d) If this option is assumed in connection with a Corporate Transaction,
then this option shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price,provided the aggregate Exercise Price shall remain the same.

          (e) Upon an Involuntary Termination of Optionee’s Service within twelve
(12) months following a Corporate Transaction in which this option is assumed
or replaced and the Corporation’s repurchase rights with respect to the
unvested Option Shares are assigned, all the Option Shares at the time subject
to this option but not otherwise vested shall automatically vest and the
Corporation’s repurchase rights with respect to those shares shall terminate so
that this option shall immediately become exercisable for all such Option
Shares as fully-vested shares of Common Stock and may be exercised for any or
all of those shares at any time prior to the earlier of (i) the Expiration Date
or (ii) the expiration of the one (l)-year period measured from the date of the
Involuntary Termination.

          (f) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital
or business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.

     7. Adjustment in Option Shares. Should any change be made to the Common
Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation’s receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price
in order to reflect such change and thereby preclude a dilution or enlargement
of benefits hereunder.

     8. Shareholder Rights. The holder of this option shall not have any
Shareholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of
record of the purchased shares.

     9. Manner of Exercising Option.

          (a)  In order to exercise this option with respect to all or any part of
the Option Shares for which this option is at the time exercisable, Optionee
(or any other person or persons exercising the option) must take the following
actions:

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	 	     (i) Execute and deliver to the Corporation a Purchase
Agreement for the Option Shares for which the option is
exercised.
	 
	 	     (ii) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:

	          	
	 	     (1) cash or check made payable to the Corporation; or
	 
	 	     (2) a promissory note that constitutes valid
consideration under applicable state law payable to the
Corporation, but only to the extent authorized by the Plan
Administrator in accordance with Paragraph 14.

          (b) Should the Common Stock be registered under Section 12(g) of the 1934
Act at the time the option is exercised, then the Exercise Price may also be
paid as follows:

	     	
	 	     (i) in shares of Common Stock held by Optionee (or any
other person or persons exercising the option) for the
requisite period necessary to avoid a charge to the
Corporation’s earnings for financial reporting purposes and
valued at Fair Market Value on the Exercise Date; or
	 
	 	     (ii) to the extent the option is exercised for vested
Option Shares, through a special sale and remittance
procedure pursuant to which Optionee (or any other person or
persons exercising the option) shall concurrently provide
irrevocable written instructions (a) to a
Corporation-designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate
Exercise Price payable for the purchased shares plus all
applicable Federal, state and local income and employment
taxes required to be withheld by the Corporation by reason
of such exercise and (b) to the Corporation to deliver the
certificates for the purchased shares directly to such
brokerage firm in order to complete the sale.

          (c) Except to the extent the sale and remittance procedure is utilized in
connection with the option exercise, payment of the Exercise Price must
accompany the Purchase Agreement delivered to the Corporation in connection
with the option exercise and the Optionee must:

	     	
	 	     (i) furnish to the Corporation appropriate
documentation that the person or persons exercising the
option (if other than Optionee) have the right to exercise
this option.
	 
	 	     (ii) execute and deliver to the Corporation such
written representations as may be requested by the
Corporation in order for it to comply with the applicable
requirements of Federal and state securities laws.

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	 	     (iii) make appropriate arrangements with the
Corporation (or Parent or Subsidiary employing or retaining
Optionee) for the satisfaction of all Federal, state and
local income and employment tax withholding requirements
applicable to the option exercise.

          (d) As soon as practical after the Exercise Date, the Corporation shall
issue to or on behalf of Optionee (or any other person or persons exercising
this option) a certificate for the purchased Option Shares, with the
appropriate legends affixed thereto.

          (e) In no event may this option be exercised for any fractional shares.

     10. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE EXERCISE OF
THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION AND ITS
ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE TERMS SPECIFIED IN
THE PURCHASE AGREEMENT.

     11. Compliance with Laws and Regulations.

          (a) The exercise of this option and the issuance of the Option Shares upon
such exercise shall be subject to compliance by the Corporation and Optionee
with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.

          (b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been
obtained. The Corporation, however, shall use its best efforts to obtain all
such approvals.

     12. Successors and Assigns. Except to the extent otherwise provided in
Paragraphs 3 and 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Corporation and its successors and assigns and
Optionee, Optionee’s assigns and the legal representatives, heirs and legatees
of Optionee’s estate.

     13. Notices. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to
be given or delivered to Optionee shall be in writing and addressed to Optionee
at the address indicated below Optionee’s signature line on the Grant Notice.
All notices shall be deemed effective upon personal delivery or upon deposit in
the U.S. mail, postage prepaid and properly addressed to the party to be
notified.

     14. Financing. The Plan Administrator may, in its absolute discretion and
without any obligation to do so, permit Optionee to pay the Exercise Price for
the purchased Option Shares by delivering a promissory note that constitutes
valid consideration under applicable state law. The terms of any such
promissory note (including the interest rate, the requirements for

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collateral and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion.1

     15. Construction. This Agreement and the option evidenced hereby are made
and granted pursuant to the Plan and are in all respects limited by and subject
to the terms of the Plan. All decisions of the Plan Administrator with respect
to any question or issue arising under the Plan or this Agreement shall be
conclusive and binding on all persons having an interest in this option.

     16. Governing Law. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of Colorado without
resort to that State’s conflict-of-laws rules.

     17. Shareholder Approval.

          (a) The grant of this option is subject to approval of the Plan by the
Corporation’s Shareholders within twelve (12) months after the adoption of the
Plan by the Board. Notwithstanding any provision of this Agreement to the
contrary, this option may not be exercised in whole or in part until such
Shareholder approval is obtained. In the event that such Shareholder approval
is not obtained, then this option shall terminate in its entirety and Optionee
shall have no further rights to acquire any Option Shares hereunder.

          (b) If the Option Shares covered by this Agreement exceed, as of the Grant
Date, the number of shares of Common Stock which may without Shareholder
approval be issued under the Plan, then this option shall be void with respect
to such excess shares, unless Shareholder approval of an amendment sufficiently
increasing the number of shares of Common Stock issuable under the Plan is
obtained in accordance with the provisions of the Plan.

     18. Additional Terms Applicable to an Incentive Option. In the event this
option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:

          (a) This option shall cease to qualify for favorable tax treatment as an
Incentive Option if (and to the extent) this option is exercised for one or
more Option Shares: (i) more than three (3) months after the date Optionee
ceases to be an Employee for any reason other than death or Permanent
Disability or (ii) more than twelve (12) months after the date Optionee ceases
to be an Employee by reason of Permanent Disability.

          (b) This option shall not become exercisable in the calendar year in which
granted if (and to the extent) the aggregate Fair Market Value (determined at
the Grant Date) of the Common Stock for which this option would otherwise first
become exercisable in such calendar year would, when added to the aggregate
value (determined as of the respective date or dates of grant) of the Common
Stock and any other securities for which one or more other Incentive Options
granted to Optionee prior to the Grant Date (whether under the Plan or any

	 	 	1 Authorization of payment of the Exercise Price by a promissory note may,
under currently proposed Treasury Regulations, result in the loss of incentive
stock option treatment under the Federal tax laws.

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other option plan of the Corporation or any Parent or Subsidiary) first become
exercisable during the same calendar year, exceed One Hundred Thousand Dollars
($100,000) in the aggregate. To the extent the exercisability of this option
is deferred by reason of the foregoing limitation, the deferred portion shall
become exercisable in the first calendar year or years thereafter in which the
One Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18(ii)
would not be contravened, but such deferral shall in all events end immediately
prior to the effective date of a Corporate Transaction in which this option is
not to be assumed, whereupon the option shall become immediately exercisable as
a Non-Statutory Option for the deferred portion of the Option Shares.

          (c) Should Optionee hold, in addition to this option, one or more other
options to purchase Common Stock which become exercisable for the first time in
the same calendar year as this option, then the foregoing limitations on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.

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APPENDIX

     The following definitions shall be in effect under the Agreement:

     A. Agreement shall mean this Stock Option Agreement.

     B. Board shall mean the Corporation’s Board of Directors.

     C. Code shall mean the Internal Revenue Code of 1986, as amended.

     D. Common Stock shall mean the Corporation’s common stock.

     E. Corporate Transaction shall mean any of the following transactions:

	     	
	 	     1. a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of
the Corporation’s outstanding securities are transferred to a
person or persons different from the persons holding those
securities immediately prior to such transaction,
	 
	 	     2. the sale, transfer or other disposition of all or
substantially all of the Corporation’s assets or capital stock, or
	 
	 	     3. a tender or exchange offer in which, after the consummation
of the offer, the offeror is the beneficial owner (as determined
pursuant to Section 13(d) of the Securities Exchange Act of 1934,
as amended), directly or indirectly, of at least 15 percent (15%)
of the outstanding Common Stock.

     F. Corporation shall mean The Flagship Group, Inc., a Delaware
corporation.

     G. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.

     H. Exercise Date shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.

     I. Exercise Price shall mean the exercise price per share as specified in
the Grant Notice.

     J. Expiration Date shall mean the date on which the option expires as
specified in the Grant Notice.

     K. Fair Market Value per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:

	     	
	 	     1. If the Common Stock is at the time traded on the Nasdaq
National

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	 	Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
the price is reported by the National Association of Securities
Dealers on the Nasdaq National Market or any successor system. If
there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
	 
	 	     2. If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the
primary market for the Common Stock, as such price is officially
quoted in the composite tape of transactions on such exchange. If
there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
	 
	 	     3. If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the
Fair Market Value shall be determined by the Plan Administrator
after taking into account such factors as the Plan Administrator
shall deem appropriate.

     L. Grant Date shall mean the date of grant of the option as specified in
the Grant Notice.

     M. Grant Notice shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.

     N. Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.

     O. Involuntary Termination shall mean the termination of Optionee’s
Service which occurs by reason of:

	     	
	 	     (i) Optionee’s dismissal or discharge by the Corporation for
reasons other than Misconduct, or
	 
	 	     (ii) Optionee’s voluntary resignation following (A) a change
in Optionee’s position with the Corporation (or Parent or
Subsidiary employing Optionee) which materially reduces Optionee’s
level of responsibility, (B) a reduction in Optionee’s level of
compensation (including base salary, fringe benefits and
participation in corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) in the aggregate or
(C) a relocation of Optionee’s place of employment by more than
fifty (50) miles from Optionee’s place of employment immediately
prior to the Corporate Transaction, provided and only if such
change, reduction or relocation is effected by the Corporation
without Optionee’s consent.

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     P. Misconduct shall mean the commission of any act of fraud, embezzlement
or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by Optionee adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
Optionee or any other individual in the Service of the Corporation (or any
Parent or Subsidiary).

     Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.

     R. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.

     S. Option Shares shall mean the number of shares of Common Stock subject
to the option.

     T. Optionee shall mean the person to whom the option is granted as
specified in the Grant Notice.

     U. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.

     V. Permanent Disability shall mean the inability of Optionee to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has
lasted or can be expected to last for a continuous period of twelve (12) months
or more.

     W. Plan shall mean the Corporation’s 1999 Stock Option/Stock Issuance
Plan.

     X. Plan Administrator shall mean either the Board or a committee of Board
members, to the extent the committee is at the time responsible for the
administration of the Plan.

     Y. Purchase Agreement shall mean the stock purchase agreement in
substantially the form of Exhibit B to the Grant Notice.

     Z. Service shall mean the Optionee’s performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor.

     AA. Stock Exchange shall mean the American Stock Exchange or the New York
Stock Exchange.

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     BB. Subsidiary shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at
the time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.

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Exhibit B

THE FLAGSHIP GROUP, INC. 

  STOCK PURCHASE AGREEMENT 

          This STOCK PURCHASE AGREEMENT (this “Agreement”) is made as of this ___
day of _______________, _____________, by and among The Flagship Group, Inc., a Delaware
corporation, _____________________, an individual person (“Optionee”), and
________________________________, Optionee’s spouse.

          All capitalized terms in this Agreement shall have the meaning assigned to
them in this Agreement or in the attached Appendix.

     A. EXERCISE OF OPTION

          1. Exercise. Optionee hereby purchases _______ shares of Common Stock
(the “Purchased Shares”) pursuant to that certain option (the “Option”) granted
Optionee on the ___ day of _______________, __________ (the “Grant Date”) to
purchase up to _______ shares of Common Stock under the Plan (the “Purchased
Shares”) at the exercise price of $____ per share (the “Exercise Price”).

          2. Payment. Concurrently with the delivery of this Agreement to the
Corporation, Optionee shall pay the Exercise Price for the Purchased Shares in
accordance with the provisions of the Option Agreement and shall deliver
whatever additional documents may be required by the Option Agreement as a
condition for exercise.

          3. Shareholder Rights. Until such time as the Corporation exercises the
Repurchase Right or the First Refusal Right, Optionee (or any successor in
interest) shall have all the rights of a shareholder (including voting,
dividend and liquidation rights) with respect to the Purchased Shares, subject,
however, to the transfer restrictions of Articles B and C.

     B. SECURITIES LAW COMPLIANCE

          1. Restricted Securities. The Purchased Shares have not been registered
under the 1933 Act and are being issued to Optionee in reliance upon the
exemption from such registration provided by SEC Rule 701 for stock issuances
under compensatory benefit plans such as the Plan. Optionee hereby confirms
that Optionee has been informed that the Purchased Shares are restricted
securities under the 1933 Act and may not be resold or transferred unless the
Purchased Shares are first registered under the Federal securities laws or
unless an exemption from such registration is available. Accordingly, Optionee
hereby acknowledges that Optionee is prepared to hold the Purchased Shares for
an indefinite period and that Optionee is aware that SEC Rule 144 issued under
the 1933 Act which exempts certain resales of unrestricted securities is not
presently available to exempt the resale of the Purchased Shares from the
registration requirements of the 1933 Act.

 

          2. Restrictions on Disposition of Purchased Shares. Optionee shall make
no disposition of the Purchased Shares (other than a Permitted Transfer) unless
and until there is compliance with all of the following requirements:

               (a) Optionee shall have provided the Corporation with a written summary of
the terms and conditions of the proposed disposition.

               (b) Optionee shall have complied with all requirements of this Agreement
applicable to the disposition of the Purchased Shares.

               (c) Optionee shall have provided the Corporation with written assurances,
in form and substance satisfactory to the Corporation, that (a) the proposed
disposition does not require registration of the Purchased Shares under the
1933 Act or (b) all appropriate action necessary for compliance with the
registration requirements of the 1933 Act or any exemption from registration
available under the 1933 Act (including Rule 144) has been taken.

          The Corporation shallnot be required (i) to transfer on its books any
Purchased Shares which have been sold or transferred in violation of the
provisions of this Agreementor (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.

          3. Restrictive Legends. The stock certificates for the Purchased Shares
shall be endorsed with the following restrictive legends:

               (a) “The shares represented by this certificate have not been registered
under the Securities Act of 1933. The shares may not be sold or offered for
sale in the absence of (a) an effective registration statement for the shares
under such Act, (b) a “no action” letter of the Securities and Exchange
Commission with respect to such sale or offer or (c) satisfactory assurances to
the Corporation that registration under such Act is not required with respect
to such sale or offer.”

               (b) “The shares represented by this certificate are subject to certain
repurchase rights and rights of first refusal granted to the Corporation and
accordingly may not be sold, assigned, transferred, encumbered, or in any
manner disposed of except in conformity with the terms of a written agreement
dated _________, _______ between the Corporation and the registered holder of
the shares (or the predecessor in interest to the shares). A copy of such
agreement is maintained at the Corporation’s principal corporate offices.”

     C. TRANSFER RESTRICTIONS

          1. Restriction on Transfer. Except for any Permitted Transfer, Optionee
shall not transfer, assign, encumber or otherwise dispose of any of the
Purchased Shares which are subject to the Repurchase Right. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right, the Market Stand-Off or the Repurchase Right.

