Document:

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                                                                    EXHIBIT 4.6

                           [BRYANT PARK CAPITAL LOGO]

CONFIDENTIAL

                                                                   March 1, 2004

Xenonics, Inc.
2236 Rutherford Road
Carlsbad, CA 92008

Ladies and Gentlemen:

This letter agreement confirms that Xenonics, Inc. (together with its
subsidiaries and affiliates "the Company") has engaged Bryant Park Capital, Inc.
("BPC") to act as its exclusive financial advisor and consultant with regard to
possible capital raising transactions. The engagement shall be considered
effective as of today, shall be for an initial term of 180 days, and may be
terminated by BPC or the Company upon 30 days written notice after 90 days from
the date hereof.

1)    SERVICES: BPC agrees to provide the Company with the following services:

      a)    Assist in the development and presentation of the company's business
            plan and strategy;

      b)    Assist in the development and presentation of any financial analysis
            or financial models, including comparable company analysis;

      c)    Assist in the management, coordination and negotiations of any fund
            raising activities including the development of a list of potential
            underwriting participants, development of selection criteria of
            syndicate members, coordination of potential syndicate members and
            positioning of the company within the financial markets. The goal of
            these activities is to create a more liquid, widely distributed and
            analyst covered stock.

      d)    Other services as may be agreed to from time to time.

2)    FEES: BPC shall be entitled to and the Company shall pay to BPC fees as
      follows: (i) an initial engagement fee of $50,000 or 20,000 shares of
      stock (at the Company's option) upon signature of this letter agreement;
      and (ii) a fee for each month of the term of this engagement of $10,000
      payable monthly in advance beginning March 1, 2004. The initial retainer
      and the first 4 months of the monthly retainer shall be credited against
      Transaction Fees, as defined below, payable by the Company to BPC.

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      CAPITAL INFUSION TRANSACTION

      If the Company enters into a Capital Infusion Transaction (as defined
      below) during the term of the engagement, or enters into a Capital
      Infusion Transaction during the 12 months following the termination of its
      engagement with BPC with any party which has been identified by BPC to the
      Company or concerning which BPC has performed meaningful advisory services
      at the Company's request, then the Company shall pay, or shall cause to be
      paid, to BPC a transaction fee in cash and/or warrants, according to terms
      defined below and calculated according to the following amounts and
      percentages (Table A).

TABLE A

    AMOUNT RAISED

    PUBLIC OFFERING ADVISORY SERVICES   Cash Portion:
                                        Completion of Public Stock Offering:
                                        2.5% of money raised in aggregate
                                        (including exercise of greenshoe) of
                                        which it is anticipated that the Company
                                        will pay 1.5% and the underwriters will
                                        pay 1% (pro-rata between cash and
                                        warrants).

    CAPITAL INFUSION (including         7% of money raised.
    common stock, preferred stock and
    convertible debt) in the event the  Warrant Portion:
    Company decides to raise capital    Warrants to buy stock at the price such
    outside of a public offering of     securities were sold to investors in an
    securities.                         amount equal to 4.0% of the value of the
                                        Capital Infusion Transaction

The Capital Infusion Transaction Fee shall be referred to as a "Transaction
Fee". Any Capital Infusion Transaction conducted by the Company shall be
referred to as a Transaction.

The Transaction Fee shall be payable at any closings of the Transaction, except
that to the extent the Consideration in respect thereof may be increased by
contingent payments, the portion of BPC's fees relating thereto shall be
calculated and paid as and when such contingent payments are made. All stock
and warrants paid to BPC as consideration for a Capital Infusion Transaction
will carry Standard Anti-Dilution Protection (as defined below).

In the event BPC successfully completes a Capital Infusion Transaction on behalf
of the Company during the engagement period, BPC shall have an exclusive right
of first refusal for a period of 12 months following the closing of such Capital
Infusion Transaction to provide similar services to those described herein. BPC
shall have 30 days, from receipt in writing provided by the Company of a bona
fide offer from a third party, to accept or decline providing the Company with
similar services on at least comparable terms.

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3)        DEFINITIONS:

      "Standard Anti-Dilution Protection" means if at any time the Company shall
      (i) pay a dividend or make a distribution on its shares of capital stock
      or Securities ("Shares") in Shares (other than cash dividends or
      distributions out of surplus or earnings); (ii) subdivide, reclassify or
      recapitalize its outstanding Shares into a greater number of Shares; or
      (iii) combine, reclassify or recapitalize its outstanding Shares into a
      smaller number of Shares, the exercise price of any warrant, that is
      exercisable into Shares ("Warrant Shares"), in effect at the time of the
      record date of such subdivision, combination, reclassification or
      recapitalization shall be proportionately adjusted, and so that the
      warrant .holder shall be entitled to receive the aggregate number and kind
      of Shares which, if the warrant had been exercised in full immediately
      prior to such time, he would have owned upon such exercise and been
      entitled to receive upon such dividend, subdivision, combination,
      reclassification or recapitalization, whenever the exercise price payable
      upon exercise of such warrant is adjusted pursuant to this paragraph, the
      number of Warrant Shares shall simultaneously be adjusted by multiplying
      the number of Warrant Shares initially issuable upon exercise of each
      warrant by the exercise price in effect on the date thereof and dividing
      the product so obtained by the exercise price, as adjusted. Such
      adjustment shall be made successively whenever any event such as described
      in this paragraph shall occur. The form of warrant need not be changed
      because of any adjustments in the exercise price or the number or kind of
      the Warrant Shares, however accurate adjustments shall be kept in the
      official records of the Company.

