Document:

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                                                                   EXHIBIT 10.21

                         QUALITY SOFTWARE SYSTEMS, INC.
                        LICENSE AND INTEGRATION AGREEMENT

This AGREEMENT is made and entered into as of the 25th day of June 1999 by and
between Quality Software Systems Inc., a New Jersey corporation with offices at
200 Centennial Avenue, Piscataway, New Jersey 08854 ("QSSI") and the Client
identified below ("Client").

<TABLE>
<S>                                              <C>
     Client:  Pets.com Inc.                      City:  San Francisco
     Address:  435 Brannan St., Suite 100        State, Zip:  CA  94107
</TABLE>

                              TERMS AND CONDITIONS

1.      DEFINITIONS

1.1     ACCEPTANCE "Acceptance" of a deliverable means completion of the process
set forth in Paragraph 7.1 for Developed Software and Paragraph 7.2 for other
deliverables.

1.2     ACCEPTANCE TEST "Acceptance Test" means the procedure set forth in
Paragraph 7.1 hereto.

1.3     BASE SYSTEM Unmodified version of the current release of PowerHouse/WMS
as identified by the documentation provided with each release.

1.4     CLIENT "Client" means the entity identified on the cover page to this
Agreement, including any permitted successor or assignee of Client.

1.5     CONFIGURATION The use of tables and other user executable program
options, by the Client or QSSI, in order to customize the Developed Software.

1.6     QSSI SERVICES "QSSI Services" means all of the professional services
rendered to Client by QSSI pursuant to this Agreement.

1.7     DEVELOPED SOFTWARE "Developed Software" shall mean all software written
by (i) QSSI hereunder, or (ii) by Client under the direction and direct
supervision of QSSI and as to which QSSI has certified in writing that it meets
QSSI's programming standards. Developed Software shall also include QSSI
proprietary software which has previously been developed by QSSI and which is
delivered to Client.

1.8     IMPLEMENTATION SCHEDULE "Implementation Schedule" means the schedule set
forth on Schedule A, or any subsequently prepared schedules superseding Schedule
A.

1.9     MAINTENANCE "Maintenance" consists of the ongoing Developed Software
support services set forth in Schedule C. The Maintenance set forth in Schedule
C will be provided pursuant to a separate executed Maintenance and/or Software
Support agreement between the Parties.

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1.10    MODIFICATIONS All software revisions made to the Base System written by
(i) QSSI hereunder, or (ii) by Client under the direction and direct supervision
of QSSI and as to which QSSI has certified in writing that it meets QSSI's
programming standards.

1.11    PARTY The term "Party" shall mean Pets.com or QSSI, and the term
"Parties" shall mean Pets.com and QSSI.

1.12    PHASE "Phase" means each summarized section of Schedule A. Any
additional modifications requested after the initial design will each be treated
as a separate Phase.

1.13    REQUIREMENTS DEFINITION STUDY "Requirements Definition Study" or "RDS"
means the mutually agreed system design changes to the Base System, as such the
RDS may be revised pursuant to Paragraph 6.1. Upon Acceptance of the RDS by
Client, the RDS will supersede all other requirements and functionality
documentation for all purposes hereunder.

1.14    SHELF VERSION "Shelf Version" means the version of each Phase of the
Developed Software which is Accepted by Client pursuant to Paragraph 7.1.

1.15    SOFTWARE SYSTEM "Software System" means the set of computer programs and
documentation developed by QSSI, the Client, and/or third parties in connection
with the entire warehouse management implementation project. This system can
include the Developed Software, Third Party Software, interfaces, and
integration.

1.16    THIRD PARTY SOFTWARE "Third Party Software" is all software which is
incorporated in, makes up or is to be accessed by the Software System which is
not Developed Software and is identified on Schedule B.

2.      SOFTWARE SYSTEM

2.1     Subject to the terms and conditions of this Agreement, QSSI agrees to
implement the Software System in accordance with the Implementation Schedule and
RDS, with the reasonable assistance of Client personnel and resources.

3.      CONSULTING SERVICES

3.1     QSSI shall supply Client with any supporting documentation which QSSI
has developed for the software system.

4.      LICENSE AND PROPRIETARY RIGHTS

4.1     Grant of License Subject to the terms and conditions of the Agreement,
QSSI hereby grants to Client a perpetual, irrevocable, non-exclusive and
non-transferable (except as set forth in Paragraph 12.5) license (the "License")
to use and modify the Developed Software and other QSSI developed deliverables
which License Client hereby accepts. Any additional restrictions or limitations
are set forth in Schedule D.

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4.1b    EXCLUSIVITY For a period of three (3) years from the effective date of
this Agreement, (i) QSSI shall not grant to any Competitor of Client any right
to use any modification or integration software developed by QSSI for Client
hereunder, or any portion thereof, without prior written consent of Client, (ii)
QSSI shall not access or refer to any modification or integration software
developed by QSSI for Client hereunder, or any portion thereof, when working
with any competitor of Client and (iii) QSSI shall not provide to any Competitor
of Client a more favorable price or delivery for similar modifications of the
Base System than QSSI provides to Client hereunder. As used, herein, "Competitor
of Client" means any web site or other Online service or entity that markets,
sells, or allows end users to purchase pet care products, including without
limitation food, health care products, toys, cages, and leashes for dogs, cats,
fish, birds, ferrets, reptiles and other animals.

4.2     PROPRIETARY RIGHTS All financial data and all information related to
Client's organizational structure ("Client Data") are and shall remain the
exclusive property of client, and shall be kept confidential by QSSI pursuant to
the provisions of Paragraphs 4.3 and 4.4. QSSI retains title to the Developed
Software and related documentation and other deliverables developed hereunder,
including all copies thereof and all rights to patents, copyrights, trademarks,
trade secrets and other intellectual property rights inherent therein and
appurtenant thereto. Except as set forth herein, Client shall not, by virtue of
this Agreement or otherwise, acquire any proprietary rights whatsoever in the
Developed Software or any other deliverables developed hereunder, which shall be
the sole and exclusive property of QSSI. No identifying marks, copyright or
proprietary right notices may be deleted from any copy of the Developed Software
provided to or made by Client.

4.3     CONFIDENTIALITY Client shall only permit access to the Developed
Software by its employees who have a need to know in connection with the license
rights granted under this Agreement. Client shall not transfer, publish,
disclose, display or otherwise make available any portion of the Developed
Software to others. The Parties acknowledge that in the course of performing
their responsibilities under this Agreement, they each may be exposed to or
acquire information that is clearly identified as proprietary to or confidential
to the other Party. The Parties agree to hold such information in strict
confidence and not to copy, reproduce, sell, assign, license, market, transfer,
give or otherwise disclose such information to third parties or to use such
information for any purposes whatsoever, without the express written permission
of the other Party, other than for the performance of obligations, or exercise
of rights hereunder, and to advise each of their employees, agents and
representatives of their obligations to keep such information confidential. All
such confidential and proprietary information, Client data, finances, business
plans and computer software are hereinafter collectively referred to as
"Confidential Information." The Parties shall use their reasonable efforts to
assist each other in identifying and preventing any unauthorized use or
disclosure of any Confidential Information. Without limitations of the
foregoing, the Parties shall advise each other immediately in the event that
either learns or has reason to believe that any person who has had access to
Confidential Information has violated or intends to violate the terms of this
Agreement, and will reasonably cooperate in seeking injunctive relief against
any such person. Each party shall be entitled to disclose the existence of this
Agreement but agrees that the terms and conditions of this Agreement shall be
treated as confidential information and shall not be disclosed to any third

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party; provided, however, that each party may disclose the terms and conditions
of this Agreement; (i) as required by any court or other government body; (ii)
as otherwise required by law; (iii) to legal counsel of the parties; (iv) to
accountants, banks and financing sources and their advisors that are subject to
confidentiality provisions at least as protective of the disclosing party's
confidential information as those set forth herein; or (v) in connection with
the enforcement of this Agreement or rights under the Agreement.

4.4     Non-Confidential Information Notwithstanding the obligations set forth
in Paragraph 4.3, the confidentiality obligations of the Parties shall not
extend to information that:

        a.      is, as of the time of its disclosure, or thereafter becomes part
                of the public domain through a source other than the receiving
                Party;

        b.      was known to the receiving Party as of the time of its
                disclosure;

        c.      is independently developed by the receiving Party;

        d.      is subsequently learned from a third party not under a
                confidentiality obligation to the providing party; or,

        e.      is required to be disclosed pursuant to court order or
                government authority, whereupon the receiving Party shall
                provide notice to the other Party prior to such disclosure.