2

 

          2. Transferee Obligations. Each person (other than the Corporation) to
whom the Purchased Shares are transferred by means of a Permitted Transfer
must, as a condition precedent to the validity of such transfer, acknowledge in
writing to the Corporation that such person is bound by the provisions of this
Agreement and that the transferred shares are subject to (i) the Repurchase
Right, (ii) the First Refusal Right and (iii) the Market Stand-Off, to the same
extent such shares would be so subject if retained by Optionee.

          3. Market Stand-Off.

               (a) In connection with any underwritten public offering by the Corporation
of its equity securities pursuant to an effective registration statement filed
under the 1933 Act, including the Corporation’s initial public offering, Owner
shall not sell, make any short sale of, loan, hypothecate, pledge, grant any
option for the purchase of, or otherwise dispose or transfer for value or
otherwise agree to engage in any of the foregoing transactions with respect to,
any Purchased Shares without the prior written consent of the Corporation or
its underwriters. Such restriction (the “Market Stand-Off”) shall be in effect
for such period of time from and after the effective date of the final
prospectus for the offering as may be requested by the Corporation or such
underwriters. In no event, however, shall such period exceed one hundred
eighty (180) days.

               (b) Owner shall be subject to the Market Stand-Offprovided and only if
the officers and directors of the Corporation are also subject to similar
restrictions.

               (c) Any new, substituted or additional securities which are by reason of
any Recapitalization or Reorganization distributed with respect to the
Purchased Shares shall be immediately subject to the Market Stand-Off, to the
same extent the Purchased Shares are at such time covered by such provisions.

               (d) In order to enforce the Market Stand-Off, the Corporation may impose
stop-transfer instructions with respect to the Purchased Shares until the end
of the applicable stand-off period.

     D. REPURCHASE RIGHT

               1. Grant. The Corporation is hereby granted the right (the “Repurchase
Right”), exercisable at any time during the ninety (90)-day period following
the date Optionee ceases for any reason to remain in Service or (if later)
during the ninety (90)-day period following the execution date of this
Agreement, to repurchase at the Exercise Price all or any portion of the
Purchased Shares in which Optionee is not, at the time of his or her cessation
of Service, vested in accordance with the Vesting Schedule (such shares to be
hereinafter referred to as the “Unvested Shares”).

               2. Exercise of the Repurchase Right. The Repurchase Right shall be
exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the ninety (90)-day exercise period. The notice
shall indicate the number of Unvested Shares to be repurchased and the date on
which the repurchase is to be effected, such date to be not more than thirty
(30) days after the date of such notice. The certificates representing the
Unvested Shares to be repurchased shall be delivered to the Corporation prior
to

3

 

the close of business on the date specified for the repurchase.
Concurrently with the receipt of such stock certificates, the Corporation shall
pay to Owner, in cash or cash equivalents (including the cancellation of any
purchase-money indebtedness), an amount equal to the Exercise Price previously
paid for the Unvested Shares which are to be repurchased from Owner.

          3. Termination of the Repurchase Right. The Repurchase Right shall
terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall
terminate and cease to be exercisable with respect to any and all Purchased
Shares in which Optionee vests in accordance with the Vesting Schedule. All
Purchased Shares as to which the Repurchase Right lapses shall, however, remain
subject to (i) the First Refusal Right and (ii) the Market Stand-Off.

          4. Aggregate Vesting Limitation. If the Option is exercised in more than
one increment so that Optionee is a party to one or more other Stock Purchase
Agreements (the “Prior Purchase Agreements”) which are executed prior to the
date of this Agreement, then the total number of Purchased Shares as to which
Optionee shall be deemed to have a fully-vested interest under this Agreement
and all Prior Purchase Agreements shall not exceed in the aggregate the number
of Purchased Shares in which Optionee would otherwise at the time be vested, in
accordance with the Vesting Schedule, had all the Purchased Shares (including
those acquired under the Prior Purchase Agreements) been acquired exclusively
under this Agreement.

          5. Recapitalization. Any new, substituted or additional securities or
other property (including cash paid other than as a regular cash dividend)
which is by reason of any Recapitalization distributed with respect to the
Purchased Shares shall be immediately subject to the Repurchase Right, but only
to the extent the Purchased Shares are at the time covered by such right.
Appropriate adjustments to reflect such distribution shall be made to the
number and/or class of Purchased Shares subject to this Agreement and to the
price per share to be paid upon the exercise of the Repurchase Right in order
to reflect the effect of any such Recapitalization upon the Corporation’s
capital structure;provided, however, that the aggregate purchase price shall
remain the same.

          6. Corporate Transaction.

               (a) The Repurchase Right shall be assigned to the successor entity in any
Corporate Transaction. However, to the extent the successor entity does not
accept such assignment, the Repurchase Right shall lapse immediately prior to
the consummation of the Corporate Transaction.

               (b) To the extent the Repurchase Right remains in effect following a
Corporate Transaction, such right shall apply to the new capital stock or other
property (including any cash payments) received in exchange for the Purchased
Shares in consummation of the Corporate Transaction, but only to the extent the
Purchased Shares are at the time covered by such right. Appropriate
adjustments shall be made to the price per share payable upon exercise of the
Repurchase Right to reflect the effect of the Corporate Transaction upon the
Corporation’s capital structure;provided, however, that the aggregate purchase
price shall remain the same.

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               (c) The Repurchase Right shall automatically lapse in its entirety, and
all the Purchased Shares shall immediately vest in full, upon an Involuntary
Termination of Optionee’s Service within twelve (12) months following the
effective date of a Corporate Transaction in which the Repurchase Right has
been assigned.

     E. RIGHT OF FIRST REFUSAL

          1. Grant. The Corporation is hereby granted the right of first refusal
(the “First Refusal Right”), exercisable in connection with any proposed
transfer of the Purchased Shares in which Optionee has vested in accordance
with the Vesting Schedule. For purposes of this Article E, the term “transfer”
shall include any sale, assignment, pledge, encumbrance or other disposition of
the Purchased Shares intended to be made by Owner, but shall not include any
Permitted Transfer.

          2. Notice of Intended Disposition. In the event any Owner of Purchased
Shares in which Optionee has vested desires to accept a bona fide third-party
offer for the transfer of any or all of such shares (the Purchased Shares
subject to such offer to be hereinafter referred to as the “Target Shares”),
Owner shall promptly (i) deliver to the Corporation written notice (the
“Disposition Notice”) of the terms of the offer, including the purchase price
and the identity of the third-party offeror, and (ii) provide satisfactory
proof that the disposition of the Target Shares to such third-party offeror
would not be in contravention of the provisions set forth in Articles B and C.

          3. Exercise of the First Refusal Right.

               (a) The Corporation shall, for a period of forty-five (45) days following
receipt of the Disposition Notice, have the right to repurchase any or all of
the Target Shares subject to the Disposition Notice upon the same terms as
those specified therein or upon such other terms (not materially different from
those specified in the Disposition Notice) to which Owner consents. Such right
shall be exercisable by delivery of written notice (the “Exercise Notice”) to
Owner prior to the expiration of the forty-five (45)-day exercise period. If
such right is exercised with respect to all the Target Shares, then the
Corporation shall effect the repurchase of such shares, including payment of
the purchase price, not more than fifteen (15) business days after delivery of
the Exercise Notice; and at such time the certificates representing the Target
Shares shall be delivered to the Corporation.

               (b) Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within thirty (30) days after the Corporation’s
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within forty-five (45) days after the Corporation’s
receipt of the Disposition Notice, each shall select an appraiser of recognized
standing and the two (2) appraisers shall designate a third appraiser of
recognized standing, whose appraisal shall be determinative of such value. The
cost of such appraisal shall be shared equally by Owner and the Corporation.
The closing shall then be held on the later of (i) the fifteenth (15th)
business day following delivery of the

5

 

Exercise Notice or (ii) the fifteenth (15th) business day after such
valuation shall have been made.

          4. Non-Exercise of the First Refusal Right. In the event the Exercise
Notice is not given to Owner prior to the expiration of the forty-five (45)-day
exercise period, Owner shall have a period of thirty (30) days thereafter in
which to sell or otherwise dispose of the Target Shares to the third-party
offeror identified in the Disposition Notice upon terms (including the purchase
price) no more favorable to such third-party offeror than those specified in
the Disposition Notice;provided, however, that any such sale or disposition
must not be effected in contravention of the provisions of Articles B and C.
The third-party offeror shall acquire the Target Shares free and clear of the
Repurchase Right and the First Refusal Right, but the acquired shares shall
remain subject to the provisions of Article B and Paragraph C.3. In the event
Owner does not effect such sale or disposition of the Target Shares within the
specified thirty (30)-day period, the First Refusal Right shall continue to be
applicable to any subsequent disposition of the Target Shares by Owner until
such right lapses.

          5. Partial Exercise of the First Refusal Right. In the event the
Corporation makes a timely exercise of the First Refusal Right with respect to
a portion, but not all, of the Target Shares specified in the Disposition
Notice, Owner shall have the option, exercisable by written notice to the
Corporation delivered within fifteen (15) business days after Owner’s receipt
of the Exercise Notice, to effect the sale of the Target Shares pursuant to
either of the following alternatives:

               (a) sale or other disposition of all the Target Shares to the third-party
offeror identified in the Disposition Notice, but in full compliance with the
requirements of Paragraph E.4, as if the Corporation did not exercise the First
Refusal Right; or

               (b) sale to the Corporation of the portion of the Target Shares which the
Corporation has elected to purchase, such sale to be effected in substantial
conformity with the provisions of Paragraph E.3. The First Refusal Right shall
continue to be applicable to any subsequent disposition of the remaining Target
Shares until such right lapses.

Failure of Owner to deliver timely notification to the Corporation shall be
deemed to be an election by Owner to sell the Target Shares pursuant to
alternative (i) above.

          6. Recapitalization/Reorganization.

               (a) Any new, substituted or additional securities or other property which
is by reason of any Recapitalization distributed with respect to the Purchased
Shares shall be immediately subject to the First Refusal Right, but only to the
extent the Purchased Shares are at the time covered by such right.

               (b) In the event of a Reorganization, the First Refusal Right shall remain
in full force and effect and shall apply to the new capital stock or other
property received in exchange for the Purchased Shares in consummation of the
Reorganization, but only to the extent the Purchased Shares are at the time
covered by such right.

6

 

          7. Lapse. The First Refusal Right shall lapse upon theearliest to occur
of (i) the first date on which shares of the Common Stock are held of record by
more than five hundred (500) persons, (ii) a determination is made by the Board
that a public market exists for the outstanding shares of Common Stock or (iii)
a firm commitment underwritten public offering, pursuant to an effective
registration statement under the 1933 Act, covering the offer and sale of the
Common Stock in the aggregate amount of at least ten million dollars
($10,000,000). However, the Market Stand-Off shall continue to remain in full
force and effect following the lapse of the First Refusal Right.

     F. SPECIAL TAX ELECTION

          The acquisition of the Purchased Shares may result in adverse tax
consequences which may be avoided or mitigated by filing an election under Code
Section 83(b). Such election must be filed within thirty (30) days after the
date of this Agreement. A description of the tax consequences applicable to
the acquisition of the Purchased Shares and the form for making the Code
Section 83(b) election are set forth in Exhibit II. OPTIONEE SHOULD CONSULT
WITH HIS OR HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE
PURCHASED SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE
SECTION 83(b) ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE’S SOLE
RESPONSIBILITY, AND NOT THE CORPORATION’S, TO FILE A TIMELY ELECTION UNDER CODE
SECTION 83(b), EVEN IF OPTIONEE REQUESTS THE CORPORATION OR ITS REPRESENTATIVES
TO MAKE THIS FILING ON HIS OR HER BEHALF.

     G. GENERAL PROVISIONS

          1. Assignment.

               (a) The Corporation may assign the Repurchase Right, the First Refusal
Right and/or the Repurchase Right to any person or entity selected by the
Board, including (without limitation) one or more shareholders of the
Corporation.

               (b) If the assignee of the Repurchase Right is other than (i) a wholly
owned subsidiary of the Corporation or (ii) the parent corporation owning one
hundred percent (100%) of the Corporation’s outstanding capital stock, then
such assignee must make a cash payment to the Corporation, upon the assignment
of the Repurchase Right, in an amount equal to the excess (if any) of (i) the
Fair Market Value of the Purchased Shares at the time subject to the assigned
Repurchase Right over (ii) the aggregate repurchase price payable for the
Purchased Shares.

          2. No Employment or Service Contract. Nothing in this Agreement or in the
Plan shall confer upon Optionee any right to continue in Service for any period
of specific duration or interfere with or otherwise restrict in any way the
rights of the Corporation (or any Parent or Subsidiary employing or retaining
Optionee) or of Optionee, which rights are hereby expressly reserved by each,
to terminate Optionee’s Service at any time for any reason, with or without
cause.

7

 

          3. Notices. Any notice required to be given under this Agreement shall be
in writing and shall be deemed effective upon personal delivery or upon deposit
in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party entitled to such notice at the address indicated below
such party’s signature line on this Agreement or at such other address as such
party may designate by ten (10) days advance written notice under this
paragraph to all other parties to this Agreement.

          4. No Waiver. The failure of the Corporation in any instance to exercise
the Repurchase Right or the First Refusal Right shall not constitute a waiver
of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other
agreement between the Corporation and Optionee or Optionee’s spouse. No waiver
of any breach or condition of this Agreement shall be deemed to be a waiver of
any other or subsequent breach or condition, whether of like or different
nature.

          5. Cancellation of Shares. If the Corporation shall make available, at
the time and place and in the amount and form provided in this Agreement, the
consideration for the Purchased Shares to be repurchased in accordance with the
provisions of this Agreement, then from and after such time, the person from
whom such shares are to be repurchased shall no longer have any rights as a
holder of such shares (other than the right to receive payment of such
consideration in accordance with this Agreement). Such shares shall be deemed
purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.

     H. MISCELLANEOUS PROVISIONS

          1. Optionee Undertaking. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Optionee or the Purchased Shares
pursuant to the provisions of this Agreement.

          2. Agreement is Entire Contract. This Agreement constitutes the entire
contract between the parties hereto with regard to the subject matter hereof.
This Agreement is made pursuant to the provisions of the Plan and shall in all
respects be construed in conformity with the terms of the Plan.

          3. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Colorado without resort to that
State’s conflict-of-laws rules.

          4. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.

          5. Successors and Assigns. The provisions of this Agreement shall inure
to the benefit of, and be binding upon, the Corporation and its successors and
assigns and upon Optionee, Optionee’s permitted assigns and the legal
representatives, heirs and legatees of

8

 

Optionee’s estate, whether or not any such person shall have become a
party to this Agreement and have agreed in writing to join herein and be bound
by the terms hereof.

9

 

SIGNATURES

     IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first indicated above.

  	 	 	 	 	 
	 	 	 	THE FLAGSHIP GROUP, INC.
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	By:	 
	 	 	 

        	 	
        

        

        

        [Title]
	 	 	 	 	 
	 	 	 	OPTIONEE
	 	 	 	 	 
	 	 	 	 
	 	 	 	
        

      
	 	 	 	Name:	 
	 	 	 

        	Title:	 

10

 

EXHIBIT I

FEDERAL INCOME TAX CONSEQUENCES AND

SECTION 83(b) TAX ELECTION

     I. Federal Income Tax Consequences and Section 83(b) Election For Exercise
of Non-Statutory Option. If the Purchased Shares are acquired pursuant to the
exercise of a Non-Statutory Option, as specified in the Grant Notice, then
under Code Section 83, the excess of the Fair Market Value of the Purchased
Shares on the date any forfeiture restrictions applicable to such shares lapse
over the Exercise Price paid for such shares will be reportable as ordinary
income on the lapse date. For this purpose, the term “forfeiture restrictions”
includes the right of the Corporation to repurchase the Purchased Shares
pursuant to the Repurchase Right. However, Optionee may elect under Code
Section 83(b) to be taxed at the time the Purchased Shares are acquired, rather
than when and as such Purchased Shares cease to be subject to such forfeiture
restrictions. Such election must be filed with the Internal Revenue Service
within thirty (30) days after the date of the Agreement. Even if the Fair
Market Value of the Purchased Shares on the date of the Agreement equals the
Exercise Price paid (and thus no tax is payable), the election must be made to
avoid adverse tax consequences in the future. The form for making this
election is attached as part of this exhibit. FAILURE TO MAKE THIS FILING
WITHIN THE APPLICABLE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF
ORDINARY INCOME BY OPTIONEE AS THE FORFEITURE RESTRICTIONS LAPSE.