      "Capital Infusion Transaction" means any Transaction (or series of
      transactions) which involves (a) a third party identified by BPC to the
      Company, or concerning which BPC has performed meaningful advisory
      services hereunder, and (b) which, directly or indirectly, results in (i)
      the purchase or sale of newly issued debt or equity securities of the
      Company, a subsidiary or a related affiliate or (ii) a firm commitment,
      that resulted from a request by the Company for BPC to pursue such a
      commitment, from BPC, its affiliates, or a third party to purchase or sell
      newly issued debt or equity securities of the Company, a subsidiary or a
      related affiliate, including, but not limited to, committed but undrawn
      credit facilities.

      "Warrants" paid as a fee in a Transaction are subject to expire on the
      tenth anniversary of the closing of the Capital Infusion Transaction and
      have Standard Anti-Dilution Protection, registration rights that are
      exercisable only in the event the Company has publicly traded shares and
      is qualified pursuant to SEC guidelines to file an S-3 registration
      statement, piggy-back registration rights, in the event the Company has
      publicly traded shares, and cashless exercise provisions and entitle BPC
      to purchase the Company's securities identical to the type and price of
      the securities sold by the Company at the time of the Capital Infusion
      Transaction.

4)       EXPENSES: In addition to the fees described above and whether or not a
      Transaction occurs, the Company shall reimburse BPC for its reasonable
      out-of-pocket expenses incurred in connection with BPC's services
      hereunder or the subject matter hereof, including, without

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      limitation, legal (not including legal fees incurred by BPC in connection
      with the negotiation and preparation of this Agreement), accounting,
      computer and information databases, due diligence, background
      investigations, "Blue Sky" filings, marketing, "road show", travel and
      entertainment, printing and mailing, any escrow fees, and internal
      administrative expenses. Reimbursement by the Company of BPC's documented
      out-of-pocket expenses associated with providing its services hereunder
      will occur on a regular monthly basis. In the event that BPC's monthly
      out-of-pocket expenses exceed $2,500 in any month following the execution
      of this Agreement, BPC will be required to get approval in advance from
      the Company for any additional reimbursable expenses. The Company agrees
      to reimburse BPC within 15 days of receipt of reimbursable expense
      invoices. BPC recognizes that the Company has limited resources to fund
      expenses beyond these levels and agrees to work with the Company to
      minimize such expenses.

5)        INDEMNIFICATION: The Company agrees to indemnify BPC against all
      liabilities under the Securities Act or otherwise, as provided for in
      Schedule A attached hereto, which Schedule is an integral part of this
      agreement and is incorporated herein by reference.

6)        CONFLICTS; INDEPENDENT CONTRACTOR: The Company acknowledges that BPC
      and its affiliates may have and may continue to have investment banking
      and other relationships with parties other than the Company, pursuant to
      which BPC may acquire information of interest to the Company. BPC shall
      have no obligation to disclose such information to the Company or to use
      such information in connection with any contemplated Transaction.

      The relationship between BPC and the Company shall be that of advisor and
      client. BPC is an independent contractor and this agreement shall not be
      deemed in any way to establish a joint venture between BPC and the Company
      or as creating a partnership or similar relationship. BPC will provide its
      financial advice, written or oral, exclusively for the information of the
      Company's Board of Directors and senior management, who will make all
      decisions regarding whether to engage in any Transaction.

7)        ENTIRE AGREEMENT; AMENDMENTS; SURVIVAL: This agreement constitutes
      the entire agreement of the parties with respect to BPC's engagement and
      supersedes all prior negotiations and understandings of the parties hereto
      with respect to the subject matter hereof. This agreement may not be
      amended or modified except in writing signed by each party hereto. The
      provisions of Sections 2, 3,4, 5, 6, 7, 8, 9, 10, 11, 12 and 13 shall
      survive any termination of BPC's engagement hereunder. This agreement
      shall be binding upon, and inure solely to the benefit of, BPC and the
      Company, and all of their respective heirs, executors, administrators, and
      successors. BPC may engage its own sub-placement agents, independent
      contractors and/or consultants to assist BPC in conducting the
      Transaction. BPC shall have the right to place advertisements or other
      public announcements in financial and other newspapers and journals at its
      own expense describing its services to the Company hereunder. Any such
      advertisement of public announcement shall be subject to the approval of
      the Company, which approval shall not be unreasonably withheld; provided,
      however, that following the closing of a Transaction, BPC shall be
      entitled to describe its services to the Company in its own newsletter or
      in other public relations and promotional materials, without the approval
      of the Company.

