Document:

<PAGE>

                                                                    EXHIBIT 10.6

                  Lantronix 5 Year Warranty (REF#990701-0038)

Description:
What is the text of the Lantronix 5 year warranty?

Solution:

Warranty Statement

Lantronix warrants for a period of FIVE YEARS from the date of shipment that
each Lantronix Product supplied shall be free from defects in material and
workmanship.

During this period, if the customer experiences difficulties with a product and
is unable to resolve the problem by phone with Lantronix Technical Support, a
Return Material Authorization (RMA) will be issued. Following receipt of a RMA
number, the customer is responsible for returning the product to Lantronix,
freight prepaid. Lantronix upon verification of warranty will, at its option,
repair or replace the product in question, and return it to the customer freight
prepaid.

If the product is not under warranty, Lantronix will contact the customer who
then has the option of having the unit repaired on a fee basis or having the
unit returned.

No services are handled at the customer's site under this warranty.

Lantronix warrants software for a period of sixty(60) days from the date of
shipment that each software package supplied shall be free from defects and
shall operate according to Lantronix specifications. Any software revisions
required hereunder cover supply of distribution media only and do not cover, or
include, any installation. The customer is responsible for return of media to
Lantronix and Lantronix for freight associated with replacement media being
returned to the customer.

Lantronix shall have no obligation to make repairs or to cause replacement
required through normal wear and tear of necessitated in whole or in part by
catastrophe, fault or negligence of the user, improper or unauthorized use of
the Product, or use of the Product in such a manner for which it was not
designed, or by causes external to the Product such as, but not limited to,
power or failure of air conditioning.

There are no understandings, agreements, representations or warranties, express
or implied, including warranties of merchantability or fitness for a particular
purpose, other than those specifically set out above or by any existing contract
between the parties. Any such contract states the entire obligation of
Lantronix. The contents of this document shall not become part of or modify any
prior or existing agreement, commitment or relationship.

The information, recommendation, description and safety notations in this or
other documents supplied by Lantronix are based on general industry experience
and judgment with respect to such hardware and software.

THE INFORMATION SHOULD NOT BE CONSIDERED TO BE ALL INCLUSIVE OR COVERING ALL
CONTINGENCIES.

NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF FITNESS
<PAGE>

FOR A PARTICULAR PURPOSE OR MERCHANTABILITY, OR WARRANTIES ARISING FROM COURSE
OF DEALING OR USAGE OF TRADE, ARE MADE REGARDING THE INFORMATION,
RECOMMENDATIONS, DESCRIPTIONS AND SAFETY NOTATIONS CONTAINED HEREBY AND IN
HARDWARE AND SOFTWARE SPECIFICATION DOCUMENTATION, OR INSTRUCTIONS SUPPLIED BY
LANTRONIX. In no event will Lantronix be responsible to the user in contract, in
tort (including negligence), strict liability or otherwise for any special,
indirect, incidental or consequential damage or loss of equipment, plant or
power system, cost of capital, loss of profits or revenues, cost of replacement
power, additional expenses in the use of existing software, hardware, equipment
or facilities, or claims against the user by its employees or customers
resulting from the use of the information, recommendations, descriptions and
safety notations supplied by Lantronix. Lantronix liability is limited (at its
election) to (1) refund of buyer's purchase price for such affected products
(without interest), (2) repair of such products, or (3) replacement of such
products, provided however, that the buyer follows the procedures set forth
herein.

Warranty claims must be received by Lantronix within the applicable warranty
period. A replaced product, or part thereof, shall become the property of
Lantronix and shall be returned to Lantronix at the Purchaser's expense. ALL
RETURN MATERIAL MUST BE ACCOMPANIED BY A RETURN MATERIAL AUTHORIZATION NUMBER
ASSIGNED BY LANTRONIX.<PAGE>

                                                                   EXHIBIT 10.10
                                INDEX TO LEASE

<TABLE>
<CAPTION>

                                                                         Page
<S>                                                                      <C>
ARTICLE I.         BASIC LEASE PROVISIONS...............................   1

ARTICLE II.        PREMISES.............................................   2
  Section 2.1      Leased Premises......................................   2
  Section 2.2      Acceptance of Premises...............................   2
  Section 2.3      Building Name and Address............................   2

ARTICLE III.       TERM.................................................   2
  Section 3.1      General..............................................   2
  Section 3.2      Delay in Possession..................................   2

ARTICLE IV.        RENT AND OPERATING EXPENSES..........................   2
  Section 4.1      Basic Rent...........................................   2
  Section 4.2      Operating Expenses...................................   2
  Section 4.3      Security Deposit.....................................   3

ARTICLE V.         USES.................................................   3
  Section 5.1      Use..................................................   3
  Section 5.2      Signs................................................   4
  Section 5.3      Hazardous Materials..................................   4

ARTICLE VI.        LANDLORD SERVICES....................................   5
  Section 6.1      Utilities and Services...............................   5
  Section 6.2      Operation and Maintenance of Common Areas............   5
  Section 6.3      Use of Common Areas..................................   5
  Section 6.4      Parking..............................................   5
  Section 6.5      Changes and Additions by Landlord....................   6

ARTICLE VII.       MAINTAINING THE PREMISES.............................   6
  Section 7.1      Tenant's Maintenance and Repair......................   6
  Section 7.2      Landlord's Maintenance and Repair....................   6
  Section 7.3      Alterations..........................................   6
  Section 7.4      Mechanic's Liens.....................................   7
  Section 7.5      Entry and Inspection.................................   7

ARTICLE VIII.      TAXES AND ASSESSMENTS ON TENANT'S PROPERTY...........   7

ARTICLE IX.        ASSIGNMENT AND SUBLETTING............................   7
  Section 9.1      Rights of Parties....................................   7
  Section 9.2      Effect of Transfer...................................   8
  Section 9.3      Sublease Requirements................................   8

ARTICLE X.         INSURANCE AND INDEMNITY..............................   8
  Section 10.1     Tenant's Insurance...................................   8
  Section 10.2     Landlord's Insurance.................................   9
  Section 10.3     Tenant's Indemnity...................................   9
  Section 10.4     Landlord's Nonliability..............................   9
  Section 10.5     Waiver of Subrogation................................   9

ARTICLE XI.        DAMAGE OR DESTRUCTION................................   9
  Section 11.1     Restoration..........................................   9
  Section 11.2     Lease Governs........................................   9

ARTICLE XII        EMINENT DOMAIN.......................................  10
  Section 12.1     Total or Partial Taking..............................  10
  Section 12.2     Temporary Taking.....................................  10
  Section 12.3     Taking of Parking Area...............................  10

ARTICLE XIII.      SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIAL.......  10
  Section 13.1     Subordination........................................  10
  Section 13.2     Estoppel Certificate.................................  10
  Section 13.3     Financials...........................................  10

ARTICLE XIV.       DEFAULTS AND REMEDIES................................  11
  Section 14.1     Tenant's Defaults....................................  11
  Section 14.2     Landlord's Remedies..................................  11
  Section 14.3     Late Payments........................................  12
  Section 14.4     Right of Landlord to Perform.........................  12
  Section 14.5     Default by Landlord..................................  12
  Section 14.6     Expenses and Legal Fees..............................  12
  Section 14.7     Waiver of Jury Trial.................................  12
  Section 14.8     Satisfaction of Judgment.............................  13

ARTICLE XV.        END OF TERM..........................................  13
  Section 15.1     Holding Over.........................................  13
  Section 15.2     Merger on Termination................................  13
  Section 15.3     Surrender of Premises; Removal of Property...........  13

ARTICLE XVI.       PAYMENTS AND NOTICES.................................  13

ARTICLE XVII.      RULES AND REGULATIONS................................  13

ARTICLE XVIII.     BROKER'S COMMISSION..................................  14

ARTICLE XIX.       TRANSFER OF LANDLORD'S INTEREST......................  14

ARTICLE XX.        INTERPRETATION.......................................  14
  Section 20.1     Gender and Number....................................  14
  Section 20.2     Headings.............................................  14
  Section 20.3     Joint and Several Liability..........................  14
  Section 20.4     Successors...........................................  14
  Section 20.5     Time of Essence......................................  14
  Section 20.6     Controlling Law......................................  14
  Section 20.7     Severability.........................................  14
  Section 20.8     Waiver and Cumulative Remedies.......................  14
  Section 20.9     Inability to Perform.................................  14
  Section 20.10    Entire Agreement.....................................  14
  Section 20.11    Quiet Enjoyment......................................  15
  Section 20.12    Survival.............................................  15

ARTICLE XXI.       EXECUTION AND RECORDING..............................  15
  Section 21.1     Counterparts.........................................  15
  Section 21.2     Corporate and Partnership Authority..................  15
  Section 21.3     Execution of Lease; No Option or Offer...............  15
  Section 21.4     Recording............................................  15
  Section 21.5     Amendments...........................................  15
  Section 21.6     Executed Copy........................................  15
  Section 21.7     Exhibits; References.................................  15

ARTICLE XXII.      MISCELLANEOUS........................................  15
  Section 22.1     Nondisclosure of Lease Term..........................  15
  Section 22.2     Guaranty.............................................  15
  Section 22.3     Changes Requested by Lender..........................  15
  Section 22.4     Mortgagee Protection.................................  15
  Section 22.5     Covenants and Conditions.............................  15
  Section 22.6     Disclosure Statement.................................  15
  Section 22.7     Security Measures....................................  16

EXHIBITS
  Exhibit A        Floor Plan of the Premises
  Exhibit B        Environmental Questionnaire
  Exhibit C        Disclosure Statement
  Exhibit D        Tenant's Insurance
  Exhibit E        Rules and Regulations
  Exhibit X        Work Letter
</TABLE>
<PAGE>

                 THE IRVINE COMPANY - INDUSTRIAL LEASE PROPOSAL
                 ----------------------------------------------
                                REVISED 6/29/93

NEW LEASE  (X) RENEWAL ( ) AMENDMENT ( )    OTHER:______________  DATE: 6/11/93
                                                                        -------
PRODUCT TYPE: MULTI ( )  TWO STORY ( )  WAREHOUSE ( ) MID-TECH (X) FLEX-TECH ( )

TENANT INFORMATION
------------------
NAME: Lantronix, Inc.              DBA: _____________________________
      --------------------------
ENTITY:  Corporation (X)  Gen. Partnership ( )  Ltd. Partnership Individual ( )
STATE OF FORMATION: California                 STANDING VERIFIED: YES (X) NO (X)
                   -----------------------
PREMISES
--------
PROJECT: Koll Bldg. 11                USE: Office, Warehouse, Distribution
         ----------------------------      ---------------------------------
ADDRESS: 15355 Barranca               SUITE: 102       BLDG OPTIONS CHECKED: ( )
         ----------------------------        ----------
RENTABLE SQ FT: 27,554                LANDLORD: Irvine Tech Part II
                ---------------------           -------------------------------

GENERAL TERMS
-------------
COMMENCEMENT DATE: August 1, 1993  [ESTIMATED: ( )/FIXED: (X)]   TERM (Mos.): 60
                   --------------                                             --

SECURITY DEPOSIT: $10,507.50   FREE RENT (Mos.): none     EST. CAMs ____________
                   ----------                    --------
VEHICLE PARKING SPACES: 113    TENANT'S LIABILITY INSURANCE: ___________________
                       -------
RENT STRUCTURE
--------------
COUPON RATE:  $ .38         NET EFFECTIVE RATE: $  .525      GUIDELINE:  $  .75
              --------------                    -------------            ------
<TABLE>
<CAPTION>
   TERM         RENT PSF      MONTHLY          TERM            RENT PSF      MONTHLY
   ----         --------      -------          ----            --------      -------
<S>             <C>           <C>           <C>                <C>          <C>
MONTH 1-15      $  .3813      $10,507.50    MONTH  37 - 48     $ .5873      $ 16,181.55
----------       -------       ---------    --------------       -----       ----------
MONTH 16-27     $  .5263      $14,500.35    MONTH  49 - 60     $ .6254      $ 17,232.30
-----------      -------       ---------    --------------       -----        ---------
MONTH 28-36     $  .5491      $15,130.80    MONTH ________     $ _____      $ _________
-----------      -------      ----------
</TABLE>

TENANT IMPROVEMENTS    First Generation Space:  YES   ( )    NO  (X)
-------------------

Check and complete ONLY ONE of the following:
--------------------------------------------
[_] WORK LETTER:   Estimated Space Plan Approval Date: __________
    T.I. ALLOWANCE: $ ________/SF    Total Cost: $ _____________
    ( ) Above Standard TI's amortized into rent. Total: $ ________ @ _________ %
        over __ years
        Amortized amount $ ___________ per mo.  $ ___________ p.s.f./mo.

[X] TURNKEY:
    Space Plan Dated:    6-15-93           Prepared By: Gensler & Associates
                         ------------------             ------------------------
    Cost Estimate Dated: __________________Prepared By: Koll Construction
                                                        ------------------------

    TIC Cost Not to Exceed $ _____  PSF $ ____ [Insert Cap In Lease: Yes ( )
    No(X)]

[_] LIMITED REFURBISHMENT: (eg:       )
    Description of Work: _______________________________________________________
    TIC Cost Not to Exceed $ _______  PSF $ ________  [Insert Cap In Lease:
    Yes( )   No(X)]

<TABLE>
<S>                          <C>             <C>                           <C>
[_] AS-IS                         Jeff Reese/
COMMISSION Procuring Broker: Mark Zuvich Co: CB Commercial Commission:     $ 41,502.50
----------                   -----------     -------------                 -----------

COMMISSION SCHEDULE                          Management Co. Override:      $ 20,751.25
-------------------                                                        -----------
</TABLE>

<TABLE>
<CAPTION>
Year       Base Rent           Rate        Commission Due
----       -----------         ----        --------------
<S>        <C>                 <C>         <C>
 1         $ 126,090.00         7%         $   8,826.30        NOTE: DO NOT CALCULATE
----         -------------     ------        ---------------   ----
 2         $ 162,025.67         6%         $   9,721.53        A COMMISSION ON FREE
----         -------------     ------        ---------------   RENT PERIOD OR OTHER
 3         $ 179,678.25         5%         $   8,983.91        CONCESSIONS UNLESS
----         -------------     ------        ---------------   NEGOTIATED OTHERWISE.
 4         $ 194,178.60         4%         $   7,767.14
----         -------------     ------        ---------------
 5         $ 206,787.60         3%         $   6,203.62
----         -------------     ------        ---------------
TOTAL:     $ 868,760.10         TOTAL:     $  41,502.50
             -------------                   ---------------

</TABLE>

SPECIAL PROVISIONS  (Signs, parking, expansion/extension rights, etc.)
------------------
*TT will pay 1st mths. rent + security deposit upon signing of Master Lease.
*LL will provide Turnkey buildout per the attached
*TT is responsible for all normal operating expenses not to exceed $3,677.62 per
month excluding Trash Removal, HVAC maintenance and exterior common area
electricity which shall be TT's responsibility.  TT not responsible for any
controllable operating expenses which exceed seven percent (7%) per annum.
*6 mths. prior written notice one (1) option to extend for 36 mths. at 95% FMV
but not to exceed $17,862.75 per mth., NNN.
*Right of First Refusal to lease adjacent space.
*TT shall have the right to sublease or assign w/ LL's consent.
*TT at TT's sole expense allowed to install building top signage upon approval
from the Irving Co. and The City of Irvine.
*LL approves a separate bldg. address contingent upon The City of Irvine
approval.
*TT - 5 reserved parking spaces.
<PAGE>

/s/Michael E. Smith                                  /s/Michael E. Smith
___________________       __________________         ___________________
/s/ Michael E. Smith      Mike Palladino             Michael E. Smith

================================================================================
IRVINE OFFICE & INDUSTRIAL COMPANY APPROVAL
-------------------------------------------

________________  ______   ___________________  ______    ___________   _______
V.P., Operations  Date     Finance/Controller   Date      V.P. Legal    Date

================================================================================

READY FOR TIC EXECUTION
-----------------------
                                  __________________          _______
                                  Legal Approval              Date
<PAGE>

                              ARTICLE II. PREMISES
                              --------------------

          SECTION 2.1 Lease Premises. (Continued)
                      --------------

          (b) Subordinate Right of First Offer. Provided Tenant is not then in
              --------------------------------
default hereunder, and further provided that the third party tenant (the
"Existing Tenant") presently holding a right of first refusal for the First
Right Space (as hereinafter defined) elects not to exercise its right, Tenant
shall have the continuing right ("First Right") to lease, approximately 23,622
rentable square feet of space contiguous to the Premises and shown on Exhibit A
hereto ("First Right Space") in accordance with and subject to the provisions of
this Section 2.1(b). At such time as Landlord determines that the First Right
Space, or any portion thereof, is available for lease, Landlord shall give
Tenant written notice of the basic economic terms including but not limited to
the Basic Rent, term, and tenant improvement allowance (collectively, the
"Economic Terms"), upon which Landlord is willing to lease such particular First
Right Space to Tenant or to a third party. Within five (5) business days after
receipt of such notice, Tenant must give Landlord written notice pursuant to
which Tenant shall elect to (i) lease all, but not less than all, of such First
Right Space specified in Landlord's notice upon such Economic Terms and the
same non-Economic Terms as set forth in this Lease; (ii) refuse to lease such
First Right Space, specifying that such refusal is not based upon the Economic
Terms, but upon Tenant's lack of need for such First Right Space, in which event
Landlord may lease such First Right Space upon any terms it deems appropriate;
or (iii) refuse to lease such First Right Space, specifying that such refusal is
based upon said Economic Terms, in which event Tenant shall also specify revised
Economic Terms upon which Tenant shall be willing to lease such First Right
Space. In the event that Tenant does not so respond in writing to Landlord's
notice within said period, Tenant shall be deemed to have elected clause (ii)
above. In the event Tenant gives Landlord notice pursuant to clause (iii) above,
Landlord may elect to either (x) lease such First Right Space to Tenant upon
such revised Economic Terms and the same other non-Economic Terms as set forth
in this lease, or (y) lease such First Right Space to any third party upon
Economic Terms which are not materially more favorable to such party than those
Economic Terms proposed by Tenant. In the event that Landlord shall not enter
into a lease for such First Right Space, or a portion thereof, with a third
party within one hundred eighty (180) days following Landlord's notice described
above, then prior to leasing the First Right Space to any third party other than
the Existing Tenant Landlord shall repeat the procedures set forth in this
Section 2.1(b). In the event that Landlord leases the First Right Space, or any
portion thereof, to a third party in accordance with the provisions of this
Section 2.1(b), and during the initial sixty (60) month Term of this Lease the
First Right Space, or any portion thereof, shall again become available for
releasing, then prior to Landlord entering into any such new lease with a third
party other than the Existing Tenant for the First Right Space, Landlord shall
repeat the procedures specified above in this Section 2.1(b). Notwithstanding
the foregoing, it is understood that Tenant's First Right shall further be
subject to any extension or expansion rights granted by Landlord to any third
party tenant now or hereafter occupying the First Right Space or any portion
thereof, and in no event shall any such First Right Space be deemed available
for leasing until the existing tenant thereof shall have vacated the First Right
Space. Tenant's rights under this Section 2.1(b) shall belong solely to
Lantronix, a California corporation and may not be assigned or transferred by
it. Any attempted assignment or transfer shall be void and of no force or
effect.