     II. Federal Income Tax Consequences and Conditional Section 83(b) Election
For Exercise of Incentive Option. If the Purchased Shares are acquired
pursuant to the exercise of an Incentive Option, as specified in the Grant
Notice, then the following tax principles shall be applicable to the Purchased
Shares:

	     	
	 	     (i) For regular tax purposes, no taxable income will be
recognized at the time the Option is exercised.
	 
	 	     (ii) The excess of (a) the Fair Market Value of the Purchased
Shares on the date the Option is exercised or (if later) on the
date any forfeiture restrictions applicable to the Purchased
Shares lapse over (b) the Exercise Price paid for the Purchased
Shares will be included in Optionee’s taxable income for
alternative minimum tax purposes.
	 
	 	     (iii) If Optionee makes a disqualifying disposition of the
Purchased Shares, then Optionee will recognize ordinary income in
the year of such disposition equal in amount to the excess of (a)
the Fair Market Value of the Purchased Shares on the date the
Option is exercised or (if later) on the date any forfeiture
restrictions applicable to the Purchased Shares lapse over (b) the
Exercise Price paid for the Purchased Shares. Any additional gain
recognized upon the disqualifying disposition will be either
short-term or long-term capital gain depending upon the period for
which the Purchased Shares are held prior to the disposition.

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	 	     (iv) For purposes of the foregoing, the term “forfeiture
restrictions” will include the right of the Corporation to
repurchase the Purchased Shares pursuant to the Repurchase Right.
The term “disqualifying disposition” means any sale or other
disposition1 of the Purchased Shares within two (2) years after
the Grant Date or within one (1) year after the exercise date of
the Option.
	 
	 	     (v) In the absence of final Treasury Regulations relating to
Incentive Options, it is not certain whether Optionee may, in
connection with the exercise of the Option for any Purchased
Shares at the time subject to forfeiture restrictions, file a
protective election under Code Section 83(b) which would limit (a)
Optionee’s alternative minimum taxable income upon exercise and
(b) Optionee’s ordinary income upon a disqualifying disposition to
the excess of the Fair Market Value of the Purchased Shares on the
date the Option is exercised over the Exercise Price paid for the
Purchased Shares. Accordingly, such election if properly filed
will only be allowed to the extent the final Treasury Regulations
permit such a protective election. Page 2 of the attached form
for making the election should be filed with any election made in
connection with the exercise of an Incentive Option.

	 	 	1 Generally, a disposition of shares purchased under an Incentive Option
includes any transfer of legal title, including a transfer by sale, exchange or
gift, but does not include a transfer to the Optionee’s spouse, a transfer into
joint ownership with right of survivorship if Optionee remains one of the joint
owners, a pledge, a transfer by bequest or inheritance or certain tax free
exchanges permitted under the Code.

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SECTION 83(b) ELECTION

     This statement is being made under Section 83(b) of the Internal Revenue
Code, pursuant to Treas. Reg. Section 1.83-2.

	(1)	  	The taxpayer who performed the services is:
	 
	 	  	Name:

Address:

Taxpayer Ident. No.:
	 
	(2)	  	The property with respect to which the election is being made is
___________ shares of the common stock of The Flagship Group, Inc.
	 
	(3)	  	The property was issued on _____________, ____________.
	 
	(4)	  	The taxable year in
which the election is being made is the calendar year ______.
	 
	(5)	  	The property is subject to a repurchase right pursuant to which the issuer has the right to acquire the
property at the original purchase price if for any reason taxpayer’s employment with the issuer is
terminated. The issuer’s repurchase right lapses in a series of annual and monthly installments over a [four
(4)-year period ending on _____________, ___________].
	 
	(6)	  	The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will never
lapse) is $_____________ per share.
	 
	(7)	  	The amount paid for such property is $___________ per share.
	 
	(8)	  	A copy of this statement was furnished to The Flagship Group, Inc. for
whom taxpayer rendered the services underlying the transfer of property.
	 
	(9)	  	This statement is executed on _______________________, __________________.

	 	 	 
	

Spouse (if any)	 	

Taxpayer

This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Purchase Agreement.
This filing should be made by registered or certified mail, return receipt
requested. Optionee must retain two (2) copies of the completed form for
filing with his or her Federal and state tax returns for the current tax year
and an additional copy for his or her records.

13

 

The property described in the above Section 83(b) election is comprised of
shares of common stock acquired pursuant to the exercise of an incentive stock
option under Section 422 of the Internal Revenue Code (the “Code”).
Accordingly, it is the intent of the Taxpayer to utilize this election to
achieve the following tax results:

     1. The purpose of this election is to have the alternative minimum taxable
income attributable to the purchased shares measured by the amount by which the
fair market value of such shares at the time of their transfer to the Taxpayer
exceeds the purchase price paid for the shares. In the absence of this
election, such alternative minimum taxable income would be measured by the
spread between the fair market value of the purchased shares and the purchase
price which exists on the various lapse dates in effect for the forfeiture
restrictions applicable to such shares. The election is to be effective to the
full extent permitted under the Code.

     2. Section 421(a)(1) of the Code expressly excludes from income any excess
of the fair market value of the purchased shares over the amount paid for such
shares. Accordingly, this election is also intended to be effective in the
event there is a “disqualifying disposition” of the shares, within the meaning
of Section 421(b) of the Code, which would otherwise render the provisions of
Section 83(a) of the Code applicable at that time. Consequently, the Taxpayer
hereby elects to have the amount of disqualifying disposition income measured
by the excess of the fair market value of the purchased shares on the date of
transfer to the Taxpayer over the amount paid for such shares. Since Section
421(a) presently applies to the shares which are the subject of this Section
83(b) election, no taxable income is actually recognized for regular tax
purposes at this time, and no income taxes are payable, by the Taxpayer as a
result of this election.

THIS PAGE 2 IS TO BE ATTACHED TO ANY SECTION 83(b) ELECTION FILED IN CONNECTION
WITH THE EXERCISE OF AN INCENTIVE STOCK OPTION UNDER THE FEDERAL TAX LAWS.

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APPENDIX

     The following definitions shall be in effect under the Agreement:

     A. Agreement shall mean this Stock Purchase Agreement.

     B. Board shall mean the Corporation’s Board of Directors.

     C. Code shall mean the Internal Revenue Code of 1986, as amended.

     D. Common Stock shall mean the Corporation’s common stock.

     E. Corporate Transaction shall mean any of the following transactions:

	     	
	 	     1. a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power
of the Corporation’s outstanding securities are transferred to a
person or persons different from the persons holding those
securities immediately prior to such transaction,
	 
	 	     2. the sale, transfer or other disposition of all or
substantially all of the Corporation’s assets or capital stock, or
	 
	 	     3. a tender or exchange offer in which, after the
consummation of the offer, the offeror is the beneficial owner (as
determined pursuant to Section 13(d) of the Securities Exchange
Act of 1934, as amended), directly or indirectly, of at least
fifteen percent (15%) of the outstanding Common Stock.

     F. Corporation shall mean The Flagship Group, Inc., a Delaware
corporation.

     G. Disposition Notice shall have the meaning assigned to such term in
Paragraph E.2.

     H. Exercise Notice shall have the meaning assigned to such term in
Paragraph E.3.

     I. Exercise Price shall have the meaning assigned to such term in
Paragraph A.1.

     J. Fair Market Value of a share of Common Stock on any relevant date,
prior to the initial public offering of the Common Stock, shall be determined
by the Plan Administrator after taking into account such factors as it shall
deem appropriate.

     K. First Refusal Right shall mean the right granted to the Corporation in
accordance with Article E.

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     L. Grant Date shall have the meaning assigned to such term in Paragraph A.1.

     M. Grant Notice shall mean the Notice of Grant of Stock Option pursuant to
which Optionee has been informed of the basic terms of the Option.

     N. Incentive Option shall mean an option which satisfies the requirements
of Code Section 422.

     O. Involuntary Termination shall mean the termination of Optionee’s
Service which occurs by reason of:

	     	
	 	     1. Optionee’s involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
	 
	 	     2. Optionee’s voluntary resignation following (A) a change in
his or her position with the Corporation which materially reduces
his or her level of responsibility, (B) a reduction in Optionee’s
level of compensation (including base salary, fringe benefits and
participation in corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation
of Optionee’s place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is
effected by the Corporation without Optionee’s consent.

     P. Market Stand-Off shall mean the market stand-off restriction specified
in Paragraph C.3.

     Q. Misconduct shall mean the commission of any act of fraud, embezzlement
or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any Parent or
Subsidiary), or any other intentional misconduct by Optionee adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
Optionee or any other person in the Service of the Corporation (or any Parent
or Subsidiary).

     R. 1933 Act shall mean the Securities Act of 1933, as amended.

     S. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.

     T. Option shall have the meaning assigned to such term in Paragraph A.1.

     U. Option Agreement shall mean all agreements and other documents
evidencing the Option.

     V. Optionee shall mean the person to whom the Option is granted under the
Plan.

16

 

     W. Owner shall mean Optionee and all subsequent holders of the Purchased
Shares who derive their chain of ownership through a Permitted Transfer from
Optionee.

     X. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.

     Y. Permitted Transfer shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if (A) Optionee obtains the Corporation’s
prior written consent to such transfer, (B) prior to the completion of the
transfer the transferee shall have executed documents assuming the obligations
of the Optionee under this Agreement with respect to the transferred securities
and (C) prior to the completion of the transfer the transferee shall have
executed an Irrevocable Proxy substantially in the form of Exhibit A attached
hereto appointing the transferring Optionee as the transferee’s proxy and
giving the transferring Optionee full power of substitution to vote all of the
shares of capital stock transferred pursuant to a gratuitous transfer, (ii) a
transfer of title to the Purchased Shares effected pursuant to Optionee’s will
or the laws of intestate succession following Optionee’s death or (iii) a
transfer to the Corporation in pledge as security for any purchase-money
indebtedness incurred by Optionee in connection with the acquisition of the
Purchased Shares.

     Z. Plan shall mean the Corporation’s 1999 Stock Option/Stock Issuance
Plan.

     AA. Plan Administrator shall mean either the Board or a committee of Board
members, to the extent the committee is at the time responsible for
administration of the Plan.

     BB. Prior Purchase Agreement shall have the meaning assigned to such term
in Paragraph D.4.

     CC. Purchased Shares shall have the meaning assigned to such term in
Paragraph A.1.

     DD. Recapitalization shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation’s outstanding Common Stock as a class without the
Corporation’s receipt of consideration.

     EE. Reorganization shall mean any of the following transactions:

	     	
	 	     1. a merger or consolidation in which the Corporation is not
the surviving entity,
	 
	 	     2. a sale, transfer or other disposition of all or
substantially all of the Corporation’s assets,
	 
	 	     3. a reverse merger in which the Corporation is the surviving

17

 

	     	
	 	entity but in which the Corporation’s outstanding voting
securities are transferred in whole or in part to a person or
persons different from the persons holding those securities
immediately prior to the merger, or
	 
	 	     4. any transaction effected primarily to change the state in
which the Corporation is incorporated or to create a holding
company structure.

     FF. Repurchase Right shall mean the right granted to the Corporation in
accordance with Article D.

     GG. SEC shall mean the Securities and Exchange Commission.

     HH. Service shall mean the provision of services to the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an employee, subject
to the control and direction of the employer entity as to both the work to be
performed and the manner and method of performance, a non-employee member of
the board of directors or a consultant or independent advisor.

     II. Subsidiary shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at
the time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.

     JJ. Target Shares shall have the meaning assigned to such term in
Paragraph E.2.

     KK. Vesting Schedule shall mean the vesting schedule specified in the
Grant Notice, subject to the acceleration provisions upon an Involuntary
Termination following a Corporate Transaction.

     LL. Unvested Shares shall have the meaning assigned to such term in
Paragraph D.1.

18

 

EXHIBIT A

Irrevocable Proxy

     The undersigned agrees that he or she is obligated to execute an
Irrevocable Proxy under the definition of a “Permitted Transfer” of that
certain Stock Purchase Agreement (the “Agreement”) by and among The Flagship
Group, Inc. (the “Company”) and the transferring Optionee listed below.
Therefore, the undersigned hereby appoints the transferring Optionee listed
below as his or her proxy, with full power of substitution, to vote all of the
shares of capital stock of the Company held by the undersigned pursuant to a
Permitted Transfer under the Agreement and entitled to vote thereon, (whether
such vote is taken by written consent to or at a meeting of the shareholders)
with respect to any and all matters requiring the vote of the Company’s
shareholders. The proxy granted herein is irrevocable, to the extent provided
for under the Delaware General Corporation Law, and is granted in consideration
of the transfer of the capital stock of the Company to the undersigned. Such
proxy shall terminate on the termination of the Repurchase Right under the
Agreement.

  	 	 	 
	
         

      	 	 
        

        Signature  
        

      
	 	 	 
	
         

      	 	 
        

        Print Name  
        

      
	 	 	 
	
         

      	 	  Number of shares

        beneficially owned:

        
        

      
	
        
          

          Transferring Optionee Name

      	 	
        

         
        

      

19<PAGE>

                                                                    Exhibit 10.3

                                      LEASE

     THIS LEASE is made and entered into on September 1, 1999 by and between
GORDON A. CAMPBELL and MARIA LIGETI, Trustees of the Revocable Living Trust
dated March 23, 1987, and HILLVIEW MANAGEMENT, INC., a California corporation,
as tenants-in-common doing business under the fictitious business name "Techfarm
Plaza" ("Landlord"), and IMPAC MEDICAL SYSTEMS AND SUBSIDIARY, a California
Corporation, ("Tenant").

     Landlord, for and in consideration of the rent to be paid by Tenant and of
the covenants and provisions to be kept and performed by Tenant under this
Lease, hereby Leases to Tenant, and Tenant agrees to Lease from Landlord, that
certain space which is expected to consist of thirty-five thousand two hundred
eighty four (35,284) gross rentable square feet and is outlined in red on the
plat map attached as Exhibit A to this Lease, which space (the "Premises") is to
be located on the first and second floor(s) of the building (the "Building,"
which is to be known as "Techfarm Plaza, Building No. 2") being constructed
on real property known as 100 West Evelyn Avenue, Mountain View, California (the
"Property") and further described in the attached Exhibit "A".

                            ARTICLE 1. TERM OF LEASE

     Section 1.0l. Original Term. This Lease shall be for a term of seven years
                   -------------
(the "Original Term") commencing at 12:Ol A.M. on the later of December 1, 1999
(the "Target Completion Date") or the date of Substantial Completion of the
Premises ("Commencement Date"), and ending at 12:Ol A.M. on the day prior to the
eighth anniversary of the Commencement Date (the "Termination Date"), unless
terminated earlier pursuant to the provisions of this Lease.