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      8) REPRESENTATIONS AND WARRANTIES; ACCURACY OF INFORMATION; INTERESTS OF
      OTHERS: The Company will furnish to BPC any information concerning the
      Company, including its subsidiaries and affiliates, that BPC reasonably
      deems appropriate, and will provide BPC access to its officers, directors,
      accountants, counsel and other advisors. All such information concerning
      the Company is and will be true and accurate in all material respects, and
      does not and will not as of its date, and will not as supplemented or
      amended as of the date of the closing of any Transaction, contain any
      untrue statement of a material fact or omit to state a material fact
      necessary in order to make the statements therein not misleading in light
      of the circumstances under which such statements are or were made. The
      Company acknowledges and agrees that BPC will be using and relying upon
      such information supplied by the Company and other publicly available
      information concerning the Company, without any independent investigation
      or verification thereof or any independent appraisal by BPC of the Company
      or its business or assets. The Company further represents and warrants
      that no broker, representative or other person has an interest in
      compensation due BPC hereunder.

      9) CONFIDENTIALITY: Except as otherwise required by law, the terms of this
      Agreement shall not be disclosed to any third party, with the exception of
      potential investors in the Transaction as part of their due diligence
      efforts, without the prior written consent of both parties to this
      Agreement. BPC shall keep confidential and not disclose any non-public
      information provided to it by or on behalf of the Company or by any
      third-party, in relation to any of the services provided or to be provided
      by it to the Company, except that it may disclose any such information to
      its advisors (which persons shall be bound by similar confidentiality
      obligations and for which BPC shall accept full responsibility in
      compliance with this Section 9) or as required by law or with the prior
      consent of the Company. The restrictions in the preceding sentence shall
      not apply to information that becomes publicly available through no fault
      of BPC or information that BPC may be required by law to disclose.

      10) ADVERTISING: BPC shall have the right to place advertisements or other
      public announcements in financial and other newspapers and journals at its
      own expense describing its services to the Company hereunder. Any such
      advertisement of public announcement shall be subject to the approval of
      the Company, which approval shall not be unreasonably withheld; provided,
      however, that following the closing of a Transaction, BPC shall be
      entitled to describe its services to the Company in its own newsletter or
      in other public relations and promotional materials, without the approval
      of the Company.

      11) USA PATRIOT ACT NOTICE: The Company acknowledges that in order for BPC
      to comply with the requirements under Title III of the Uniting and
      Strengthening America by Providing Appropriate Tools Required to Intercept
      and Obstruct Terrorism Act of 2001 ("USA Patriot Act") (Public Law
      107-56), the Company must provide BPC with certain information or
      supporting documentation (collectively "Documentation") at the time of
      execution of this agreement. BPC is required by the USA Patriot Act to
      verify and record any Documentation provided by the Company to validate
      the Company's identity. Documentation that may be requested from the
      Company may include, but is not limited to, a Federal Employer

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      Identification Number (FEIN), a Certificate of Good Standing to validate
      the Company's corporate existence, a Certificate of Incumbency to
      authenticate the management of the Company, and other government issued
      certified documents to validate the Company's authorization to conduct
      business.

      12) HEADINGS: Headings are provided solely for convenience and are not
      intended to be a part of this agreement.

      13) GOVERNING LAW: This Agreement shall be governed by, and construed in
      accordance with, the law of the State of New York without giving effect to
      principles governing conflicts of law. If any provision of this agreement
      or the application thereof to any person or circumstance shall be
      determined to be invalid or unenforceable, the remaining provisions of the
      agreement or the application of such provisions to persons or
      circumstances other than those to which it is held invalid or
      unenforceable shall not be affected thereby and shall be valid and
      enforceable to the fullest extent permitted by law.

      If the foregoing is in accordance with your understanding, kindly sign
      where indicated below and return an executed copy to us.

      BRYANT PARK CAPITAL, INC.

         /s/ Sam Schwartz
         ----------------------------
      By: Sam Schwartz

      Title: President

      Agreed & Accepted:

      XENONICS, INC.

      By:/s/ Alan Magerman
         -------------------------------
         Name: Alan Magerman
         Title: Chairman /CEO

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                                   SCHEDULE A
                        INDEMNIFICATION AND CONTRIBUTION

      This Schedule A is a part of and ,is incorporated into that certain letter
agreement (together with this Schedule A, the "Agreement"), dated 3-1-04 by and
between the Company and BPC, Terms not otherwise defined herein have the meaning
ascribed to them in the main body of the Agreement.