          (c) Building Address. Subject to the approval of the City of Irvine,
              ----------------
Landlord agrees that Tenant may utilize a separate building address for the
Premises leased hereunder. Landlord further agrees to use reasonable efforts to
cooperate with Tenant in effecting such a change in the address.

                               RIDER PAGE 2 - A
                                  PAGE 1 OF 2
<PAGE>

                               ARTICLE III. TERM
                               -----------------

          SECTION 3.1 General. (Continued)
                      -------

          (b) Right to Extend this Lease. Provided that Tenant is not in default
              --------------------------
under any provision of this Lease, either at the time of exercise of the
extension right granted herein or at the time of the commencement of such
extension, and provided further that Tenant is occupying the entire Premises and
has not assigned or sublet any of its interest in this Lease, Tenant may extend
the Term of this Lease for one (1) period of thirty-six (36) months. Tenant
shall exercise its right to extend the Term by and only by (i) delivering to
Landlord, not less than six (6) months or more than nine (9) months prior to the
expiration date of the Term, Tenant's written notice of its commitment to extend
(the "Commitment Notice"); and (ii) returning to Landlord, within fifteen (15)
days after receipt, an executed amendment to this Lease (to be prepared by
Landlord upon receipt of the Commitment Notice) setting forth the Basic Rent and
other charges payable during the extension term. The Basic Rent payable under
the Lease during the extension of the Term shall be at ninety-five percent (95%)
of the rate Landlord is then receiving for leases of comparable and similarly
improved space in the vicinity of Project on the date of the Commitment Notice,
as reasonably determined by Landlord. In no event shall the Basic Rent payable
at the commencement of any extension period be less than the Basic Rent payable
during the month immediately preceding the commencement of such extension
period. If Tenant fails to timely comply with any of the provisions of this
paragraph, Tenant's right to extend the Term shall be extinguished and the Lease
shall automatically terminate as of the expiration date of the Term, without any
extension and without any liability to Landlord. Any attempt to assign or
transfer any right or interest created by this paragraph shall be void from its
inception. Tenant shall have no other right to extend the Term beyond the single
thirty-six (36) month extension created by this paragraph. Unless agreed to in a
writing signed by Landlord and Tenant, any extension of the Term, whether
created by an amendment to this Lease or by a holdover of the Premises by
Tenant, or otherwise, shall be deemed a part of, and not in addition to, any
duly exercised extension period permitted by this paragraph.

                               RIDER PAGE 2 - A
                                  PAGE 2 OF 2
<PAGE>

                               INDUSTRIAL LEASE

  THIS LEASE is made as of the 28th day of June, 1993, by and between Irvine
                               ----        ----    --
Technology Partners III, a California general partnership, hereafter called
"Landlord," and Lantronix, a California corporation, hereinafter
                -----------------------------------
called "Tenant."

                     ARTICLE 1.  BASIC LEASE PROVISIONS

     Each reference in this Lease to the "Basic Lease Provisions" shall mean and
refer to the following collective terms, the application of which shall be
governed by the provisions in the remaining Articles of this Lease.

1.   Tenant's Trade Name:  N/A
                           ----------------------------------------------------

2.   Premises: Suite No.  102   (the Premises are more particularly described
                          ------
     in Section 2.1).

     Address of Building:  15355 Barranca Parkway, Irvine, CA 92718
                         ------------------------------------------------------

     Project Description (if applicable): Irvine/Koll Building 11
                                          -------------------------------------
3.   Use of Premises:  General office, warehouse, distribution and light
                       --------------------------------------------------------
     assembly.
     ---------

4.   Estimated Commencement Date: August 1, 1993
                                  ---------------------------------------------

5.   Lease Term: Sixty (60) months, plus such additional days as may be required
                 ----------
     to cause this Lease to terminate on the final day of the calendar month.

6.   Basic Rent:  Ten Thousand Five Hundred Eight   Dollars ($10,508.00  ) per
                  ----------------------------------          -----------
     month,

     Basic Rent is subject to adjustment as follows:

     Commencing on the first day of the sixteenth month of the Lease Term the
     Basic Rent shall be Fourteen Thousand Five Hundred Dollars ($14,500.00) per
     month.

     Commencing on the first day of the twenty-eighth month of the Lease Term
     the Basic Rent shall be Fifteen Thousand One Hundred Thirty-One Dollars
     ($15,131.00) per month.

     Commencing on the first day of the thirty-seventh month of the Lease Term
     the Basic Rent shall be Sixteen Thousand One Hundred Eighty-Two Dollars
     ($16,182.00) per month.

     Commencing on the first day of the forty-ninth month of the Lease Term the
     Basic Rent shall be Seventeen Thousand Two Hundred Thirty-Two Dollars
     ($17,232.00) per month.

7.     Guarantor(s):  N/ A
                      --------------------------------------------------------

8.     Floor Area of Premises: approximately  27,554  rentable square feet
                                             --------

9.     Security Deposit: $10,508.00
                          -----------------------------------------------------

10.    Broker(s):  CB Commercial
                   ------------------------------------------------------------

11.    Plan Approval Date: N/A
                           ----------------------------------------------------

12.    Address for Payments and Notices:

            LANDLORD                            TENANT

       The Irvine Company                      Lantronix
       c/o Koll Management Services            15355 Barranca Parkway, Suite 102
       16 Technology Drive                     lrvine, CA 92718
       Suite 100
       Irvine, CA 92718
       Attn: Property Manager

       with a copy of notices to:

       IRVINE OFFICE & INDUSTRIAL COMPANY
       P.O. BOX 1
       Newport Beach, CA 92658-8904
       Attn: Vice President, Industrial Operations

13.    Tenant's Liability Insurance Limit: $ 1,000,000.00
                                            -----------------------------------
14.    Vehicle Parking Spaces: One Hundred Thirteen        (113)
                             --------------------------------------------------
<PAGE>

                             ARTICLE II.  PREMISES

     SECTION 2.1. (a) LEASED PREMISES. Landlord leases to Tenant and Tenant
rents from Landlord the premises shown in Exhibit A (the "Premises"), containing
                                          ---------
approximately the floor area set forth in Item 8 of the Basic Lease Provisions
and known by the suite number identified in Item 2 of the Basic Lease
Provisions. The Premises are located in the building identified in Item 2 of the
Basic Lease Provisions (which together with the underlying real property, is
called the "Building"), and is a portion of the project described in Item 2 (the
"Project"). If, upon completion of the space plans for the Premises, Landlord's
architect or space planner determines that the rentable square footage of the
Premises differs from that set forth in the Basic Lease Provisions, then
Landlord shall so notify Tenant and the Basic Rent (as shown in Item 6 of the
Basic Lease Provisions) shall be promptly adjusted in proportion to the change
in square footage. Within five (5) days following Landlord's request, the
parties shall memorialize the adjustments by executing an amendment to this
Lease prepared by Landlord, provided that the failure or refusal by either party
to execute the amendment shall not affect its validity. See Rider Page 2-A.

     SECTION 2.2.     ACCEPTANCE OF PREMISES. Tenant acknowledges that neither
Landlord nor any representative of Landlord has made any representation or
warranty with respect to the Premises or the Building or the suitability or
fitness of either for any purpose, except as set forth in this Lease. The taking
of possession or use of the Premises by Tenant for any purpose other than
construction shall conclusively establish that the Premises and the Building
were in satisfactory condition and in conformity with the provisions of this
Lease in all respects, except for those matters which Tenant shall have brought
to Landlord's attention on a written punch list. The list shall be limited to
any items required to be accomplished by Landlord under the Work Letter (if any)
attached as Exhibit X, and shall be delivered to Landlord within thirty (30)
            ---------
days after the term ("Term") of this Lease commences as provided in Article I
below. If there is no Work Letter, or if no items are required of Landlord under
the Work Letter, by taking possession of the Premises Tenant accepts the
improvements in their existing condition, and waives any right or claim against
Landlord arising out of the condition of the Premises. Nothing contained in this
Section shall affect the commencement of the Term or the obligation of Tenant to
pay rent. Landlord shall diligently complete all punch list items of which it
is notified as provided above.

     SECTION 2.3.     BUILDING NAME AND ADDRESS. Tenant shall not utilize any
name selected by Landlord from time to time for the Building and/or the Project
as any part of Tenant's corporate or trade name. Landlord shall have the right
to change the name, number or designation of the Building or Project without
Liability to Tenant.

                               ARTICLE III.  TERM

     SECTION 3.1. (a) GENERAL. The Term shall be for the period shown in Item 5
of the Basic Lease Provisions. Subject to the provisions of Section 3.2 below,
the Term shall commence ("Commencement Date") on the earlier of (a) if this
Lease provides for the construction of Tenant Improvements by Landlord, then the
date upon which all relevant governmental authorities have approved the Tenant
Improvements in accordance with applicable building codes, as evidenced by
written approval thereof in accordance with the building permits issued for the
Tenant Improvements, or (b) the date Tenant acquires possession or commences use
of the Premises for any purpose other than construction. Within ten (10) days
after possession of the Premises is tendered to Tenant, the parties shall
memorialize on a form provided by Landlord the actual Commencement Date and the
expiration date ("Expiration Date") of this Lease. Tenant's failure to execute
that form shall not affect the validity of Landlord's determination of those
dates. See Rider Page 2-A.

     SECTION 3.2.     DELAY IN POSSESSION. If Landlord, for any reason
whatsoever, cannot deliver possession of the Premises to Tenant on or before the
Estimated Commencement Date, this Lease shall not be void or voidable nor shall
Landlord be liable to Tenant for any resulting loss or damage. However, Tenant
shall not be liable for any rent and the Commencement Date shall not occur until
Landlord delivers possession of the Premises and the Premises are in fact
available for Tenant's occupancy with any Tenant Improvements have been approved
as per Section 3.1(a) above, except that if Landlord's failure to so deliver
possession on the Estimated Commencement Date is attributable to any action or
inaction by Tenant (including without limitation any Tenant Delay described in
the Work Letter, if any, attached to this Lease), then the Commencement Date
shall not be advanced to the date on which possession of the Premises is
tendered to Tenant, and Landlord shall be entitled to full performance by Tenant
(including the payment of rent) from the date Landlord would have been able to
deliver the Premises to Tenant but for Tenant's delay(s).

                    ARTICLE IV.  RENT AND OPERATING EXPENSES

     SECTION 4.1      BASIC RENT. From and after the Commencement Date, Tenant
shall pay to Landlord without deduction or offset a Basic Rent for the Premises
in the total amount shown (including subsequent adjustments, if any) In item 6
of the Basic Lease Provisions. Any rental adjustment shown in Item 6 shall be
deemed to occur on the specified monthly anniversary of the Commencement Date,
whether or not that date occurs at the end of a calendar month. The rent shall
be due and payable in advance commencing on the Commencement Date (as prorated
for any partial month) and continuing thereafter on the first day of each
successive calendar month of the Term. "No demand, notice or invoice shall be
required. An installment of rent in the amount of one (1) full month's Basic
Rent at the initial rate specified in Item 6 of the Basic Lease Provisions shall
be delivered to Landlord concurrently with Tenant's execution of this Lease and
shall be applied against the Basic Rent first due hereunder.

     SECTION 4.2.  OPERATING EXPENSES.

     (a)  Tenant shall reimburse Landlord, as additional rent, for Tenant's
proportionate shares of "Building Costs" and "Property Taxes," as those terms
are defined below, incurred by Landlord in the operation of the Building and
Project. For convenience of reference, Property Taxes and Building Costs shall
be referred to collectively as "Operating Expenses." Tenant's proportionate
share of Operating Expenses shall equal the product of the rentable floor area
of the Premises multiplied by Operating Expenses per rentable square foot.
Tenant acknowledges Landlord's rights to make changes or additions to the
Building and/or Project from time to time pursuant to Section 6.5 below, in
which event Tenant's proportionate share of Operating Expenses may be adjusted.

     (b)  Commencing prior to the start of each "Expense Recovery Period" (as
defined below), Landlord shall give Tenant a written estimate of the amount of
Tenant's proportionate share of Operating

                                      -2-
<PAGE>

Expenses for the Expense Recovery Period. Tenant shall pay the estimated amounts
to Landlord in equal monthly installments, in advance, with Basic Rent. If
Landlord has not furnished its written estimate for any Expense Recovery Period
by the time set forth above, Tenant shall continue to pay cost reimbursements at
the rates established for the prior Expense Recovery Period, if any; provided
that when the new estimate is delivered to Tenant, Tenant shall, at the next
monthly payment date, pay any accrued cost reimbursements based upon the new
estimate. For purposes hereof, "Expense Recovery Period" shall mean every twelve
month period during the Term (or portion thereof for the first and last lease
years) commencing July 1 and ending June 30.

     (c)  Within one hundred twenty (120) days after the end of each Expense
Recovery Period, Landlord shall furnish to Tenant a statement showing in
reasonable detail the actual or prorated Property Taxes and Building Costs
incurred by Landlord during the period, and the parties shall within thirty (30)
days thereafter make any payment or allowance necessary to adjust Tenant's
estimated payments, if any, to Tenant's actual proportionate shares as shown by
the annual statement. Any delay or failure by Landlord in delivering any
statement hereunder shall not constitute a waiver of Landlord's right to require
Tenant to pay Tenant's proportionate share of Operating Expenses pursuant
hereto. Any amount due Tenant shall be credited against installments next coming
due under this Section 4.2, and any deficiency shall be paid by Tenant together
with the next installment. If Tenant has not made estimated payments during the
Expense Recovery Period, any amount owing by Tenant pursuant to subsection (a)
above shall be paid to Landlord in accordance with Article XVI. Should Tenant
fail to object in writing to Landlord's determination of actual Operating
Expenses within sixty (60) days following delivery of Landlord's expense
statement, Landlord's determination of actual Operating Expenses for the
applicable Expense Recovery Period shall be conclusive and binding on the
parties and any future claims to the contrary shall be barred.

     (d)  Even though the Lease has terminated and the Tenant has vacated the
Premises, when the final determination is made of Tenant's share of Property
Taxes and Building Costs for the Expense Recovery Period in which the Lease
terminates, Tenant shall upon notice pay the entire increase due over the
estimated expenses paid. Conversely, any overpayment made in the event expenses
decrease shall be rebated by Landlord to Tenant.

     (e)  The term "Building Costs" shall include all expenses of operation and
maintenance of the Building and the Project, together with all appurtenant
Common Areas (as defined in Section 6.2), and shall include the following
charges by way of illustration but not limitation: water and sewer charges;
insurance premiums or reasonable premium equivalents should Landlord elect to
self-insure any risk that Landlord is authorized to insure hereunder; license,
permit, and inspection fees; heat; light; power; janitorial services to any
Interior Common Areas; air conditioning; amortization of capital investments
reasonably intended to produce a reduction in operating charges or energy
conservation; supplies; materials; equipment; tools; the cost of any
environmental, insurance, tax or other consultant utilized by Landlord in
connection with the Building and/or Project; [establishment of reasonable
reserves for replacements and/or repair of Common Area improvements]; equipment
and supplies; costs (including without limitation amortization of capital
investments) incurred in connection with compliance with any laws or changes in
laws necessary to bring the Building and/or Project into compliance with
applicable laws and building codes enacted subsequent to the completion of
construction of the Building; labor; reasonably allocated wages and salaries,
fringe benefits, and payroll taxes for administrative and other personnel
directly applicable to the Building and/or Project, including both Landlord's
personnel and outside personnel; any expense incurred pursuant to Sections 6.1,
6.2, 6.4, 7.2, and 10.2; and a reasonable overhead/management fee. It is
understood that Building Costs shall include competitive charges for direct
services provided by any subsidiary or division of Landlord. A copy of
Landlord's unaudited statement of expenses shall be made available to Tenant
upon request.

     (f)  The term "Property Taxes" as used herein shall include the following:
(i) all real estate taxes or personal property taxes, as such property taxes may
be reassessed from time to time; and (ii) other taxes, charges and assessments
which are levied with respect to this Lease or to the Building and/or the
Project, and any improvements, fixtures and equipment and other property of
Landlord located in the Building and/or the Project, except that general net
income and franchise taxes imposed against Landlord shall be excluded; and (iii)
any tax, surcharge or assessment which shall be levied in addition to or in lieu
of real estate or personal property taxes, other than taxes covered by Article
VIII; and (iv) costs and expenses incurred in contesting the amount or validity
of any Property Tax by appropriate proceedings.

     (g)  See Rider Page 3-A.

     SECTION 4.3.  SECURITY DEPOSIT. Concurrently with Tenant's delivery of this
Lease, Tenant shall deposit with Landlord the sum, if any, stated in Item 9 of
the Basic Lease Provisions, to be held by Landlord as security for the full and
faithful performance of Tenant's obligations under this Lease (the "Security
Deposit"). Upon any default by Tenant, including specifically Tenant's failure
to pay rent or to abide by its obligations under Sections 7.1 and 15.3 below,
whether or not Landlord is informed of or has knowledge of the default, the
Security Deposit shall be deemed to be automatically and immediately applied,
without waiver of any rights Landlord may have under this Lease or at law or in
equity as a result of the default, as full or partial compensation for that
default.  If any portion of the Security Deposit is so applied, Tenant shall
within five (5) days after written demand by Landlord deposit cash with Landlord
in an amount sufficient to restore the Security Deposit to its original amount.
Landlord shall not be required to keep this Security Deposit separate from its
general funds, and Tenant shall not be entitled to interest on the Security
Deposit. If Tenant fully performs its obligations under this Lease, the Security
Deposit or any balance thereof shall be returned to Tenant (or, at Landlord's
option, to the last assignee of Tenant's interest in this Lease) after the
expiration of the Term, provided that Landlord may retain the Security Deposit
until such time as all amounts due from Tenant in accordance with this Lease
have been determined and paid in full.