     Section 1.02. Extended Term. In the event Tenant is not then in default
                   -------------
under this Lease beyond any applicable cure period, Tenant shall have the option
and right to extend the Original Term of this Lease for one period of five years
commencing on expiration of the Original Term (the "Extended Term"). This option
shall also include any and all expansion space Tenant may have acquired during
the Original Term. If Tenant elects to extend the term of this Lease, Tenant
must give Landlord written notice of Tenant's election to extend at least one
hundred-eighty (180) days before expiration of the Original Term. During the
Extended Term of this Lease, if any, Landlord and Tenant shall be bound by all
of the obligations, covenants, and agreements of this Lease except that Tenant
shall have no right to further extend the term of this Lease beyond or after
expiration of the one five-year period granted under this section. References
throughout this Lease to "the term of this Lease" shall include both the
Original Term and the Extended Term, if any, unless otherwise indicated.

     Section 1.03. Riqht of First Refusal. Tenant shall have a Right of First
                   ----------------------
Refusal to Lease any space which comes available in the Building commonly known
as 200

                                       -1-

<PAGE>

West Evelyn Ave. that Tenant should desire. Such Right of First Refusal shall be
at the same Rental Rate as that in effect for the original Lease Agreement,
including annual increases, and such new Lease shall terminate concurrent with
the Original and/or Extended Lease Term, if applicable. In this regard, Landlord
shall be required to give Tenant at least Thirty Days (30) notice in writing of
any space that becomes available at 200 West Evelyn Avenue. Thereafter, if
Tenant elects to exercise its Right of First Refusal, Tenant must give Landlord
written notice of Tenant's election to exercise said Right of First Refusal as
to said space within thirty days (30) of receipt of Landlord's written
notification of said space availability.

     Should Tenant exercise its Right of First Refusal to lease any space which
becomes available in the Building commonly known as 200 West Evelyn Avenue,
then, Tenant shall also be entitled to a Tenant Allowance for Tenant
Improvements equal to $28.00 per net square foot rented by Tenant in the new
Building as specified in this Lease under paragraph 1.07. In addition, all other
terms and conditions set forth with respect to the construction by Landlord of
Tenant's Premises as specified in Section 1.07 shall apply with the exception of
Landlord's obligation to pay any additional costs necessary should Tenant desire
an upgraded HVAC System as is specified in Section 1.07(d).

     Section 1.04. Holding Over. In the event Tenant holds over and continues in
                   ------------
possession of the Premises after expiration of the Original Term (when Tenant
has not validly exercised its option to extend the term of the Lease in
accordance with Section 1.02) or after expiration of the Extended Term (when
Tenant has validly exercised its option to extend the term of the Lease in
accordance with Section 1.02) Tenant's continued occupancy of the Premises shall
be considered a month-to-month tenancy subject to all the terms and conditions
of this Lease.

     Section 1.05. Landlord's Inability to Deliver Possession. If for any reason
                   ------------------------------------------
the Buiiding is not completed and ready for occupancy by Tenant, as provided
hereinafter, on the Target Completion Date set forth in Section 1.0l of this
Lease, except as described in Section 1.05 below, this Lease shall not be void
or voidable nor shall Landlord be liable to Tenant for any loss or damage
resulting from failure to deliver possession to Tenant so long as Landlord has
exercised, and continues to exercise, reasonable diligence to deliver possession
of the Premises to Tenant. No rent shall, however, accrue or become due from
Tenant to Landlord under this Lease until substantial completion of the Building
as defined in Section 1.07(f) below.

     Section 1.06. Termination for Failure of Possession. Notwithstanding any
                   -------------------------------------
provision of Section 1.05 of this Lease, but subject to the provisions of
Section 1.07, if for any reason the Building is not completed and ready for
occupancy by February 1, 2000, Tenant may terminate this Lease by giving
Landlord written notice of its election to do so. In the event Tenant elects to
so terminate this Lease, this Lease shall become null and void as of the date
Tenant delivers its written notice of termination to

                                      -2-

<PAGE>

Landlord, and thereafter neither party to this Lease shall be under any further
obligation or liability to the other because of this Lease and Landlord shall
return to Tenant any consideration received from Tenant pursuant to or for
execution of this Lease. If Tenant elects to terminate this Lease in accordance
with the provisions of this section, it shall give written notice of its
election to terminate to Landlord on or before March 1, 2000.

     Section 1.07 Construction by Landlord. Landlord shall complete construction
                  ------------------------
of the Building in good and workmanlike manner and in compliance with all
applicable laws (at Landlord's cost, except as provided in subsection (d)
hereinbelow). Upon completion of construction, the Premises will be suitable, in
all material respects, for Tenant's use as administrative offices, sales,
research and development, shipping and receiving and all other legal related
uses, and that the Building will not present a health hazard to occupants or
guests and that the Building will be in compliance in all material respects
with all laws, regulations, rules, ordinances, and court decrees affecting
ownership and operation of the Building.

     (a) Preliminary Plans. The parties have agreed on preliminary plans and
         -----------------
specifications and preliminary cost estimates for the construction of certain
improvements to the Premises (the Tenant Improvements") on. Copies of these
documents are attached as Exhibit B to this Lease.

     (b) Final Plans. Within fifteen (15) days after the mutual execution of
         -----------
this Lease, Landlord shall cause final plans and specifications (including
working drawings) and final cost estimates for the Tenant Improvements once
approved by Tenant and all required governmental agencies, (the "Final Plans")
to be prepared, at Landlord's sole expense, and delivered to Tenant. The Final
Plans shall be based on the preliminary plans and, specifications and
preliminary cost estimates previously approved by the parties and once approved
in writing by Tenant, shall be deemed to be a part of this Lease and shall be
attached hereto as Exhibit C.

     (c) Approval By Governmental Agencies. Landlord shall be responsible for
         ---------------------------------
obtaining approval for the Final Plans from all necessary government agencies at
its sole cost. The parties agree that they shall be bound by any change in the
Final Plans ordered as a condition of government approval. In this regard,
Landlord shall deliver the Premises to Tenant in accordance with all local and
state codes and ordinances and shall comply with Americans With Disabilities Act
("ADA') requirements as well.

     (d) Cost Overruns. It is expressly understood and agreed by the parties
         -------------
that Landlord shall not be required to provide or pay for any construction of
Tenant Improvements in addition to that set forth in the Final Plans, and that
Tenant shall not substantially delay or impede the construction by making
changes or alterations in the Final Plans. Any changes requested by Tenant in
the Final Plans must be approved by Landlord and any and all such changes or
alterations shall be paid for solely by Tenant. Any additional time for
construction required by Tenant's changes in the Final Plans shall be

                                       -3-

<PAGE>

added to the time permitted for Landlord's completion of the Building. Anything
in this Lease to the contrary notwithstanding, Tenant shall be entitled to a
total allowance for the Tenant Improvements of twenty-eight dollars ($28.00) per
gross rentable square foot included in the Premises, based on a net square
footage of twenty nine thousand seven hundred and seventy one (29,771) square
feet for a total Tenant Improvement Allowance of Eight hundred Thirty Three
Thousand Five Hundred Eighty Eight ($833,588.00). Currently, Tenant's estimate
for the initial cost breakdown for Tenant buildout is Seven Hundred Fifty Four
Thousand Seven Hundred Dollars and Eighty Four Cents ($754,700.84) or
approximately Twenty Five Dollars and Thirty Five Cents ($25.35) per square
foot. The balance of the Tenant Improvement allowance of Seventy Eight Thousand
Eight Hundred Eighty Seven Dollars and Sixteen Cents ($78,887.16) or
approximately Two Dollars and Sixty Five Cents ($2.65) per rentable square foot
shall be allocated for the upgraded HVAC System. In this regard, and only with
respect to the HVAC System, Landlord shall be responsible for any and all
additional costs necessary to complete the HVAC System in accordance with the
plans and specifications agreed upon by the parties attached hereto as Exhibit
"B".

     The Landlord shall be entitled to use the full Seventy Eight Thousand Eight
Hundred Eighty Seven Dollars and Sixteen Cents ($78,887.16) for the HVAC System
and, as set forth above, Tenant shall pay for the cost of Tenant Improvements to
the extent that such costs exceeds the allowance for their space Twenty Five
Dollars and Thirty Five Cents ($25.35) per square foot, which excess cost shall
be paid within thirty (30) days following presentation by Landlord of an invoice
setting forth the calculation thereof.

     (e) Corrective Work. When construction of the Building is Substantially
         ---------------
Complete, Landlord shall notify Tenant in writing. Within ten (10) days after
the date of Landlord's written notice, Tenant shall inspect the Premises and
shall prepare a "punchlist" of all items Tenant considers either defective or
not completed. Within thirty (30) days after Tenant delivers the punchlist to
Landlord, Landlord shall cause all corrective work identified on the punchlist
to be performed that, in the opinion of Landlord's architect, is necessary to
bring the construction in substantial conformance with the Final Plans. If
Tenant fails to deliver a punchlist to Landlord within the time period required
by this section, Tenant shall be deemed to have inspected the Premises and
accepted the Premises in the condition when inspected by Tenant, except for
latent defects not ascertainable by inspection, for which Landlord shall
continue to be responsible throughout the term of this Lease.

     (f) Substantial Completion Definition. The Premises shall be deemed
         ---------------------------------
completed and ready for occupancy by Tenant ("Substantial Completion") or
"Substantially Complete" as the context requires when the Tenant Improvements
are complete and a final Certificate of Occupancy for the Building has been
issued by the City of Mountain View, California, and Landlord has given Tenant
written notice of the issuance of such a certificate.

                                       -4-

<PAGE>

     (g) Limited Landlord Warranty. Landlord, at its sole cost and expense,
         -------------------------
shall warrant to the best of its knowledge that all building systems, once
completed, are in good working condition, including, but not limited to, HVAC,
electrical, roof and plumbing systems for six months following the Commencement
Date and that the Premises are free of any defects and code violations. Thus,
notwithstanding anything to the contrary contained herein, Landlord agrees to
cause to be repaired and to indemnify and hold Tenant harmless from the cost of
any corrective work necessary to enforce the provisions of this warranty during
said six month term.

     (h) Landlord and Tenant agree that Tenant shall be entitled to review a
detailed breakdown of the Network Infrastructure and Tenant shall have the right
to substitute any equipment which Tenant already owns as set forth in the
breakdown. Because Tenant's needs are met by having a Tl connection rather than
a T3 connection, Tenant may require Landlord to have a Tl connection and in this
regard, will assume any and all additional cost of the Tl connection itself.

     (i) Tenant's Proportionate Share. Because Tenant is currently leasing one
         ----------------------------
Building of the two situate on the parcel of real property, for the purposes of
this Lease, Tenants Proportionate Share of any and all additional rentals due
hereunder shall be considered fifty percent (50%). Notwithstanding that, should
Tenant exercise its Right of First Refusal during the term hereof or any other
term to rent additional space as provided under Section 1.03 above, then, Tenant
shall be required to pay additional rents in addition to the fifty percent (50%)
Proportionate Share herein stated based on the proportion of space that Tenant
leases in the additional Building. Thus, by way of example, if Tenant exercises
the Right of First Refusal to lease what amounts to twenty-five percent (25%) of
the Building commonly known as 200 West Evelyn Avenue, then, in addition to
Tenant paying fifty percent (50%) of the additional rents as herein specified,
he shall also pay an additional rents equal to twelve and one half percent
(12-l/2%) of the increases in Base Operating Expenses and Real Property Taxes
applicable to the space pursuant to the Right of First Refusal, (i.e.
twenty-five percent (25%) of fifty percent (50%) of the Building equals twelve
and one half percent (12-l/2%).

     (j) Signage/Graphics. Tenant, subject to the approval of any and all
         ----------------
governmental agencies including but not limited to the City of Mountain View and
the approval of Landlord (which approval shall not be unreasonably withheld or
delayed), shall have the right to display its corporate name and logo on the
building and at other locations surrounding the Premises.

                        ARTICLE 2. RENT; SECURITY DEPOSIT

     Section 2.01.

     (a) Base Rent. Tenant agrees to pay to Landlord a monthly base rental for
         ---------
the use and occupancy of the Premises (the "Base Rent") without setoff or
deduction on

                                      -5-

<PAGE>

the Commencement Date and thereafter on the first day of each and every month,
at the office of Landlord at 200 Evelyn Avenue, Mountain View, California, or at
any other place or places as Landlord may from time to time designate by
written notice delivered to Tenant. Base Rent for partial calendar months
occurring at the commencement and termination of the term of this Lease shall be
prorated accordingly.

     (b) Base Rent During Year One Of Original Term. The Base Rent payable for
         ------------------------------------------
the first year of the Original Term shall be calculated by multiplying the
dollar amount set forth in the following table by the square footage indicated:.

      Months   Square Footage  Base Rent Per Square Foot     Total Rent
      ------   --------------  -------------------------     ----------

      01-04    25,000          $3.35 Full Service            $ 83,750.00

      05-06    30,000          $3.35 Full Service            $100,500.00

      07-12    35,284          $3.35 Full Service            $118,201.40

     (c) Base Rent For Remainder of Term. Beginning in the thirteenth (13) month
         -------------------------------
of the Lease, i.e. the Second Year Term and continuing on every one year
anniversary thereafter, the Rental Rate based on Thirty Five Thousand Two
Hundred and Eighty Four Square Feet times $3.35 (i.e. One Hundred Eighteen
Thousand Two Hundred and One Dollars and Forty Cents ($118,201.40) shall be
increased by ten cents per square foot. Thus, beginning in the thirteenth month
of the Lease, the Rental Rate shall be $3.45 full service for the Thirty Five
Thousand Two Hundred and Eighty Four Square Feet of the Premises and thereafter,
shall increase by ten cents per square foot on the anniversary of the thirteenth
month, each and every one year anniversary thereafter.

     (d) Base Rent During Extended Term. The Base Rent per gross rentable square
         ------------------------------
foot to be paid by Tenant during the first year of the Extended Term shall be
the greater of (i) the rent immediately in effect during the last year of the
Original Term or (ii) ninety-five percent (95%) of the "fair rental value" as
defined hereinbelow, of the Premises. Within thirty (30) days following receipt
of Tenant's election to extend the term of this Lease, Landlord shall advise
Tenant in writing of Landlord's estimate of such fair rental value. If Tenant
objects in writing to such estimate within fifteen (15) days after the receipt
thereof from Landlord, the fair rental value of the Premises shall be determined
as provided in this subsection. In such case, at least sixty (60) days before
expiration of the Original Term, Landlord and Tenant shall each designate an
appraiser who is a member of the American Institute of Real Estate Appraisers.
If the two selected appraisers cannot agree, within 30 days of their appointment
on the fair rental value, then, within forty (40) days after selection of the
last of the two appraisers, the two appraisers chosen shall select a third
appraiser. If a third appraiser is not selected within the time allotted, a
third appraiser shall be selected by the American Arbitration Association, the
cost of which shall be shared equally by Landlord and Tenant. All

                                      -6-

<PAGE>
appraisal costs shall be shared equally by Landlord and Tenant.

         For purposes hereof, "fair rental value" shall mean the effective base
rental rates (including periodic adjustments to such base rental rates) then
being received for premises of similar size and quality to the Premises, located
in similar locations in the Mountain View area which are similar in size and
quality to the Building, leased for terms of approximately five years, and
otherwise subject to leases containing substantially similar terms as those
contained in this Lease. Notwithstanding the foregoing, "fair rental value"
shall not include any rental value attributable to improvements, alterations,
fixtures, equipment, and personal property installed in the Premises at
Tenant's expense.

         The fair rental value of the Premises shall be appraised according to
their use at the time of appraisal. The appraised value of the Premises for
purposes of calculating the rent adjustment provided for under this section
shall be the value agreed upon by the two appraisers, and, in the absence of
such agreement, the third appraiser appointed shall choose one of the two
appraisers determination of fair rental value which most closely approximates
the third appraiser's own determination of the fair rental value as defined
herein. The third appraiser shall have no right to propose a middle ground or
any modification of either of the two proposed appraisals. Alternatively, if
Landlord and Tenant agree that the appraisal shall be conducted by one appraiser
selected jointly, the fair rental value determined by that appraiser shall be
controlling.