5.5     FEES AND PAYMENT

5.1     FEES The fees for QSSI Services are set forth in Schedule E. In the
event the project is successfully launched according to the requirements set
forth in the RDS on or before August 5, 1999, Client shall pay QSSI a bonus
equal to the greater of $22,000 or 28% of the cost of the implementation
services provided, however, that the bonus shall not exceed $28,000. In the
event the project is not successfully launched according to the requirements set
forth in the RDS until after August 5, 1999, QSSI shall not receive such bonus
and the amount due to QSSI shall be reduced by an amount equal to 1/7 of the
bonus that would have been paid if the project were launched on time, for each
day the project launch is late up to a maximum of 7 days provided, however, that
the penalty does not exceed $28,000. QSSI shall not incur loss of bonus or any
reduced payment if delays are caused by Client, any third party vendor
contracted by Client or act of God that befalls on Client. QSSI shall not
receive the bonus but also shall not incur any reduced payments if the project
launch is delayed by an act of God that befalls on QSSI.

5.2     PAYMENT Client shall pay QSSI in accordance with the Fee and Payment
Schedule set forth in Schedule E. All invoices issued by QSSI hereunder are due
upon receipt of invoice. Payments not received within thirty (30) days or their
due date shall be subject to late charges of one and one-half percent (1-1/2%)
per month, and having remained outstanding for sixty (60) days, shall give rise
to a material breach of this Agreement justifying the suspension of the
performance of services and/or immediate termination of this Agreement by QSSI.
Client also agrees to pay all reasonable expenses incurred by QSSI in enforcing
he provisions of this Agreement. No failure by QSSI to request any such payment
or to demand any such performance shall be deemed a waiver by QSSI of Client's
obligations hereunder or a waiver of QSSI's right to terminate this Agreement.

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5.3     PROPOSALS FOR SERVICE Proposals for services to be rendered under this
Agreement may be in writing. No estimates are guaranteed in any way or to any
extent by QSSI and do not change this Agreement to a fixed price contract. This
section is not intended to include proposals for hardware or license fees.

6.      REVISIONS

6.1     DURING PREPARATION OF REQUIREMENTS DEFINITION STUDY ("RDS") During the
preparation of the RDS, QSSI and Client shall review in greater detail Client's
requirements for the Software System. Where client requests system functions or
performance which vary from that set forth in the Base System, QSSI shall
provide a written estimate of the impact on resources, time duration and costs
which would be caused by implementation of any Modifications. QSSI and Client
will review all such estimates during the preparation and presentation of the
RDS. It is understood that such Modifications may increase or decrease required
resources, time duration and costs. If Client fails to approve the RDS, QSSI or
Client may terminate this Agreement upon thirty (30) days prior written notice
and Client shall pay QSSI services to the date of termination at QSSI's standard
time and materials rates, and the parties shall have no further performance
obligations hereunder.

6.2     AFTER APPROVAL OF RDS After approval of the RDS and before Acceptance,
any system functions or performance which vary in scope from those set forth in
the RDS and which are requested by Client shall be reviewed by QSSI. Within
twenty (5) days of receipt of such request, QSSI, with the cooperation of Client
where reasonably required, shall provide a written estimate of the impact on
resources, time duration and costs, which would be caused by the implementation
of the revision. If the Client accepts the revision, then the resources, time
duration and costs shall be modified as set forth in QSSI's estimate. If the
client fails to Accept the revision, the scope of work as set forth in the RDS
shall remain unchanged and QSSI shall have no further responsibility with
respect to the proposed change.

7.      ACCEPTANCE AND ACCEPTANCE TESTING

7.1     ACCEPTANCE OF DEVELOPED SOFTWARE Acceptance of each Phase of the
Developed Software identified in Schedule A may occur upon the completion of the
Acceptance Test performed by the Client. The Acceptance Test shall be to
determine whether the Developed Software operates in accordance with the
specifications as described in the RDS, and shall be conducted as follows: (a)
upon receipt of notice from QSSI that the applicable Phase of the Developed
Software has been developed and installed and is available for Acceptance
Testing, Client shall conduct the Acceptance Test within four (4) calendar
weeks; (b) upon the expiration of such test period, Client shall either certify
that the Phase is accepted or deliver to QSSI a written description of specific
claimed defects in the Developed Software which defects shall be limited to
material failures to conform to the RDS; (c) upon receipt of such written
description. QSSI shall use all reasonable efforts to promptly remedy those
defects that are bona fide, whereupon the Acceptance Test shall be run as is
necessary for determining whether all such identified defects have been
remedied. The Parties shall repeat this cycle until all material defects are
corrected. Certification by Client that the Phase of the Developed Software is

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accepted, or in the absence of such certification, the failure of Client to
provide QSSI with a written description of defects during the review period
shall constitute completion of the Acceptance Test and Acceptance of the Phase
of the Developed Software. Acceptance, whether or not notice has been given
shall also be deemed to have occurred if Client places in productive use, any
portion of the Phase of Developed Software for a period of 14 days. In the event
first productive use of the Developed Software occurs when it is not yet
integrated with the Client's web site system, an additional 14 days of
productive use will be extended for purposes of testing that portion of the
system pertaining to the integration interfaces with the Client's web site
system. Acceptance shall be deemed to have occurred within 60 days after the
Developed Software is first placed in productive use regardless if, through no
fault of QSSI, integration with the web site software has not been accomplished.
The formal date of acceptance for purposes of the warranty as set forth in
section 8, shall be retroactive to when the Developed Software was either
certified as accepted by the Client or first placed in productive use. The
version of the Phase so Accepted shall be deemed the Shelf version of the
accepted Phase. Client and QSSI shall each maintain copies of the Shelf Version
in addition to any modified versions that may occur over time and the Shelf
Version shall not be accessed, altered, modified or otherwise used. In the event
that a Phase is not Accepted Pursuant to his Paragraph, Client's sole remedy
shall be to return the Phase to QSSI, along with the applicable documentation
and all copies thereof, and receive a refund of fees paid to QSSI, for that
Phase. This procedure is the exclusive means by which Client shall be entitled
to reject the Developed Software or any Phase thereof, and the exclusive remedy
for any such failure.

7.2     ACCEPTANCE OF OTHER DELIVERABLES For other work product deliverables
requiring Acceptance by Client, Client shall, within twenty (20) days of receipt
of QSSI's statement that the deliverable is complete, review the deliverable and
Accept it or notify QSSI in writing of non-Acceptance, documenting in reasonable
detail any and all material defects in the deliverable. QSSI shall, upon receipt
of such notice, use all reasonable efforts to promptly correct any such material
failures and shall notify Client of its completion of the correction. Client
shall, after receipt of said notice, review the corrected deliverable and report
to QSSI. Client shall do so promptly using diligent efforts, but in no event
shall such process exceed ten (10) days. This cycle shall be repeated only as is
reasonably necessary. A deliverable shall be deemed Accepted by Client if
either: (a) Client notifies QSSI in writing of its Acceptance, in which event
the Acceptance date shall then be the date of such notice; (b) Client fails to
notify QSSI in writing within the applicable time period of any material defect
in the deliverable, in which event the Acceptance date shall be the last day of
said period; (c) client places in productive use under the terms defined in
Paragraph 7.1, any portion of the deliverable.

8.      WARRANTIES AND DISCLAIMER

8.1     QSSI WARRANTIES QSSI represents and warrants, subject to Paragraph 8.2,
that the Base System shall conform in all material respects to the
documentation, provided, and only to the extent, that Client notifies QSSI in
writing within one year after the date of productive use of any portion of the
Base System ("Base System Warranty Period") of any such material non-conformity.
QSSI further represents and warrants, subject to Paragraph 8.2, that the
modifications of each Phase of the Developed Software shall conform in all
material respects to

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the documentation, provided, and only to the extent, that Client notifies QSSI
in writing within one hundred and eighty (180) days after the date of Acceptance
of the Phase of the Developed Software ("Modification Warranty Period") of any
such material non-conformity. In the event that the Shelf Version of the Phase
of the Developed Software is found to be defective in such respects, and that
notice with respect to such defect has been given as provided above, QSSI's sole
obligation under this warranty is to respond promptly and to use all reasonable
efforts to promptly remedy such defect within a reasonable time. The Parties
acknowledge that changes to the production version of the Developed Software are
likely to be initiated by Client. Accordingly QSSI has no obligation under
warranty or otherwise to support the changes made by Client to the Developed
Software. QSSI's obligation under this warranty is solely with respect to the
Shelf Version.