                            ARTICLE V. USES

     SECTION 5.1.  USE. Tenant shall use the Premises only for the purposes
stated in Item 3 of the Basic Lease Provisions. The parties agree that any
contrary use shall, be deemed to cause material and irreparable harm to Landlord
and shall entitle Landlord to injunctive relief in addition to any other
available remedy. Tenant, at its expense, shall procure, maintain and make
available for Landlord's inspection throughout the Term, all governmental
approvals, licenses and permits required for the proper and lawful conduct of
Tenant's permitted use of the Premises. Tenant shall not do or permit anything
to be done in or about the Premises which will in any way interfere with the
rights of other occupants of the Building or the Project, or use or allow the
Premises to be used for any unlawful purpose, nor shall Tenant permit any
nuisance or commit any waste in the Premises or the Project. Tenant shall not do
or permit to be done anything which will invalidate or increase the cost of any
insurance policy(ies) covering the Building, the Project and/or their contents,
and shall comply with all applicable insurance underwriters rules and the
requirements of the Pacific Fire Rating Bureau or any other organization

                                      -3-
<PAGE>

                    ARTICLE IV, RENT AND OPERATING EXPENSES
                    ---------------------------------------

     SECTION 4.2 Operating Expenses. (Continued)
                 ------------------

     (g)  Notwithstanding any contrary provision hereinabove, Landlord hereby
agrees that Tenant's proportionate share of Operating Expenses, exclusive of
costs for trash removal, HVAC maintenance, and exterior common area electricity,
shall not exceed Three Thousand Six Hundred Seventy-Seven Dollars and Ninety-Two
Cents ($3,677.92) per month during the initial Expense Recovery Period expiring
June 30, 1994. Landlord further agrees that Tenant's proportionate share of
Operating Expenses shall not increase by more than seven percent (7%) per annum,
on a compound and cumulative basis, over the actual total Operating Expenses
incurred by Landlord during the aforesaid Expense Recovery Period; provided,
however, that the foregoing limitation shall exclude increases in property
taxes, insurance and/or, utilities to the extent in excess of seven percent (7%)
over the prior Expense Recovery Period.
<PAGE>

performing a similar function. Tenant shall comply at its expense with all
present and future laws, ordinances, restrictions, regulations, orders, rules
and requirements of all governmental authorities that pertain to Tenant as a
result of its use of the Premises, including without limitation all federal and
state occupational health and safety requirements, whether or not Tenant's
compliance will necessitate expenditures or interfere with its use and enjoyment
of the Premises. Tenant shall comply at its expense with all present and future
covenants, conditions, easements or restrictions now or hereafter affecting or
encumbering the Building and/or Project, and any amendments or modifications
thereto, including without limitation the payment by Tenant of any periodic or
special dues or assessments charged against the Premises or Tenant which may be
allocated to the Premises or Tenant in accordance with the provisions thereof.
Tenant shall promptly upon demand reimburse Landlord for any additional
insurance premium charged by reason of Tenant's failure to comply with the
provisions of this Section, and shall indemnify Landlord from any liability
and/or expense resulting from Tenant's noncompliance.

     SECTION 5.2 (a) SIGNS. Tenant shall be afforded signage rights in
connection with this Lease pursuant to the provisions of Landlord's signage
program for the Project as approved by the City of Irvine ("Sign Criteria").
Tenant shall not place or erect any other signs, displays or other advertising
materials that are visible from the exterior of the Building. The size, design,
color and other physical aspects of permitted signs shall be subject to
Landlord's written approval prior to installation and shall be consistent with
the Sign Criteria. Tenant shall be responsible for the cost of all signs and
graphics, including the installation, maintenance and removal thereof. If Tenant
fails to maintain its signs, or if Tenant fails to remove same upon termination
of this Lease and repair any damage caused by such removal, Landlord may do so
at Tenant's expense. See Rider Page 4-A.

     SECTION 5.3     HAZARDOUS MATERIALS.

          (a) For purposes of this Lease, the term "Hazardous Materials"
includes (i) any "hazardous materials" as defined in Section 25501(k) of the
California Health and Safety Code, (ii) any other substance or matter which
results in liability to any person or entity from exposure to such substance or
matter under any statutory or common law theory, and (iii) any substance or
matter which is in excess of permitted levels set forth in any federal,
California or local law or regulation pertaining to any hazardous or toxic
substance, material or waste.

          (b) Tenant shall not cause or permit any Hazardous Materials to be
brought upon, stored, used, generated, released or disposed of on, under, from
or about the Premises (including without limitation the soil and groundwater
thereunder) without the prior written consent of Landlord. Landlord may, in its
sole discretion, place such conditions as Landlord deems appropriate with
respect to any such Hazardous Materials, and may further require that Tenant
demonstrate that any such Hazardous Materials are necessary or useful to
Tenant's business and will be generated, stored, used and disposed of in a
manner that complies with all applicable laws and regulations pertaining thereto
and with good business practices. Tenant understands that Landlord may utilize
an environmental consultant to assist in determining conditions of approval in
connection with the presence, storage, generation or use of Hazardous Materials
by Tenant on or about the Premises, and Tenant agrees that any costs incurred by
Landlord in connection therewith shall be reimbursed by Tenant to Landlord as
additional rent hereunder upon demand.

          (c) Prior to the execution of this Lease, Tenant shall complete,
execute and deliver to Landlord an Environmental Questionnaire and Disclosure
Statement (the "Environmental Questionnaire") in the form of Exhibit B attached
                                                             ---------
hereto. The completed Environmental Questionnaire shall be deemed incorporated
into this Lease for all purposes, and Landlord shall be entitled to rely fully
on the information contained therein. On each anniversary of the Commencement
Date until the expiration or sooner termination of this Lease, Tenant shall
disclose to Landlord in writing the names and amounts of all Hazardous Materials
which were stored, generated, used or disposed of on, under or about the
Premises for the twelve-month period prior thereto, and which tenant desires to
store, generate, use or dispose of on, under or about the Premises for the
succeeding twelve-month period. In addition, to the extent Tenant is permitted
to utilize Hazardous Materials upon the Premises, Tenant shall promptly provide
Landlord with complete and legible copies of all the following environmental
documents relating thereto: reports filed pursuant to any self-reporting
requirements; permit applications, permits, monitoring reports, workplace
exposure and community exposure warnings or notices and all other reports,
disclosures, plans or documents (even those which may be characterized as
confidential) relating to water discharges, air pollution, waste generation or
disposal, and underground storage tanks for Hazardous Materials; orders,
reports, notices, listings and correspondence (even those which may be
considered confidential) of or concerning the release, investigation of,
compliance, cleanup, remedial and corrective actions, and abatement of Hazardous
Materials; and all complaints, pleadings and other legal documents filed by or
against Tenant related to Tenant's use, handling, storage or disposal of
Hazardous Materials.

          (d) Landlord and its agents shall have the right, but not the
obligation, to inspect, sample and/or monitor the Premises and/or the soil or
groundwater thereunder at any time to determine whether Tenant is complying with
the terms of this Section 5.3, and in connection therewith Tenant shall provide
Landlord with full access to all relevant facilities, records and personnel. If
Tenant is not in compliance with any of the provisions of this Section 5.3, or
in the event of a release of any Hazardous Material on, under or about the
Premises, Landlord and its agents shall have the right, but not the obligation,
without limitation upon any of Landlord's other rights and remedies under this
Lease, to immediately enter upon the Premises without notice and to discharge
Tenant's obligations under this Section 5.3 at Tenant's expense, including
without limitation the taking of emergency or long-term remedial action.
Landlord and its agents shall endeavor to minimize interference with Tenant's
business in connection therewith, but shall not be liable for any such
interference. In addition, Landlord, at Tenant's expense, shall have the right,
but not the obligation, to join and participate in any legal proceedings or
actions initiated in connection with any claims arising out of the storage,
generation, use or disposal by Tenant or its agents of Hazardous Materials on,
under, from or about the Premises.

          (e) If the presence of any Hazardous Materials on, under, from or
about the Premises or the Project caused by Tenant or its contractors, employees
or subtenants results in (i) injury to any person, (ii) injury to or any
contamination of the Premises or the Project, or (iii) injury to or
contamination of any real or personal property wherever situated, Tenant, at its
expense, shall promptly take all actions necessary to return the Premises and
the Project to the condition existing prior to the introduction of such
Hazardous Materials and to remedy or repair any such injury or contamination,
including without limitation, any cleanup, remediation, removal, disposal,
neutralization or other treatment of any such Hazardous Materials.
Notwithstanding the foregoing, Tenant shall not, without Landlord's prior
written consent, take any remedial action in response to the presence of any
Hazardous Materials on, under or about the Premises or enter into any similar
agreement, consent, decree or other compromise with any governmental

                                      -4-
<PAGE>

                                ARTICLE V.  USES
                                ----------------

     SECTION 5.2.  SIGNS. (Continued)
                   -----

     (b) Tenant shall have the right to install building top signage on the
exterior of the Building, which signage shall consist only of the name
"Lantronix". The type, location and design of such signage shall be subject to
the prior written approval of Landlord and the City of Irvine. Fabrication,
installation, insurance, and maintenance of such signage shall be at Tenant's
sole cost and expense. Except for the foregoing, no sign, advertisement or
notice visible from the exterior of the Premises shall be inscribed, painted or
affixed by Tenant on any part of the Premises without the prior consent of
Landlord. Tenant's signage right shall belong solely to Lantronix, a California
corporation and may not be transferred or assigned without Landlord's prior
written consent, which may be withheld by Landlord in Landlord's sole
discretion. In the event Tenant, exclusive of any subtenant(s), fails to occupy
the entire Premises, then Tenant shall, within thirty (30) days following notice
from Landlord, remove the exterior signage at Tenant's expense. Tenant shall
also remove such signage promptly following the expiration or earlier
termination of this Lease. Any such removal shall be at Tenant's sole expense,
and Tenant shall bear the cost of any resulting repairs to the Building that are
reasonably necessary due to the removal.
<PAGE>

agency with respect to any Hazardous Materials claims; provided however,
Landlord's prior written consent shall not be necessary in the event that the
presence of Hazardous Materials on, under or about the Premises (i) imposes on
immediate threat to the health, safety or welfare of any individual or (ii) is
of such a nature that on immediate remedial response is necessary and it is not
possible to obtain Landlord's consent before taking such action. To the fullest
extent permitted by law, Tenant shall indemnify, hold harmless, protect and
defend (with attorneys acceptable to Landlord) Landlord and any successors to
all or any portion of Landlord's interest in the Premises and the Project from
and against any and all liabilities, losses, damages, diminution in value,
judgments, fines, demands, claims, recoveries, deficiencies, costs and expenses
(including without limitation attorneys' fees, court costs and other
professional expenses), whether foreseeable or unforeseeable, arising directly
or indirectly out of the presence, use, generation, storage, treatment, on-or
off-site disposal or transportation of Hazardous Materials on, into, from, under
or about the Premises, the Building and the Project by Tenant, its agents,
employees, contractors, licensees or invitees, specifically including without
limitation the cost of any required or necessary repair, restoration, cleanup or
detoxification of the Premises, the Building and the Project, and the
preparation of any closure or other required plans, whether or not such action
is required or necessary during the Term or after the expiration of this Lease.
If Landlord at any time discovers that Tenant may have caused or permitted the
release of a Hazardous Material on, under, from or about the Premises, Tenant
shall, at Landlord's requests, immediately prepare and submit to Landlord a
comprehensive plan, subject to Landlord's approval, specifying the actions to be
taken by Tenant to return the Premises to the condition existing prior to the
introduction of Hazardous Materials. Upon Landlord's approval of such clean-up
plan, Tenant shall, at its expense, and without limitation of any rights and
remedies of Landlord under this Lease or at law or in equity, immediately
implement such plan and proceed to cleanup such Hazardous Materials in
accordance with all applicable laws and as required by such plan and this Lease.
The provisions of this subsection (e) shall expressly survive the expiration or
sooner termination of this Lease.

     (f) Landlord hereby discloses to Tenant, and Tenant hereby acknowledges,
certain facts relating to Hazardous Materials at the Project known by Landlord
to exist as of the date of this Lease, as more particularly described in Exhibit
                                                                         -------
C attached hereto. Tenant shall have no liability or responsibility with respect
-
to the Hazardous Materials facts described in Exhibit C. Landlord will notify
                                              ---------
Tenant within thirty (30) days of Landlord's knowledge of any impediment to the
use or occupancy of the Premises as a result of the disclosure in Exhibit C.
                                                                  ----------

                        ARTICLE VI.  LANDLORD SERVICES

  SECTION 6.1.  UTILITIES AND SERVICES. Tenant shall be responsible for and
shall pay promptly, directly to the appropriate supplier, all charges for
water, gas, electricity, sewer, heat, light, power, telephone, refuse pickup,
janitorial service, interior landscape maintenance and all other utilities,
materials and services furnished directly to Tenant or the Premises or used by
Tenant in, on or about the Premises during the Term, together with any taxes
thereon. If any utilities or services are not separately metered or assessed to
Tenant, Landlord shall make a reasonable determination of Tenant's proportionate
share of the cost of such utilities and services and Tenant shall pay such
amount to Landlord, as an item of additional rent within ten (10) days after
receipt of Landlord's statement or invoice therefor. Alternatively, Landlord may
elect to include such cost in the definition of Building Costs in which event
Tenant shall pay Tenant's proportionate share of such costs in the manner set
forth in Section 4.2. Landlord shall not be liable for damages or otherwise for
any failure or interruption of any utility or other service furnished to the
Premises, and no such failure or interruption shall be deemed an eviction or
entitle Tenant to terminate this Lease or withhold or abate any rent due
hereunder. Landlord shall at all reasonable times have free access to all
electrical and mechanical installations of Landlord.

  SECTION 6.2.  OPERATION AND MAINTENANCE OF COMMON AREAS. During the Term,
Landlord shall operate all Common Areas within the Building and the Project. The
term "Common Areas" shall mean all areas within the exterior boundaries of the
Building and other buildings in the Project which are not held for exclusive use
by persons entitled to occupy space, and all other appurtenant areas and
improvements provided by Landlord for the common use of Landlord and tenants and
their respective employees and invitees, including without limitation parking
areas and structures, driveways, sidewalks, landscaped and planted areas,
hallways and interior stairwells not located within the premises of any tenant,
common entrances and lobbies, elevators, and restrooms not located within the
premises of any tenant.

  SECTION 6.3.  USE OF COMMON AREAS. The occupancy by Tenant of the Premises
shall include the use of the Common Areas in common with Landlord and with all
others for whose convenience and use the Common Areas may be provided by
Landlord, subject, however, to compliance with all rules and regulations as are
prescribed from time to time by Landlord. Landlord shall operate and maintain
the Common Areas in the manner Landlord may determine to be appropriate. All
costs incurred by Landlord for the maintenance and operation of the Common Areas
shall be included in Building Costs unless any particular cost incurred can be
charged to a specific tenant of the Project. Landlord shall at all times during
the Term have exclusive control of the Common Areas, and may restrain any use or
occupancy, except as authorized by Landlord's rules and regulations. Tenant
shall keep the Common Areas clear of any obstruction or unauthorized use related
to Tenant's operations. Nothing in this Lease shall be deemed to impose
liability upon Landlord for any damage to or loss of the property of, or for any
injury to, Tenant, its invitees or employees. Landlord may temporarily close any
portion of the Common Areas for repairs, remodeling and/or alterations, to
prevent a public dedication or the accrual of prescriptive rights, or for any
other reason deemed sufficient by Landlord.

  SECTION 6.4.  PARKING. Tenant shall be entitled to the number of vehicle
parking spaces set forth in Item 14 of the Basic Lease Provisions, five (5) of
which shall be designated as reserved parking spaces and the balance of the
parking spaces shall be unreserved and unassigned, on those portions of the
Common Areas designated by Landlord for parking. Tenant shall not use more
parking spaces than such number. All parking spaces shall be used only for
parking by vehicles no larger than full size passenger automobiles or pickup
trucks. Tenant shall not permit or allow any vehicles that belong to or are
controlled by Tenant or Tenant's employees, suppliers, shippers, customers or
invitees to be loaded, unloaded or parked in areas other than those designated
by Landlord for such activities. If Tenant permits or allows any of the
prohibited activities described above, then Landlord shall have the right,
without notice, in addition to such other rights and remedies that Landlord may
have, to remove or tow away the vehicle involved and charge the costs to Tenant.
Parking within the Common Areas shall be limited to striped parking stalls, and
no parking shall be permitted in any driveways, access ways or in any area which
would prohibit or impede the free flow of traffic within the Common Areas. There
shall be no overnight parking of any vehicles of any kind, and vehicles which
have been abandoned or parked in violation of the terms hereof may be towed away
at the owner's expense. Nothing contained in this Lease shall be deemed to
create liability upon Landlord for any damage to motor vehicles of visitors or
employees, for any loss of property from within those motor vehicles, or for any
injury to Tenant, its visitors or employees, unless ultimately determined to be
caused by the sole active negligence or willful misconduct of Landlord, its
agents, servants and employees. Landlord shall have the right to establish, and
from time to time amend, and to enforce against all users all reasonable rules
and regulations (including the designation of areas for employee parking) that
Landlord may deem necessity and advisable

                                      -5-
<PAGE>

for the proper and efficient operation and maintenance of parking within the
Common Areas. Landlord shall have the right to construct, maintain and operate
lighting facilities within the parking areas; to change the area, level,
location and arrangement of the parking areas and improvements therein; to
restrict parking by tenants, their officers, agents and employees to employee
parking areas; to enforce parking charges (by operation of meters or otherwise);
and to do and perform such other acts in and to the parking areas and
improvements therein as, in the use of good business judgment, Landlord shall
determine to be advisable. Any person using the parking area shall observe all
directional signs and arrows and any posted speed limits. In no event shall
Tenant interfere with the use and enjoyment of the parking area by other tenants
of the Building or their employees or invitees. Parking areas shall be used only
for parking vehicles. Washing, waxing, cleaning or servicing of vehicles, or the
storage of vehicles for 24-hour periods, is prohibited unless otherwise
authorized by Landlord. Tenant shall have no right to install any fixtures,
equipment or personal property in the parking areas.

     SECTION 6.5.  CHANGES AND ADDITIONS BY LANDLORD. Landlord reserves the
right to make alterations or additions to the Building or the Project, or to the
attendant fixtures, equipment and Common Areas. Landlord may at any time
relocate or remove any of the various buildings, parking areas, and other Common
Areas, and may add buildings and areas to the Project from time to time. No
change shall entitle Tenant to any abatement of rent or other claim against
Landlord, provided that the change does not deprive Tenant of reasonable access
to or use of the Premises.

                     ARTICLE VII. MAINTAINING THE PREMISES

     SECTION 7.1.  TENANT'S MAINTENANCE AND REPAIR. Tenant at its sole expense,
shall comply with all applicable laws and governmental regulations governing the
Premises and make it repairs necessary to keep the Premises in the condition as
existed on the Commencement Date (or on any later date that the improvements may
have been installed), excepting ordinary wear and tear, including without
limitation all glass, windows, doors, door closures, hardware, fixtures,
electrical, plumbing, fire extinguisher equipment and other equipment. Any
damage or deterioration of the Premises shall not be deemed ordinary wear and
tear if the same could have been prevented by good maintenance practices by
Tenant. As part of its maintenance obligations hereunder, Tenant shall, at
Landlord's request, provide Landlord with copies of all maintenance schedules,
reports and notices prepared by, for or on behalf of Tenant. All repairs shall
be at least equal in quality to the original work, shall be made only by
licensed contractor approved in writing in advance by Landlord and shall be made
only at the time or times approved by Landlord. Any contractor utilized by
Tenant shall be subject to Landlord's standard requirements for contractors, as
modified from time to time. Landlord may impose reasonable restrictions and
requirements with respect to repairs, as provided in Section 7.3, and the
provisions of Section 7.4 shall apply to all repairs. Alternatively, Landlord
may elect to make any such repair on behalf of Tenant and at Tenant's expense,
and Tenant shall promptly reimburse Landlord for all costs incurred upon
submission of an invoice.