         Section 2.02 Base Year For Purposes of Determining Additional Rents. In
                      ------------------------------------------------------
addition to the Rent Specified in Section 2.01 of this Lease, Tenant agrees to
pay to Landlord as additional rental, the sums set forth in Section 2.03 through
2.04 inclusive. For the purposes of determining the additional rents, the Base
Year as used in those sections shall be defined to mean a full one year period
following the date of occupancy of Tenant of the Premises and complete
construction of same. Thus, in order to determine the Real Property Taxes and
Assessments attributable to the Premises during the Base Year as well as
determine the Base Operating Expenses, the Building shall have been completed
for a full one year term so that all Real Property Taxes, Assessments, and
Supplemental Assessments attributable to construction can be determined (which,
Year One taxes, etc. shall be borne exclusively by Landlord under the terms of
this Lease) and so that, the Operating Expenses attributable to the Base Year to
be incurred by Landlord (which under this Lease are Landlord's sole
responsibility) can be determined.

         Section 2.03. Additional Rent for Increase In Taxes. In addition to the
                       -------------------------------------
 rent specified in Section 2.01 of this Lease, Tenant agrees to pay to Landlord
 as additional rent for the use and occupancy of the Premises for each year
 after the end of the Base Year, Tenant's Proportionate Share as defined in
 Section 1.07 (i) of the amount that is required to reimburse Landlord for any
 and all increases in Real Property Taxes,

                                       -7-

<PAGE>

(including general and special assessments) levied against the entire parcel of
real property on which the Building is situate and supplemental assessments
strictly assessed due to construction of the Building following, the initial
assessment for such construction after the First Year. Thus, while Landlord
shall pay for all taxes applicable to the subject Building and real property
during Year One of this Lease, Tenant shall be responsible for any increases to
such taxes assessed, in accordance with the proportion of space that Tenant is
leasing from Landlord at that time. If supplemental assessments attributable to
construction can be attributed strictly to the Building which Tenant occupies,
then, such increases shall be borne exclusively by Tenant. In the event that
increases in supplemental assessments applicable to construction on the Building
are levied against the entirety of the Property, then, Tenant shall be
responsible for increases in accordance with its proportionate share of
occupancy at that time. The additional rents shall be estimated following the
Base Year and shall be payable in two equal installments on April 1/st/ and
November 1/st/ of the second year and each year thereafter and:

         (a) Shall be computed on the basis that each tax year commences on
 August 1 of one calendar year and ends on July 31 of the following calendar
 year.

         (b) For purposes of this section, all taxes and assessments levied or
 assessed against the Building and the Property during the first and last years
 of the term of this Lease shall be prorated as of 12:Ol A.M. Pacific time on
 the dates of commencement and expiration, respectively, of the term of this
 Lease.

         Section 2.04. Additional Rent for Increase In Operating Expenses.
                       --------------------------------------------------

         (a) Additional Rent For Operating Expenses. In addition to the rent
             --------------------------------------
 specified in Section 2.01. of this Lease, Tenant agrees to pay to Landlord as
 additional rent for the use and occupancy of the Premises for each year after
 the end of the First Lease Year an amount equal to Tenant's Proportionate
 Share (as defined in Section 1.07 (i)) of any increase in Operating Expenses
 incurred by Landlord for that year over the Operating Expenses incurred by
 Landlord for the Base Year in which this Lease is made. Thus, commencing with
 year 3 of this Lease, the amount of the increase for the preceding calendar
 year (i.e. Lease year two and each year thereafter) shall be specified in a
 notice given to Tenant by Landlord ("Landlord's Statement") on or before March
 1 of each such year and shall be payable by Tenant to Landlord at the place
 where the Base Rent is then payable within thirty (30) days following delivery
 of such notice. In no event, however, shall Tenant's share of increases in
 Operating Expenses exceed an amount equal to (10%) above the immediately
 preceding year.

         (b) Definition of Operating Expenses. For the purposes of this Section
             --------------------------------
 2.04 the term "Operating Expenses" shall mean all reasonable and customary
 expenses incurred by Landlord for the administration, operation, and
 maintenance of the Building, including but not limited to (1) personal property
 taxes; (2) the costs of all utilities and other services required, by this
 Lease or otherwise, to be furnished by Landlord to the

                                       -8-

<PAGE>

Building; (3) insurance premiums on insurance policies insuring the Building
excluding earthquake premiums unless available at commercially reasonable rates;
(4) the costs of janitorial services for the Building; and (5) labor and other
costs incurred in managing the Building and maintaining its elevators, hallways,
exterior walls, roof, and other parts, facilities, and appurtenances. "Operating
Expenses" also shall mean the costs of any capital improvements made to the
Building by Landlord (i) to the extent they reduce other operating expenses
during the term of this Lease, (ii) are required for the health and safety of
Building occupants, or (iii) are required under any governmental law or
regulation that was not applicable to the Building at the time it was
constructed, this cost to be amortized over the useful life of the capital
improvement, together with interest on the unamortized balance at the rate of
ten percent (10%) per annum.

         "Operating Expenses" shall not include the following:

         1. Real Property taxes;

         2. Depreciation other than depreciation on exterior window draperies,
if any, provided by Landlord, and carpeting in multitenant floor public
corridors and common areas;

         3. The cost of Tenant improvements;

         4. Costs incurred in connection with the repair of damage to the
Building to the extent Landlord is reimbursed by insurance proceeds;

         5. Leasing commissions, attorneys' fees, costs, disbursements, and
other expenses incurred in connection with negotiations or disputes with tenants
or users, or in connection, with leasing, renovating, or improving space for
tenants or other users or occupants or prospective tenants of the Premises.

         6. The cost of any service sold to any tenant (including Tenant) or
other occupant or user for which Landlord is entitled to be reimbursed as an
additional charge or rental over and above the basic rent and escalations
payable under the lease with that tenant or occupant or user.

         7. Expenses in connection with services or other benefits of a type
that are not provided to Tenant but which are provided another tenant or
occupant or user of the Premises.

         8. Costs incurred due to Landlord's violation of any terms or
conditions of this Lease or any other lease relating to the Building.

         9. Overhead profit increments paid to Landlord's subsidiaries or
affiliates for management or other services on or to the Premises, or supplies
or other materials to the extent that the cost of the services, supplies, or
materials exceeds the cost that would have been paid had the services, supplies,
or materials been provided by unaffiliated parties on a competitive basis.

                                       -9-

<PAGE>

          10.   All interest, loan fees, and other carrying costs related to any
mortgage or deed of trust or related to any capital item, and all rental and
other payable due under any ground or underlying lease of the Premises, or any
lease for any equipment ordinarily considered to be of a capital nature.

          11.   Any compensation paid to clerks, attendants, or other persons in
commercial concessions operated by Landlord.

          12.   Costs of repairs and other work occasioned by fire, windstorm,
or other casualty of an insurable nature.

          13.   Any costs, fines, or penalties incurred due to violations by
Landlord of any governmental rule or authority, this Lease or any other lease of
the Premises, or due to Landlord's negligence or willful misconduct.

          14.   Management costs to the extent they exceed management costs
charged for similar facilities in the area and in any event, to the extent they
exceed 3% of all other Operating Expenses.

          15.   Costs for sculpture, paintings, or other objects of art (and
insurance thereon or extraordinary security in connection therewith).

          16.   Wages, salaries, or other compensation paid to any executive
employees above the grade of building manager.

          17.   The cost of correcting any construction defects, building code
or other violations which were in effect prior to the Commencement Date of this
Lease.

          18.   The cost of containing, removing, or otherwise remediating any
contamination of the Premises (including the underlying land and ground water)
by any toxic or Hazardous Substances where such contamination was not caused by
Tenant.

          19.   Any other expense that under generally accepted accounting
principles and practice consistently applied would not be considered a normal
maintenance or operating expense.

          20.   The original costs of constructing the Building.

          21.   Structural repairs and replacements.

          22.   Costs to correct original or latent defects in the design,
construction or equipment of the Building.

          (c) Tenant's Right to Audit. Within 90 days after receipt of
              -----------------------
Landlord's Statement, Tenant shall have the right to audit at Landlord's local
offices, at Tenant's expense, Landlord's accounts and records relating to
Operating Expenses. Such audit shall be conducted by a certified public
accountant approved by Landlord, which approval shall not be unreasonably
withheld. If such audit reveals that Landlord has overcharged Tenant and Tenant
has paid said sum to Landlord, the amount

                                      -10-

<PAGE>

overcharged shall be repaid to Tenant within 30 days after the audit is
concluded, together with interest thereon at the rate of 10% per annum, from the
date the payment was made by Tenant until payment of the overcharge is made to
Tenant. In addition, if the Statement exceeds the actual Operating Expenses
which should have been charged to Tenant by more than 5%, the cost of the audit
shall be paid by Landlord.

          Section 2.05. Security Deposit. Tenant shall deposit with Landlord
                        ----------------
upon execution hereof, as security for Tenant's faithful upon execution hereof,
as security for Tenant's faithful performance of Tenant's obligations under this
Lease, a Security Deposit of One Hundred Eighteen Thousand Two Hundred and One
Dollar and Forty Cents ($118,201.40), which shall be paid to Landlord upon Lease
Commencement, together with the first months rent of Eighty Three Thousand Seven
Hundred and Fifty Dollars ($83,750.00) payable hereunder. If Tenant fails to pay
Base Rent or other rent or charges due hereunder, or otherwise defaults beyond
any applicable cure period under this Lease, Landlord may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Landlord or to reimburse or compensate Landlord for any liability, cost,
expense, loss or damage (including attorneys' fees) which landlord may suffer or
incur by reason thereof. If Landlord uses or applies all or any portion of said
Security Deposit, Tenant shall within ten (10) days after written request
therefor deposit moneys with Landlord sufficient to restore said Security
Deposit to the full amount required by this Lease. Any time the Base Rent
increases during the term of this Lease, Tenant shall, upon written request from
Landlord, deposit additional moneys with Landlord sufficient to maintain the
same ratio between the Security Deposit and the Base Rent as existed
theretofore. Landlord shall, at the expiration or earlier termination of the
term hereof and after Tenant has vacated the Premises, promptly return to Tenant
(or, at Landlord's option, to the last assignee, if any, of Tenant's interest
herein) that portion of the Security Deposit not used or applied by Landlord.
Unless otherwise expressly agreed in writing by Landlord, no part of the
Security Deposit shall be considered to be held in trust, to bear interest or
other increment for its use, or to be prepayment for any moneys to be paid by
Tenant under this Lease.

                           ARTICLE 3. USE OF PREMISES

          Section 3.01. Permitted Use. During the term of this Lease (including
                        -------------
the Original Term and the Extended Term, if any), the Premises shall be used for
administrative office, sales, research and development, shipping and receiving
purposes and all uses normally incident to those purposes, and for no other
purpose, without Landlord prior written consent, which shall not be unreasonably
withheld or delayed.

          Section 3.02. Insurance Hazards. Tenant shall not commit or permit the
                        -----------------
commission of any acts on the Premises nor use or permit the use of the Premises
in any manner that will increase the existing rates for or cause the
cancellation of any fire,

                                      -11-

<PAGE>

liability, or other insurance policy insuring the Premises or the improvements
on the Premises. Tenant shall, at its own cost and expense, comply with any and
all requirements of Landlord's insurance carriers necessary for the continued
maintenance at reasonable rates of fire and liability insurance policies on the
Premises and the improvements on the Premises.

          Section 3.03. Waste or Nuisance. Tenant shall not commit or permit the
                        -----------------
commission by others of any waste on the Premises; Tenant shall not maintain,
commit, or permit the maintenance or commission of any nuisance as defined in
Civil Code Section 3479 on the Premises; and Tenant shall not use or permit the
use of the Premises for any unlawful purpose. Tenant shall not use or permit the
use of the Premises in any way that obstructs or interferes with the rights of
other tenants or occupants of the Building or injures or annoys them.

          Section 3.04. Compliance With Laws. Tenant shall at Tenant's own cost
                        --------------------
and expense comply with all statutes, ordinances, regulations, and requirements
of all governmental entities, both federal and state and county or municipal,
relating to Tenant's use and occupancy of the Premises, whether those statutes,
ordinances, regulations, and requirements are now in force or are subsequently
enacted. Notwithstanding the foregoing or anything to the contrary contained in
this Lease, Tenant shall not be responsible for compliance with any laws, codes,
ordinances or other governmental directives where such compliance is not related
specifically to Tenant's use and occupancy of the Premises. For example (but not
in limitation of the foregoing) if any governmental authority should require any
portion of the Premises to be structurally strengthened against earthquake, or
should require the removal of Hazardous Substances from the Premises which were
not introduced into the Premises by Tenant and such measures are imposed as a
general requirement applicable to all tenants rather than as a condition to
Tenant's specific use or occupancy of the Premises, such work shall be performed
by and at the sole cost of Landlord. The judgment of any court of competent
jurisdiction, or the admission by Tenant in a proceeding brought against Tenant
by any government entity, that Tenant has violated any such statute, ordinance,
regulation, or requirement shall be conclusive as between Landlord and Tenant
and shall constitute grounds for termination of this Lease by Landlord.

          Section 3.05. Hazardous Substances.
                        --------------------

           (a) Definition. The term "Hazardous Substance" as used in this Lease
               ----------
shall mean any product, substance, chemical, material or waste whose presence,
nature, quantity and/or intensity of existence, use, manufacture, disposal,
transportation, spill, release or effect, either by itself or in combination
with other materials expected to be on the Premises, is either: (i) potentially
injurious to, the public health, safety or welfare, the environment or the
Premises, (ii) regulated or monitored by any governmental authority, or (iii) a
basis for liability of Landlord to any governmental agency or third

                                      -12-

<PAGE>

party under any applicable statute or common law theory. Hazardous Substance
shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude
oil or any products, by-products or fractions thereof. Tenant shall not engage
in any activity in, on or about the Premises which constitutes a Reportable Use
(as hereinafter defined) of Hazardous Substances without the express prior
written consent of Landlord and compliance in a timely manner (at Tenant's sole
cost and expense) with all applicable law. "Reportable Use" shall mean (i) the
installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a Hazardous
Substance that requires a permit from, or with respect to which a report,
notice, registration or business plan is required to be filled with, any
governmental authority. Reportable Use shall also include Tenant's being
responsible for the presence in, on or about the Premises of a Hazardous
Substance with respect to which any applicable law requires that a notice be
given to person entering or occupying the Premises or neighboring properties.
Notwithstanding the foregoing, Tenant may, without Landlord's prior consent, but
in compliance with all applicable law, use any ordinary and customary materials
reasonably required to be used by Tenant in the normal course of Tenant's
business permitted on the Premises, so long as such use is not a Reportable Use
and does not expose the Premises or neighboring properties to any meaningful
risk of contamination or damage or expose Landlord to any liability therefor. In
addition, Landlord may (but without any obligation to do so) condition its
consent to the use or presence of any Hazardous Substance, activity or storage
tank by Tenant upon Tenant's giving Landlord such additional assurances as
Landlord, in its reasonable discretion, deems necessary to protect itself, the
public, the Premises and the environment against damage, contamination or injury
and/or liability therefrom or therefor, including, but not limited to, the
installation (and removal on or before Lease expiration or earlier termination)
of reasonably necessary protective modifications to the Premises (such as
concrete encasements) and/or the deposit of an additional Security Deposit under
Section 2.04 hereof.

           (b) Soil Condition of Property. Prior to Lease execution, Tenant and
               -------------------------
Landlord agree that (i) Tenant may review all existing environmental information
relating to the property on which the Premises are located and (ii) either party
may conduct any other environmental studies which may be desired at either
parties request (at the expense of the requesting party).