8.2     QSSI WARRANTY PROCEDURE If changes have been made to the Shelf Version
resulting in variation between the shelf version and the production version,
upon receipt of Client's notice under Paragraph 8.1, client shall duplicate the
problem on the Shelf Version of the applicable Phase of the Developed Software
stored at Client's site for such purpose. If the problem cannot be duplicated,
QSSI's warranty shall not apply and QSSI shall have no obligation to remedy the
cited defect. If the problem duplicated on the Shelf Version, QSSI shall use all
reasonable efforts to promptly repair or correct the Shelf version in accordance
with the terms of this agreement. This warranty does not apply to corrections or
remedies for difficulties or defects arising from system changes, improper
configuration or use of the Developed Software, the hardware or software
environment, Third Party Software, or other causes external to the Developed
Software. If Client requests QSSI assistance with any non-warranty problem, QSSI
will provide assistance, subject to QSSI personnel availability, at its then
standard time and material charges.

8.3     THIRD PARTY SOFTWARE The Parties understand that the Software System may
include certain Third Party Software products which may or may not be listed in
Schedule B hereto. It is acknowledged by Client that Client shall be solely
responsible for obtaining licenses to such Third Party Software, if such
software is not already in Client's possession, including the right to
incorporate such software into the Software System. QSSI MAKES NO WARRANTIES OR
REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO THE QUALITY, CAPABILITIES,
OPERATIONS, PERFORMANCE OR SUITABILITY OF THIRD PARTY SOFTWARE, INCLUDING THE
ABILITY TO INTEGRATE WITH MODIFICATIONS TO THE SOFTWARE SYSTEM OR OF NEW
RELEASES TO INTEGRATE WITH THE DEVELOPED SOFTWARE. The quality, capabilities,
operations, performance and suitability of such Third Party Software lies solely
with Client and the vendor or supplier of such Third Party Software.

8.4     DISCLAIMER OF WARRANTY THE WARRANTY SET FORTH IN PARAGRAPHS 8.1 AND 8.2
IS A LIMITED WARRANTY AND IS IN LIEU OF ALL OTHER WARRANTIES EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. QSSI DOES NOT WARRANT THAT THE SOFTWARE SYSTEM WILL MEET
CLIENT'S FUTURE OR UNDISCLOSED REQUIREMENTS.

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9.      LIMITATION OF LIABILITY

9.1     NEITHER PARTY SHALL HAVE ANY LIABILITY WITH RESPECT TO ITS OBLIGATIONS
UNDER THIS AGREEMENT OR OTHERWISE FOR CONSEQUENTIAL, EXEMPLARY, SPECIAL,
INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES EVEN IF SUCH PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES. IN ANY EVENT, THE LIABILITY OF QSSI TO CLIENT
FOR ANY REASON AND UPON ANY CAUSE OF ACTION OR CLAIM SHALL BE LIMITED TO THE
AMOUNT PAID TO QSSI BY CLIENT HEREUNDER WITH RESPECT TO THE PHASE WHICH IS THE
SUBJECT OF THE ACTION OR CLAIM. THIS LIMITATION APPLIES TO ALL CAUSES OF ACTION
OR CLAIMS IN THE AGGREGATE, INCLUDING WITHOUT LIMITATION TO BREACH OF CONTRACT,
BREACH OF WARRANTY, NEGLIGENCE, STRICT LIABILITY, MISREPRESENTATIONS, CLAIMS FOR
FAILURE TO EXERCISE DUE CARE IN THE PERFORMANCE OF QSSI SERVICES HEREUNDER AND
OTHER TORTS. BOTH PARTIES UNDERSTAND AND AGREE THAT THE REMEDIES, EXCLUSIONS AND
LIMITATIONS HEREIN ALLOCATE THE RISKS OF PRODUCT AND SERVICE NONCONFORMITY
BETWEEN THE PARTIES AS AUTHORIZED BY THE UNIFORM COMMERCIAL CODE AND/OR OTHER
APPLICABLE LAWS. THE FEES HEREIN REFLECT, AND ARE SET IN RELIANCE UPON, THIS
ALLOCATION OF RISK AND THE EXCLUSION OF CONSEQUENTIAL DAMAGES AND LIMITATIONS OF
LIABILITY SET FORTH IN THIS AGREEMENT.

9.2     PATENT AND COPYRIGHT INDEMNIFICATION If an action is brought against
Client claiming that the Developed Software infringes a patent, copyright or
misappropriated trade secret, QSSI will defend Client and pay any damages
awarded against Client, but only if (a) Client notifies QSSI promptly upon
learning of the claim, (b) QSSI has sole control over the defense of the claim
and any negotiation for its settlement or compromise, (c) Client takes no
action, that in QSSI's judgment, is contrary to QSSI's interest and (d) provides
QSSI with full cooperation at QSSI's expense to investigate and defend against
the claim. If a claim may be or has been asserted, Client will permit QSSI, at
QSSI's option and expense, to procure the right to continue using the Developed
Software, or replace or modify the Developed Software to eliminate the
infringement while providing functionally equivalent performance.
Notwithstanding the above, QSSI will have no duty to indemnify Client if the
patent or copyright infringement results from (a) a correction or modification
of the Developed Software not provided by QSSI, (b) the failure to promptly
install any update which QSSI may have provided to Client, or (c) the
combination of the Developed Software with other software or hardware not
provided by QSSI.

10.     OTHER RIGHTS AND OBLIGATIONS

10.1    STATUS REPORTS Client and QSSI shall periodically communicate to the
other's Project Leader the current status of the Party's activities, progress of
the work being performed, and resources expended since the last report (and
cumulative totals to date), identification and impact of actual and anticipated
problem areas, and action being taken or alternative actions to be contemplated
and taken to address such problems. Also, if requested by the other Party,
Client

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and QSSI shall attend a status meeting, no more frequently than once per month,
to review the status of Client and QSSI activities.

10.2    COOPERATION The Parties acknowledge and agree that successful
installation of the Software System in Client's processing environment shall
require their full and mutual good faith cooperation.

10.3    EMPLOYEE SOLICITATION Both Parties agree not to engage in any attempt to
hire, or to engage as independent contractors, the other's employees or
independent contractors for the two years after termination of this contract,
except as may be otherwise agreed to in writing by both Parties.

10.4    CHARGES Client shall pay QSSI or reimburse QSSI for any out-of-pocket
expenses incurred by QSSI in the fulfillment of its obligations under this
Agreement, which include but are not limited to phone calls, one-way billable
travel time, round trip airfare, lodging, meals, local transportation and
communications, round trip travel expense to QSSI's principal place of business
every two (2) weeks and incidentals incurred in connection with work performed
at Client's place of business. QSSI estimates such expenses for this project
will be less than $15,000 If the expenses are expected to exceed that amount,
QSSI will provide advance notice to Client.

10.5    TAXES Client shall pay for, or reimburse QSSI for all sales, use,
transfer or other taxes and all duties, whether international, national, state,
or local however designated, which are levied or imposed by reason of the
transaction contemplated hereby; excluding, however, income taxes on QSSI's net
income of profits.

10.6    INDEPENDENT CONTRACTOR QSSI and its personnel, in performance of this
Agreement, are acting as independent contractors and not employees or agents of
Client. QSSI shall be solely responsible for the payment of compensation of QSSI
personnel assigned to perform services hereunder and such personnel are not
entitled to the provisions of any Client employee benefits. QSSI and not Client,
shall be responsible for payment of worker's compensation, disability benefits
and unemployment insurance or for withholding and paying employment taxes for
all QSSI personnel.

11.     TERM This Agreement is effective from the date first set forth above and
shall continue in effect until terminated by either party. Completion of any
specific services or Customer's failure to order additional services hereunder
shall not terminate this Agreement. This agreement can be terminated by either
party upon one month's prior written notice to the other party. Any work order
between the parties still in effect upon termination shall survive until
completed according to its terms.

12.     MISCELLANEOUS

12.1    DISPUTE RESOLUTION In the event of any dispute with regard to the
interpretation of this Agreement or the respective rights and obligations of the
Parties, other than those for which injunctive relief is appropriate, and as a
condition precedent to any legal action being

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commenced by either Party, Gerry Goldschein of QSSI and Lloyd Wallsten of
Client, shall in good faith attempt to resolve the Parties' differences, the
dispute shall be elevated to Ed Troianelo of QSSI and Diane Hourany of Client
who shall meet in person and, in good faith, attempt to resolve the dispute. If
the dispute is then not resolved within five (5) business days either party may
pursue any remedies then available to it.