     SECTION 7.2.  LANDLORD'S MAINTENANCE AND REPAIR

          (a) Subject to Section 7.1 and Article XI, Landlord shall provide
service, maintenance and repair with respect to any air conditioning,
ventilating or heating equipment which serves the Premises and shall maintain in
good repair the roof, foundations, footings, the exterior surfaces of the
exterior walls of the Building, and the structural, electrical and mechanical
systems, except that Tenant at its expense shall make all repairs which,
Landlord deems reasonably necessary as a result of the act or negligence of
Tenant, its agents, employees, invitees, subtenants or contractors. Landlord
shall have the right to employ or designate any reputable person or firm,
including any employee or agent of Landlord or any of Landlord's affiliates or
divisions, to perform any service, repair or maintenance function. Landlord need
not make any other improvements or repairs except as specifically required under
this Lease, and nothing contained in this Section shall limit Landlord's right
to reimbursement from Tenant for maintenance, repair costs and replacement costs
as provided elsewhere in this Lease, Tenant understands that it shall not make
repairs at Landlord's expense or by rental offset. Tenant further understands
that Landlord shall not be required to make any repairs to the roof,
foundations, footings, structural, electrical or mechanical systems unless and
until Tenant has notified Landlord in writing of the need for such repair and
Landlord shall have a reasonable period of time thereafter to commence and
complete said repair, if warranted. All costs of any maintenance and repairs on
the part of Landlord provided hereunder shall be considered part of Building
Costs.

          (b) Except as provided in Sections 11.1 and 12.1 below, there shall be
no abatement of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business (including without limitation consequential
damages and lost profit or opportunity costs) arising from the staking of any
repairs, alterations or improvements to any portion of the Building, including
repairs to the Premises, nor shall any related activity by Landlord constitute
an actual or constructive eviction; provided, however, that in making repairs,
alterations or improvements, Landlord shall interfere as little as reasonably
practicable with the conduct of Tenant's business in the Premises.

     SECTION 7.3.  ALTERATIONS. Tenant shall make no alterations, additions or
improvements to the Premises without the prior written consent of Landlord,
which consent may be given or withheld in Landlord's sole discretion.
Notwithstanding the foregoing, Landlord shall not unreasonably withhold its
consent to any alterations, additions or improvements to the Premises which cost
less than One Dollar ($1.00) per square foot of the Premises and do not (i)
affect the exterior of the Building or outside areas (or be visible from
adjoining sites,), or (ii) affect or penetrate any of the structural portions of
the Building, including but not limited to the roof, or (iii) require any change
to the basic floor plan of the Premises, any change to any structural or
mechanical systems of the Premises, or any governmental permit as a prerequisite
to the construction thereof, or (iv) interfere in any manner with the proper
functioning of or Landlord's access to any mechanical, electrical, plumbing or
HVAC systems, facilities or equipment located in or serving the Building, or (v)
diminish the value of the Premises. Landlord may impose, as a condition to its
consent, any requirement that Landlord in its discretion may deem reasonable or
desirable, including but not limited to a requirement that all work be covered
by a lien and completion bond satisfactory to Landlord and requirements as to
the manner, time, and contractor for performance of the work. Tenant shall
obtain all required permits for the work and shall perform the work in
compliance with all applicable laws, regulations and ordinances. Under no
circumstances shall Tenant make any improvement which incorporates any Hazardous
Materials, including without limitation asbestos-containing construction
materials into the Premises. Any request for Landlord's consent shall be made in
writing and shall contain architectural plans describing the work in detail
reasonably satisfactory to Landlord. Unless Landlord otherwise agrees in
writing, alterations, additions or improvements affixed to the Premises
(excluding moveable trade fixtures and furniture) shall become the property of
Landlord and shall be surrendered with the Premises at the end of the Term,
except that Landlord may, by notice to Tenant, require Tenant to remove by the
Expiration Date, or sooner termination date of this Lease, all or any
alterations, decorations, fixtures, additions, Improvements and the like
installed either by Tenant or by Landlord at Tenant's request and to repair any
damage to the Premises

                                      -6-
<PAGE>

arising from that removal. Except as otherwise provided in this Lease or in any
Exhibit to this Lease, should Landlord make any alteration or improvement to the
Premises for Tenant, Landlord shall be entitled to prompt reimbursement from
Tenant for all costs incurred.

     SECTION 7.4.  MECHANIC'S LIENS. Tenant shall keep the Premises free from
any liens arising out of any work performed, materials furnished, or obligations
incurred by or for Tenant. Upon request by Landlord, Tenant shall promptly cause
any such lien to be released by posting a bond in accordance with California
Civil Code Section 3143 or any successor statute.  In the event that Tenant
shall not, within thirty (30) days following the imposition of any lien, cause
the lien to be released of record by payment or posting of a proper bond,
Landlord shall have, in addition to all other available remedies, the right to
cause the lien to be released by any means it deems proper, including payment of
or defense against the claim giving rise to the lien. All expenses so incurred
by Landlord, including Landlord's attorneys' fees, shall be reimbursed by Tenant
promptly following Landlord's demand, together with interest from the date of
payment by Landlord at the maximum rate permitted by law until paid. Tenant
shall give Landlord no less than twenty (20) days' prior notice in writing
before commencing construction of any kind on the Premises so that Landlord may
post and maintain notices of nonresponsibility on the Premises.

     SECTION 7.5.  ENTRY AND INSPECTION. Landlord shall at all reasonable times,
upon written or oral notice (except in emergencies, when no notice shall be
required) have the right to enter the Premises to inspect them, to supply
services in accordance with this Lease, to protect the interests of Landlord in
the Premises, and to submit the Premises to prospective or actual purchasers or
encumbrance holders (or, during the last one hundred and eighty (180) days of
the Term or when an uncured Tenant default exists, to prospective tenants), all
without being deemed to have caused an eviction of Tenant and without abatement
of rent except as provided elsewhere in this Lease. Landlord shall at all times
have and retain a key which unlocks all of the doors in the Premises, excluding
Tenant's vaults and safes, and Landlord shall have the right to use any and all
means which Landlord may deem proper to open the doors in an emergency in order
to obtain entry to the Premises, and any entry to the Premises obtained by
Landlord shall not under any circumstances be deemed to be a forcible or
unlawful entry into, or a detainer of, the Premises, or any eviction of Tenant
from the Premises.

           ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY

     Tenant shall be liable for and shall pay, at least ten (10) days before
delinquency, all taxes and assessments levied against all personal property of
Tenant located in the Premises and any alterations, additions or like
improvements made to the Premises by or on behalf of Tenant. When possible
Tenant shall cause its personal property and alterations to be assessed and
billed separately from the real property of which the Premises form a part. If
any taxes on Tenant's personal property and/or alterations are levied against
Landlord or Landlord's property and if Landlord pays the same, or if the
assessed value of Landlord's property is increased by the inclusion of a value
placed upon the personal property and/or alterations of Tenant and if Landlord
pays the taxes based upon the increased assessment, Tenant shall pay to Landlord
the taxes so levied against Landlord or the proportion of the taxes resulting
from the increase in the assessment. In calculating what portion of any tax bill
which is assessed against Landlord separately, or Landlord and Tenant jointly,
is attributable to Tenant's fixtures, alterations and personal property,
Landlord's reasonable determination shall be conclusive.

                     ARTICLE IX. ASSIGNMENT AND SUBLETTING

     SECTION 9.1.  RIGHTS OF PARTIES

          (a) Notwithstanding any provision of this Lease to the contrary,
Tenant will not, either voluntarily or by operation of law, assign, sublet,
encumber, or otherwise transfer all or any part of Tenant's interest in this
lease, or permit the Premises to be occupied by anyone other than Tenant,
without Landlord's prior written consent, which consent shall not unreasonably
be withheld in accordance with the provisions of Section 9.1.(c). No assignment
(whether voluntary, involuntary or by operation of law) and no subletting shall
be valid or effective without Landlord's prior written consent and, at
Landlord's election, shall constitute a material default of this Lease. Landlord
shall not be deemed to have given its consent to any assignment or subletting by
any other course of action, including its acceptance of any name for listing in
the Building directory. To the extent not prohibited by provisions of the
Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"),
including Section 365(f)(1), Tenant on behalf of itself and its creditors,
administrators and assigns waives the applicability of Section 365(e) of the
Bankruptcy Code unless the proposed assignee of the Trustee for the estate of
the bankrupt meets Landlord's standard for consent as set forth in Section
9.1(c) of this Lease. If this Lease is assigned to any person or entity pursuant
to the provisions of the Bankruptcy Code, any and all monies or other
considerations to be delivered in connection with the assignment shall be
delivered to Landlord, shall be and remain the exclusive property of Landlord
and shall not constitute property of Tenant or of the estate of Tenant within
the meaning of the Bankruptcy Code. Any person or entity to which this Lease is
assigned pursuant to the provisions of the Bankruptcy Code shall be deemed to
have assumed all of the obligations arising under this Lease on and after the
date of the assignment, and shall upon demand execute and deliver to Landlord an
instrument confirming that assumption.

          (b) if Tenant desires to transfer an interest in this Lease, it shall
first notify Landlord of its desire and shall submit in writing to Landlord: (i)
the name and address of the proposed transferee; (ii) the nature of any proposed
subtenant's or assignee's business to be carried on in the Premises; (iii) the
terms and provisions of any proposed sublease or assignment, including a copy of
the proposed assignment or sublease form; (iv) evidence of insurance of the
proposed assignee or sublessee complying with the requirements of Exhibit D
                                                                  ---------
hereto; (v) a completed Environmental Questionnaire from the proposed assignee
or sublessee; and (vi) any other information requested by Landlord and
reasonably related to the transfer. Except as provided in Subsection (c) of this
Section, Landlord shall not unreasonably withhold its consent, provided: (1) the
use of the Premises will be consistent with the provisions of this Lease and
with Landlord's commitment to other tenants of the Building and Project; (2) the
proposed assignee or sublessee has not been required by any prior landlord,
lender or governmental authority to take remedial action in connection with
Hazardous Materials contaminating a property arising out of the proposed
assignee's or sublessee's actions or use of the property in question and is not
subject to any enforcement order issued by any governmental authority in
connection with the use, disposal or storage of a Hazardous Material; (3) at
Landlord's election, insurance requirements shall be brought into conformity
with Landlord's then current leasing practice; (4) any proposed subtenant or
assignee demonstrates that it is financially responsible by submission to
Landlord of all reasonable information as Landlord may request concerning the
proposed subtenant or assignee, including, but not limited to, a balance sheet
of the proposed subtenant or assignee as of a date within ninety (90) days of
the request for Landlord's consent and statements of income or profit and loss
of the proposed subtenant or assignee

                                      -7-
<PAGE>

for the two-year period preceding the request for Landlord's consent; (5) any
proposed subtenant or assignee demonstrates to Landlord's reasonable
satisfaction a record of successful experience in business; (6) the proposed
assignee or subtenant is not an existing tenant of the Building or Project; and
(7) the proposed transfer will not impose additional burdens or adverse tax
effects on Landlord. Tenant acknowledges that if Tenant has any exterior sign
rights under this Lease, such rights are personal to Tenant and may not be
assigned or transferred to any assignee or subtenant without Landlord's separate
prior written consent, which consent may be withheld in Landlord's sole and
absolute discretion.

If Landlord consents to the proposed transfer, Tenant may within ninety (90)
days after the date of the consent effect the transfer upon the terms described
in the information furnished to Landlord; provided that any material change in
the terms shall be subject to Landlord's consent as set forth in this Section.
Landlord shall approve or disapprove any requested transfer within thirty (30)
days following receipt of Tenant's written request and the information set forth
above.

          (c) Notwithstanding the provisions of Subsection (b) above, in lieu of
consenting to a proposed assignment or subletting, Landlord may elect to (i)
sublease the Premises (or the portion proposed to be subleased), or take an
assignment of Tenant's interest in this Lease, upon the same terms as offered to
the proposed subtenant or assignee (excluding terms relating to the purchase of
personal property, the use of Tenant's name or the continuation of Tenant's
business), or (ii) terminate this Lease as to the portion of the Premises
proposed to be subleased or assigned with a proportionate abatement in the rent
payable under this Lease, effective on the date that the proposed sublease or
assignment would have become effective. Landlord may thereafter, at its option,
assign or re-let any space so recaptured to any third party, including without
limitation the proposed transferee of Tenant.

          (d) Tenant agrees that fifty percent (50%) of any amounts paid by the
assignee or sublessee, however described, in excess of (i) the Basic Rent
payable by Tenant hereunder, or in the case of a sublease of a portion of the
Premises, in excess of the Basic Rent reasonably allocable to such portion, plus
(ii) Tenant's direct out-of-pocket costs which Tenant certifies to Landlord have
been paid to provide occupancy related services to such assignee or sublessee of
a nature commonly provided by landlords of similar space, plus (iii) the
allocable rent paid hereunder by Tenant with respect to the area subleased or
assigned during the period commencing on the date Tenant vacated same with
notice to Landlord and listed or advertised same for transfer and continuing
until the effective date of the sublease or assignment, shall be the property of
Landlord and such amounts shall be payable directly to Landlord by the assignee
or sublessee or, at Landlord's option, by Tenant. At Landlord's request, a
written agreement shall be entered into by and among Tenant, Landlord and the
proposed assignee or sublessee confirming the requirements of this subsection.

          (e) Tenant shall pay to Landlord a transfer fee of Five Hundred
Dollars ($500.00) if and when any transfer requested by Tenant is approved. In
addition, should Landlord or its agents procure for Tenant a subtenant, assignee
or new tenant for all or part of the Premises, then Tenant shall pay to
Landlord, concurrently with the execution of the conveyancing documents, a
leasing fee of six percent (6%) of the remaining future gross rentals under this
Lease.

     SECTION 9.2.  EFFECT OF TRANSFER. No subletting or assignment, even with
the consent of Landlord, shall relieve Tenant of its obligation to pay rent and
to perform all its other obligations under this Lease. Moreover, Tenant shall
Indemnify and hold Landlord harmless, as provided in Section 10.3, for any act
or emission by an assignee or subtenant. Each assignee, other than Landlord,
shall be deemed to assume all obligations of Tenant under this Lease and shall
be liable jointly and severally with Tenant for the payment of all rent, and for
the due performance of all of Tenant's obligations, under this Lease. No
transfer shall be binding on Landlord unless any document memorializing the
transfer is delivered to Landlord and both the assignee/subtenant and Tenant
deliver to Landlord an executed consent to transfer instrument prepared by
Landlord and consistent with the requirements of this Article. The acceptance by
Landlord of any payment due under this Lease from any other person shall not be
deemed to be a waiver by Landlord of any provision of this Lease or to be a
consent to any transfer. Consent by Landlord to one or more transfers shall not
operate as a waiver or estoppel to the future enforcement by Landlord of its
rights under this Lease.

     SECTION 9.3.  SUBLEASE REQUIREMENTS. The following terms and conditions
shall apply to any subletting by Tenant of all or any part of the Premises and
shall be included in each sublease:

          (a) Tenant hereby irrevocably assigns to Landlord all of Tenant's
interest in all rentals and income arising from any sublease of the Premises,
and Landlord may collect such rent and income and apply same toward Tenant's
obligations under this Lease; provided, however, that until a default occurs in
the performance of Tenant's obligations under this Lease, Tenant shall have the
right to receive and collect the sublease rentals. Landlord shall not, by reason
of this assignment or the collection of sublease rentals, be deemed liable to
the subtenant for the performance of any of Tenant's obligations under the
sublease. Tenant hereby irrevocably authorizes and directs any subtenant, upon
receipt of a written notice from Landlord stating that an uncured default exists
in the performance of Tenant's obligations under this Lease, to pay to Landlord
all sums then and thereafter due under the sublease. Tenant agrees that the
subtenant may rely on that notice without any duty of further inquiry and
notwithstanding any notice or claim by Tenant to the contrary. Tenant shall have
no right or claim against the subtenant or Landlord for any rentals so paid to
Landlord.

          (b) In the event of the termination of this Lease, Landlord may, at
its sole option, take over Tenant's entire interest in any sublease and, upon
notice from Landlord, the subtenant shall attorn to Landlord. In no event,
however, shall Landlord be liable for any previous act or omission by Tenant
under the sublease or for the return of any advance rental payments or deposits
under the sublease that have not been actually delivered to Landlord, nor shall
Landlord be bound by any sublease modification executed without Landlord's
consent or for any advance rental payment by the subtenant in excess of one
month's rent. The general provisions of this Lease, including without limitation
those pertaining to insurance and indemnification, shall be deemed incorporated
by reference into the sublease despite the termination of this Lease.

          (c) Tenant agrees that Landlord may, at its sole option, authorize a
subtenant of the Premises to cure a default by Tenant under this Lease. Should
Landlord accept such cure, the subtenant shall have a right of reimbursement and
offset from and against Tenant under the applicable sublease.

                      ARTICLE X. INSURANCE AND INDEMNITY

     SECTION 10.1. TENANT'S INSURANCE. Tenant, at its sole cost and expense,
shall provide and maintain in effect the insurance described in Exhibit D.
                                                                 ---------
Evidence of that Insurance must be delivered to Landlord prior to the
Commencement Date.

                                      -8-
<PAGE>

     SECTION 10.2. LANDLORD'S INSURANCE. Landlord may, at its election, provide
any or all of the following types of insurance, with or without deductible and
in amounts and coverages as may be determined by Landlord in its discretion:
"all risk" property insurance, subject to standard exclusions, covering the
Building or Project, and such other risks as Landlord or its mortgagees may from
time to time deem appropriate, including leasehold improvements made by
Landlord, and comprehensive public liability coverage. Landlord shall not be
required to carry insurance of any kind on Tenant's property, including
leasehold improvements, trade fixtures, furnishings, equipment, plate glass,
signs and all other items of personal property, and shall not be obligated to
repair or replace that property should damage occur. All proceeds of insurance
maintained by Landlord upon the Building and Project shall be the property of
Landlord, whether or not Landlord is obligated to or elects to make any repairs.
At Landlord's option, Landlord may self-insure all or any portion of the risks
for which Landlord elects to provide Insurance hereunder.

     SECTION 10.3. TENANT'S INDEMNITY. To the fullest extent permitted by law,
except to the extent of any claim, liability, cost or expense attributable to
the negligence or willful misconduct of Landlord, its contractors or employees,
Tenant shall defend, indemnify, protect, save and hold harmless Landlord, its
agents, and any and all affiliates of Landlord, including, without limitation,
any corporations or other entities controlling, controlled by or under common
control with Landlord, from and against any and all claims, liabilities, costs
or expenses arising either before or after the Commencement Date from Tenant's
use or occupancy of the Premises, the Building or the Common Areas, or from the
conduct of its business, or from any activity, work, or thing done, permitted or
suffered by Tenant or its agents, employees, invitees or licensees in or about
the Premises, the Building or the Common Areas, or from any default in the
performance of any obligation on Tenant's part to be performed under this Lease,
or from any act or negligence of Tenant or its agents, employees, visitors,
patrons, guests, invitees or licensees. Landlord may, at its option, require
Tenant to assume Landlord's defense in any action covered by this Section
through counsel satisfactory to Landlord. The provisions of this Section shall
expressly survive the expiration or sooner termination of this Lease.