      1.    By the Company. The Company agrees to indemnify and hold harmless
            BPC and its Affiliates, and the respective directors, officers,
            agents, consultants and employees of BPC and its Affiliates (BPC and
            each such entity of person, a "BPC Indemnified Person") from and
            against any losses, claims, damages, judgments, assessments, costs,
            legal fees and other liabilities (collectively "Liabilities"), and
            will reimburse each BPC Indemnified Person for all fees and expenses
            (including the reasonable fees and expenses of counsel)
            (collectively, "Expenses") as they are incurred in investigating,
            preparing, pursuing or defending any claim, action, proceeding or
            investigation, whether or not in connection with pending or
            threatened litigation, regulatory proceeding or arbitration and
            whether or not any BPC Indemnified Person is a party (collectively,
            "Actions"), arising out of or in connection with advice or services
            rendered or to be rendered by any BPC Indemnified Person pursuant to
            this Agreement, the Transactions contemplated hereby (including but
            not limited to any untrue statement of a material fact on the part
            of the Company in connection with the Transaction or any related
            Memorandum (the "Memorandum") or the omission to state in the
            Memorandum a material fact required to be stated therein or
            necessary to make the statements therein, in light of circumstances
            under which they were made, not misleading) or any BPC Indemnified
            Person's actions or inactions in connection with any such advice,
            actions, inactions, services or Transactions; provided that the
            Company will not be responsible and shall be reimbursed by BPC for
            any Liabilities or Expenses of any BPC Indemnified Person that are
            determined by a judgment of a court of competent jurisdiction which
            is no longer subject to appeal or further review to have resulted
            from such BPC Indemnified Person's gross negligence in connection
            with any of the advice, actions, inactions, services or transactions
            referred to above, or to the extent that any such Liabilities or
            Expenses arises out of or are based upon an untrue statement of a
            material fact or omission made in reliance upon and in conformity
            with written information furnished to the Company by BPC
            specifically for use in the preparation of the Memorandum. The
            Company also agrees to reimburse each BPC Indemnified Person tor all
            Expenses as they are incurred in connection with enforcing such BPC
            Indemnified Person's rights under this Agreement (including, without
            limitation, its rights under this Schedule A).

      2.    By BPC. BPC agrees to indemnify and hold harmless the Company and
            each officer, director, employee, agent or person, if any, who
            controls the Company within the meaning of the Securities Act and
            the Exchange Act (the Company and each such person, a "Company
            Indemnified Person"), against any and all Liabilities and

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            Expenses, to which any Company Indemnified Person may become
            subject, under the Securities Act or otherwise, insofar as such
            Liabilities (or actions in respect thereof), arise out of or are
            based directly or indirectly upon BPC's gross negligence in
            performing its services, or BPC's intentional failure to comply with
            any applicable SEC regulations.

      3.    Procedure. Upon receipt by a BPC Indemnified Person or a Company
            Indemnified Person (either an "Indemnified Person") of actual notice
            of an Action against such Indemnified Person with respect to which
            indemnity may be sought under this Agreement, such Indemnified
            Person shall promptly notify the Company or BPC as the case may be
            (an "Indemnifying Party") in writing; provided that failure so to
            notify such Indemnifying Party shall not relieve such Indemnifying
            Party from any liability which such Indemnifying Party may have on
            account of this indemnity or otherwise, except to the extent such
            Indemnifying Party shall have been materially prejudiced by such
            failure. The Indemnifying Party shall, if requested by the
            Indemnified Person, assume the defense of any such Action including
            the retention of counsel reasonably satisfactory to the Indemnified
            Person. Any Indemnified Person shall have the right to employ
            separate counsel in any such Action and participate in the defense
            thereof, but the fees and expenses of such counsel shall be at the
            expense of such Indemnified Person, unless: (i) the Indemnifying
            Party has failed promptly to assume the defense and employ counsel
            or (ii) the named parties to any such Action (including any
            impleaded parties) include both such Indemnified Person and the
            Indemnifying Party, and such Indemnified Person Shall have been
            advised by counsel that there may be one or more legal defenses
            available to it which are different from or in addition to those
            available to the Indemnifying Party; provided that the Indemnifying
            Party shall not in such event be responsible hereunder for the fees
            and expenses of more than one firm of separate counsel in connection
            with any Action in the same jurisdiction, in addition to any local
            counsel The Indemnifying Party shall not be liable for any
            settlement of any Action effected without its written consent, which
            consent shall not be unreasonably withheld. In addition, an
            Indemnifying Party will not, without prior written consent of the
            applicable Indemnified Person, settle, compromise or consent to the
            entry of any judgment in or otherwise seek to terminate any pending
            or threatened Action in respect of which indemnification or
            contribution may be sought hereunder (whether or not any Indemnified
            Person is a party thereto) unless such settlement, compromise,
            consent or termination includes an unconditional release of each
            Indemnified Person from all Liabilities arising out of such Action.