12.2    ENTIRE AGREEMENT This Agreement sets forth the entire and exclusive
understanding and agreement of the Parties with respect to its subject matter
and supersedes and merges any prior understanding or agreements, oral or
written. This Agreement may not be modified except by a writing subscribed by
both Client and QSSI.

12.3    FORCE MAJEURE Neither client or QSSI shall be liable to the other for
any delay or failure to perform any of the services or obligations set forth in
this Agreement due to any act of God, fire, flood, casualty, earthquake or other
causes beyond its reasonable control provided that such party shall have used
its best efforts to mitigate its effects.

12.4    NEW JERSEY LAW This Agreement and performance hereunder shall be
governed by the laws of the State of New Jersey without regards to its conflict
of laws provisions. QSSI and Client hereby agree on behalf of themselves and any
person claiming by or through them that the sole jurisdiction and venue for any
litigation rising from or relating to this Agreement shall be an appropriate
federal or state court located in New Jersey. No action, regardless of form,
arising out of this Agreement shall be brought by Client more than one year
after such cause of action shall have accrued.

12.5    ASSIGNMENT Unless in connection with the sale of all or substantially
all of its assets or a merger, neither party may assign this Agreement or any
right, interest or benefit under this Agreement without the prior written
consent of the other party. Subject to the foregoing, this Agreement shall be
fully binding upon, inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns.

12.6    NOTICE Any communication provided or permitted under this Agreement,
unless otherwise specifically provided otherwise herein, shall be in writing and
shall be deemed given (i) if by hand deliver, upon receipt thereof; (ii) if
mailed, four (4) business days after deposit in the U.S. mails, postage paid,
certified mail, return receipt requested and received. All notices shall be
addressed to Client and QSSI at their respective addresses set forth on the
cover of this Agreement.

12.7    SURVIVAL The following Paragraphs or Sections of this Agreement shall
survive its cancellation, termination or expiration: 4.2, 4.3, 4.4, 8.3, 8.4, 9,
10.3, 10.5, 10.6, and 11.

12.8    CLIENT IDENTIFICATION Upon the written consent of Client, which shall
not be unreasonably withheld, QSSI may use the name of and identify Client as a
Client, in press releases and similar materials distributed to prospective
Clients. Client may from time to time as requested by QSSI but within Client's
sole discretion, allow QSSI to perform site visits to Client's site provided
however that Client is given adequate notice and would not provide proprietary
information to a competitor.

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12.9    NO WAIVER The waiver or failure of either Client or QSSI to exercise any
right in any instance shall be deemed a waiver neither of any other right
hereunder not of its right to withhold other waivers of the same rights.

12.10   ENFORCEABILITY If any provision of this Agreement is determined to be
invalid under any applicable statute or rule of law, it is to that extent to be
deemed omitted, and the balance of the Agreement shall remain enforceable.

CLIENT AND QSSI HAVE READ AND AGREES TO ALL OF THE ATTACHED AND INCORPORATED
TERMS AND CONDITIONS. THIS AGREEMENT SHALL BE EFFECTIVE WHEN EXECUTED BY QSSI.

                                      -11-

<PAGE>   12
IN WITNESS WHEREOF, the parties have caused this agreement to be executed by
their duly authorized representatives as of the date first written above.

Client:     Pets.com                     QUALITY SOFTWARE SYSTEMS, INC.
       ----------------------------
By:       /s/ Diane Hourany              By:         /s/ H E Dybuahl
    -------------------------------          -----------------------------------
        (Signature)                             (Signature)

Name:   Diane Hourany                    Name:       H. E. Dybuahl
     ------------------------------           ----------------------------------
Title:                VP OPS             Title:  Director, Sales & Marketing
      -----------------------------            ---------------------------------

Date:          July 16, 1999             Date:       July 16, 1999
     ------------------------------           ----------------------------------

                                      -12-

<PAGE>   13
                                   SCHEDULE A
                             IMPLEMENTATION SCHEDULE

                                    Pets.com
                            Power House Project Plan

<TABLE>
<CAPTION>
Task Name                                         Work                   Duration               Depend             Start Finish
---------                                         ----                   --------               ------             ----- ------
<S>                                              <C>                     <C>              <C>                   <C>
Project Schedule                                 39.4d                      32d                                   6/23/99 8/4/99

    Project Management                              5d                       6d                     4,5           6/30/99 7/8/99
    Requirements Definition Study                  20d                      13d                                  6/23/99 7/12/99
    Requirements Gathering                          6d                       2d                                  6/23/99 6/24/99
    Solution Fit Matrix                             3d                       3d                       4          6/25/99 6/29/99
    RDS Review                                      4d                       8d                       5          6/30/99 7/12/99
    Solution Design                                 7d                       7d                  4FS+1d           6/28/99 7/7/99

Application Services                             39.4d                      20d                                  6/25/99 7/23/99

    Order Server Hardware                           0d                       0d                                  6/28/99 6/28/99
    Order RF Hardware                               0d                       0d                                    7/1/99 7/1/99
    Receive Server Hardware                         0d                       0d             9FS+2.4 wks          7/12/99 7/12/99
    Receive RF Hardware                             0d                       0d            10FS+2.4 wks          7/19/99 7/19/99
    System Setup                                    6d                       4d              11,12FF+2d          7/16/99 7/21/99
    Install System at Site                          2d                       2d                      13          7/22/99 7/23/99
    System Adaptation                            31.4d                   19.63d                                  6/25/99 7/23/99
    Warehouse Design Completed                      0d                       0d                                    7/8/99 7/8/99
    Table Configuration                            10d                      10d                    7,16           7/8/99 7/21/99
    Interfaces                                  10.63d                   14.63d                                  6/30/99 7/21/99
    11-order download                               2d                       4d                       4           6/30/99 7/6/99
    13-subscriptions download                       1d                       2d                      19            7/7/99 7/8/99
    14-order kill download                          1d                       2d                      20           7/9/99 7/12/99
    15-expected receipt download                    2d                       2d                      21          7/13/99 7/14/99
    16-expected receipt dld-items                  .5d                      .5d                      22          7/15/99 7/15/99
    17-inventory transaction upld                   2d                       2d                      23          7/15/99 7/19/99
    18-shipment upload                              2d                       2d                      24          7/19/99 7/21/99
    19-shipment upload-order type                 .13d                     .13d                      25          7/21/99 7/21/99

Label, Screen & Report Custom                       3d                       3d                                  6/25/99 6/29/99

    Enhancements                                 3.77d                    3.77d                                    7/6/99 7/9/99
    R3-no stock mod on RF recvg                   .38d                     .38d                       4            7/6/99 7/6/99
    R6-custom returns report .38d                 .38d                                               29            7/6/99 7/6/99
    O6-total lines as limit criteria wv           .13d                     .13d                      30            7/6/99 7/6/99
    O8-picking allocation report                  .25d                      .25                      31            7/6/99 7/7/99
    O10-packing slip mods                           1d                       1d                      32            7/7/99 7/8/99
    O17-carton verify screen mods                 .38d                     .38d                      33            7/8/99 7/8/99
    O20-repack screen mods                        .25d                     .25d                      34            7/8/99 7/8/99
    O22-recalc info on repack screen               .5d                      .5d                      35            7/8/99 7/9/99
    O24-new divert screen                          .5d                      .5d                      36            7/9/99 7/9/99
    String Testing                                  4d                       2d                   18,28          7/21/99 7/23/99

Implementation                                     25d                      15d                                   7/19/99 8/4/99

    User Acceptance Testing Suppt                   5d                       5d                   18,28          7/26/99 7/30/99
    User Training                                  10d                      10d                    40FF          7/19/99 7/30/99
    Production Cutover                             10d                       5d                                   7/31/99 8/4/99
</TABLE>

<PAGE>   14
                                   SCHEDULE B
                              THIRD PARTY SOFTWARE

1.      Sybase System 11.9

2.      Windows NT Workstation 4.0

3.      Windows NT Server 4.0

4.      PowerBuilder 7.0

5.      pcANYWERE

6.      DBArtisan

7.      Seagate Backup Exec for NT

8.      CodeSoft THT 3.50

<PAGE>   15
                                   SCHEDULE C
                        MAINTENANCE AND SOFTWARE SUPPORT

        For a period of six months following acceptance of the Developed
Software, client shall be entitled to any newly released software upgrades at no
additional license fee charge. All services associated with upgrades are
billable on a time and material basis. Maintenance can be purchased after the
expiration of this six month period at an annual charge of 13% of the license
fee shown on Schedule E plus 13% of any subsequent upgrade license fee charged
for the purpose of increasing the current license fee restrictions thresholds.