     SECTION 10.4. LANDLORD'S NONLIABILITY. Landlord shall not be liable to
Tenant, its employees, agents and invitees, and Tenant hereby waives all claims
against Landlord for loss of or damage to any property, or any injury to any
person, or loss or interruption of business or income, resulting from, but not
limited to, fire, explosion, falling plaster, steam, gas, electricity, water or
rain which may leak or flow from or into any part of the Premises or from the
breakage, leakage, obstruction or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning, electrical works or other fixtures in
the Building, whether the damage or injury results from conditions arising in
the Premises or in other portions of the Building. It is understood that any
such condition may record the temporary evacuation or closure of all or a
portion of the Building. Neither Landlord nor its agents shall be liable for
interference with light or other similar intangible interests. Tenant shall
immediately notify Landlord in case of fire or accident in the Premises, the
Building or the Project and of defects in any improvements or equipment.

     SECTION 10.5. WAIVER OF SUBROGATION. Landlord and Tenant each hereby waives
all rights of recovery against the other and the other's agents on account of
loss and damage occasioned to the property of such waiving party to the extent
only that such loss or damage is required to be Insured against under any "all
risk" property insurance policies required by this Article X; provided however,
that the foregoing waiver shall not apply to the extent of Tenant's obligations
to pay deductibles under any such policies and this Lease.

                       ARTICLE XI. DAMAGE OR DESTRUCTION

     SECTION 11.1. RESTORATION.

          (a) If the Building of which the Premises are a part is damaged,
Landlord shall repair that damage as soon as reasonably possible, at its
expense, unless: (i) Landlord reasonably determines that the cost of repair is
not covered by Landlord's fire and extended coverage insurance plus such
additional amounts Tenant elects, at its option, to contribute, excluding
however the deductible (for which Tenant shall be responsible for Tenant's
proportionate share); (if) Landlord reasonably determines that the Premises
cannot, with reasonable diligence, be fully repaired by Landlord (or cannot be
safely repaired because of the presence of hazardous factors, including without
Limitation Hazardous Materials, earthquake faults, and other similar dangers)
will, in one hundred eighty (180) days after the date of the damage; (iii) an
event of default by Tenant has occurred and is continuing at the time of such
damage or (iv) the damage occurs during the final, twelve (12) months of the
Term. Should Landlord elect not to repair the damage for one of the preceding
reasons, Landlord shall so notify tenant in writing within sixty (60) days after
the damage occurs and this Lease shall terminate as of the date of that notice.

          (b) Unless Landlord elects to terminate this Lease in accordance with
subsection (a) above, this Lease shall continue in effect for the remainder of
the Term; provided that if the damage is so extensive as to reasonably prevent
Tenant's substantial use and enjoyment of the Premises for more than nine (9)
months, then Tenant may elect to terminate this Lease by written notice to
Landlord within the sixty (60) day period stated in subsection (a).

          (c) Commencing on the date of any damage to the Building, and ending
on the sooner of the date the damage is repaired or the date this Lease is
terminated, the rental to be paid under this Lease shall, be abated in the same
proportion that the floor area of the Premises that is rendered unusable by the
damage from time to time bears to the total floor area of the Premises.

          (d) Notwithstanding the provisions of subsections (a), (b) and (c) of
this Section, and subject to the provisions of Section 10.5 above, the cost of
any repairs shall be borne by Tenant, and Tenant shall not be entitled to
rental, abatement or termination rights, if the damage is due to the fault or
neglect of Tenant or its employees, subtenants, invitees or representatives. In
addition, the provisions of this Section shall not be deemed to require Landlord
to repair any Improvements or fixtures that Tenant is obligated to repair or
insure pursuant to any other provision of this Lease.

     SECTION 11.2. LEASE GOVERNS. Tenant agrees that the provisions of this
Lease, including without limitation Section 11.1, shall govern any damage or
destruction and shall accordingly supersede any contrary statute or rule of law.

                                      -9-
<PAGE>

                          ARTICLE XII. EMINENT DOMAIN

     SECTION 12.1. TOTAL OR PARTIAL TAKING. If all or a material portion of the
Premises is taken by any lawful authority by exercise of the right of eminent
domain, or sold to prevent a taking, either Tenant or Landlord may terminate
this Lease effective as of the date possession is required to be surrendered to
the authority. In the event title to a portion of the Building or Project, other
than the Premises, is taken or sold in lieu of taking, and if Landlord elects to
restore the Building in such a way as to alter the Premises materially, either
party may terminate this Lease, by written notice to the other party, effective
on the date of vesting of title. In the event neither party has elected to
terminate this Lease as provided above, then Landlord shall promptly, after
receipt of a sufficient condemnation award, proceed to restore the Premises to
substantially their condition prior to the taking, and a proportionate allowance
shall be made to Tenant for the rent corresponding to the time during which, and
to the part of the Premises of which, Tenant is deprived on account of the
taking and restoration. In the event of a taking, Landlord shall be entitled to
the entire amount of the condemnation award without deduction for any estate or
interest of Tenant; provided that nothing in this Section shall be deemed to
give Landlord any interest in, or prevent Tenant from seeking any award against
the taking authority for, the taking of personal property and fixtures belonging
to Tenant or for relocation or business interruption expenses recoverable from
the taking authority.

     SECTION 12.2. TEMPORARY TAKING. No temporary taking of the Premises shall
terminate this Lease provided that Tenant's rent hereunder shall equitably abate
during such taking, and any award specifically attributable to a temporary
taking of the Premises shall belong entirely to Landlord. A temporary taking
shall be deemed to be a taking of the use or occupancy of the Premises for a
period of not to exceed one hundred eighty (180) days.

     SECTION 12.3. TAKING OF PARKING AREA. In the event there shall be a taking
of the parking area such that Landlord can no Longer provide sufficient parking
to comply with this Lease, Landlord may substitute reasonably equivalent parking
in a location reasonably close to the Building; provided that if Landlord fails
to make that substitution within twenty (20) days following the taking and if
the taking materially impairs Tenant's use and enjoyment of the Premises, Tenant
may, at its option, terminate this Lease by written notice to Landlord. If this
Lease is not so terminated by Tenant, there shall be no abatement of rent and
this Lease shall continue in effect.

         ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS

     SECTION 13.1. SUBORDINATION.

          (a) At the option of Landlord, this Lease shall be either superior or
subordinate to all ground or underlying leases, mortgages and deeds of trust, if
any, which may hereafter affect the Building, and to all renewals,
modifications, consolidations, replacements and extensions thereof; provided,
that so long as Tenant is not in default under this Lease, this Lease shall not
be terminated or Tenant's quiet enjoyment of the Premises disturbed in the event
of termination of any such ground or underlying Lease, or the foreclosure of any
such mortgage or deed of trust, to which Tenant has subordinated this Lease
pursuant to this Section. In the event of a termination or foreclosure, Tenant
shall become a tenant of and attorn to the successor-in-interest to Landlord
upon the same terms and conditions as are contained in this Lease, and shall
execute any instrument reasonably required by Landlord's successor for that
purpose. Tenant shall also, upon written request of Landlord, execute and
deliver all instruments as may be required from time to time to subordinate the
rights of Tenant under this Lease to any ground or underlying lease or to the
lien of any mortgage or deed of trust, or, if requested by Landlord, to
subordinate, in whole or in part, any ground or underlying Lease or the lien of
any mortgage or deed of trust to this Lease.

          (b) Failure of Tenant to execute any statements or instruments
necessary or desirable to effectuate the provisions of this Article, within ten
(10) days after written request by Landlord, shall constitute a default under
this Lease. In that event, Landlord, in addition to any other rights or remedies
it might have, shall have the right, by written notice to Tenant, to terminate
this Lease as of a date not less than twenty (20) days after the date of
Landlord's notice. Landlord's election to terminate shall, not relieve Tenant of
any liability for its default.

     SECTION 13.2. ESTOPPEL CERTIFICATE.

          (a) Tenant shall, at any time upon not less than ten (10) days prior
written notice from Landlord, execute, acknowledge and deliver to Landlord, in
any form that Landlord may reasonably require, a statement in writing (i)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of the modification and certifying that this Lease,
as modified, is in full force and effect) and the dates to which the rental,
additional rent and other charges have been paid in advance, if any, and (ii)
acknowledging that, to Tenant's knowledge, there are no uncured defaults on the
part of Landlord, or specifying each default if any are claimed, and (iii)
setting forth all, further information that Landlord may reasonably require.
Tenant's statement may be relied upon by any prospective purchaser or
encumbrancer of all or any portion of the Building or Project.

          (b) Tenant's failure to deliver any estoppel statement within the
provided time shall constitute a default under this Lease and shall be
conclusive upon Tenant that (i) this Lease is in full force and effect, without
modification except as may be represented by Landlord, (ii) there are no uncured
defaults in Landlord's performance, and (iii) not more than one month's rental
has been paid in advance.

     SECTION 13.3  FINANCIALS.

          (a) Tenant shall deliver to Landlord, prior to the execution of this
Lease and thereafter at any time upon Landlord's request, but not more often
than once per calendar quarter, Tenant's current tax returns and financial
statements, certified true, accurate and complete by the chief financial officer
of Tenant, including a balance sheet and profit and loss statement for the most
recent prior year (collectively, the "Statements"), which Statements shall
accurately and completely reflect the financial condition of Tenant. Landlord
agrees that it will keep the statements confidential, except that Landlord shall
have the right to deliver the same to any proposed purchaser of the Building or
Project, and to any encumbrances of all or any portion of the Building or
Project.

          (b) Tenant acknowledges that Landlord is relying on the statements in
its determination to enter into this Lease, and Tenant represents to Landlord,
which representation shall be deemed made on the date of this Lease and again on
the Commencement Date, that no material change in the financial

                                     -10-
<PAGE>

condition of Tenant, as reflected in the Statements, has occurred since the date
Tenant delivered the Statements to Landlord. The Statements are represented and
warranted by Tenant to be correct and to accurately and fully reflect Tenant's
true financial condition as of the date of submission by any Statements to
Landlord.

                      ARTICLE XIV. DEFAULTS AND REMEDIES

     SECTION 14.1. TENANT'S DEFAULTS. In addition to any other event of default
set forth in this Lease, the occurrence of any one or more of the following
events shall constitute a default by Tenant:

          (a) The failure by Tenant to make any payment of rent or additional
rent required to be made by Tenant, as and when due, where the failure continues
for a period of three (3) days after written notice from Landlord to Tenant;
provided, however, that any such notice shall be in lieu of, and not in addition
to, any notice required under California Code of Civil Procedure Section 1161
and 1161(a) as amended. For purposes of these default and remedies provisions,
the term "additional rent" shall be deemed to include all amounts of any type
whatsoever other than Basic Rent to be paid by Tenant pursuant to the terms of
this Lease.

          (b) Assignment, sublease, encumbrance or other transfer of the Lease
by Tenant, either voluntarily or by operation of law, whether by judgment,
execution, transfer by intestacy or testacy, or other means, without the prior
written consent of Landlord.

          (c) The discovery by Landlord that any financial statement provided by
Tenant, or by any affiliate, successor or guarantor of Tenant, was materially
false.

          (d) The failure or inability by Tenant to observe or perform any of
the express or implied covenants or provisions of this Lease to be observed or
performed by Tenant, other than as specified in any other subsection of this
Section, where the failure continues for a period of thirty (30) days after
written notice from Landlord to Tenant or such shorter period as is specified in
any other provision of this Lease; provided, however, that any such notice shall
be in lieu of, and not in addition to, any notice required under California Code
of Civil Procedure Section 1161 and 1161(a) as amended. However, if the nature
of the failure is such that more than thirty (30) days are reasonably required
for its cure, then Tenant shall not be deemed to be in default if Tenant
commences the cure within thirty (30) days, and thereafter diligently pursues
the cure to completion.

          (e) (i) The making by Tenant of any general assignment for the benefit
of creditors; (ii) the filing by or against Tenant of a petition to have Tenant
adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts
discharged or a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against Tenant,
the same is dismissed within thirty (30) days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, if possession is
not restored to Tenant within thirty (30) days; (iv) the attachment, execution
or other judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where the seizure is not
discharged within thirty (30) days; or (v) Tenant's convening of a meeting of
its creditors for the purpose of effecting a moratorium upon or composition of
its debts. Landlord shall not be deemed to have knowledge of any event described
in this subsection unless notification in writing is received by Landlord, nor
shall there be any presumption attributable to Landlord of Tenant's insolvency.
In the event that any provision of this subsection is contrary to applicable
law, the provision shall be of no force or effect.

     SECTION 14.2. LANDLORD'S REMEDIES.

          (a) In the event of any default by Tenant, or in the event of the
abandonment of the Premises by Tenant, then in addition to any other remedies
available to Landlord, Landlord may exercise the following remedies:

              (i) Landlord may terminate Tenant's right to possession of the
Premises by any lawful means, in which case this Lease shall terminate and
Tenant shall immediately surrender possession of the Premises to Landlord. Such
termination shall not affect any accrued obligations of Tenant under this Lease.
Upon termination, Landlord shall have the right to reenter the Premises and
remove all persons and property. Landlord shall also be entitled to recover from
Tenant.

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

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

                  (3) The worth at the time of award of the amount by which the
unpaid rent and additional rent for the balance of the Term after the time of
award exceeds the amount of such loss that Tenant proves could be reasonably
avoided;

                  (4) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result from Tenant's default, including, but not limited to, the cost of
recovering possession of the Premises, commissions and other expenses of
reletting, including necessary repair, the unamortized portion of any tenant
improvements and brokerage commissions funded by Landlord in connection with
this Lease, reasonable attorneys' fees, and any other reasonable costs; and

                  (5) At Landlord's election, all other amounts in addition to
or in lieu of the foregoing as may be permitted by law. The term "rent" as used
in this Lease shall be deemed to mean the Basic Rent and all other sums required
to be paid by Tenant to Landlord pursuant to the terms of this Lease. Any sum,
other than Basic Rent, shall be computed on the basis of the average monthly
amount accruing during the twenty-four (24) month period immediately prior to
default, except that if it becomes necessary to compute such rental before the
twenty-four (24) month period has occurred, then the computation shall be on the
basis of the average monthly amount during the shorter period. As used in
subparagraphs (1) and (2) above, the "worth at the time of award" shall be
computed by allowing interest at the rate of ten percent (10%) per annum. As
used in subparagraph (3) above, the "worth at the time of award" shall be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%).

                                     -11-
<PAGE>

              (ii) Landlord may elect not to terminate Tenant's right to
possession of the Premises, in which event Landlord may continue to enforce all
of its rights and remedies under this Lease, including the right to collect all
rent as it becomes due. Efforts by the Landlord to maintain, preserve or relet
the Premises, or the appointment of a receiver to protect the Landlord's
interests under this Lease, shall not constitute a termination of the Tenant's
right to possession of the Premises. In the event that Landlord elects to avail
itself of the remedy provided by this subsection (ii), Landlord shall not
unreasonably withhold its consent to an assignment or subletting of the Premises
subject to the reasonable standards for Landlord's consent as are contained in
this Lease.

          (b) Landlord shall be under no obligation to observe or perform any
covenant of this Lease on its part to be observed or performed which accrues
after the date of any default by Tenant unless and until the default is cured by
Tenant. The various rights and remedies reserved to Landlord in this Lease or
otherwise shall be cumulative and, except as otherwise provided by California
law, Landlord may pursue any or all of its rights and remedies at the same time.

          (c) No delay or omission of Landlord to exercise any right or remedy
shall be construed as a waiver of the right or remedy or of any default by
Tenant. The acceptance by Landlord of rent shall not be a (i) waiver of any
preceding breach or default by Tenant of any provision of this Lease, other than
the failure of Tenant to pay the particular rent accepted, regardless of
Landlord's knowledge of the preceding breach or default at the time of
acceptance of rent, or (ii) a waiver of Landlord's right to exercise any remedy
available to Landlord by virtue of the breach or default. The acceptance of any
payment from a debtor in possession, a trustee, a receiver or any other person
acting on behalf of Tenant or Tenant's estate shall not waive or cure a default
under Section 14.1. No payment by Tenant or receipt by Landlord of a lesser
amount than the rent required by this Lease shall be deemed to be other than a
partial payment on account of the earliest due stipulated rent, nor shall any
endorsement or statement on any check or letter be deemed an accord and
satisfaction and Landlord shall accept the check or payment without prejudice to
Landlord's right to recover the balance of the rent or pursue any other remedy
available to it. No act or thing done by Landlord or landlord's agents during
the Term shall be deemed an acceptance of a surrender of the Premises, and no
agreement to accept a surrender shall be valid unless in writing and signed by
Landlord. No employee of Landlord or of Landlord's agents shall have any power
to accept the keys to the Premises prior to the termination of this lease, and
the delivery of the keys to any employee shall not operate as a termination of
the Lease or a surrender of the Premises.

     SECTION 14.3. LATE PAYMENTS.

          (a) Any rent due under this Lease that is not paid to Landlord within
five (5) days of the date when due shall bear interest at the maximum rate
permitted by law from the date due until fully paid. The payment of interest
shall not cure any default by Tenant under this Lease. In addition, Tenant
acknowledges that the late payment by Tenant to Landlord of rent will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult and impracticable to ascertain. Those costs
may include, but are not limited to, administrative, processing and accounting
charges, and late charges which may be imposed on Landlord by the terms of any
ground lease, mortgage or trust deed covering the Premises. Accordingly, if any
rent due from Tenant shall not be received by Landlord or Landlord's designee
within five (5) days after the date due, then Tenant shall pay to Landlord, in
addition to the interest provided above, a late charge in the amount of Two
Hundred Fifty Dollars ($250.00) for each delinquent payment. Acceptance of a
late charge by Landlord shall not constitute a waiver of Tenant's default with
respect to the overdue amount, nor shall it prevent Landlord from exercising any
of its other rights and remedies.

          (b) Following each second consecutive installment of rent that is not
paid within five (5) days following notice of nonpayment from Landlord, Landlord
shall have the option (i) to require that beginning with the first payment of
rent next due, rent shall no longer be paid in monthly installments but shall be
payable quarterly three (3) months in advance and/or (ii) to require that Tenant
increase the amount, if any, of the Security Deposit by one hundred percent
(100%). Should Tenant deliver to Landlord, at any time during the Term, two (2)
or more insufficient checks, the Landlord may require that all monies then and
thereafter due from Tenant be paid to Landlord by cashier's check.

     SECTION 14.4.  RIGHT OF LANDLORD TO PERFORM. All covenants and agreements
to be performed by Tenant under this Lease shall be performed at Tenant's sole
cost and expense and without any abatement of rent or right of set-off. If
Tenant fails to pay any sum of money, other than rent, or fails to perform any
other act on its part to be performed under this Lease, and the failure
continues beyond any applicable grace period set forth in Section 14.1, then in
addition to any other available remedies, Landlord may, at its election make the
payment or perform the other act on Tenant's part. Landlord's election to make
the payment or perform the act on Tenant's part shall not give rise to any
responsibility of Landlord to continue making the same or similar payments or
performing the same or similar acts. Tenant shall, promptly upon demand by
Landlord, reimburse Landlord for all sums paid by Landlord and all necessary
incidental costs, together with interest at the maximum rate permitted by law
from the date of the payment by Landlord. Landlord shall have the same rights
and remedies if Tenant fails to pay those amounts as Landlord would have in the
event of a default by Tenant in the payment of rent.