           (c) Notice of Contamination. If either party knows, or has reasonable
               -----------------------
cause to believe, that a Hazardous Substance, or a condition involving or
resulting from same, has come to be located in, on, under or about the Premises,
other than as previously consented to by Landlord, either party shall
immediately give written notice of such fact to the other party. Tenant shall
also immediately give Landlord a copy of any statement, report, notice,
registration, application, permit, business plan, license, claim, action or
proceeding given to, or received from, any governmental authority or private

                                      -13-

<PAGE>

party, or persons entering or occupying the Premises, concerning the presence,
spill, release, discharge of, or exposure to, any Hazardous Substance or
contamination in, on, or about the Premises, concerning the presence, spill,
release, discharge of, or exposure to, any Hazardous Substance or contamination
in, on, or about the Premises, including but not limited to all such documents
as may be involved in any Reportable Uses involving the Premises.

     (d) Tenant's Indemnification. Tenant shall indemnify, protect, defend and
         ------------------------
hold Landlord, its agents, employees, lenders and ground Landlord, if any,
harmless from and against any and all loss of rents and/or damages, liabilities,
judgments, costs, claims, liens, expenses, penalties, permits and reasonable
attorneys' and reasonable consultants' fees arising out of or involving any
Hazardous Substance or storage tank brought onto the Premises by or for Tenant
or under Tenant's direction or control. Tenant's obligations under this Section
3.05 shall include, but not be limited to, the effects of any contamination or
injury to person, property or the environment created by Tenant or suffered by
Tenant, and the cost of investigation (including consultant's fees, attorney's
fees and testing), removal, remediation, restoration and/or abatement thereof,
or of any contamination therein involved, and shall survive the expiration or
earlier termination of this Lease. No termination, cancellation or release
agreement entered into by Landlord and Tenant shall release Tenant from its
obligations under this Lease with respect to Hazardous Substances or storage
tanks, unless specifically so agreed by Landlord in writing at the time of such
agreement.

     (e) Landlord's Indemnification. Landlord shall indemnify, protect, defend
         --------------------------
and hold Tenant, its agents, employees, sub-tenants and assignees, if any,
harmless from and against any and all damages, liabilities, judgments, costs,
claims, liens, expenses, penalties, permits and reasonable attorneys' and
reasonable consultant fees arising out of or involving any Hazardous Substance
or storage tank brought onto the Premises by or for Landlord or under Landlord's
direction and control and/or arising out of any condition of the property
pre-existing the Lease. Landlord's obligations to indemnify Tenant under this
Section 3.05 shall include, but not be limited to, indemnification for the
effects of any contamination, or injury to person, property or the environment,
created by Landlord, or suffered by Landlord, and the cost of investigation
(including consultant fees, attorneys' fees, and testing), removal, remediation,
restoration, and/or abatement thereof or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Landlord and
Tenant shall release Landlord from its obligations under this Lease with respect
to Hazardous Substances or storage tanks, unless specifically so agreed by
Tenant in writing at the time, of such agreement.

     Section 3.06. Common Areas.
                   ------------

     (a) Availability. Landlord shall make available at all times during the
         ------------
term of this Lease in any portion of the Building that Landlord from time to
time designates or

                                      -14-

<PAGE>

relocates, automobile parking (without any additional cost) and common areas
(jointly referred to as "common areas," as that term is defined below) as
Landlord shall from time to time deem appropriate, but in no event shall the
parking be less than required by the applicable governing agency, whichever is
greater. Tenant shall have the nonexclusive right during the term of this Lease
to use the common areas for itself, its employees, agents, customers, clients,
invitees, and licensees.

           (b) Definition. The term "common areas" means the portions of the
               ----------
Building that, at the time in question, have been designated and improved for
common use by or for the benefit of more than one tenant of the Building,
including the parking areas; access and perimeter roads; landscaped areas;
exterior walks, roofs, stairways, elevators, escalators and/or ramps; interior
corridors, elevators, stairs, and balconies; directory equipment; the main entry
lobby; restrooms; and drinking fountains. Landlord reserves the right to
redesignate a common area for a noncommon use or to designate as a common area a
portion of the Building not previously designated a common area.

           (c) Control By Landlord. All common areas shall be subject to the
               -------------------
exclusive control and management of Landlord or any other persons or nominees
that Landlord may have delegated or assigned to exercise management or control,
in whole or in part, in Landlord's place and stead. Landlord shall have the
right to close, if necessary, all or any portion of the common areas as is
deemed necessary by Landlord in order to effect necessary repairs, maintenance,
or construction, or to maintain the safety of tenants or the general public,
provided that Landlord shall have provided reasonable alternative access to the
Premises and uses commercially reasonable efforts to avoid undue interference
with Tenant's use. Landlord will maintain the common areas in a clean, orderly
and sanitary manner. Landlord is responsible for all repairs of the common
areas, except those required by the negligence of Tenant.

           (d) Rules and Regulations. Landlord and Landlord's nominees and
               ---------------------
assignees shall have the right to establish, modify, amend and enforce
reasonable rules and regulations with respect to the common areas and the
Building. Tenant shall fully and faithfully comply with and observe the rules
and regulations for the common areas and the Building (the "Building Rules and
Regulations"), including any reasonable additions or amendments to the Building
Rules and Regulations that may be hereafter enacted by Landlord in Landlord's
sole discretion. Tenant acknowledges receipt of a copy of the Building Rules and
Regulations, which are attached to and made a part of this Lease as Exhibit D.
Landlord shall not be liable in any way for failure of any other occupant of the
Building to comply with and observe these rules and regulations.

                                ARTICLE 4. TAXES

          Section 4.01. Personal Property Taxes. Tenant shall pay before they
                        -----------------------
become delinquent all taxes, assessments, and other charges levied or imposed by
any

                                      -15-

<PAGE>

governmental entity on the furniture, trade fixtures, appliances, and other
personal property placed by Tenant in, on, or about the Premises including,
without limiting the generality of the other terms used in this section, any
shelves, counters, vaults, vault doors, wall safes, partitions, fixtures,
machinery, plant equipment, office equipment, television or radio antennas, and
communication equipment brought on the Premises by Tenant.

          Section 4.02. Real Property Taxes. All real property taxes and
                        -------------------
assessments levied or assessed against the Premises by any governmental entity,
including any special assessments imposed on or against the Premises for the
construction or improvement of public works in, on, or about the Premises, shall
be paid, before they become delinquent, by Landlord.

                  ARTICLE 5. SERVICES, ALTERATIONS AND REPAIRS

          Section 5.01. Services and Maintenance by Landlord.
                        ------------------------------------

           (a) Landlord's Maintenance Obligations. Landlord shall maintain the
               ----------------------------------
public and common areas of the Building, including lobbies, stairs, elevators;
corridors, restrooms, all exterior landscaping, windows, the mechanical,
plumbing, and electrical equipment serving the Building, and the structure
itself, in reasonably good order and condition so as to meet the reasonable
needs of Tenant, except for damage, excluding normal wear and tear, caused by
the Tenant. Damage by Tenant shall be repaired by Landlord at Tenant's expense.
The standard of maintenance shall be equal to that of other office buildings of
a similar class in the Palo Alto, Mountain View and Sunnyvale area.
Notwithstanding anything to the contrary in this Section 5.01, Tenant shall have
the right to make any repairs to the Premises which Landlord is required to
undertake under this Lease at Landlord's expense if Landlord shall not have
instituted such repairs within thirty (30) calendar days following notice from
Tenant of Tenant's intention to make such repairs and thereafter with reasonable
dispatch complete such repairs. Landlord shall, at its sole cost and expense,
comply with all laws, statutes, ordinances and governmental rules or regulations
now in force or which may hereafter be in force, insofar as any thereof relate
to Landlord's ownership and operation of the Building other than the Premises
(except as herein provided), except that the cost of complying with any of the
foregoing which results from or is occasioned by any of Tenant's acts or
improvements made in or about the Premises by or for Tenant.

           (b) Landlord's Services Obligations. Landlord shall furnish (i)
               -------------------------------
electricity for lighting and the operation of office machines, (ii) heat and air
conditioning, to the extent reasonably required for the comfortable occupancy by
Tenant in Tenant's use of the Premises during the period from 5:00 a.m. to 10:00
p.m. seven (7) days a week or a shorter period as may be prescribed by
applicable policies or regulations adopted by any utility or governmental
agency, (iii) elevator service, (iv) lighting replacement, for building standard
lights, (v) restroom supplies, (vi) window washing with reasonable

                                      -16-

<PAGE>

frequency, (vii) water for the restrooms and kitchen areas, and (viii) security
guard services and daily janitor services during the times and in the manner
that these services are customarily furnished in comparable office buildings in
the area. Landlord may establish reasonable measures to conserve energy and
water, including but not limited to, automatic light shut off after hours and
efficient lighting forms, so long as these measures do not unreasonably
interfere with Tenant's use of the Premises.

          Provided Tenant's use of the premises and services furnished
identified hereunder in this paragraph 5(b) does not interfere with Landlord's
reasonable efforts to conserve energy/water, etc., as may be mandated by
applicable policies or regulations adopted by any utility or governmental
agency, if any, then Tenant may utilize the Premises after the hours identified
above, 24 hours per day, and have access to all such services incident to its
use of the Premises after hours, 24 hours per day, provided that Tenant
shall pay for all such services utilized by Tenant after hours.

           (c) Landlord's Default. Landlord shall not be in default under this
               ------------------
Lease, nor be liable for any damages resulting from, nor shall the required
rental be abated because of (i) the installation, use, or interruption of use of
any equipment in connection with furnishing the previously listed services, (ii)
failure to furnish or delay in furnishing these services, when failure or delay
is caused by accident or conditions beyond the reasonable control of Landlord or
by necessary repairs or improvements to the Premises or to the Building, or
(iii) the limitation, curtailment, rationing, or restrictions on use of water,
electricity, gas, or any other form of energy serving the Premises or the
Building. Landlord shall use reasonable efforts to diligently remedy
interruptions in the furnishing of these services unless Tenant's use or
occupancy of the Premises is substantially impaired thereby for a period of more
than 3 consecutive days, in which event the Base Rent payable by Tenant shall
abate until such substantial impairment ceases.

           (d) Supplementary HVAC. If heat-generating equipment or lighting,
               ------------------
other than building standard lights, are installed or used in the Premises, and
this equipment or lighting affects the temperature otherwise maintained by the
air conditioning system, or if equipment is installed in the Premises that
requires a separate temperature controlled room, on Tenant's request or at
Landlord's election after notice to Tenant, Landlord shall install supplementary
air conditioning facilities in the Premises or shall modify the ventilating and
air conditioning system serving the Premises. The capital and maintenance costs
of these facilities and modifications shall be borne by Tenant, except to the
extent this provisions conflicts with Section 1.07(d) and/or Section 2.04(b).
However, if Tenant objects to the proposed installation of supplementary air
conditioning facilities or the modification of the ventilating and air
conditioning system, Landlord shall not make the installation or modification,
but Landlord shall be relieved of obligations under subsection (b) (ii) above to
the extent that comfortable occupancy of

                                      -17-

<PAGE>

the Premises cannot be provided without the installation or modification.

           (e) Payment of Costs. On receipt of a bill, Tenant shall reimburse
               ----------------
Landlord for the actual cost of (i) all heat or air conditioning provided to the
Premises during hours requested by Tenant when those services are not otherwise
furnished by Landlord, and (ii) all power and cooling energy provided for
supplementary air conditioning facilities in the Premises. Tenant shall also pay
the cost of any transformers, additional risers, panel boards, and other
facilities, if reasonably required to furnish power for supplementary air
conditioning facilities in the Premises. The cost of item (i) shall be a per
hour charge reflecting the actual electrical energy, labor, and fixed plant
costs (excluding depreciation) of running the heating and air conditioning
system.

           (f) Payment for Additional Services. In the event that Landlord, at
               -------------------------------
Tenant's request provides services to Tenant that are not otherwise provided for
in this Lease, Tenant shall pay Landlord's reasonable charges for these services
within 30 days of billing of Landlord.

          Section 5.02. Maintenance By Tenant. Tenant shall during the term of
                        ---------------------
this Lease maintain the Premises in a good, clean, and safe condition. Tenant,
at Tenant's own expense, shall repair all deteriorations or damages to the
Premises or to the Building occasioned by Tenant's lack of ordinary care.

          Section 5.03. Alterations and Liens. Tenant shall not make or permit
                        ---------------------
any other person to make any alterations to the Premises or to any Improvements
on the Premises which cost more than $2,500.00, without the prior written
consent of Landlord. Landlord shall not unreasonably withhold this consent.
Tenant shall keep the premises free and clear from any and all liens, claims,
and demands for work performed, materials furnished, or operations conducted on
the Premises at the instance or request of Tenant. Furthermore, any and all
alterations, additions, improvements, and fixtures, except furniture and trade
fixtures, made or placed in or on the Premises by Tenant or any other person
shall on expiration or earlier termination of this Lease, become the property of
Landlord and remain on the Premises. Landlord shall have the option, however, on
expiration or termination of this Lease, of requiring Tenant, at Tenant's sole
cost and expense, to remove any or all such alterations, additions,
improvements, or fixtures from the Premises, but only if Landlord informs Tenant
in writing, at the time Landlord grants its consent to their installation, that
removal will be required.

          Section 5.04. Inspection by Landlord. Following reasonable advance
                        ----------------------
notice (except in the event of an emergency) Tenant shall permit Landlord or
Landlord's agents, representatives, or employees to enter the Premises at all
reasonable times for the purpose of inspecting the Premises to determine whether
Tenant is complying with the terms of this Lease, for the purpose of doing other
lawful acts that may be

                                      -18-

<PAGE>

necessary to protect Landlord's interest in the Premises, or for the purpose of
performing Landlord's duties under this Lease.

          Section 5.05. Surrender of Premises. On expiration or earlier
                        ---------------------
termination of this Lease, Tenant shall promptly surrender and deliver the
Premises to Landlord in as good condition as on the Commencement Date, excluding
reasonable wear and tear and repairs required to be made by Landlord under this
Lease.

                        ARTICLE 6. INDEMNITY AND INSURANCE

          Section 6.01. Hold Harmless Clause. Tenant agrees to protect,
                        --------------------
indemnify, and save Landlord harmless from and against any all liability to
third parties resulting from Tenant's occupation and use of the Premises,
specifically including, without limitation, any claim, liability, loss, or
damage, arising by reason of:

          (a) The death or injury of any person or persons, including Tenant or
any person who is an employee or agent of Tenant, or by reason of the damage to
or destruction of any property, including property owned by Tenant or any person
who is an employee or agent of Tenant, and caused or allegedly caused by either
the condition of the Premises, or some act or omission of Tenant or of some
agent, contractor, employee, servant, subtenant, or concessionaire of Tenant on
the Premises;

          (b) Any work performed on the Premises or materials furnished to the
Premises at the instance or request of Tenant or any agent or employee of
Tenant; and

          (c) Tenant's failure to perform any provision of this Lease or to
comply with any requirement of law or any requirement imposed on Landlord or the
Premises by any duly authorized governmental agency or political subdivision.

          Landlord shall not be liable to Tenant, and Tenant hereby waives all
claims against Landlord, for any injury or damage to any person or property in
or about the Premises or any part of the Premises by or from any cause
whatsoever, except injury or, damage to Tenant resulting from the acts or
omissions of Landlord or Landlord's authorized agents, claims arising from any
breach or default on the part of Landlord in the performance of any covenant
contained in this Lease, and any loss or damage to property or injury to person
occurring in the public entrances, stairways, corridors, elevators, elevator
lobbies, and other public areas in the Building.