        Software Support is covered under a separate yearly agreement.

<PAGE>   16
                                   SCHEDULE D
                              LICENSE RESTRICTIONS

        1. Scope of License (check one)

       [ ]    CPU                        specify __________________________
       [X]    Users                      specify 20 13 RF and 7 CRT Users
       [ ]    Site                       specify __________________________
       [ ]    Company-wide               specify __________________________
       [ ]    Other                      specify __________________________

        2. Right to Copy (check one)

       [ ]    One backup copy only
       [X]    Unrestricted right to copy
       [ ]    Other                         specify ______________________

        3. Client is entitled to object code only.

        Client shall cause to be reproduced on all copies of licensed materials
hereunder, all notices of QSSI proprietary rights as are contained in the
original materials.

<PAGE>   17
                                   SCHEDULE E
                            FEE AND PAYMENT SCHEDULE

<TABLE>
<S>                                                            <C>
License Fee
PowerHouse/WMS 20 users*                                       $60,000
Database License**                                             $ 3,046
                           TOTAL                               $63,046
</TABLE>

*  Payable at contract signing.

** Estimate based on current MS SOL Server pricing which is subject to change.

Services
Billing rates are as follows:

<TABLE>
<CAPTION>
                                      Hourly Rate            Daily Rate
                                      -----------            ----------
<S>                                   <C>                    <C>
Partner                                 $220.00                 $1,760
Manager                                 $192.50                 $1,540
Leader                                  $165.00                 $1,320
Lead Analysts                           $152.25                 $1,218
Analysts                                $123.75                 $  990
Programmer                               $87.50                 $  700
</TABLE>

        Estimates of the total services required will be further refined
following completion of the RDS. Services will be billed twice per month and are
payable within 15 days of invoice or postmark date whichever is later. Rates are
for normal business days. Weekend rates are billed at time and one half.
Holidays are billed at double time. Rates are subject to change on the first of
each year, or from time to time upon 30 days notice to the client.

Expenses

        All reasonable expenses as set forth under Paragraph 10.4 will be billed
as incurred and payable within 5 days of the invoice or postmark date whichever
is later.

                                      -17-<PAGE>   1

                                                                   EXHIBIT 10.28

            STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE-GROSS

                   AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION

1. BASIC PROVISIONS ("BASIC PROVISIONS").

        1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
September 27, 1999, is made by and between Rosenberg SOMA Investments IV, LLC, a
Delaware Limited Liability Co. ("LESSOR") and Pets.com, Inc., a California
Corporation ("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").

        1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 150-160 King Street, a portion of the
ground floor, located in the City of San Francisco, County of San Francisco,
State of California, with zip code 94107, as outlined on Exhibit A attached
hereto ("PREMISES"). The "BUILDING" is that certain building containing the
Premises and generally described as (describe briefly the nature of the
Building): 150-160 King Street / 151-165 Townsend Street. In addition to
Lessee's rights to use and occupy the Premises as hereinafter specified, Lessee
shall have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7
below) as hereinafter specified, but shall not have any rights to the roof,
exterior walls or utility raceways of the Building or to any other buildings in
the Industrial Center. The Premises, the Building, the Common Areas, the land
upon which they are located, along with all other buildings and improvements
thereon, are herein collectively referred to as the "INDUSTRIAL CENTER." (Also
see Paragraph 2.)

        1.2(b) PARKING: 0 unreserved vehicle parking spaces ("UNRESERVED PARKING
SPACES"); and 0 reserved vehicle parking spaces ("RESERVED PARKING SPACES").
(Also see Paragraph 2.6.)

        1.3 TERM: 0 years and 3 months ("ORIGINAL TERM") commencing 0ctober 1,
1999 ("COMMENCEMENT DATE") and ending December 31, 1999 ("EXPIRATION DATE").
(Also see Paragraph 3.) Month-to-month thereafter with 30 (thirty) days prior
written notice by either Landlord or Tenant.

        1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (Also see
Paragraphs 3.2 and 3.3.)

        1.5 BASE RENT: $10,000.00 per month ("BASE RENT"), payable on the
_______ day of each month commencing _______. (Also see Paragraph 4.)

[ ] If this box is checked, this Lease provides for the Base Rent to be adjusted
    per Addendum _____, attached hereto.

        1.6(a) BASE RENT PAID UPON EXECUTION: $10,000.00 as Base Rent for the
period October 1, 1999 - October 31, 1999.

        1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: N/A percent
(_____%) ("Lessee's Share") as determined by [ ] prorata square footage of the
Premises as compared to the total square footage of the Building or [ ] other
criteria as described in Addendum ___.

        1.7 SECURITY DEPOSIT: $10,000.00 ("SECURITY DEPOSIT"). (Also see
Paragraph 5.)

        1.8 PERMITTED USE: Warehouse/Storage/Light Industrial ("PERMITTED USE").
(Also see Paragraph 6.)

        1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see Paragraph
8.)

                                      -1-
<PAGE>   2

        1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):

[ ] _________________ represents Lessor exclusively ("LESSOR'S BROKER");

[X] ROK Properties, Inc. represents Lessee exclusively ("LESSEE'S BROKER"); or

[ ] ____________________ represents both Lessor and Lessee ("Dual Agency").
    (Also see Paragraph 15.)

        1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of $900)
for brokerage services rendered by said Broker(s) in connection with this
transaction.

        1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("GUARANTOR"). (Also see Paragraph 37.)

        1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs _____ through _____, and Exhibits A through _____, all
of which constitute a part of this Lease.

2. PREMISES, PARKING AND COMMON AREAS.

        2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b) based thereon is
not subject to revision whether or not the actual square footage is more or
less.

        2.2 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that is has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively, "APPLICABLE LAWS") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.

        2.3 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.

        2.4 COMMON AREAS--DEFINITION. The term "COMMON AREAS" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of

                                      -2-
<PAGE>   3

the Industrial Center and their respective employees, suppliers, shippers,
customers, contractors and invitees, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways, driveways
and landscaped areas.

        2.5 COMMON AREAS--LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.

        2.6 COMMON AREAS--RULES AND REGULATIONS. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.

        2.7 COMMON AREAS--CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:

                (a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;

                (b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;

                (c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;

                (d) To add additional buildings and improvements to the Common
Areas;

                (e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and

                (f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Industrial Center as
Lessor may, in the exercise of sound business judgement, deem to be appropriate.

3. TERM.

        3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.

        3.2 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no

                                      -3-
<PAGE>   4

Early Possession Date is specified, by the Commencement Date, Lessor shall not
be subject to any liability therefor, nor shall such failure affect the validity
of this Lease, or the obligations of Lessee hereunder, or extend the term
hereof, but in such case, Lessee shall not, except as otherwise provided herein,
be obligated to pay rent or perform any other obligation of Lessee under the
terms of this Lease until Lessor delivers possession of the Premises to Lessee.
If possession of the Premises is not delivered to Lessee within sixty (60) days
after the Commencement Date, Lessee may, at its option, by notice in writing to
Lessor within ten (10) days after the end of said sixty (60) day period, cancel
this Lease, in which event the parties shall be discharged from all obligations
hereunder; provided further, however, that if such written notice of Lessee is
not received by Lessor within said ten (10) day period, Lessee's right to cancel
this Lease hereunder shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the Original Term
actually commences, if possession is not tendered to Lessee when required by
this Lease and Lessee does not terminate this Lease, as aforesaid, the period
free of the obligation to pay Base Rent, if any, that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue for
a period equal to the period during which the Lessee would have otherwise
enjoyed under the terms hereof, but minus any days of delay caused by the acts,
changes or omissions of Lessee.

4. RENT.

        4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.

5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1). Lessor may use, apply or retain
all or any portion of said Security Deposits for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessors uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor 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, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the Initial Security Deposit bears to the
Initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option,
to the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be

                                      -4-
<PAGE>   5

considered to be held in trust, to bear interest or other increment for its use,
or to be prepayment for any monies to be paid by Lessee under this Lease.