      4.    Contribution. In the event that the foregoing indemnity is
            unavailable to a BPC Indemnified Person other than in accordance
            with this Agreement, the Company shall contribute to the Liabilities
            and Expenses paid or payable by such BPC Indemnified Person in such
            proportion as is appropriate to reflect (i) the relative benefits to
            the Company and, its shareholders, on the one hand, and to BPC, on
            the other hand, of the matters contemplated by this Agreement or
            (ii) if the allocation provided by the immediately preceding clause
            is not permitted by applicable law, not only such

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            relative benefits but also the relative fault of the Company, on the
            one hand, and BPC, on the other hand, in connection with the matters
            as to which such Liabilities or Expenses relate, as well as any
            other relevant equitable considerations. For purposes of this
            paragraph, the relative benefits to the Company and its
            shareholders, on the one hand, and to BPC, on the other hand, of the
            matters contemplated by this Agreement shall be deemed to be in the
            same proportion as (a) the total value paid or contemplated to be
            paid or received or contemplated to be received by the Company or
            the Company's shareholders, as the case may be, in the Transaction
            or Transactions that are within the scope of this Agreement, whether
            or not any such Transaction is consummated, bears to (b) the fees
            paid to BPC under this Agreement. The relative fault of the Company
            on the one hand, and the BPC on the other hand, will be determined
            with reference to, among other things, whether the untrue or alleged
            untrue statement of a material fact or the omission to state a
            material fact is relative to information supplied by the Company or
            BPC, and with reference to each of the Company's and BBC's relative
            intent, knowledge, access to information and opportunity to correct
            or prevent such statement or omission. The Company and BPC agree
            that it would not be just and equitable if contribution pursuant to
            this paragraph were determined by pro rata allocation or by any
            other method of allocation that does not take into account the
            equitable considerations referred to in this paragraph.

      5.    Other Liabilities. The Company also agrees that no BPC Indemnified
            Person shall have any liability (whether direct or indirect, in
            contract or tort or otherwise) to the Company for or in connection
            with advice or services rendered or to be rendered by any BPC
            Indemnified Person pursuant to this Agreement, the Transactions
            contemplated hereby or any such BPC Indemnified Person's actions or
            inactions in connection with any such advice, services or
            Transactions except for Liabilities (and related Expenses) of the
            Company that are determined by a judgment of a court of competent
            jurisdiction which is no longer subject to appeal or further review
            to be covered by this Agreement.

      6.    Effective. The reimbursement, indemnity and contribution obligations
            of the Company and BPC set forth herein shall apply to any
            modification of this Agreement and shall remain in full force and
            effect regardless of any termination of, or the completion of any
            Indemnified Person's services under or in connection with, this
            Agreement.

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<PAGE>

                           [BRYANT PARK CAPITAL LOGO]

      CONFIDENTIAL

      April 12, 2004

      Board of Directors
      c/o Alan Magerman
      Xenonics, Inc.
      2236 Rutherford Road
      Carlsbad, CA 92008

      Attn: Alan Magerman, CEO

      RE:   Amendment 1 (the "Amendment") to the agreement set forth in the
            letter agreement, dated March 1, 2004

      Dear Alan:

      Reference is made to the agreement (the "Agreement"), set forth in the
      letter agreement, dated March 1, 2004 (the "March 1st Letter"), by and
      between Bryant Park Capital, Inc. ("BPC") and Xenonics, Inc. (together
      with its subsidiaries and affiliate, the "Company"). BPC and the Company
      have mutually agreed to amend and modify the Agreement as set forth below.
      All terms used herein and not defined herein shall have the meanings
      ascribed to them in the March 1st Letter.

      PIPE TRANSACTION

      The parties agree to delete the CAPITAL INFUSION section of TABLE A of the
      March 1st Letter in its entirety and replace it with the following, which
      shall hereby become part of the Agreement;

          CAPITAL INFUSION              8.0% of money raised.
          (including common
          stock, preferred              Warrant Portion:
          stock and                     Warrants to buy stock at the price such
          convertible debt)             securities were sold to investors in an
          raised via a Private          amount equal to 8.0% of the value of the
          Investment in Public          Capital Infusion Transaction
          Equity ("PIPE")
          transaction

              489 FIFTH AVENUE - 27TH FLOOR - NEW YORK, NY - 10017
                  PHONE: (212) 798-8208 - FAX: (212) 370-9535
<PAGE>

Xenonics, Inc.
April 12, 2004
Page 2 of 3

MERGER OR ACQUISITION TRANSACTION

The parties agree that if the Company enters into discussions regarding an M&A
Transaction (as defined below) during the term of the Agreement and BPC provides
advisory services to the Company at its request in connection with such M&A
Transaction or has introduced such other party to the M&A Transaction to the
Company, or enters into an M&A Transaction during the 12 months following the
termination of the Agreement but was initiated during the term of this
agreement, then the Company shall pay, or shall cause to be paid, to BPC upon
the consummation of such M&A Transaction, a transaction fee (the "M&A
Transaction Fee") payable in cash calculated according to the following amounts
and percentages (Table B).

                                    TABLE B

<TABLE>
<CAPTION>
                                                                  PERCENTAGE TO BE APPLIED
                                                               TO PORTION OF CONSIDERATION IN
CONSIDERATION (AS DEFINED BELOW) IN THE M&A TRANSACTION             THE M&A TRANSACTION
-------------------------------------------------------        ------------------------------
<S>                                                            <C>
          Aggregate Consideration                                          2.5%
</TABLE>

The M&A Transaction Fee and Capital Infusion Transaction Fee shall individually
be referred to as a "Transaction Fee" and together the "Transaction Fees." Any
M&A Transaction or Capital Infusion Transaction conducted by the Company shall
be individually referred to as a Transaction.