     SECTION 14.5. DEFAULT BY LANDLORD. Landlord shall not be deemed to be in
default in the performance of any obligation under this Lease unless and until
it has failed to perform the obligation within thirty (30) days after written
notice by Tenant to Landlord specifying, in reasonable detail the nature and
extent of the failure; provided, however, that if the nature of Landlord's
obligation is such that more than thirty (30) days are required for its
performance, then Landlord shall not be deemed to be in default if it commences
performance within the thirty (30) day period and thereafter diligently pursues
the cure to completion.

     SECTION 14.6. EXPENSES AND LEGAL FEES. All sums reasonably incurred by
Landlord in connection with any event of default by Tenant under this Lease or
holding over of possession by Tenant after the expiration or earlier termination
of this Lease, including without limitation all costs, expenses and actual
accountants, appraisers, attorneys and other professional fees, and any
collection agency or other collection charges, shall be due and payable by
Tenant to Landlord on demand, and shall bear interest at the rate of ten percent
(10%) per annum. Should either Landlord or Tenant bring any action in connection
with this Lease, the prevailing party shall be entitled to recover as a part of
the action its reasonable attorneys' fees, and all other costs. The prevailing
party for the purpose of this paragraph shall be determined by the trier of the
facts.

     SECTION 14.7. WAIVER OF JURY TRIAL. LANDLORD AND TENANT EACH ACKNOWLEDGES
THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT
TO ITS RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY EXPRESSLY AND
KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER
(AND/OR AGAINST, ITS OFFICERS,

                                     -12-
<PAGE>

DIRECTORS, EMPLOYEES, AGENTS, OR SUBSIDIARY OR AFFILIATED ENTITIES) ON ANY
MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE,
TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM OF INJURY OR DAMAGE.

     SECTION 14.8  SATISFACTION OF JUDGMENT. The obligations of Landlord do not
constitute the personal obligations of the individual partners, trustees,
directors, officers or shareholders of Landlord or its constituent partners.
Should Tenant recover a money judgment against Landlord, such judgment shall be
satisfied only out of the proceeds of sale received upon execution of such
judgment and levied thereon against the right, title and interest of Landlord in
the Building and out of the rent or other income from such property receivable
by Landlord or out of consideration received by Landlord from the sale or other
disposition of all or any part of Landlord's right, title or interest in the
Building, and no action for any deficiency may be sought or obtained by Tenant.

                       ARTICLE XV. END OF TERM

     SECTION 15.1.  HOLDING OVER. This Lease shall terminate without further
notice upon the expiration of the Term, and any holding over by Tenant after the
expiration shall not constitute a renewal or extension of this Lease, or give
Tenant any rights under this Lease, except when in writing signed by both
parties. If Tenant holds over for any period after the expiration (or earlier
termination) of the Term, Landlord may, at its option, treat Tenant as a tenant
at sufferance only, commencing on the first (1st) day following the termination
of this Lease and subject to all of the terms of this Lease, except that the
monthly Basic Rent shall be the greater of (a) one hundred twenty percent (120%)
of the Basic Rent for the month immediately preceding the date of termination or
(b) the then currently scheduled Basic Rent for comparable space in the
Building. If Tenant fails to surrender the Premises upon the expiration of this
Lease despite demand to do so by Landlord, Tenant shall indemnify and hold
Landlord harmless from all loss or liability, including without limitation, any
claims made by any succeeding tenant relating to such failure to surrender.
Acceptance by Landlord of rent after the termination shall not constitute a
consent to a holdover or result in a renewal of this Lease. The foregoing
provisions of this Section are in addition to and do not affect Landlord's right
of re-entry or any other rights of Landlord under this Lease or at law.

     SECTION 15.2.  MERGER ON TERMINATION. The voluntary or other surrender of
this Lease by Tenant, or a mutual termination of this Lease, shall terminate any
or all existing subleases unless Landlord, at its option, elects in writing to
treat the surrender or termination as an assignment to it of any or all
subleases affecting the Premises.

     SECTION 15.3.  SURRENDER OF PREMISES: REMOVAL OF PROPERTY. Upon the
Expiration Date or upon any earlier termination of this Lease, Tenant shall quit
and surrender possession of the Premises to Landlord in as good order, condition
and repair as when received or as hereafter may be improved by Landlord or
Tenant, reasonable wear and tear and repairs which are Landlord's obligation
excepted, and shall, without expense to Landlord, remove or cause to be removed
from the Premises all personal property and debris, except for any items that
Landlord may by written authorization allow to remain. Tenant shall repair all
damage to the Premises resulting from the removal, which repair shall include
the patching and fitting of holes and repair of structural damage, provided that
Landlord may instead elect to repair any structural damage at Tenant's expense.
If Tenant shall fail to comply with the provisions of this Section, Landlord may
effect the removal and/or make any repairs, and the cost to Landlord shall be
additional rent payable by Tenant upon demand. If Tenant fails to remove
Tenant's personal property from the Premises upon the expiration of the Term,
Landlord may remove, store, dispose of and/or retain such personal property, at
Landlord's option, in accordance with then applicable laws, all at the expense
of Tenant. If requested by Landlord, Tenant shall execute, acknowledge and
deliver to Landlord an instrument in writing releasing and quitclaiming to
Landlord all right, title and interest of Tenant in the Premises.

                       ARTICLE XVI. PAYMENTS AND NOTICES

     All sums payable by Tenant to Landlord shall be paid, without deduction or
offset, in lawful money of the United States to Landlord at its address set
forth in Item 12 of the Basic Lease Provisions, or at any other place as
Landlord may designate in writing. Unless this Lease expressly provides
otherwise, as for example in the payment of rent pursuant to Section 4.1, all
payments shall be due and payable within five (5) days after demand. All
payments requiring proration shall be prorated on the basis of a thirty (30) day
month and a three hundred sixty (360) day year. Any notice, election, demand,
consent, approval or other communication to be given or other document to be
delivered by either party to the other may be delivered in person or by courier
or overnight delivery service to the other party, or may be deposited in the
United States mail, duly registered or certified, postage prepaid, return
receipt requested, and addressed to the other party at the address set forth in
Item 12 of the Basic Lease Provisions, or if to Tenant, at that address or, from
and after the Commencement Date, at the Premises (whether or not Tenant has
departed from, abandoned or vacated the Premises), or may be delivered by
telegram, telex or telecopy, provided that receipt thereof is telephonically
confirmed. Either party may, by written notice to the other, served in the
manner provided in this Article, designate a different address. If any notice or
other document is sent by mail, it shall be deemed served or delivered twenty-
four (24) hours after mailing. If more than one person or entity is named as
Tenant under this Lease, service of any notice upon any one of them shall be
deemed as service upon all of them.

                      ARTICLE XVII. RULES AND REGULATIONS

     Tenant agrees to observe faithfully and comply strictly with the Rules and
Regulations, attached as Exhibit E, and any reasonable and nondiscriminatory
                         ---------
amendments, modifications and/or additions as may be adopted and published by
written notice to tenants by Landlord for the safety, care, security, good
order, or cleanliness of the Premises, Building, Project and Common Areas.
Landlord shall not be liable to Tenant for any violation of the Rules and
Regulations or the breach of any covenant or condition in any lease by any other
tenant. One or more waivers by Landlord of any breach of the Rules and
Regulations by Tenant or by any other tenant(s) shall not be a waiver of any
subsequent breach of that rule or any other. Tenant's failure to keep and
observe the Rules and Regulations shall constitute a default under this Lease.
In the case of any conflict between the Rules and Regulations and this Lease,
this Lease shall be controlling.

                                     -13-
<PAGE>

                      ARTICLE XVIII. BROKER'S COMMISSION

     The parties recognize as the broker(s) who negotiated this Lease the
firm(s). If any, whose name(s) is (are) stated in Item 10 of the Basic Lease
Provisions, and agree that Landlord shall be responsible for the payment of
brokerage commissions to those broker(s) unless otherwise provided in this
Lease. Tenant warrants that it has had no dealings with any other real estate
broker or agent in connection with the negotiation of this Lease, and Tenant
agrees to indemnify and hold Landlord harmless from any cost, expense or
liability (including reasonable attorneys' fees) for any compensation,
commissions or charges claimed by any other real estate broker or agent employed
or claiming to represent or to have been employed by Tenant in connection with
the negotiation of this Lease. The foregoing agreement shall survive the
termination of this Lease. If Tenant fails to take possession of the Premises or
if this Lease otherwise terminates prior to the Expiration Date as the result of
failure of performance by Tenant, Landlord shall be entitled to recover from
Tenant the unamortized portion of any brokerage commission funded by Landlord in
addition to any other damages to which Landlord may be entitled.

                 ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST

     In the event of any transfer of Landlord's interest in the Premises, the
transferor shall be automatically relieved of all obligations on the part of
Landlord accruing under this Lease from and after the date of the transfer,
provided that any funds held by the transferor in which Tenant has an interest
shall be turned over, subject to that interest, to the transferee and Tenant is
notified of the transfer as required by law. No holder of a mortgage and/or deed
of trust to which this Lease is or may be subordinate, and no Landlord under a
so-called sale-leaseback, shall be responsible in connection with the Security
Deposit, unless the mortgagee or holder of the deed of trust or the landlord
actually receives the Security Deposit. It is intended that the covenants and
obligations contained in this Lease on the part of Landlord shall, subject to
the foregoing, be binding on Landlord, its successors and assigns, only during
and in respect to their respective successive periods of ownership.

                          ARTICLE XX. INTERPRETATION

     SECTION 20.1.  GENDER AND NUMBER. Whenever the context of this Lease
requires, the words "Landlord" and "Tenant" shall include the plural as well as
the singular, and words used in neuter, masculine or feminine genders shall
include the others.

     SECTION 20.2.  HEADINGS. The captions and headings of the articles and
sections of this Lease are for convenience only, are not a part of this Lease
and shall have no effect upon its construction or interpretation.

     SECTION 20.3.  JOINT AND SEVERAL LIABILITY. If more than one person or
entity is named as Tenant, the obligations imposed upon each shall be joint and
several and the act of or notice from, or notice or refund to, or the signature
of, any one or more of them shall be binding on all of them with respect to the
tenancy of this Lease, including, but not limited to, any renewal, extension,
termination or modification of this Lease.

     SECTION 20.4.  SUCCESSORS. Subject to Articles IX and XIX, all rights and
liabilities given to or imposed upon Landlord and Tenant shall extend to and
bind their respective heirs, executors, administrators, successors and assigns.
Nothing contained in this Section is intended, or shall be construed, to grant
to any person other than Landlord and Tenant and their successors and assigns
any rights or remedies under this Lease.

     SECTION 20.5.  TIME OF ESSENCE. Time is of the essence with respect to the
performance of every provision of this Lease.

     SECTION 20.6.  CONTROLLING LAW. This Lease shall be governed by and
interpreted in accordance with the laws of the State of California.

     SECTION 20.7.  SEVERABILITY. If any term or provision of this Lease, the
deletion of which would not adversely affect the receipt of any material benefit
by either party or the deletion of which is consented to by the party adversely
affected, shall be held invalid or unenforceable to any extent, the remainder of
this Lease shall not be affected and each term and provision of this Lease
shall be valid and enforceable to the fullest extent permitted by law.

     SECTION 20.8.  WAIVER AND CUMULATIVE REMEDIES. One or more waivers by
Landlord or Tenant of any breach of any term, covenant or condition contained in
this Lease shall not be a waiver of any subsequent breach of the same or any
other term, covenant or condition. Consent to any act by one of the parties
shall not be deemed to render unnecessary the obtaining of that party's consent
to any subsequent act. No breach by Tenant of this Lease shall be deemed to have
been waived by Landlord unless the waiver is in a writing signed by Landlord.
The rights and remedies of Landlord under this Lease shall be cumulative and in
addition to any and all other rights and remedies which Landlord my have.

     SECTION 20.9.  INABILITY TO PERFORM. In the event that either party shall
be delayed or hindered in or prevented from the performance of any work or in
performing any act required under this Lease by reason of any cause beyond the
reasonable control of that party, then the performance of the work or the doing
of the act shall be excused for the period of the delay and the time for
performance shall be extended for a period equivalent to the period of the
delay. The provisions of this Section shall not operate to excuse Tenant from
the prompt payment of rent or from the timely performance of any other
obligation under this Lease within Tenant's reasonable control.

     SECTION 20.10. ENTIRE AGREEMENT. This Lease and its exhibits and other
attachments cover in full each and every agreement of every kind between the
parties concerning the Premises, the Building, and the Project, and all
preliminary negotiations, oral agreements, understandings and/or practices,
except those contained in this Lease, are superseded and of no further effect.
Tenant waives its rights to rely on any representations or promises made by
Landlord or others which are not contained in this Lease. No verbal agreement or
implied covenant shall be held to modify the provisions of this Lease, any
statute, law, or custom to the contrary notwithstanding.

                                     -14-
<PAGE>

     SECTION 20.11. QUIET ENJOYMENT. Upon the observance and performance of all
the covenants, terms and conditions on Tenant's part to be observed and
performed, and subject to the other provisions of this Lease, Tenant shall
peaceably and quietly hold and enjoy the Premises for the Term without hindrance
or interruption by Landlord or any other person claiming by or through Landlord.

     SECTION 20.12. SURVIVAL. All covenants of Landlord or Tenant which
reasonably would be intended to survive the expiration or sooner termination of
this Lease, including without limitation any warranty or indemnity hereunder,
shall so survive and continue to be binding upon and inure to the benefit of the
respective parties and their successors and assigns.

                     ARTICLE XXI.  EXECUTION AND RECORDING

     SECTION 21.1. COUNTERPARTS. This Lease may be executed in one or more
counterparts, each of which shall constitute an original and all of which shall
be one and the same agreement.

     SECTION 21.2. CORPORATE AND PARTNERSHIP AUTHORITY. If Tenant is a
corporation or partnership, each individual executing this Lease on behalf of
the corporation or partnership represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation or
partnership, and that this Lease is binding upon the corporation or partnership
in accordance with its terms. Tenant shall, at Landlord's request, deliver a
certified copy of its board of directors' resolution or partnership agreement or
certificate authorizing or evidencing the execution of this Lease.

     SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER. The submission of
this Lease to Tenant shall be for examination purposes only, and shall not
constitute an offer to or option for Tenant to lease the Premises. Execution of
this Lease by Tenant and its return to Landlord shall not be binding upon
Landlord, notwithstanding any time interval, until Landlord has in fact executed
and delivered this Lease to Tenant, it being intended that this Lease shall only
become effective upon execution by Landlord and delivery of a fully executed
counterpart to Tenant.

     SECTION 21.4. RECORDING. Tenant shall not record this Lease without the
prior written consent of Landlord. Tenant, upon the request of Landlord, shall
execute and acknowledge a "short form" memorandum of this Lease for recording
purposes.

     SECTION 21.5. AMENDMENTS. No amendment or termination of this Lease shall
be effective unless in writing signed by authorized signatories of Tenant and
Landlord, or by their respective successors in interest. No actions, policies,
oral or informal arrangements, business dealings or other course of conduct by
or between the parties shall be deemed to modify this Lease to any respect.

     SECTION 21.6. EXECUTED COPY. Any fully executed photocopy or similar
reproduction of this Lease shall be deemed an original for all purposes.

     SECTION 21.7. EXHIBITS; REFERENCES. All exhibits, amendments, riders and
addenda attached to this Lease are hereby incorporated into and made a part of
this Lease.

                         ARTICLE XXII.  MISCELLANEOUS

     SECTION 22.1. NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and agrees
that the terms of this Lease are confidential and constitute proprietary
information of Landlord. Disclosure of the terms could adversely affect the
ability of Landlord to negotiate other leases and impair Landlord's relationship
with other tenants. Accordingly, Tenant Agrees that it, and its partners,
officers, directors, employees and attorneys, shall not intentionally and
voluntarily disclose the terms and conditions of this Lease to any other tenant
or apparent prospective tenant of the Building or Project, either directly or
indirectly, without the prior written consent of Landlord, provided, however,
that Tenant may disclose the terms to prospective subtenants or assignees under
this Lease.

     SECTION 22.2. GUARANTY. As a condition to the execution of this Lease by
Landlord, the obligations, covenants and performance of the Tenant as herein
provided shall be guaranteed in writing by the Guarantor(s) listed in Item 7 of
the Basic Lease Provisions, if any, on a form of guaranty provided by Landlord.

     SECTION 22.3. CHANGES REQUESTED BY LENDER. If, in connection with obtaining
financing for the Building, the lender shall request reasonable modifications in
this Lease as a condition to the financing, Tenant will not unreasonably
withhold or delay its consent, provided that the modifications do not materially
increase the obligations of Tenant or materially and adversely affect the
leasehold interest created by this Lease.

     SECTION 22.4. MORTGAGEE PROTECTION. No act or failure to act on the part of
Landlord which would otherwise entitle Tenant to be relieved of its obligations
hereunder or to terminate this Lease shall result in such a release or
termination unless (a) Tenant has given notice by registered or certified mail
to any beneficiary of a deed of trust or mortgage covering the Building whose
address has been furnished to Tenant and (b) such beneficiary is afforded a
reasonable opportunity to cure the default by Landlord (which in no event shall
be less than sixty (60) days), including, if necessary to effect the cure, time
to obtain possession of the Building by power of sale or judicial foreclosure
provided that such foreclosure remedy is diligently pursued. Tenant agrees that
each beneficiary of a deed of trust or mortgage covering the Building is an
express third party beneficiary hereof, Tenant shall have no right or claim for
the collection of any deposit from such beneficiary or from any purchaser at a
foreclosure sale unless such beneficiary or purchaser shall have actually
received and not refunded the deposit, and Tenant shall comply with any written
directions by any beneficiary to pay rent due hereunder directly to such
beneficiary without determining whether an event of default exists under such
beneficiary's deed of trust.

     SECTION 22.5. COVENANTS AND CONDITIONS. All of the provisions of this Lease
shall be construed to be conditions as well as covenants as though the words
specifically expressing or imparting covenants and conditions were used in each
separate provision.

     SECTION 22.6. DISCLOSURE STATEMENT. Tenant acknowledges that it has read,
understands and, if applicable, shall comply with the provisions of Exhibit C to
                                                                    ---------
this Lease, if that Exhibit is attached.

                                     -15-
<PAGE>

     Section 22.7. SECURITY MEASURES. Tenant hereby acknowledges that Landlord
shall have no obligation whatsoever to provide guard service or other security
measures for the benefit of the Premises or the Project. Tenant assumes all
responsibility for the protection of Tenant, its agents, invitees and property
from acts of third parties. Nothing herein contained shall prevent Landlord, at
its sole option, from providing security protection for the Project or any part
thereof, in which event the cost thereof shall be included within the definition
of Building Costs.