          Section 6.02. Public Liability Insurance. For the mutual benefit of
                        --------------------------
Landlord and Tenant, Tenant shall during the term of this lease cause to be
issued and maintained public liability insurance in the sum of at least two
million dollars ($2,000,000) for injury to or death of one person, and five
million dollars ($5,000,000) for injury to or death of more than one person in
any one accident, and five hundred thousand dollars ($500,000) for damage to or
destruction of any property of others, insuring the Tenant against liability for
injury, death and/or property damage occurring in or on the Premises or the
common areas. Landlord shall be named as an additional insured and the policy

                                      -19-

<PAGE>

shall contain cross-liability endorsements. The Tenant shall maintain all such
insurance in full force and effect during the entire term of this Lease and
shall pay all premiums for the insurance.

     The insurance required under this section shall be issued by a responsible
insurance company or companies authorized to do business in California and shall
be in a form reasonably satisfactory to Landlord.

     Tenant shall within ten (10) days of the date of this Lease, deposit with
Landlord a certificate showing that insurance to be in full force and effect.

     Section 6.03. Tenant's Personal Property. Tenant agrees at all times during
                   --------------------------
the term of this Lease to keep, at Tenant's sole expense, all of Tenant's
personal property, including trade fixtures and equipment of Tenant that may be
on or in the Premises from time to time, insured against loss or damage by fire
and by any peril included within fire and extended coverage insurance for an
amount that will insure the ability of Tenant to fully replace the personal
property, trade fixtures and equipment.

     Section 6.04. Fire and Extended Coveraqe Insurance. Landlord shall, during
                   ------------------------------------
the term of this Lease, procure, carry, and pay for fire and extended coverage
insurance, insuring the Building and other Improvements on the Premises for at
least one hundred percent (100%) of their full replacement value. The policy
shall name Tenant as an additional insured and shall be issued by a responsible
insurance company authorized to do business in California. Landlord hereby
waives any and all right of recovery against Tenant for any loss occurring to
the Premises, and the insurance policy required by this section shall contain an
endorsement recognizing this lease by Landlord and waiving all rights of
subrogation by the insurer. The term "extended coverage" as used herein shall
mean any casualties that are commonly included under the term "extended
coverage" as that term is known and used in the casualty insurance business.

     Section 6.05. Cancellation Requirements. Each of the insurance policies
                   -------------------------
shall be in a form reasonably satisfactory to Landlord and shall carry an
endorsement that, before changing or canceling any policy, the issuing insurance
company shall give Landlord at least thirty (30) days prior written notice.
Duplicate originals or certificates of all such insurance policies shall be
delivered to Landlord.

                            ARTICLE 7. TRADE FIXTURES

     Section 7.01. Installation and Removal of Trade Fixtures. Tenant shall have
                   ------------------------------------------
the right at any time and from time to time during the term of this Lease, at
Tenant's sole cost and expense, to install and affix in, to, or on the Premises
any items; herein called "trade fixtures," for use in Tenant's trade or business
that Tenant may, in Tenant's sole discretion, deem advisable. Any and all trade
fixtures that can be removed without structural damage to the Premises or any
building or improvements on the Premises shall, subject to Section 7.02 of this
Lease; remain the property of the

                                      -20-

<PAGE>

Tenant and may be removed by Tenant at any time before the expiration or earlier
termination of this Lease, provided Tenant repairs any damage caused by the
removal.

     Section 7.02. Unremoved Trade Fixtures. Any trade fixtures described in
                   ------------------------
this Article that are not removed from the Premises by Tenant within thirty (30)
days after the expiration or earlier termination regardless of cause, of this
Lease shall be deemed abandoned by Tenant and shall automatically become the
property of Landlord as owner of the real property to which they are affixed.

                       ARTICLE 8. DESTRUCTION OF PREMISES

     Section 8.01. Landlord's Obligation to Repair. Except as otherwise provided
                   -------------------------------
in Section 8.02 below, if at any time during the Original Term of this Lease or
the Extended Term, the Premises are damaged or destroyed by any cause, Landlord
shall promptly repair, rebuild, or restore the Premises to substantially the
same condition as when delivered to Tenant at the commencement of this Lease
(i.e., exclusive of tenant fixtures and equipment) and shall be entitled for
that purpose to any and all insurance proceeds (but not including insurance
proceeds paid for Tenant's personal property, trade fixtures and equipment).
Landlord shall have the obligation to repair, rebuild, or restore described in
this section whether or not the insurance proceeds paid to Landlord are
sufficient to cover the total cost of repair, restoration, or rebuilding.

     Section 8.02. Landlord's Rights to Terminate Lease. Notwithstanding Section
                   ------------------------------------
8.01, Landlord shall have the right to terminate this Lease and shall have no
obligation to repair, restore, or rebuild the Premises or the Building under any
of the following circumstances:

     (a) Damage or destruction from an insured casualty when the damage or
destruction cannot reasonably be repaired, restored, or rebuilt within a period
of one hundred eighty (180) days;

     (b) Damage or destruction when the cost of repair, restoration, or
rebuilding exceeds insurance proceeds available as a result of such damage or
destruction by more than one million dollars ($1,000,000);

     (c) Material damage or destruction from an insured or uninsured casualty
occurring during the last one year of the Original Term of this Lease, if Tenant
has not before occurrence of the casualty elected to extend the Original Term of
the Lease or then elects to extend the Original Term of the Lease or occurring
at any time during the Extended Term, if any, of this Lease.

     If Landlord elects to terminate this Lease under any of the above
circumstances, Landlord shall give written notice to Tenant not later than
thirty (30) days after occurrence of the casualty.

     Section 8.03. Notices to Tenant of Landlord
                   -----------------------------

                                      -21-

<PAGE>

     Notwithstanding anything to the contrary contained in this Lease:

     Landlord shall give notice to Tenant of its election to rebuild or not to
rebuild the Premises within thirty (30) days of casualty to the Premises and
such notice shall specify Landlord's architect's or engineer's reasonable
estimate as to the time required to rebuild or restore the Premises;

     If, in the reasonable opinion of Landlord's architect or engineer, the
Premises will take longer than one hundred and eighty (180) days to rebuild or
restore and Landlord has elected to perform such rebuilding or restoration,
Tenant may, notwithstanding Landlord's election, terminate this Lease by written
notice to Landlord of such termination within five (5) days after its receipt of
Landlord's notice. Such termination shall be effective thirty (30) days after
the giving of Tenant's notice.

     If Landlord fails to restore the Premises (including reasonable means of
access thereto) within a period which is sixty days longer than the period
stated in Landlord's notice to Tenant as the estimated rebuilding period,
Tenant, at any time thereafter until such rebuilding is completed, may terminate
this Lease by delivering written notice to Landlord of such termination, in
which even this Lease shall terminate as of the date of the giving of such
notice.

     Section 8.04. Abatement of Rent. If damage or destruction to the Premises
                   -----------------
renders the operation of Tenant's business impractical and Tenant in fact ceases
to operate its business, the rent required under this Lease shall abate in the
proportion that the area of Premises not occupied by Tenant bears to the total
area of the Premises during the period in which Landlord is required to perform
repairs or restoration, or to rebuild.

                             ARTICLE 9. CONDEMNATION

     Section 9.01. Total Condemnation. If at any time during the term of this
                   ------------------
Lease, title and possession of all of the Premises is taken under the power of
eminent domain by any public or quasi-public agency or entity, this Lease shall
terminate as of 12:0l A.M. of the date actual physical possession of the
Premises is taken by the agency or entity exercising the power of eminent
domain, and both Landlord and Tenant shall thereafter be released from all
obligations under this Lease, except those described in Section 9.04.

     Section 9.02. Termination Option for Partial Condemnation. If at any time
                   -------------------------------------------
during the term of this Lease, title and possession of only a portion of the
Premises is taken under the power of eminent domain by any public or
quasi-public agency or entity, Tenant may, at Tenant's option, terminate this
Lease if more than twenty percent (20%) of the floor space of the Premises or
more than ten percent 10% of the land area of the Property is taken under the
power of eminent domain. If Tenant elects to exercise the option granted under
this section, Tenant shall give Landlord at least thirty (30) days prior written
notice within ten (10) days after Tenant receives notice of the

                                      -22-

<PAGE>

taking that designates the precise area of the Premises to be taken. This Lease
shall terminate as of the date specified for termination in Tenant's notice, or
on the date actual physical possession of the Premises is taken by the public or
quasi-public agency or entity, whichever date is earlier.

     Section 9.03. Partial Condemnation Without Termination. If Tenant fails to
                   ----------------------------------------
exercise the option described in Section 9.02 of this Lease or if the portion of
the Premises taken under the power of eminent domain is insufficient to give
rise to the option described in Section 9.02 of this Lease:

     (a) This Lease shall terminate as to the portion of the Premises taken by
eminent domain as of 12:Ol A.M. of the day actual physical possession of that
portion of the Premises is taken by the agency or entity exercising the power of
eminent domain (the "date of taking"); and

     (b) The Base Rent shall, after the date of taking, be reduced by an amount
that bears the same ratio to the Base Rent specified in Section 2.01 of this
Lease as the square footage ground area of the portion of the Premises taken
under the power of eminent domain bears to the total square footage ground area
of the Premises as of the date of this Lease.

     SECTION 9.04. Condemnation Award. If at any time during the term of this
                   ------------------
Lease, title and possession of all or any portion of the Premises is taken under
the power of eminent domain by any public or quasi-public agency or entity, the
compensation or damages for the taking shall be awarded to and be the sole
property of Landlord. Tenant hereby waives any and all rights to share in any
damages or award, except with respect to any portion awarded to Tenant for its
relocation costs. Notwithstanding the foregoing, Tenant shall have the right to
institute and pursue an independent action for compensation against any
condemning authority.

                         ARTICLE 10. DEFAULT, ASSIGNMENT
                                AND TERMINATION

     Section 10.01. Restriction Against Subletting or Assignment. Except in
                    --------------------------------------------
connection with a permitted transfer, Tenant shall not encumber, assign, or
otherwise transfer this Lease, any right or interest in this Lease, or any right
or interest in the Premises or any of the improvements that may now or hereafter
be constructed or installed on the Premises without first obtaining the express
written consent of Landlord except in connection with a permitted transfer.
Tenant shall not sublet the Premises or any part of the Premises or allow any
other person, other than Tenant's agents, servants, and employees, to occupy the
Premises or any part of the Premises without the prior written consent of
Landlord. A consent by Landlord to one assignment, one

                                      -23-

<PAGE>

subletting, or one occupation of the Premises by another person shall not be
deemed to be a consent to any subsequent assignment, subletting, or occupation
of the Premises by another person. Any encumbrance, assignment, transfer, or
subletting without the prior written consent of Landlord, whether voluntary or
involuntary, by operation of law or otherwise, is void and shall, at the option
of Landlord, terminate this Lease except in connection with a permitted
transfer. The consent of Landlord to any assignment of Tenants interest in this
Lease or the subletting by Tenant of the Premises or parts of the Premises shall
not be unreasonably withheld, conditioned or delayed. If Landlord should fail to
notify Tenant in writing of its decision within 15 days, Landlord shall be
deemed to have consented to the proposed assignment or subletting.

     Notwithstanding anything to the contrary contained in this Lease, Landlord
and Tenant agree as follows:

     (a) Tenant may assign this Lease or sublet the Premises, all or any portion
thereof, without Landlord's consent, to any entity which controls, is controlled
by, or is under common control with Tenant; to any entity which results from a
merger of, reorganization of, or consolidation with Tenant; or to any entity
which acquires substantially all of the stock, interests or assets of Tenant, as
a going concern, with respect to the business that is being conducted in the
Premises (hereinafter each a "Permitted Transfer"). In addition, any sale or
transfer of the capital stock of Tenant shall be deemed a Permitted Transfer if
(1) such sale or transfer occurs in connection with any bona fide financing or
capitalization for the benefit of Tenant, (2) Tenant is or becomes (in
connection with such transfer) a publicly traded corporation or (3) such sale or
transfer does not exceed, in the aggregate, (other than pursuant to a merger,
reorganization, consolidation or sale described above) more than 50% of the
capital stock of Tenant.

     (b) In the case of any sublease consented to or permitted hereunder as set
forth above, Tenant shall not be released from its obligations under the Lease
by reason of such sublease. In the case of any assignment consented to or
permitted hereunder, Tenant shall be released from its obligations under the
Lease if Tenant requests such a Release, the Assignee agrees in writing to
assume all of Tenant's obligations under the Lease, the Assignee meets the
financial criteria Landlord uses to select Tenants for comparable properties,
and the Assignees proposed use of the Premises is permitted by applicable zoning
rules and is consistent with the uses of other Tenants in the Park.

     Section 10.02. Default Defined. The occurrence of any of the following
                    ---------------
shall constitute a material default and breach of this Lease by Tenant:

     (a) Any failure by Tenant to pay the rent or to make any other payment
required to be made by Tenant under this Lease (when that failure continues for
five (5) days after written notice of the failure is given by Landlord to
Tenant).

                                      -24-

<PAGE>

     (b) The abandonment of the Premises by Tenant.

     (c) A failure by Tenant to observe and perform any other provision of this
Lease to be observed or performed by Tenant, when that failure continues for
thirty (30) days after written notice of Tenant's failure is given by Landlord
to Tenant; provided, however, that if the nature of that default is such that it
cannot reasonably be cured within such 30-day period, Tenant shall not be
deemed to be in default if Tenant commences that cure within the 30-day period
and thereafter diligently prosecutes it to completion.

     (d) The making by Tenant of any general assignment for the benefit of
creditors; the filing by or against Tenant of a petition to have Tenant adjudged
a bankrupt or of a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against Tenant,
it is dismissed within sixty (60) days); the appointment of a trustee or
receiver to take possession of substantially all of Tenant's assets located at
the Premises or of Tenant's interest in this Lease, when possession is not
restored to Tenant within thirty (30) days; or the attachment, execution, or
other judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, when that seizure is not
discharged within thirty (30) days.

     Section 10.03. Termination of Lease and Recovery of Damages. In the event
                    --------------------------------------------
of any default beyond any applicable cure period by Tenant under this Lease, in
addition to any other remedies available to Landlord at law or in equity,
Landlord shall have the right to terminate this Lease and all rights of Tenant
hereunder by giving written notice of the termination. No act of Landlord shall
be construed as terminating this Lease except written notice given by Landlord
to Tenant advising Tenant that Landlord elects to terminate the Lease. In the
event Landlord elects to terminate this Lease, Landlord may recover from Tenant:

     (a) The worth at the time of award of any unpaid rent that had been earned
at the time of termination of the Lease;

     (b) The worth at the time of award of the amount by which the unpaid rent
that would have been earned after termination of the Lease until the time of
award exceeds the amount of rental loss that Tenant proves could have been
reasonably avoided;

     (c) The worth at the time of award of the amount by which the unpaid rent
for the balance of the term of this Lease after the time of award exceeds the
amount of rental loss that Tenant proves could be reasonably avoided; and

     (d) Any other amount necessary to compensate Landlord for all detriment
proximately caused by Tenants failure to perform its obligations under this
Lease.

     The term "rent" as used in this section shall mean the Base Rent, and all
other sums required to be paid by Tenant pursuant to the terms of this Lease.

                                      -25-

<PAGE>

     As used in subsections (a) and (b) above, the "worth at the time of award"
is computed by allowing interest at the rate of ten percent (10%) per year. As
used in subsection (c), the "worth at the time of award" is computed by
discounting that amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of award plus one percent (1%).

     Section 10.04. Landlord's Right to Continue Lease In Effect.
                    --------------------------------------------

     (a) Continuation of Lease. If Tenant breaches this Lease or abandons the
         ---------------------
Premises before the natural expiration of the term of this Lease, Landlord may
continue this Lease in effect by not terminating Tenant's right to possession of
the Premises, in which event Landlord shall be entitled to enforce all its
rights and remedies under this Lease, including the right to recover the rent
specified in this Lease as it becomes due under this Lease. For as long as
Landlord does not terminate this Lease, Tenant shall have the right to assign or
sublease the Premises with the Landlord's prior written consent. Landlord shall
not unreasonably withhold consent.