DEFINITIONS

"M&A Transaction" means one or more related Transactions (a) is not a Capital
Infusion Transaction (as defined in the March 1st Letter) and (b) which,
directly or indirectly results in (i) the acquisition by the Company of all or
any part of the existing capital stock of a third party or all or any part of
the assets of such third party (or any securities convertible into or
exchangeable for or other rights to acquire all or any part of such capital
stock or assets) or (ii) the acquisition by a third party of all or any part of
the existing capital stock of the Company or all or any part of the assets of
the Company (including any securities convertible into or exchangeable for or
other rights to acquire all or any part of such capital stock or assets),
including in each such case, without limitation, any sale or exchange of capital
stock or assets (including cash and other liquid assets), any merger or
consolidation (including any such transaction in which the third party is the
surviving entity) or any similar transaction or (iii) any partnership, joint or
collaborative venture, strategic alliance or similar transaction.

"Consideration" in a Transaction means, with respect to such Transaction, the
total amount paid or payable (whether in cash, securities, employment
contracts, to the extent the compensation and benefit under such employment
contracts are materially in excess of what is reasonable for the services to be
performed thereunder, "earn-out" agreements, seller's financing or other
property), directly or indirectly, upon the consummation of or otherwise in
connection with such Transaction, together with (i) all amounts paid or payable
in cancellation of stock options or other rights, (ii) the aggregate principal
amount of long-term indebtedness of the acquired company that, as a result of
such Transaction, becomes indebtedness of the acquiring company and (iii) the

<PAGE>

Xenonics, Inc.
April 12, 2004
Page 3 of 3

aggregate redemption price or liquidation preference of any preferred stock of
the acquired company that, as a result of such Transaction, is redeemed or
becomes preferred stock of the acquiring company, as the case may be. For
purposes of this definition, long-term indebtedness shall be determined both as
to classification and amount on a consolidated basis in accordance with
generally accepted accounting principles. In the event that the Consideration
received in a Transaction is paid or payable in whole or in part in the form of
securities or other property, the value of such securities or other property for
purposes of calculating the Consideration for such Transaction shall be (i) the
closing bid price, in the case of publicly traded securities and (ii) the fair
market value as the parties hereto shall mutually agree in the case of contracts
or unquoted securities, in each case calculated as of the business day
immediately preceding the consummation of the Transaction.

Except as amended by this Amendment, all of the terms, covenants and conditions
contained in the Agreement are hereby ratified and confirmed and shall remain in
full force and effect.

This Amendment may be executed in two or more counterparts, and by the different
parties hereto in separate counterparts, including by facsimile, each of which
when executed shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.

Sincerely,

BRYANT PARK CAPITAL, INC.

By:/s/ Joel Magerman                                            Date: 4/16
   --------------------
Name: Joel Magerman
Title: Chief Executive Officer

Accepted and Agreed:

XENONICS,INC.

By:/s/ Alan Magerman                                             Date: 4/16/04
   -------------------------
Name: Alan Magerman
Title: Chief Executive Officer

<PAGE>

                           [BRYANT PARK CAPITAL LOGO]

CONFIDENTIAL

May 18, 2004

Alan Magerman
Chairman and CEO
Xenonics Holdings, Inc.
2236  Rutherford Road
Carlsbad, CA 92008

Attn: Alan Magerman, CEO

RE: Second Amendment (the "Amendment") to the agreement set forth in the letter
agreement, dated March 1, 2004

Dear Alan:

      Reference is made to the agreement (the "Agreement") set forth in the
      letter agreement, dated March 1, 2004 (the "March 1st Letter"), by and
      between Bryant Park Capital, Inc. ("BPC") and Xenonics Holdings, Inc.
      (together with its subsidiaries and affiliates, the "Company"). BPC and
      the Company have mutually agreed to amend and modify the Agreement as set
      forth below. All terms used herein and not defined herein shall have the
      meanings ascribed to them in the March 1st Letter.

      STRATEGIC ALLIANCE

      If the Company enters into a Strategic Alliance Transaction (as defined
      below) during the term of the engagement, or enters into a Strategic
      Alliance Transaction during the 18 months following the termination of the
      engagement with BPC with any party which has been identified by BPC to the
      Company or concerning which BPC has performed advisory services at the
      Company's request, then the Company shall pay, or shall cause to be paid,
      to BPC a transaction fee in cash equal to 2.5% of the value of the
      Strategic Alliance Transaction (the "Strategic Alliance Transaction Fee")
      during the term of the Strategic Alliance.