"LANDLORD"

                           IRVINE TECHNOLOGY PARTNERS II,
                           a California general partnership

                           By:  THE IRVINE COMPANY,
                                a Michigan corporation
                                Its General Partner

                                By: /s/ Michael T. Lutton
                                   ------------------------------------
                                   Michael T. Lutton, President
                                   Irvine Office & Industrial Company

                                By: /s/ Gary A. Vaccaro
                                   ------------------------------------  [SEAL]
                                   Gary A. Vaccaro
                                   VP, Financial Management
                                   Investment Properties Group

                           By:  KOLL TECHNOLOGY ASSOCIATES,
                                a California general partnership
                                Its General Partner

                                By: KOLL MANAGEMENT SERVICES,
                                    a Delaware corporation
                                    As Agent

                                    By: /s/ Jana Turner
                                       --------------------------------
                                       Jana Turner
                                       Senior Vice President

"TENANT"

                             Lantronix,
                           --------------------------------------------
                             a California corporation
                           --------------------------------------------

                           By: /s/ Brad Freeburg
                              -----------------------------------------
                           Title: President
                                 --------------------------------------

                           By: /s/ John Gollogly
                              -----------------------------------------
                           Title: V. P. Finance
                                 --------------------------------------

                                      16
<PAGE>

                           FIRST AMENDMENT TO LEASE
                           ------------------------

I.    PARTIES AND DATE.

      This First Amendment to Lease (the "First Amendment") dated August 10,
                                                                  ---------
1995, is by and between IRVINE TECHNOLOGY PARTNERS III, a California general
----
partnership ("Landlord"), and LANTRONIX, a California corporation ("Tenant").

II.   RECITALS.

      On June 28, 1993, Landlord and Tenant entered into a lease ("Lease") for
         -------------
space in a building located at 15355 Barranca Parkway, Suite 102, Irvine,
California ("Premises").

      Landlord and Tenant each desire to modify the Lease to add the "First
Right Space" comprising 23,622 rentable square feet as described in Article II,
Section 2.1(b) of the Lease, extend the Lease Term, adjust the Basic Rent, and
make such other modifications as are set forth in "III. MODIFICATIONS" next
below.

III.  MODIFICATIONS.

      A.  Basic Lease Provisions. The Basic Lease Provisions are hereby amended
          ----------------------
as follows:

            1.  Item 4 is hereby amended by adding the following:

                "Commencement Date for the First Right Space: July 13, 1995"

            2.  Item 5 is hereby deleted in its entirety and the following shall
            be substituted in lieu thereof:

                "5. Lease Term: The Term of this Lease shall expire at midnight
                on July 31, 2000."

            3.  Effective as of August 1, 1995, Item 6 shall be deleted in its
            entirety and the following shall be substituted in lieu thereof:

                "6. Basic Rent: Twenty-Nine Thousand Eight Hundred Fifty-Four
                Dollars and Thirty Cents ($29,854.30) per month.
                                          ----------

                Basic Rent is subject to adjustment as follows:

                                       1
<PAGE>

                Commencing on November 1, 1995, the Basic Rent shall be Thirty
                Thousand Four Hundred Eighty-Five Dollars and Thirty Cents
                ($30,485.30) per month.

                Commencing on August 1, 1996, the Basic Rent shall be Thirty-Two
                Thousand Eight Dollars and Seventy-Four Cents ($32,008.74) per
                month.

                Commencing on August 1, 1997, the Basic Rent shall be Thirty-
                Three Thousand Seven Hundred Sixty-Seven Dollars and Forty Cents
                ($33,767.40) per month.

                Commencing on August 1, 1998, the Basic Rent shall be Thirty-
                Seven Thousand Nine Hundred Nine Dollars and Fifty-Six Cents
                ($37,909.56) per month.

                Commencing on August 1, 1999, the Basic Rent shall be Thirty-
                Nine Thousand Four Hundred Eighty-Four Dollars and Sixteen Cents
                ($39,484.16) per month."

            4.  Effective as of July 13, 1995, Item 8 shall be deleted in its
            entirety and the following shall be substituted in lieu thereof:

                "8. Floor Area of Premises: approximately 51,176 rentable square
                feet."

            5.  Item 9 is hereby deleted in its entirety and the following shall
            be substituted in lieu thereof:

                "9. Security Deposit: $28,224.50"
                                      -----------

            6.  Effective as of July 13, 1995, Item 14 shall be deleted in its
            entirety and the following shall be substituted in lieu thereof:

                "14. Vehicle Parking Spaces: Two Hundred Four (204)"

      B.    Basic Rent for the First Right Space. Tenant shall deliver the sum
            ------------------------------------
of Fourteen Thousand Nine Hundred Twenty-Seven Dollars and Fifteen Cents
($14,927.15) to Landlord concurrently with its execution and delivery of this
First Amendment. Such payment represents the Basic Rent payable for the First
Right Space for the period commencing July 13, 1995 and ending July 31, 1995.

      C.    Subordinate Right of First Offer. Article II, Section 2.1(b) of the
            --------------------------------
Lease entitled "Subordinate Right of First Offer" is hereby deleted in its
entirety and nothing shall be substituted in lieu thereof.

                                       2
<PAGE>

     D.   Right to Extend this Lease. Section 3.1(b) of the Lease entitled
          --------------------------
"Right to Extend this Lease" is hereby deleted in its entirety and nothing shall
be substituted in lieu thereof.

     E.   Security Deposit. Concurrently with Tenant's delivery of this First
          ----------------
Amendment, Tenant shall deliver the sum of Seventeen Thousand Seven Hundred
Sixteen Dollars and Fifty Cents ($17,716.50) to Landlord, which sum shall be
added to the Security Deposit presently being held by Landlord in accordance
with Section 4.3 of the Lease.

     F.   Operating Expenses. Article IV, Section 4.2(g) of the Lease is hereby
          ------------------
deleted in its entirety and the following shall be substituted in lieu thereof:

          "(g) Original Premises. Notwithstanding any contrary provision
               -----------------
          hereinabove, Landlord hereby agrees that Tenant's proportionate share
          of Operating Expenses with respect to the original Premises leased
          hereunder, exclusive of costs for trash removal, and exterior common
          area electricity, shall not exceed Three Thousand Six Hundred Seventy-
          Seven Dollars and Ninety-Two Cents ($3,677.92) per month during the
          initial Expense Recovery Period expiring June 30, 1994. Landlord
          further agrees that Tenant's proportionate share of Operating Expenses
          shall not increase annually by more than seven percent (7%) per annum,
          on a compound and cumulative basis. However, the foregoing limitation
          shall exclude increases in property taxes, insurance and/or utilities
          to the extent in excess of seven percent (7%) over the prior Expense
          Recovery Period.

               First Right Space. Landlord agrees that Tenant's proportionate
               -----------------
          share of Operating Expenses with respect to the First Right Space
          shall not increase by more than ten percent (10%) per annum, on a
          compound and cumulative basis, over Tenant's share of the actual total
          Operating Expenses incurred by Landlord during the Expense Recovery
          Period ending June 30, 1996; provided, however, that the foregoing
          limitation shall exclude increases in property taxes, insurance and/or
          utilities to the extent in excess of the foregoing limitation."

     G.   Subleasing the First Right Space. It is understood that effective as
          --------------------------------
of July 13, 1995, Tenant shall be subleasing the First Right Space to Nortel.
Notwithstanding any contrary provision in Article IX, Section 9.1(d)of the
Lease, Landlord hereby agrees that it shall not be entitled to receive any
profits from that sublease during the sixty (60) day period commencing July 13,
1995 and ending September 12, 1995. Thereafter, Landlord's entitlement to any
such subleasing profits shall be determined in accordance with said Section
9.l(d).

                                       3
<PAGE>

     H.   Tenant Improvements. Landlord hereby agrees to complete the tenant
          -------------------
improvement work set forth in Exhibit X, Work Letter, attached hereto.

IV.  GENERAL.

     A.   Effect of Amendments. The Lease shall remain in full force and effect
          --------------------
except to the extent that it is modified by this Amendment.

     B.   Entire Agreement. This Amendment embodies the entire understanding
          ----------------
between Landlord and Tenant with respect to the modifications set forth in "III.
MODIFICATIONS" above and can be changed only by a writing signed by Landlord and
Tenant.

     C.   Counterparts. If this Amendment is executed in counterparts, each is
          ------------
hereby declared to be an original; all, however, shall constitute but one and
the same amendment. In any action or proceeding, any photographic, photostatic,
or other copy of this Amendment may be introduced into evidence without
foundation.

     D.   Defined Terms. All words commencing with initial capital letters in
          -------------
this Amendment and defined in the Lease shall have the same meaning in this
Amendment as in the Lease, unless they are otherwise defined in this Amendment.

     E.   Corporate and Partnership Authority. If Tenant is a corporation or
          -----------------------------------
partnership, or is comprised of either or both of them, each individual
executing this Amendment for the corporation or partnership represents that he
or she is duly authorized to execute and deliver this Amendment on behalf of the
corporation or partnership and that this Amendment is binding upon the
corporation or partnership in accordance with its terms.

     F.   Attorneys' Fees. The provisions of the Lease respecting payment of
          ---------------
attorneys' fees shall also apply to this Amendment.

V.   EXECUTION.

                                       4
<PAGE>

     Landlord and Tenant executed this Amendment on the date as set forth in "I.
PARTIES AND DATE." above.

LANDLORD:                                    TENANT:

IRVINE TECHNOLOGY PARTNERS III,              LANTRONIX,
a California general partnership             a California corporation

By:  THE IRVINE COMPANY,
     a Michigan corporation                  By: /s/ Brad Freeburg
                                                ------------------------------
     Its General Partner
                                             Title: President
                                                   ---------------------------

     By: /s/ CW Barker
         ---------------------------------
         Clarence W. Barker, President
         Irvine Industrial Company,
         a division of The Irvine Company    By: /s/ John Gollogly
                                                ------------------------------

                                             Title:  V.P. Finance
                                                   ---------------------------
     By: /s/ John Tsu
        ----------------------------------
        John C. Tsu, Assistant Secretary

By:  KOLL TECHNOLOGY ASSOCIATES,
     a California general partnership
     Its General Partner

     By:  KOLL MANAGEMENT SERVICES,
          a Delaware corporation
          as Agent

          By:
             -----------------------
             Jana Turner
             Senior Vice President

                                       5
<PAGE>

                                   EXHIBIT X

                            INDUSTRIAL WORK LETTER

                               DOLLAR ALLOWANCE

The Tenant Improvement work (herein "Tenant Improvements") shall consist of any
work, including work in place as of the date hereof, required to complete Suite
102 and the First Right Space (as described in the First Amendment)
(collectively, the "Premises") pursuant to the Tenant's approved plans and
specifications. All of the Tenant Improvement work shall be performed by a
contractor selected by Landlord and in accordance with the procedures and
requirements set forth below.

I.   ARCHITECTURAL AND CONSTRUCTION PROCEDURES.
     -----------------------------------------

  A. Tenant and Landlord have approved, or shall approve within the time period
     set forth below, both (i) a detailed space plan for the Premises, prepared
     by Landlord's architect, which includes interior partitions, ceilings
     interior finishes, interior doors, suite entrance, floor coverings, window
     coverings, lighting, electrical and telephone outlets, plumbing
     connections, heavy floor loads and other special requirements ("Preliminary
     Plan"), and (ii) an estimate, prepared by Landlord's contractor, of the
     cost for which Landlord will complete or cause to be completed the Tenant
     Improvements ("Preliminary Cost Estimate"). Tenant shall approve or
     disapprove each of the Preliminary Plan and the Preliminary Cost Estimate
     by signing copies of the appropriate instrument and delivering same to
     Landlord within five (5) days of its receipt by Tenant. If Tenant
     disapproves any matter, Tenant shall specify in detail the reasons for
     disapproval and Landlord shall attempt to modify the Preliminary Plan and
     the Preliminary Cost Estimate to incorporate Tenant's suggested revisions
     in a mutually satisfactory manner. Notwithstanding the foregoing, however,
     Tenant shall approve in all respects a Preliminary Plan and Preliminary
     Cost Estimate not later than September 1, 1995 ("Plan Approval Date"), it
     being understood that Tenant's failure to do so shall constitute a "Tenant
     Delay" for purposes of this Work Letter.

  B. On or before the Plan Approval Date, Tenant shall provide in writing to
     Landlord or Landlord's architect all specifications and information
     requested by Landlord for the preparation of final construction documents
     and costing, including without limitation Tenant's final selection of wall
     and floor finishes, complete specifications and locations (including load
     and HVAC requirements) of Tenant's equipment, and details of all "Non-
     Standard Improvements" (as defined below) to be installed in the Premises
     (collectively, "Programming Information"). Tenant's failure to provide the
     Programming Information by the Plan Approval Date shall constitute a Tenant
     Delay for purposes of this Work Letter. Tenant understands that final
     construction documents for the Tenant Improvements shall be predicated on
     the Programming Information, and accordingly that such information must be
     accurate and complete.

  C. Except as otherwise specified by Tenant and authorized herein, the Tenant
     Improvements shall incorporate Landlord's building standard materials and
     specifications ("Standards"). No deviations from the Standards may be
     required by Tenant with respect to doors and frames, finish hardware, entry
     graphics, the ceiling system, light fixtures and switches, mechanical
     systems, life and safety systems, and/or window coverings; provided that
     Landlord may, in its sole discretion, authorize in writing one or more of
     such deviations, in which event Tenant shall be solely responsible for the
     cost of replacing same with the applicable Standard item(s) upon the
     expiration or termination of the Lease. All other non-standard items ("Non-
     Standard Improvements") shall be subject to the reasonable prior approval
     of Landlord. Landlord shall in no event be required to approve any Non-
     Standard Improvement if Landlord determines that such improvement (i) is of
     a lesser quality than the corresponding Standard, (ii) fails to conform to
     applicable governmental requirements, (iii) requires building services
     beyond the level normally provided to other tenants, (iv) would delay
     construction of the Tenant Improvements and Tenant declines to accept such
     delay in writing as a Tenant Delay, or (v) would have an adverse aesthetic
     impact from the exterior of the Premises.

  D. Upon Tenant's approval of the Preliminary Plan and Preliminary Cost
     Estimate and delivery of the complete Programming Information, Landlord's
     architect and engineers shall prepare and deliver to Tenant working
     drawings and specifications ("Working Drawings and Specifications"), and
     Landlord's contractor shall prepare a final construction cost estimate
     ("Final Cost Estimate") for the Tenant Improvements in conformity with the
     Working Drawings and Specifications. Tenant shall have five (5) days from
     the receipt thereof to approve or disapprove the Working Drawings and
     Specifications and the Final Cost Estimate. Tenant shall not reasonably
     withhold or delay its approval, and any disapproved or requested
     modification shall be limited to items not contained in the approved
     Preliminary Plan or

                                   EXHIBIT X
                                       1
<PAGE>

     Preliminary Cost Estimate. In no event shall Tenant disapprove the Final
     Cost Estimate if it does not exceed the approved Preliminary Cost Estimate.
     Should Tenant disapprove the Working Drawings and Specifications and the
     Final Cost Estimate, such disapproval shall be accompanied by a detailed
     list of revisions. Any revision requested by Tenant and accepted by
     Landlord shall be incorporated into a revised set of Working Drawings and
     Specifications and Final Cost Estimate, and Tenant shall approve same in
     writing within five (5) days of receipt without further revision. Tenant's
     failure to comply in a timely manner with any of the requirements of this
     paragraph shall constitute a Tenant Delay. Without limiting the rights of
     Landlord for Tenant Delays as set forth herein, in the event Tenant has not
     approved both the Working Drawings and Specifications and the Final Cost
     Estimate within sixty (60) days following the date of the First Amendment,
     then Landlord may, at its option, elect to terminate the First Amendment by
     written notice to Tenant. In the event Landlord elects to effect such a
     termination, Tenant shall, within ten (10) days following demand by
     Landlord, pay to Landlord any costs incurred by Landlord in connection with
     the preparation or review of plans, construction estimates, price
     quotations, drawings or specifications under this Work Letter and for all
     costs incurred in the preparation and execution of the First Amendment,
     including any leasing commissions.

  E. In the event that Tenant requests in writing a revision in the approved
     Working Drawings and Specifications ("Change"), Landlord shall advise
     Tenant by written change order as soon as is practical of any increase in
     the Completion Cost and/or any Tenant Delay such Change would cause. Tenant
     shall approve or disapprove such change order in writing within two (2)
     days following its receipt from Landlord. Landlord shall have the right to
     decline Tenant's request for a change for any of the reasons set forth in
     Article II.C above for Landlord's disapproval of a Non-Standard
     Improvement. It is understood that Landlord shall have no obligation to
     interrupt or modify the Tenant Improvement work pending Tenant's approval
     of a change order.

  F. Notwithstanding any provision in the First Amendment or this Work Letter to
     the contrary, if Tenant fails to comply with any of the time periods
     specified in this Work Letter, fails otherwise to approve or reasonably
     disapprove any submittal within five (5) days, fails to approve in writing
     both the Preliminary Plan and Preliminary Cost Estimate for the Tenant
     Improvements by the Plan Approval Date, fails to provide all of the
     Programming Information requested by Landlord by the Plan Approval Date,
     fails to approve in writing the Working Drawings and Specifications and the
     Final Cost Estimate within the time provided herein, requests any Changes,
     furnishes inaccurate or erroneous specifications or other information, or
     otherwise delays in any marker the completion of the Tenant Improvements
     (including without limitation by specifying materials that are not readily
     available) (any of the foregoing being referred to in this Work Letter as a
     "Tenant Delay"), then Tenant shall bear any resulting additional
     construction cost or other expenses.

  G. Tenant hereby designates Bruce Dwyer, Telephone No. (714) 851-0111, as its
     representative, agent and attorney-in-fact for the purpose of receiving
     notices, approving submittals and issuing requests for Changes, and
     Landlord shall be entitled to rely upon authorizations and directives of
     such person(s) as if given directly by Tenant. Tenant may amend the
     designation of its construction representative(s) at any time upon delivery
     of written notice to Landlord.

II.  COST OF TENANT IMPROVEMENTS
     ---------------------------

  A. Landlord shall complete, or cause to be completed, the Tenant Improvements,
     at the construction cost shown in the approved Final Cost Estimate (subject
     to the provisions of this Work Letter), in accordance with final Working
     Drawings and Specifications approved by both Landlord and Tenant. Landlord
     shall pay towards the final construction costs ("Completion Cost") as
     incurred a maximum of Two Hundred Thousand Dollars ($200,000.00)
     ("Landlord's Contribution"), based on $3.90 per square foot of the
     Premises, and Tenant shall be fully responsible for the remainder
     ("Tenant's Contribution").

  B. The Completion Cost shall include all direct costs of Landlord in
     completing the Tenant Improvements, including but not limited to the
     following: (i) payments made to architects, engineers, contractors,
     subcontractors and other third party consultants in the performance of the
     work, (ii) salaries and fringe benefits of persons, if any, in the direct
     employ of Landlord performing any part of the construction work, (iii)
     permit fees and other sums paid to governmental agencies, (iv) costs of all
     materials incorporated into the work or used in connection with the work,
     and (v) keying and signage costs. The Completion Cost shall also include an
     administrative/supervision fee to be paid to Landlord's management agent
     for the Building in the amount of five percent (5%) of all such direct
     costs.