6. USE.

        6.1 PERMITTED USE.

                (a) Lessees shall use and occupy the Premises only for the
Permitted use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use or
permit the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.

                (b) Lessor hereby agrees to not unreasonably withhold or delay
its consents to any written request by Lessee, Lessee's assignees or subtenants,
and by prospective assignees and subtenants of Lessee, its assignees and
subtenants, for a modification of said Permitted Use, so long as the same will
not impair the structural integrity of the improvements on the Premises or in
the Building or the mechanical or electrical systems therein, does not conflict
with uses by other Lessees, is not significantly more burdensome to the Premises
or the Building and the improvements thereon, and is otherwise permissible
pursuant to this Paragraph 6. If Lessor elects to withhold such consent, Lessor
shall within five (5) business days after such request give a written
notification of same, which notice shall include an explanation of Lessor's
reasonable objections the change in use.

        6.2 HAZARDOUS SUBSTANCES.

                (a) REPORTABLE USES REQUIRE CONSENT. 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 potential liability of Lessor to
any governmental agency or third 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 or by-products
thereof. Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance in a timely
manner (at Lessee's sole cost and expense) with all Applicable Requirements (as
defined in Paragraph 6.3). "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, registrations or
business plan is required to be filed with, any governmental authority, and
(iii) the presence in, on or about the Premises of a Hazardous Substance with
respect to which any Applicable Laws require that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may, without Lessor's prior consent, but upon notice to
Lessor and in compliance with all Applicable Requirements, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of the Permitted use, 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 Lessor to any liability therefor. In addition,
Lessor may (but without any obligation to do so) condition its consent to

                                      -5-
<PAGE>   6

any Reportable Use of any Hazardous Substance by Lessee upon Lessee's giving
Lessor such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefor, including but
not limited to the installation (and, at Lessor's option, 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 Paragraph 5 hereof.

                (b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously consented
to by Lessor, Lessee shall immediately give Lessor written notice thereof,
together with 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 party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous Substance
including but not limited to all such documents as may be involved in any
Reportable Use involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).

                (c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and 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 Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.

        6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with all
"APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing with copies of any documents involved) of any threatened or actual
claim, notice,

                                      -6-
<PAGE>   7

citation, warning, complaint or report pertaining to or involving failure by
Lessee or the Premises to comply with any Applicable Requirements.

        6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.

7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND ALTERNATIONS.

        7.1 LESSEE'S OBLIGATIONS.

                (a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.

                (b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.

        (c) If Lessee fails to perform Lessee's obligations under this Paragraph
7.1, Lessor may enter upon the Premises after ten (10) days' prior written
notice to Lessee (except in the case of an emergency, in which case no notice
shall be required), perform such obligations on

                                      -7-
<PAGE>   8

Lessee's behalf, and put the Premises in good order, condition and repair, in
accordance with Paragraph 13.2 below.

        7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection systems and equipment, fire hydrants, parking lots,
walkways, parkways, driveways, landscaping, fences, signs and utility systems
serving the Common areas and all parts thereof, as well as providing the
services for which there is a Common Area Operating Expense pursuant to
Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior
surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or
replace windows, doors or plate glass of the Premises Lessee expressly waives
the benefit of any statute now or hereafter in effect which would otherwise
afford Lessee the right to make repairs at Lessor's expense or to terminate this
Lease because of Lessor's failure to keep the Building, Industrial Center or
Common Areas in good order, condition and repair.

        7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS

                (a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "TRADE FIXTURES"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "ALTERATIONS" shall mean any
modification of the Improvements on the Premises which are provided by Lessor
under the terms of this Lease other than Utility Installations or Trade
Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alternations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the Interior of the Premises (excluding
the roof) without Lessor's consent but upon notice to Lessor, so long as they
are not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$2,500.00.

                (b) CONSENT. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and

                                      -8-
<PAGE>   9

workmanlike manner, with good and sufficient materials, and be in compliance
with all Applicable Requirements. Lessee shall promptly upon completion thereof
furnish Lessor with as-built plans and specifications therefor. Lessor may, (but
without obligation to do so) condition its consent to any requested Alteration
or Utility Installation that costs $2,500.00 or more upon Lessee's providing
Lessor with a lien and completion bond in an amount equal to one and one-half
times the estimated cost of such Alteration or Utility Installation.

                (c) LIEN PROTECTION. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall require,
Lessee shall furnish to Lessor as surety bond satisfactory to Lessor in an
amount equal to one and one-half times the amount of such contested lien claim
or demand, indemnifying Lessor against liability of the same, as required by law
for the holding of the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.

        7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.

                (a) OWNERSHIP. Subject to Lessor's right to require their
removal and to cause Lessee to become the owner thereof as hereinafter provided
in this Paragraph 7.4, all Alterations and Utility Installations made to the
Premises by Lessee shall be the property of and owned by Lessee, but considered
a part of the Premises. Lessor may, at any time and at its option, elect in
writing to Lessee to be the owner of all or any specified part of the
Lessee-Owned Alterations and Utility Installations. Unless otherwise instructed
per Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.

                (b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
that their installation may have been consented to by Lessor. Lessor may require
the removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.

                (c) SURRENDER/RESTORATION. Lessee shall surrender the Premises
by the end of the last day of the Lease term or any earlier termination date,
clean and free of debris and in good operating order, condition and state of
repair, ordinary wear and tear excepted. Ordinary wear and tear shall not
include any damage or deterioration that would have been prevented by good
maintenance practice or by Lessee performing all of its obligations under this
Lease. Except as otherwise agreed or specified herein, the Premises, as
surrendered, shall include the Alterations and Utility Installations. The
obligation of Lessee shall include the repair of any damage occasioned by the
installation, maintenance or removal of Lessee's Trade Fixtures, furnishings,
equipment, and Lessee-Owned Alterations and Utility Installations, as well as
the

                                      -9-
<PAGE>   10

removal of any storage tank installed by or for Lessee, and the removal,
replacement, or remediation of any soil, material or ground water contaminated
by Lessee, all as may then be required by Applicable Requirements and/or good
practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall
be moved by Lessee subject to its obligation to repair and restore the Premises
per this Lease.

8. INSURANCE; INDEMNITY.

        8.1 PAYMENT OF PREMIUM INCREASES.

                (a) As used herein, the term "Insurance Cost Increase" is
defined as any increase in the actual cost of the insurance applicable to the
Building and required to be carried by Lessor pursuant to Paragraphs 8.2(b),
8.3(a) and 8.3(b), ("REQUIRED INSURANCE"), over and above the Base Premium, as
hereinafter defined, calculated on an annual basis. "INSURANCE COST INCREASE"
shall include, but not be limited to, requirements of the holder of a mortgage
or deed of trust covering the Premises, increased valuation of the Premises,
and/or a general premium rate increase. The term "INSURANCE COST INCREASE" shall
not, however, include any premium increases resulting from the nature of the
occupancy of any other lessee of the Building. If the parties insert a dollar
amount in Paragraph 1.9, such amount shall be considered the "BASE PREMIUM." If
a dollar amount has not been inserted in Paragraph 1.9 and if the Building has
been previously occupied during the twelve (12) month period immediately
preceding the Commencement Date, the "BASE PREMIUM" shall be the annual premium
applicable to such twelve (12) month period. If the Building was not fully
occupied during such twelve (12) month period, the "Base Premium" shall be the
lowest annual premium reasonably obtainable for the Required Insurance as of the
Commencement Date, assuming the most nominal use possible of the Building. In no
event, however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under Paragraph 8.2(b).

                (b) Lessee shall pay any Insurance Cost Increase to Lessor
pursuant to Paragraph 4.2. Premiums for policy periods commencing prior to, or
extending beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.

        8.2 LIABILITY INSURANCE.

                (a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of insurance
protecting Lessees, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostel fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be

                                      -10-
<PAGE>   11

primary to and not contributory with any similar insurance carried by Lessor,
whose insurance shall be considered excess insurance only.

                (b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.

        8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.