                          489 FIFTH AVE., 27TH FLOOR
                            NEW YORK, NEW YORK 10017

                                Member NASD/SIPC

<PAGE>

Xenonics Holdings, Inc.
May 18, 2004
Page 2 of 3

      DEFINITIONS

      "Strategic Alliance Transaction" means any transaction (or series of
      transactions), including a joint venture, partnership, sales and marketing
      agreement or any similar transaction, whether or not including an
      investment, which involves (a) a third party identified by BPC to the
      Company, or concerning which BPC performed advisory services hereunder,
      and b) which, directly or indirectly constitutes a new business
      opportunity.

Except as amended by this Second Amendment, all of the terms, covenants and
conditions contained in the Agreement are hereby ratified and confirmed and
shall remain in full force and effect.

This Second Amendment may be executed in two or more counterparts, and by the
different parties hereto in separate counterparts, including by facsimile, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.

Sincerely,

BRYANT PARK CAPITAL, INC.

By: /s/ Joel Magerman                                         Date: 5/18
   ----------------------------
Name: Joel Magerman
Title: Chief Executive Officer

Accepted and Agreed:

XENONICS, INC.

By: /s/ Alan Magerman                                         Date: 5/18/04
   ----------------------
Name: Alan Magerman
Title: Chief Executive Officer<PAGE>

                                                                    EXHIBIT 10.3

                                     [LOGO]

             STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE - NET
                   AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION

1     BASIC PROVISIONS ("BASIC PROVISIONS").

      1.1   PARTIES: This Lease ("Lease"), dated for reference purposes only
August 16, 2000, is made by and between SM/CT Partners, L.P., a Delaware Limited
Partnership ____________________________________________________________________
_____________________________________________________________________ ("LESSOR")
________________________________________________________________________________
and Xenonics, Inc., a Delaware Corporation
________________________________________________________________________________
________________________________________________________________________________
_______________________________________ ("LESSEE"), (collectively the "PARTIES",
or individually a "PARTY").

      1.2(a) PREMISES: That certain portion of the Project (as defined below),
including all improvements therein or to be provided by Lessor under the terms
of this Lease, commonly known by the street address of 2236 Rutherford Road,
#121/123 located in the City of Carlsbad, Country of San Diego, State of
California, with zip code 92008, as outlined on Exhibit_________ attached hereto
("PREMISES") and generally described as (described briefly the nature of the
Premises); approximately 9,179 square feet of a larger building as part of an
approximately 81,118 square foot multi-tenant park.

In addition to Lessee's rights to use and occupy the Premises hereinafter
specified, Lessee shall have non-exclusive rights to the Common Areas (as
defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any
rights to the roof, exterior walls or utility raceways of the building
containing the Premises ("BUILDING") or to any other buildings in the Project.
The Premises, the Building, the Common Areas, the land upon which they are
located along with all other buildings and improvements thereon, are herein
collectively referred to as the "PROJECT". (See also Paragraph 2)

      1.2(b) PARKING: Twenty Seven (27) unreserved vehicle parking spaces
("UNRESERVED PARKING SPACES"); and Zero (0) reserved vehicle parking spaces
("RESERVED PARKING SPACES"). (See also Paragraph 2.6)

      1.3   TERM: Four (4) years and ONE (1) month ("ORIGINAL TERM") commencing
October 1, 2000 ("COMMENCEMENT DATE") and ending October 31, 2004 ("EXPIRATION
DATE"). (See also Paragraph 3)

      1.4   EARLY POSSESSION: September 1, 2000 ("EARLY POSSESSION DATE").
(See also Paragraphs 3.2 and 3.3)

      1.5   BASE RENT: $8,261.00 per month ("BASE RENT"), payable on the Firts
(1st) day of each month commencing October 1, 2000. (See also Paragraph 4)

[X] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted

      1.6   LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: Eleven 30/100
percent (11.3%) ("LEASSEE'S SHARE").

      1.7   BASE RENT AND OTHER MONIES PAID UPON EXECUTION:

            (a)   BASE RENT :$8,261.00 for the period October 2000

            (b)   COMMON AREA OPERATING EXPENSES: $1,652.22 for the period
                  October 2000

            (c)   SECURITY DEPOSIT: $25,000.00* ("SECURITY DEPOSIT"). (See also
                  Paragraph 5) See Addendum Paragraph 52.

            (d)   OTHER $_______ for ____________________________
                  ______________________________________________________________

            (e)   TOTAL DUE UPON EXECUTION OF THIS LEASE: $34,913.22

      1.8   AGREED USE: General Office, research and development, assembly and
warehousing for Zenonics; ______________________________________________________
_____________________________________________. (See also Paragraph 6)

      1.9   INSURING PARTY. Lessor is the "INSURING PARTY" (See also Paragraph
8)

      1.10  REAL ESTATE BROKERS: (See also Paragraph 15)

            (a)   REPRESENTATION: The following real estate brokers ( the
                  "BROKERS") and brokerage relationships exist in this
                  transaction (check applicable boxes):

[ ] _____________________________________ represents Lessor Exclusively
("LESSOR'S BROKER");

[ ] ____________________________________ represents Lessee exclusively
("LESSEE'S BROKER"); or

[X] Business Real Estate Brokerage Company - Visser/Davis represents both
Lessor and Lessee ("DUAL AGENCY").