     (b) No Election to Terminate Without Written Notice. No act of Landlord,
         -----------------------------------------------
including but not limited to Landlord's entry on the Premises, efforts to relet
the Premises, or maintenance of the Premises, shall be construed as an election
to terminate this Lease unless a written notice of that intention is given to
Tenant or unless the termination of this Lease is decreed by a court of
competent jurisdiction.

     Section 10.05. Landlord's Right to Relet. In the event Tenant is in breach
                    -------------------------
of this Lease beyond any applicable cure period, Landlord may enter on and relet
the Premises or any part of the Premises to a third party or third parties for
any term, at any rental, and on any other terms and conditions that Landlord in
its sole discretion may deem advisable, and shall have the right to make
alterations and repairs to the Premises. Tenant shall be liable for all of
Landlord's costs in reletting, including but not limited to reasonable
remodeling costs required for the reletting. In the event Landlord relets the
premises, Tenant shall pay all rent due under and at the times specified in this
Lease, less any amount or amounts actually received by Landlord from the
reletting.

     Section 10.06. Landlord's Right to Cure Tenant Defaults. If Tenant breaches
                    ----------------------------------------
or fails to perform any of the covenants or provisions of this Lease beyond any
applicable cure period, Landlord may, but shall not be required to, cure
Tenant's breach. Any sum expended by Landlord, with the then maximum legal rate
of interest, shall be reimbursed by Tenant to Landlord with the next due rent
payment under this Lease.

     Section 10.07. Default by Landlord. Unless a shorter period of time is
                    -------------------
specified by which Landlord is required to perform its obligation, Landlord
shall not be in default unless Landlord fails to perform its obligations under
this Lease within a reasonable time, but in no event later than thirty (30) days
after written notice by Tenant to Landlord specifying wherein Landlord has
failed to perform such obligations; provided, however,

                                      -26-

<PAGE>

that in the event that any such cure cannot reasonably be completed with such
thirty (30) day period and provided further that Landlord has commenced and is
diligently pursuing such cure, Landlord shall have an additional period of
thirty (30) days to complete such cure. Tenant's obligation to provide written
notice to Landlord of a default by Landlord is limited to those instances where
knowledge of Landlord's default is, within the actual knowledge of Tenant. If
Landlord fails to cure a default within the time period described in this
Section 10.07, and if such default renders all or any part of the Premises
untenantable or unusable for Tenant's ordinary business, Tenant shall have the
option to cure the default, in addition to any other remedies permitted by law.
Should Tenant elect to cure the default itself, all reasonable costs associated
with such cure, including reasonable attorneys' fees (if any), shall be
reimbursed. by Landlord to Tenant within ten (10) days of receipt of Tenant's
invoice for said costs. However, upon Landlord's failure to so reimburse or, at
Tenants option, said costs shall be held from rent due hereunder. If Landlord's
default hereunder prevents Tenant's use of the Premises, there shall be an
abatement of rental payments for the period of such non-use.

     Section 10.08. Cumulative Remedies. The remedies granted to the parties in
                    -------------------
this Article shall not be exclusive but shall be cumulative and in addition to
all remedies now or hereafter allowed by law or provided in this Lease.

     Section 10.09. Waiver of Breach. The waiver by any party of any breach by
                    ----------------
the other party of any of the provisions of this Lease shall not constitute a
continuing waiver or a waiver of any subsequent breach by such party either of
the same or another provision of this Lease.

                           ARTICLE 11. MISCELLANEOUS

     Section 11.01. Force Majeure-Unavoidable Delays. If the performance of
                    --------------------------------
any act required by this Lease to be performed by either Landlord or Tenant is
prevented or delayed by reason of an act of God, strike, lockout, labor
troubles, inability to secure materials, restrictive governmental laws or
regulations, or any other cause except financial inability that is not the fault
of the party required to perform the act, the time for performance of the act
will be extended for a period equivalent to the period of delay, and performance
of the act during the period of delay will be excused. However, nothing
contained in this section shall excuse the prompt payment of rent or additional
rent by Tenant as required by this Lease or the performance of any act rendered
difficult solely because of the financial condition of the party required to
perform the act and nothing in this Section shall modify the operation of
Section 1.05, above.

     Section 11.02. Attorneys' Fees. If any litigation is commenced between the
                    ---------------
parties to this Lease concerning the Premises, this Lease, or the rights and
duties of either in relation to the Premises or to this Lease, the party
prevailing in that litigation shall be entitled to, in addition to any other
relief that may be granted in the litigation, a reasonable sum as and for its
attorneys' fees in that litigation that are determined by the

                                      -27-

<PAGE>
court in that litigation or in a separate action brought for that purpose.

     Section 11.03. Notices. Except as otherwise expressly provided by law, any
                    -------
and all notices or other communications required or permitted by this Lease or
by law to be served on or given to either party to this Lease by the other party
to this Lease shall be in writing and shall be deemed duly given when personally
delivered to the party to whom they are directed, or in lieu of personal
service, when deposited in the United States mail, first-class postage prepaid
or overnight courier, addressed to Tenant at 100 Evelyn Avenue, Mountain,
California or to Landlord at 200 Evelyn Avenue, Mountain View, California.
Either party, Tenant or Landlord, may change its address for the purpose of this
section by giving written notice of that change to the other party in the
manner provided in this section.

     Section 11.04. Binding on Heirs and Successors. This Lease shall be binding
                    -------------------------------
on and shall inure to the benefit of the heirs, executors, administrators,
successors, and assigns of Landlord and Tenant, but nothing in this section
shall be construed as a consent by Landlord to any assignment of this Lease or
any interest therein by Tenant except as provided in Section 10.01 of this
Lease.

     Section 11.05. Partial Invalidity. If any provision of this Lease is held
                    ------------------
by a court of competent jurisdiction to be either invalid, void, or
unenforceable, the remaining provisions of this Lease shall remain in full force
and effect unimpaired by the holding.

     Section 11.06. Sole and Only Agreement. This instrument constitutes the
                    -----------------------
sole and only agreement between Landlord and Tenant respecting the Premises, the
leasing of the Premises to Tenant, or the Lease term created under this Lease,
and correctly sets forth the obligations of Landlord and Tenant to each other as
of its date. Any agreements or representations respecting the Premises or their
leasing by Landlord to Tenant not expressly set forth in this instrument are
null and void.

     Section 11.07. Time of Essence. Time is expressly declared to be of the
                    ---------------
essence in this Lease.

     Section 11.08. Late Charges. Tenant hereby acknowledges that the late
                    ------------
payment by Tenant to Landlord of rent and other sums due hereunder will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult to ascertain. Such costs include, but are not
limited to, processing and accounting charges and late charges which may be
imposed upon Landlord by the terms of any ground lease, mortgage or trust deed
covering the Premises. Accordingly, if any installment of rent or any other sum
due from Tenant shall not be received by Landlord or Landlord's designee within
five (5) days after such amount shall be due, then, without any requirement for
notice to Tenant, Tenant shall pay to Landlord a late charge equal to five
percent (5%) of such overdue amount. The parties hereby agree that such late
charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of late payment by Tenant. Acceptance of such late charge by

                                      -28-

<PAGE>

Landlord shall in no event constitute a waiver of Tenant's default or breach
with respect to such overdue amount, nor prevent Landlord from exercising any of
the other rights and remedies granted hereunder.

     Section 11.09. Subordination. Etc.
                    ------------------

     (a) Subordination to Security Devices. This Lease shall be subject and
         ---------------------------------
subordinate to any ground lease, mortgage, deed of trust, or other hypothecation
or security device (collectively, "Security Device"), now or hereafter placed by
Landlord upon the real property of which the Premises are a part, to any and all
advances made on the security thereof, and to all renewals, modifications,
consolidations, replacements and extensions thereof. Tenant agrees that the
lenders holding any such Security Device shall have no duty, liability or
obligation to perform any of the obligations of Landlord under this Lease, but
that in the event of Landlord's default with respect to any such obligation,
Tenant will give any lender whose name and address have been furnished Tenant in
writing for such purpose notice of Landlord's default and allow such lender
thirty (30) days following receipt of such notice for the cure of said default
before invoking any remedies Tenant may have by reason thereof. If any lender
shall elect to have this Lease superior to the lien of its Security Device and
shall give written notice thereof to Tenant, this Lease shall be deemed prior to
such Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.

     (b) Attornment. Subject to the non-disturbance provisions of subsection (c)
         ----------
below, Tenant agrees to attorn to a lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior Landlord or with respect to events
occurring prior to acquisition of ownership, (ii) be subject to any offsets or
defenses which Tenant might have against any prior Landlord, or (iii) be bound
by prepayment of more than one (1) month's rent.

     (c) Nondisturbance. With respect to Security Devices now or hereafter
         --------------
encumbering the Property, Tenant's subordination of this Lease shall be subject
to and conditioned upon receiving assurance (a "non-disturbance agreement") from
the lender that Tenant's possession and this Lease, including any options to
extend the term hereof, will not be disturbed so long as Tenant is not in breach
hereof and attorns to the record owner of the Premises.

     (d) Assurances. The agreements contained in this Section 11.09 shall be
         ----------
effective without the execution of any further documents; provided, however,
that, upon written request from Landlord or a lender in connection with a sale,
financing or refinancing of the Premises, Tenant and Landlord shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-

                                      -29-

<PAGE>

subordination, attornment and/or non-disturbance agreement as is provided for
herein.

     Section 11.10. Sale of Premises; Liability of Landlord. In the event of any
                    ---------------------------------------
sale or other transfer of the Premises by Landlord, Landlord shall thereupon be
entirely freed and relieved of all liability under any and all of its covenants
and obligations contained in or derived from this Lease arising out of any act,
occurrence or omission occurring after the consummation of such sale. The
purchaser at such sale or any subsequent sale of the Premises, or transferee of
the Premises, as the case may be, shall be deemed, without any further agreement
between the parties or their successors in interest or between the parties and
any such purchaser, to have assumed and agreed to carry out any and all of the
covenants and obligations of Landlord under this Lease, and Tenant shall attorn
to such purchaser or transferee of the Premises.

     Section 11.11. Real Estate Commissions. The parties acknowledge that CRESA
                    -----------------------
Partners is the real estate broker of record who represents the Tenant in this
Lease transaction. Said real estate broker shall be paid a full real estate
commission by Landlord and Landlord agrees that he shall execute a written
commission agreement with said broker to memorialize this obligation.

     The parties, and Tenant specifically, hereby acknowledge that said real
estate broker has not made any independent investigation of the property which
is the subject of this Lease or made any determinations with respect to the
facility and environmental conditions of the property including without
limitation the existence of any underground tanks, pumps, piping, toxic or
hazardous substance on the property. Likewise, no investigation has been made by
said broker to insure compliance with the "American With Disabilities Act"
("ADA"). This act may require a variety of changes to a facility, including
potential removal of barriers to access by disabled persons and provisions of
auxiliary aids and services for hearing, vision or speech impaired persons. Said
real estate broker urges all parties to obtain independent legal and technical
advice with respect to the physical and environmental condition and ADA
compliance of the property. The parties agree that they will rely solely on
their own investigations and/or that a licensed professional specializing in
these areas, and not the real estate broker, shall be responsible for same. Said
real estate broker does not represent and warrant the accuracy and completeness
of all documents and information ("reports") reviewed or received by any of the
parties in connection with this transaction, including reports, structural,
geological, and engineering studies, and plans and specifications.

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

                                      -30-

<PAGE>

TENANT:                                 IMPAC MEDICAL SYSTEMS AND
                                        SUBSIDIARY, a California
                                        Corporation

                                        By  /s/ Joseph K. Jachinowski
                                          -----------------------------------
                                            PRESIDENT

LANDLORDS:                              HILLVIEW MANAGEMENT, INC.,
                                        A California Corporation

                                        By  /s/ George P. Eshoo
                                          -----------------------------------
                                          George P. Eshoo,
                                          Its: President

                                        GORDON A. CAMPBELL AND MARIA
                                        LIGETI, TRUSTEES OF THE
                                        REVOKABLE LIVING TRUST DATED
                                        MARCH 23, 1987

                                        By  /s/ George A. Campbell
                                          -----------------------------------
                                          George A. Campbell, Trustee

                                        By  /s/ Maria Ligeti
                                          -----------------------------------
                                          Maria Ligeti, Trustee

<PAGE>

                                    ADDENDUM

         The Lease made and entered into on September 1, 1999, by and between
GORDON A. CAMPBELL and MARIA LIGETI, TRUSTEES OF THE REVOCABLE LIVING TRUST
DATED MARCH 23, 1987; HILLVIEW MANAGEMENT, INC.; and IMPAC MEDICAL SYSTEMS AND
SUBSIDIARY, a California Corporation, is hereby Amended as follows:

Section 1.07, subsection (d) is amended to add a new third paragraph as follows:

         In addition to the Tenant Improvement Allowance of Seven Hundred Fifty
Four Thousand Seven Hundred Dollars and Eighty Four Cents ($754,700.84), Tenant
agrees to pay an additional amount of Four Hundred Seventy Nine Thousand Nine
Hundred Sixty Two Dollars and Ninety Eight Cents ($479,962.98) plus any
additional IMPAC approved change orders not included on the attached Exhibit 1 -
Project Cost and Reconciliation dated 2/17/00 of which Two Hundred Sixteen
Thousand Six Hundred Sixty Six Dollars ($216,666.00) has been paid. The
remainder of Two Hundred Sixty Three Thousand Two Hundred Ninety Six Dollars and
Ninety Eight Cents ($263,296.98) is to be paid as follows:

         (1)   One Hundred Twenty Nine Thousand Nine Hundred Fifty Five Dollars
               and Five Cents ($129,955.05) upon execution of this Addendum.
         (2)   One Hundred Thirty Three Thousand Three Hundred Forty One Dollars
               and Ninety Three Cents ($133,341.93) upon Substantial Completion.

Section 1.07, subsection (f) is amended as follows:

         The Premises shall be deemed completed and ready for occupancy by
Tenant ("Substantial Completion") or "Substantially Complete" as the context
requires when the Tenant Improvements set forth in attached Exhibit 1 - Project
Cost and Reconciliation dated 2/17/00 are complete in accordance with attached
Exhibit 2 - Project Schedules dated 2/24/00 and a final Certificate of Occupancy
for the Building has been issued by the City of Mountain View, California, and
Landlord has given Tenant written notice of the issuance of such a certificate.

Add the following additional terms:

         Attached to this Addendum are Exhibit 1 - Project Cost and
Reconciliation dated 2/17/00 and Exhibit 2 - Project Schedules dated 2/24/00.

         The parties agree that there is a dispute concerning responsibility for
payment of the Disputed Contractor Cost set forth in Exhibit 1 - Project Cost
and Reconciliation dated 2/17/00. The parties further agree that this Addendum
does not resolve the issue of responsibility for payment of the Disputed
Contractor Cost.

TENANT:                             IMPAC MEDICAL SYSTEMS AND SUBSIDIARY
                                    A California Corporation

                                    By /s/ Joseph K. Jachinowski
                                       -----------------------------------------
                                       Joseph K. Jachinowski, President and CEO

LANDLORDS:                          GORDON A. CAMPBELL AND MARIA LIGETI,
                                    TRUSTEES OF THE REVOCABLE LIVING TRUST DATED
                                    MARCH 23, 1987

                                    By /s/ Maria Ligeti
                                       -----------------------------------------
                                        Maria Ligeti, Trustee

                                    HILLVIEW MANAGEMENT, INC.
                                    A California Corporation

                                    By /s/ George P. Eshoo
                                       -----------------------------------------
                                        George P. Eshoo
                                        Its: President

This Addendum is dated as of February 23, 2000

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