  C. Prior to start of construction of the Tenant Improvements, Tenant shall pay
     to Landlord in full the amount of the Tenant's Contribution set forth in
     the approved Final Cost Estimate. If the actual Completion Cost of the
     Tenant Improvements is greater than the Landlord's Contribution because of
     modifications or extras not reflected on the approved working drawings, or
     because of delays caused by Tenant, then Tenant shall be responsible for
     all such additional costs, including any additional architectural fee. The
     balance of any sums not otherwise paid by Tenant shall be due and

                                   EXHIBIT X
                                       2
<PAGE>

      payable within ten (10) days of Landlord's billing for same. If Tenant
      defaults in the payment of any sums due under this Work Letter, Landlord
      shall (in addition to all other remedies) have the same rights as in the
      case of Tenant's failure to pay rent under the Lease.

III.  TENANT IMPROVEMENTS DURING TENANT'S OCCUPANCY.
      ---------------------------------------------

      It is understood that the Tenant Improvements shall be done during
      Tenant's occupancy of the Premises. In this regard, Tenant agrees to
      assume any risk of injury, loss or damage which may result. Tenant further
      agrees that no rental abatement shall result while the Tenant Improvements
      are completed in the Premises.

IV.   TENANT IMPROVEMENT WORK BY TENANT.
      ----------------------------------

      Landlord shall permit Tenant to construct other improvements in the
      Premises, provided that any such work by Tenant shall be undertaken and
      prosecuted in accordance with Article VII, Section 7.3 of the Lease.

                                   EXHIBIT X
                                       3
<PAGE>

               Commencing on November 1, 1995, the Basic Rent shall be Thirty
               Thousand Four Hundred Eighty-Five Dollars and Thirty Cents
               ($30,485.30) per month.

               Commencing on August 1, 1996, the Basic Rent shall be Thirty-Two
               Thousand Eight Dollars and Seventy-Four Cents ($32,008.74) per
               month.

               Commencing on August 1, 1997, the Basic Rent shall be Thirty-
               Three Thousand Seven Hundred Sixty-Seven Dollars and Forty Cents
               ($33,767.40) per month.

               Commencing on August 1, 1998, the Basic Rent shall be Thirty-
               Seven Thousand Nine Hundred Nine Dollars and Fifty-Six Cents
               ($37,909.56) per month.

               Commencing on August 1, 1999, the Basic Rent shall be Thirty-Nine
               Thousand Four Hundred Eighty-Four Dollars and Sixteen Cents
               ($39,484.16) per month."

          4.   Effective as of July 13, 1995, Item 8 shall be deleted in its
          entirety and the following shall be substituted in lieu thereof:

               "8. Floor Area of Premises: approximately 51,176 rentable square
               feet."

          5.   Item 9 is hereby deleted in its entirety and the following shall
               be substituted in lieu thereof:

               "9. Security Deposit: $28,224.50"
                                     ----------

          6.   Effective as of July 13, 1995, Item 14 shall be deleted in its
          entirety and the following shall be substituted in lieu thereof:

               "14. Vehicle Parking Spaces: Two Hundred Four (204)"

     B.   Basic Rent for the First Riqht Space. Tenant shall deliver the sum of
          ------------------------------------
Fourteen Thousand Nine Hundred Twenty-Seven Dollars and Fifteen Cents
($14,927.15) to Landlord concurrently with its execution and delivery of this
First Amendment. Such payment represents the Basic Rent payable for the First
Right Space for the period commencing July 13, 1995 and ending July 31, 1995.

     C.   Subordinate Riqht of First Offer. Article II, Section 2.1(b) of the
          --------------------------------
Lease entitled "Subordinate Right of First Offer" is hereby deleted in its
entirety and nothing shall be substituted in lieu thereof.

                                       2
<PAGE>

     D.   Riqht to Extend this Lease. Section 3.1(b) of the Lease entitled
          --------------------------
"Right to Extend this Lease" is hereby deleted in its entirety and nothing shall
be substituted in lieu thereof.

     E.   Security Deposit. Concurrently with Tenant's delivery of this First
          ----------------
Amendment, Tenant shall deliver the sum of Seventeen Thousand Seven Hundred
Sixteen Dollars and Fifty Cents ($17,716.50) to Landlord, which sum shall be
                                ------------
added to the Security Deposit presently being held by Landlord in accordance
with Section 4.3 of the Lease.

     F.   Operating Expenses. Article IV, Section 4.2(g) of the Lease is hereby
          ------------------
deleted in its entirety and the following shall be substituted in lieu thereof:

          "(g) Original Premises. Notwithstanding any contrary provision
               -----------------
          hereinabove, Landlord hereby agrees that Tenant's proportionate share
          of Operating Expenses with respect to the original Premises leased
          hereunder, exclusive of costs for trash removal, and exterior common
          area electricity, shall not exceed Three Thousand Six Hundred Seventy-
          Seven Dollars and Ninety-Two Cents ($3,677.92) per month during the
          initial Expense Recovery Period expiring June 30, 1994. Landlord
          further agrees that Tenant's proportionate share of Operating Expenses
          shall not increase annually by more than seven percent (7%) per annum,
          on a compound and cumulative basis. However, the foregoing limitation
          shall exclude increases in property taxes, insurance and/or utilities
          to the extent in excess of seven percent (7%) over the prior Expense
          Recovery Period.

               First Riqht Space. Landlord agrees that Tenant's proportionate
               -----------------
          share of Operating Expenses with respect to the First Right Space
          shall not increase by more than ten percent (10%) per annum, on a
          compound and cumulative basis, over Tenant's share of the actual total
          Operating Expenses incurred by Landlord during the Expense Recovery
          Period ending June 30, 1996; provided, however, that the foregoing
          limitation shall exclude increases in property taxes, insurance and/or
          utilities to the extent in excess of the foregoing limitation."

     G.   Subleasing the First Riqht Space. It is understood that effective as
          --------------------------------
of July 13, 1995, Tenant shall be subleasing the First Right Space to Nortel.
Notwithstanding any contrary provision in Article IX, Section 9.1(d) of the
Lease, Landlord hereby agrees that it shall not be entitled to receive any
profits from that sublease during the sixty (60) day period commencing July 13,
1995 and ending September 12, 1995. Thereafter, Landlord's entitlement to any
such subleasing profits shall be determined in accordance with said Section
9.l(d).

                                       3
<PAGE>

     H.  Tenant Improvements. Landlord hereby agrees to complete the tenant
         -------------------
improvement work set forth in Exhibit X, Work Letter, attached hereto.

IV.  GENERAL.

     A. Effect of Amendments. The Lease shall remain in full force and effect
        --------------------
except to the extent that it is modified by this Amendment.

     B. Entire Agreement. This Amendment embodies the entire understanding
        ----------------
between Landlord and Tenant with respect to the modifications set forth in "III.
MODIFICATIONS" above and can be changed only by a writing signed by Landlord and
Tenant.

     C. Counterparts. If this Amendment is executed in counterparts, each is
        ------------
hereby declared to be an original; all, however, shall constitute but one and
the same amendment. In any action or proceeding, any photographic, photostatic,
or other copy of this Amendment may be introduced into evidence without
foundation.

     D. Defined Terms. All words commencing with initial capital letters in this
        -------------
Amendment and defined in the Lease shall have the same meaning in this Amendment
as in the Lease, unless they are otherwise defined in this Amendment.

     E. Corporate and Partnership Authority. If Tenant is a corporation or
        -----------------------------------
partnership, or is comprised of either or both of them, each individual
executing this Amendment for the corporation or partnership represents that he
or she is duly authorized to execute and deliver this Amendment on behalf of the
corporation or partnership and that this Amendment is binding upon the
corporation or partnership in accordance with its terms.

     F. Attorneys' Fees. The provisions of the Lease respecting payment of
        ---------------
attorneys' fees shall also apply to this Amendment.

V.  EXECUTION.

                                       4
<PAGE>

     Landlord and Tenant executed this Amendment on the date as set forth in "I.
PARTIES AND DATE." above.

LANDLORD:                                    TENANT:

IRVINE TECHNOLOGY PARTNERS III,              LANTRONIX,
a California general partnership             a California corporation

By:  THE IRVINE COMPANY,
     a Michigan corporation                  By:   /s/ [ILLEGIBLE]
                                                --------------------
     Its General Partner
                                             Title:   President
                                                   ------------
           [Seal]

     By:   /s/ C.W Barker
         ------------------------------
       Clarence W. Barker, President
       Irvine Industrial Company,
       a division of The Irvine Company      By: /s/ [ILLEGIBLE]
                                                ------------------

                                             Title: /s/ [ILLEGIBLE]
                                                   ------------------
     By: /s/ John C. Tsu
        -------------------------------
       John C. Tsu, Assistant Secretary

By:  KOLL TECHNOLOGY ASSOCIATES,
     a California general partnership
     Its General Partner

     By:  KOLL MANAGEMENT SERVICES,
          a Delaware corporation
          as Agent

         By:
            ___________________________
            Jana Turner
            Senior Vice President

                                       5
<PAGE>

                                   EXHIBIT X

                             INDUSTRIAL WORK LETTER

                                DOLLAR ALLOWANCE

The Tenant Improvement work (herein "Tenant Improvements") shall consist of any
work, including work in place as of the date hereof, required to complete Suite
102 and the First Right Space (as described in the First Amendment)
(collectively, the "Premises") pursuant to the Tenant's approved plans and
specifications. All of the Tenant Improvement work shall be performed by a
contractor selected by Landlord and in accordance with the procedures and
requirements set forth below.

I.   ARCHITECTURAL AND CONSTRUCTION PROCEDURES.
     -----------------------------------------

 A.  Tenant and Landlord have approved, or shall approve within the time period
     set forth below, both (i) a detailed space plan for the Premises, prepared
     by Landlord's architect, which includes interior partitions, ceilings,
     interior finishes, interior doors, suite entrance, floor coverings, window
     coverings, lighting, electrical and telephone outlets, plumbing
     connections, heavy floor loads and other special requirements ("Preliminary
     Plan"), and (ii) an estimate, prepared by Landlord's contractor, of the
     cost for which Landlord will complete or cause to be completed the Tenant
     Improvements ("Preliminary Cost Estimate"). Tenant shall approve or
     disapprove each of the Preliminary Plan and the Preliminary Cost Estimate
     by signing copies of the appropriate instrument and delivering same to
     Landlord within five (5) days of its receipt by Tenant. If Tenant
     disapproves any matter. Tenant shall specify in detail the reasons for
     disapproval and Landlord shall attempt to modify the Preliminary Plan and
     the Preliminary Cost Estimate to incorporate Tenant's suggested revisions
     in a mutually satisfactory manner. Notwithstanding the foregoing, however,
     Tenant shall approve in all respects a Preliminary Plan and Preliminary
     Cost Estimate not later than September 1, 1995 ("Plan Approval Date"), it
     being understood that Tenant's failure to do so shall constitute a "Tenant
     Delay" for purposes of this Work Letter.

 B.  On or before the Plan Approval Date, Tenant shall provide in writing to
     Landlord or Landlord's architect all specifications and information
     requested by Landlord for the preparation of final construction documents
     and costing, including without limitation Tenant's final selection of wall
     and floor finishes, complete specifications and locations (including load
     and HVAC requirements) of Tenant's equipment, and details of all "Non-
     Standard Improvements" (as defined below) to be installed in the Premises
     (collectively, "Programming Information"). Tenant's failure to provide the
     Programming Information by the Plan Approval Date shall constitute a Tenant
     Delay for purposes of this Work Letter. Tenant understands that final
     construction documents for the Tenant Improvements shall be predicated on
     the Programming Information, and accordingly that such information must be
     accurate and complete.

 C.  Except as otherwise specified by Tenant and authorized herein, the Tenant
     Improvements shall incorporate Landlord's building standard materials and
     specifications ("Standards"). No deviations from the Standards may be
     required by Tenant with respect to doors and frames, finish hardware, entry
     graphics, the ceiling system, light fixtures and switches, mechanical
     systems, life and safety systems, and/or window coverings; provided that
     Landlord may, in its sole discretion, authorize in writing one or more of
     such deviations, in which event Tenant shall be solely responsible for the
     cost of replacing same with the applicable Standard item(s) upon the
     expiration or termination of the Lease. All other non-standard items ("Non-
     Standard Improvements") shall be subject to the reasonable prior approval
     of Landlord. Landlord shall in no event be required to approve any Non-
     Standard Improvement if Landlord determines that such improvement (i) is of
     a lesser quality than the corresponding Standard, (ii) fails to conform to
     applicable governmental requirements, (iii) requires building services
     beyond the level normally provided to other tenants, (iv) would delay
     construction of the Tenant Improvements and Tenant declines to accept such
     delay in writing as a Tenant Delay, or (v) would have an adverse aesthetic
     impact from the exterior of the Premises.

 D.  Upon Tenant's approval of the Preliminary Plan and Preliminary Cost
     Estimate and delivery of the complete Programming Information, Landlord's
     architect and engineers shall prepare and deliver to Tenant working
     drawings and specifications ("Working Drawings and Specifications"), and
     Landlord's contractor shall prepare a final construction cost estimate
     ("Final Cost Estimate") for the Tenant Improvements in conformity with the
     Working Drawings and Specifications. Tenant shall have five (5) days from
     the receipt thereof to approve or disapprove the Working Drawings and
     Specifications and the Final Cost Estimate. Tenant shall not reasonably
     withhold or delay its approval, and any disapproval or requested
     modification shall be limited to items not contained in the approved
     Preliminary Plan or

                                   EXHIBIT X
                                       1
<PAGE>

     Preliminary Cost Estimate. In no event shall Tenant disapprove the Final
     Cost Estimate if it does not exceed the approved Preliminary Cost Estimate.
     Should Tenant disapprove the Working Drawings and Specifications and the
     Final Cost Estimate, such disapproval shall be accompanied by a detailed
     list of revisions. Any revision requested by Tenant and accepted by
     Landlord shall be incorporated into a revised set of Working Drawings and
     Specifications and Final Cost Estimate, and Tenant shall approve same in
     writing within five (5) days of receipt without further revision. Tenant's
     failure to comply in a timely manner with any of the requirements of this
     paragraph shall constitute a Tenant Delay. Without limiting the rights of
     Landlord for Tenant Delays as set forth herein, in the event Tenant has not
     approved both the Working Drawings and Specifications and the Final Cost
     Estimate within sixty (60) days following the date of the First Amendment,
     then Landlord may, at its option, elect to terminate the First Amendment by
     written notice to Tenant. In the event Landlord elects to effect such a
     termination, Tenant shall, within ten (10) days following demand by
     Landlord, pay to Landlord any costs incurred by Landlord in connection with
     the preparation or review of plans, construction estimates, price
     quotations, drawings or specifications under this Work Letter and for all
     costs incurred in the preparation and execution of the First Amendment,
     including any leasing commissions.

 E.  In the event that Tenant requests in writing a revision in the approved
     Working Drawings and Specifications ("Change"), Landlord shall advise
     Tenant by written change order as soon as is practical of are increase in
     the Completion Cost and/or any Tenant Delay such Change would cause. Tenant
     shall approve or disapprove such change order in writing within two (2)
     days following its receipt from Landlord. Landlord shall have the right to
     decline Tenant's request for a Change for any of the reasons set forth in
     Article II.C above for Landlord's disapproval of a Non-Standard
     Improvement. It is understood that Landlord shall have no obligation to
     interrupt or modify the Tenant Improvement work pending Tenant's approval
     of a change order.

 F.  Notwithstanding any provision in the First Amendment or this Work Letter to
     the contrary, if Tenant fails to comply with any of the time periods
     specified in this Work Letter, fails otherwise to approve or reasonably
     disapprove any submittal within five (5) days, fails to approve in writing
     both the Preliminary Plan and Preliminary Cost Estimate for the Tenant
     Improvements by the Plan Approval Date, fails to provide all of the
     Programming information requested by Landlord by the Plan Approval Date,
     fails to approve in writing the Working Drawings and Specifications and the
     Final Cost Estimate within the time provided herein, requests any Changes,
     furnishes inaccurate or erroneous specifications or other information, or
     otherwise delays in any marker the completion of the Tenant Improvements
     (including without limitation by specifying materials that are not readily
     available) (any of the foregoing being referred to in this Work Letter as a
     "Tenant Delay"), then Tenant shall bear any resulting additional
     construction cost or other expenses.

 G.  Tenant hereby designates Bruce Dwyer, Telephone No. (714) 851-0111, as its
     representative, agent and attorney-in-fact for the purpose of receiving
     notices, approving submittals and issuing requests for Changes, and
     Landlord shall be entitled to rely upon authorizations and directives of
     such person(s) as if given directly by Tenant. Tenant may amend the
     designation of its construction representative(s) at any time upon delivery
     of written notice to Landlord.

II.  COST OF TENANT IMPROVEMENTS
     ---------------------------

 A.  Landlord shall complete, or cause to be completed, the Tenant Improvements,
     at the construction cost shown in the approved Final Cost Estimate (subject
     to the provisions of this Work Letter), in accordance with final Working
     Drawings and Specifications approved by both Landlord and Tenant. Landlord
     shall pay towards the final construction costs ("Completion Cost") as
     incurred a maximum of Two Hundred Thousand Dollars ($200,000.00)
     ("Landlord's Contribution"), based on $3.90 per square foot of the
     Premises, and Tenant shall be fully responsible for the remainder
     ("Tenant's Contribution").

 B.  The Completion Cost shall include all direct costs of Landlord in
     completing the Tenant Improvements, including but not limited to the
     following: (i) payments made to architects, engineers, contractors,
     subcontractors and other third party consultants in the performance of the
     work, (ii) salaries fringe benefits of persons, if any, in the direct
     employ of Landlord performing any part of the construction work, (iii)
     permit fees and other sums paid to governmental agencies, (iv) costs of all
     materials incorporated into the work or used in connection with the work,
     and iv) keying and signage costs. The Completion Cost shall also include an
     administrative/supervision fee to be paid to Landlord's management agent
     for the Building in the amount of five percent (5%) of all such direct
     costs.

 C.  Prior to start of construction of the Tenant Improvements, Tenant shall pay
     to Landlord in full the amount of the Tenant's Contribution set forth in
     the approved Final Cost Estimate. If the actual Completion Cost of the
     Tenant Improvements is greater than the Landlord's Contribution because of
     modifications or extras not reflected on the approved working drawings, or
     because of delays caused by Tenant, then Tenant shall be responsible for
     all such ^^???^^ costs, including any additional architectural fee. The
     balance of any sums not otherwise paid by Tenant shall be ^^???^^

                                   EXHIBIT X

                                       2
<PAGE>

     payable within ten (10) days of Landlord's billing for same. If Tenant
     defaults in the payment of any sums due under this Work Letter, Landlord
     shall (in addition to all other remedies) have the same rights as in the
     case of Tenant's failure to pay rent under the Lease.

III. TENANT IMPROVEMENTS DURING TENANT'S OCCUPANCY.
     ---------------------------------------------

     It is understood that the Tenant Improvements shall be done during Tenant's
     occupancy of the Premises. In this regard, Tenant agrees to assume any risk
     of injury, loss or damage which may result. Tenant further agrees that no
     rental abatement shall result while the Tenant Improvements are completed
     in the Premises.

IV.  TENANT IMPROVEMENT WORK BY TENANT.
     ---------------------------------

     Landlord shall permit Tenant to construct other improvements in the
     Premises, provided that any such work by Tenant shall be undertaken and
     prosecuted in accordance with Article VII, Section 7.3 of the Lease.

                                   EXHIBIT X

                                       3

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