                (a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any lenders), insuring against loss or damage
to the Premises. Such insurance shall be for full replacement cost, as the same
shall exist from time to time, or the amount required by any Lender(s), but in
no event more than the commercially reasonable and available insurable value
thereof if, by reason of the unique nature or age of the improvements involved,
such latter amount is less than full replacement cost. Lessees-Owned Alterations
and Utility Installations, Trade Fixtures and Lessee's personal property shall
be insured by Lessee pursuant to Paragraph 8.4. If the coverage is available and
commercially appropriate, Lessor's policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender or included in the Base Premium),
including coverage for any additional costs resulting from debris removal and
reasonable amounts of coverage for the enforcement of any ordinance or law
regulating the reconstruction or replacement of any undamaged sections of the
Building required to be demolished or removed by reason of the enforcement of
any building, zoning, safety or land use laws as the result of a covered loss,
but not including plate glass insurance. Said policy or polices shall also
contain an agreed valuation provisioning in lieu of any co-insurance clause,
waiver of subrogation, and inflation guard protection causing an increase in the
annual property insurance coverage amount by a factor of not less than the
adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers
of the city nearest to where the Premises are located.

                (b) RENTAL VALUE. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the nature of Lessor, with
loss payable to Lessor and any Lender(s), insuring the loss of the full rental
and other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the rejected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.

                (c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
act, omissions, use or occupancy of the Premises.

                                      -11-
<PAGE>   12

                (d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.

        8.4. LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on, or about the Premises similar in
coverage to that carried by Lessor as the Insuring Party under Paragraph 8.3(a).
Such Insurance shall be full replacement cost coverage with a deductible not to
exceed $1,000 per occurrence. The proceeds from any such insurance shall be used
by Lessee for the replacement of personal property and the restoration of Trade
Fixtures and Lessee-Owned Alterations and Utility Installations. Upon request
from Lessor, Lessee shall provide Lessor with written evidence that such
insurance is in force.

        8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V or such other rating as may be required by a Lender, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not do
or permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.

        8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.

        8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case

                                      -12-
<PAGE>   13

of claims made against Lessor) litigated and/or reduced to judgment. In case any
action or proceeding be brought against Lessor by reason of any of the foregoing
matters, Lessee upon notice from Lessor shall defend the same at Lessee's
expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate
with Lessee in such defense. Lessor need not have first paid any such claim in
order to be so indemnified.

        8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
Lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.

9. DAMAGE OR DESTRUCTION.

        9.1 DEFINITIONS.

                (a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is less than fifty percent (50%)
of the Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.

                (b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is fifty percent
(50%) or more of the then Replacement Cost of the Premises (excluding
Lessee-Owned Alterations and Utility Installations and Trade Fixtures)
immediately prior to such damage or destruction In addition, damage or
destruction to the Building, other than Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building, the cost of
which damage or destruction is fifty percent (50%) or more of the then
Replacement Cost (excluding Lessee-Owned Alterations and Utility Installations
and Trade Fixtures of any lessees of the Building) of the Building shall, at the
option of Lessor, be deemed to be Premises Total Destruction.

                (c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.

                (d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws and without deduction for depreciation.

                                      -13-
<PAGE>   14

                (e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.

        9.2 PREMISES PARTIAL DAMAGE-INSURED LOSS. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefore. If Lessor receives said funds or adequate assurance thereof
within said (10) day period, Lessor shall complete them as soon as reasonably
possible and this Lease shall remain in full force and effect. If Lessor does
not receive such funds or assurance within said period, Lessor may nevertheless
elect by written notice to Lessee within ten (10) days thereafter to make such
restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect. If Lessor does not receive such funds or assurance within such ten (10)
day period, and if Lessor does not so elect to restore and repair, then this
Lease shall terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.

        9.3 PARTIAL DAMAGE-UNINSURED LOSS. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect). Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination.

        9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority),

                                      -14-
<PAGE>   15

this Lease shall terminate sixty (60) days following the date of such Premises
Total Destruction, whether or not the damage or destruction is an Insured Loss
or was caused by a negligent or willful act of Lessee. In the event, however,
that the damage or destruction was caused by Lessee, Lessor shall have the right
to recover Lessor's damages from Lessee except as released and waived in
Paragraph 9.7.

        9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor' expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.

        9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.

                (a) In the event of (i) Premises Partial Damage or (ii)
Hazardous Substance Condition for which Lessee is not legally responsible, the
Base Rent, Common Area Operating Expenses and other charges, if any, payable by
Lessee hereunder for the period during which such damage or condition, its
repair, remediation or restoration continues, shall be abated in proportion to
the degree to which Lessee's use of the Premises is impaired, but not in excess
of proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.

                (b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "Commence" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.

                                      -15-
<PAGE>   16

        9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.

        9.8 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.

        9.9 WAIVER OF STATUES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.

10. REAL PROPERTY TAXES.

        10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2(a), applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any increases in such amounts over the
Base Real Property Taxes shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2.

        10.2 REAL PROPERTY TAX DEFINITIONS.

                (a) As used herein, the term "REAL PROPERTY TAXES" shall include
any form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond or
bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed upon the Industrial Center by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage, or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Industrial Center or any portion thereof, Lessor's right to rent

                                      -16-
<PAGE>   17

or other income therefrom, and/or Lessor's business of leasing the Premises. The
term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring, or
changes in Applicable Law taking effect, during the term of this Lease,
including but not limited to a change in the ownership of the Industrial Center
or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties.

                (b) As used herein, the term "BASE REAL PROPERTY TAXES" shall be
the amount of Real Property Taxes, which are assessed against the Premises,
Building or Common Areas in the calendar year during which the Lease is
executed. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the calculation
of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common.

        10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.

        10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.

        10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.

11. UTILITIES. Lessee shall pay directly for all utilities and services supplied
to the Premises, including but not limited to electricity, telephone, security,
gas and cleaning of the Premises, together with any taxes thereon. If any such
utilities or services are not separately metered to the Premises or separately
billed to the Premises, Lessee shall pay to Lessor a reasonable proportion to be
determined by Lessor of all such charges jointly metered or billed with other
premises in the Building, in the manner and within the time periods set forth in
Paragraph 4.2(d).

12. ASSIGNMENT AND SUBLETTING.

        12.1 LESSOR'S CONSENT REQUIRED.

                (a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of

                                      -17-
<PAGE>   18

Lessee's interest in this Lease or in the Premises without Lessor's prior
written consent given under and subject to the terms of Paragraph 36.

                (b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.

                (c) The involvement of Lessee or its assets in any transaction,
or series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buyout or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "NET
WORTH OF LESSEE" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.

                (d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's option,
be a Default curable after notice per Paragraph 13.1, or a non-curable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a non-curable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days' written notice ("LESSOR'S NOTICE"), increase the monthly Base Rent
for the Premises to the greater of the then fair market rental value of the
Premises, as reasonably determined by Lessor, or one hundred ten percent (110%)
of the Base Rent then in effect. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installments(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
as reasonably determined by Lessor (without the Lease being considered an
encumbrance or any deduction for depreciation or obsolescence, and considering
the Premises at its highest and best use and in good condition) or one hundred
ten percent (110%) of the price previously in effect, (ii) any index-oriented
rental or price adjustment formulas contained in this Lease shall be adjusted to
require that the base index be determined with reference to the index applicable
to the time of such adjustment, and (iii) any fixed rental adjustments scheduled
during the remainder of the Lease term shall be increased in the same ratio as
the new rental bears to the Base Rent in effect immediately prior to the
adjustment specified in Lessor's Notice.

                (e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.

        12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.

                (a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor

                                      -18-
<PAGE>   19

(iii) alter the primary liability of Lessee for the payment of Base Rent and
other sums due Lessor hereunder or for the performance of any other obligations
to be performed by Lessee under this Lease.

                (b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.

                (c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment of subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.

                (d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.

                (e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any,
together with a non-refundable deposit of $1,000 or ten percent (10%) of the
monthly Base Rent applicable to the portion of the Premises which is the subject
of the proposed assignment or sublease, whichever is greater, as reasonable
consideration for Lessor's considering and processing the request for consent.
Lessee agrees to provide Lessor with such other or additional information and/or
documentation as may be reasonably requested by Lessor.

                (f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.

                (g) The occurrence of a transaction described in Paragraph
12.2(c) shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.

                (h) Lessor, as a condition to giving its consent to any
assignment or subletting, may require that the amount and adjustment schedule of
the rent payable under this Lease by adjusted to what is then the market value
and/or adjustment schedule for property similar to the Premises as then
constituted, as determined by Lessor.

                                      -19-
<PAGE>   20

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

                (a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all or
a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may
collect such rent and income and apply same toward Lessee's obligations under
this Lease; provided, however, that until a Breach (as defined in Paragraph
13.1) shall occur in the performance of Lessee's obligations under this Lease,
Lessee may, except as otherwise provided in this Lease, receive, collect and
enjoy the rents accruing under such sublease. Lessor shall not, by reason of the
foregoing provision or any other assignment of such sublease to Lessor, nor by
reason of the collection of the rents from a sublessee, be deemed liable to the
sublessee for any failure of Lessee to perform and comply with any of Lessee's
obligations to such sublessee under such Sublease. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice from
Lessor stating that a Breach exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor the rents and other charges due and to become
due under the sublease. Sublessee shall rely upon any such statement and request
from Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.

                (b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.

                (c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.

                (d) No sublessee under a sublease approved by Lessor shall
further assign or sublet all or any part of the Premises without Lessor's prior
written consent.

                (e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.

13. DEFAULT; BREACH; REMEDIES.

        13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "DEFAULT" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"BREACH" by Lessee is defined as the occurrence

                                      -20-
<PAGE>   21

of any one or more of the following Defaults, and, where a grace period for cure
after notice is specified herein, the failure by Lessee to cure such Default
prior to the expiration of the applicable grace period, and shall entitle Lessor
to pursue the remedies set forth in Paragraphs 13.2 and/or 13.3:

                (a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.

                (b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surely bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.

                (c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.

                (d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof
that are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.

                (e) The occurrence of any of the following events: (i) the
making by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section
101 or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.

                (f) The discovery by Lessor that any financial statement of
Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor, was
materially false.

                                      -21-
<PAGE>   22

                (g) If the performance of Lessee's obligations under this Lease
is guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such event,
to provide Lessor with written alternative assurances of security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the Guarantors that existed at the
time of execution of this Lease.

        13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:

                (a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at the
time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a

                                      -22-
<PAGE>   23

notice and grace period required under Subparagraph 13.1(b), (c) or (d) was not
previously given, a notice to pay rent or quit, or to perform or quit, as the
case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by Subparagraph 13.1(b), (c) or (d). In such
case, the applicable grace period under the unlawful detainer statute shall run
concurrently after the one such statutory notice, and the failure of Lessee to
cure the Default within the greater of the two (2) such grace periods shall
constitute both an unlawful detainer and a Breach of this Lease entitling Lessor
to the remedies provided for in this Lease and/or by said statute.

                (b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after Lessee's
Breach and recover the rent as it becomes due, provided Lessee has the right to
sublet or assign, subject only to reasonable limitations. Lessor and Lessee
agree that the limitations on assignment and subletting in this Lease are
reasonable. Acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver to protect the Lessor's interest under this
Lease, shall not constitute a termination of the Lessee's right to possession.

                (c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.

                (d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.

        13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.

        13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering the
Premises. Accordingly, if any installment of rent or other sum due from Lessee
shall not be received by Lessor or Lessor's designee within ten (10) days after
such amount shall be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal

                                      -23-
<PAGE>   24

to six percent (6%) of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Lessor will
incur by reason of late payment by Lessee. Acceptance of such late charge by
Lessor shall in no event constitute a waiver of Lessee's Default or Breach with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three(3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.

        13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by any Lender(s) whose name and address shall have been furnished to
Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.

14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.

15. BROKERS' FEES.

        15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.

                                      -24-
<PAGE>   25

        15.2 ADDITIONAL TERMS. Unless Lessor and Broker(s) have otherwise agreed
in writing, Lessor agrees that: (a) if Lessee exercises any Option (as defined
in Paragraph 39.1) granted under this Lease or any Option subsequently granted,
or (b) if Lessee acquires any rights to the Premises or other premises in which
Lessor has an interest, or (c) if Lessee remains in possession of the Premises
with the consent of Lessor after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Broker(s) a fee in accordance with the schedule of said Broker(s) in effect
at the time of the execution of this Lease.

        15.3 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15. Each Broker shall be an intended third party beneficiary of the provisions
of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that right directly against
Lessor and its successors.

        15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent
and warrant to the other that it has had no dealings with any person, firm,
broker or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.

16. TENANCY AND FINANCIAL STATEMENTS.

        16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall within
ten (10) days after written notice after written notice from the other Party
(the "REQUESTING PART") execute, acknowledge and deliver to the Requesting Party
a statement in writing in a form similar to the then most current "TENANCY
STATEMENT" form published by the American Industrial Real Estate Association,
plus such additional information, confirmation and/or statements as may be
reasonably requested by the Requesting Party.

        16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.

17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or

                                      -25-
<PAGE>   26

assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.

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

19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.

20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.

21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.

22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.

23. NOTICES.

        23.1 NOTICE REQUIREMENTS. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be sent by regular, certified or registered
mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission during normal business hours, and shall be deemed sufficiently
given if served in a manner specified in this Paragraph 23. The addresses noted
adjacent to a Party's signature on this Lease shall be that Party's address for
delivery or mailing of notice purposes. Either Party may by written notice to
the other specify a different address for notice purposes except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for the purpose of mailing or delivering notices to Lessee. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.

        23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile

                                      -26-
<PAGE>   27

transmission or similar means, the same shall be deemed served or delivered upon
telephone or facsimile confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Saturday or a Sunday or a legal holiday, it shall be deemed received on the
next business day.

24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.

25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.

26. NO RIGHT TO HOLDOVER. Subject to the provisions of Paragraph 1.3 above,
Lessee has no right to retain possession of the Premises or any part thereof
beyond the expiration or earlier termination of this Lease. In the event that
Lessee holds over in violation to this Paragraph 26 then the Base Rent payable
from and after the time of the expiration or earlier termination of this Lease
shall be increased to two hundred percent (200%) of the Base Rent applicable
during the month immediately preceding such expiration or earlier termination.
Nothing contained herein shall be construed as a consent by Lessor to any
holding over by Lessee.

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

28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.

29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.

30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.

        30.1 SUBORDINATION. This Lease and any Option granted hereby 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 Lessor 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. Lessee
agrees that the Lenders holding any such Security device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of

                                      -27-
<PAGE>   28

Lessor's default with respect to any such obligation, Lessee will give any
Lender whose name and address have been furnished Lessee in writing for such
purpose notice of Lessor's default pursuant to Paragraph 13.5. If any Lender
shall elect to have this Lease and/or any Option granted hereby superior to the
lien of its Security Device and shall give written notice thereof to Lessee,
this Lease and such Options shall be deemed prior to such Security Device,
notwithstanding the relative dates of the documentation or recordation thereof.

        30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee 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 lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.

        30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.

        30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing or Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.

31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "PREVAILING PARTY" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.

32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any

                                      -28-
<PAGE>   29

ordinary "For Lease" signs. All such activities of Lessor shall be without
abatement of rent or liability to Lessee.

33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.

34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.

35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one of all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.

36. CONSENTS.

                (a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.

                (b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the impositions
by Lessor at the time of consent of such further or

                                      -29-
<PAGE>   30

other conditions as are then reasonable with reference to the particular matter
for which consent is being given.

37. GUARANTOR.

        37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease
per Paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the same
obligations as Lessee under this lease, including but not limited to the
obligation to provide the Tenancy Statement and information required in
Paragraph 16.

        37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a Default
of the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.

38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.

39. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.

40. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.

41. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.

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

                                      -30-
<PAGE>   31

thereof, said Party shall be entitled to recover such sum or so much thereof as
it was not legally required to pay under the provisions of this Lease.

43. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.

44. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.

45. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.

46. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.

47. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.

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

        IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
        ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
        EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF
        ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
        REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL
        ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS,
        AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
        CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE
        PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE
        LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS IN
        A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE
        PROPERTY IS LOCATED SHOULD BE CONSULTED.

                                      -31-
<PAGE>   32

The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.

Executed at:                                Executed at:
    San Francisco, California                   San Francisco, California

on:                                         on:
   --------------------------------            ---------------------------------

BY LESSOR:                                  BY LESSEE:

Rosenberg SOMA Investments IV, LLC,         Pets.Com, Inc.,

A Delaware Limited Liability Co.            A California corporation

By: /s/ Douglas Rosenberg                   By: /s/ J.L. Wainwright

Name Printed: Douglas Rosenberg             Name Printed: J.L. Wainwright

Title: Manager                              Title: CEO

Telephone: (415) 835-9808                   Telephone: (415) 222-9999

Facsimile: (415) 835-9896                   Facsimile: (415) 222-9998

                                      -32-
<PAGE>   33

NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form:
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 So. Figueroa St., M-1, Los
Angeles, CA 90071. (213) 687-8777.

                                      -33-

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