            (b)   PAYMENT TO BROKERS: Upon execution and delivery of this Lease
                  by both Parties. Lessor shall pay to the Brokers the brokerage
                  fee agreed to in a separate written agreement ( or if there is
                  no such agreement, the sum of P/A or ________ % of the total
                  Base Rent for the brokerage services rendered by the Brokers).

      1.11  GUARANTOR. The obligations of the Lessee under this Lease are to be
            guaranteed by ______________________________________________________
            ("GUARANTOR"). (See also Paragraph 37)

      1.12  ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
            consisting of Paragraphs 50 through 53 and Exhibits A through C, all
            of which constitute a part of this Lease.

2     PREMISES.

      2.1   LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease, or that may have
been used in calculating Rent, is an approximation which the Parties agree is
reasonable and any payments based thereon are not subject at revision whether or
not the actual size is more or less.

      2.2   CONDITION. Lessor shall deliver that portion of the Premises
contained within the Building ("UNIT") to Lessee broom clean and free of debris
on the Commencement Date or the Early Possession Date, whichever first occurs
("START DATE"), and, so long as the required service contracts described in
Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days
following the Start Date, warrants that the existing electrical, plumbing, fire
sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"),
loading doors, if any, and all other such elements in the Unit, other than those
constructed by Lessee, shall be in good operating condition on said date and
that the structural elements of the roof, bearing walls and foundation of the
Unit shall be free of material defects. If a non-compliance with such warranty
exists as of the Start Date, or if one of such systems or elements should
malfunction or fall within the appropriate warranty period, Lessor shall, as
Lessor's sole obligation with respect to such matter, except as otherwise
provided in this Lease, promptly after receipt of written notice from Lessee
setting forth with specificity the nature and extent of such non-compliance,
malfunction or failure, rectify same at Lessor's expense. The warranty periods
shall be as follows: (i) 6 months as to the HVAC systems and (ii) 90 days as to
the remaining system and other elements of the Unit. If Lessee does not give
Lessor the required notice within the appropriate

<TABLE>
<S>                                                           <C>              <C>
(C) 1999 AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION          REVISED          FORM MTN-2-2/99E
</TABLE>

                                  Page 1 of 12
<PAGE>

Warranty period correction of any such non-compliance, malfunction or failure
shall be the obligation of Lessee at Lessee's sole cost and expense (except for
the repairs to the fire sprinkler systems, roof, foundation, and/or bearing
walls-see Paragraph 7).

      2.3   COMPLIANCE. Lessor warrants that the improvements on the premises
and the Common Areas comply with the building codes that were in effect at the
time that each such improvement, or portion thereof, was constructed, and also
with all applicable laws, convents or restrictions of record, regulations, and
ordinances in effect on the Start Date ("APPLICABLE REQUIREMENTS"). Said
warranty does not apply to the use to which Lessee will put the Premises or to
any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made
or to made by Lessee. NOTE: LESSEE IS RESPONSIBLE FOR DETERMINING WHETHER OR NOT
THE APPLICABLE REQUIREMENTS, AND ESPECIALLY THE ZONING, ARE APPROPRIATE FOR
LESSEE'S INTENDED USE, AND ACKNOWLEDGES THAT PAST USES OF THE PREMISES MAY NO
LONGER BE ALLOWED. If the Premises do not comply with said warranty, Lessor
shall except as otherwise provided, promptly after receipt of written notice
from Lessee setting fourth with specifically the nature and extent of such
non-compliance, rectify the same as Lessor's expenses. If Lessee does not give
Lessor written notice of a non-compliance with this warranty within 6 months
following the Start Date, correction of that non-compliance shall be the
obligation of Lessee at lessee's sole cost and expenses. If the Applicable
Requirements are hereafter changed so as to require during the term of this
Lease the construction of an addition to or an alteration of the Unit, Premises
and/or Building, the remediation of any Hazardous Substance, or the
reinforcement or other physical modification of the Unit, Premises and/or
Building, ("CAPITAL EXPENDITURE"), Lessor and lessee shall allocate the cost of
such work as follows:

(a)   SUBJECT TO PARAGRAPH 2.3(c) below, if such Capital Expenditures are
required as a result of the specific and unique use of the Premises by Lessee as
compared with uses by tenants in general, Lessee shall be fully responsible for
the cost thereof, provided, however that if such Capital Expenditure is required
during the last 2 years of this Lease and the cost of there of exceeds 6 month's
Base Rent, lessee may instead terminate this Lease unless Lessor notifies
Lessee, in writing, within 10 days after receipt of Lessee's termination notice
that Lessor has elected to pay the difference between the actual cost thereof
and the amount equal to 6 month's Base Rent. If Lessee elects termination,
Lessee shall immediately cease the use of the Premises which requires such
Capital Expenditure and deliver to Lessor written notice specifying a
termination date at least 90 days thereafter. Such termination date shall,
however, in no event be earlier than the last day that Lessee could legally
utilize the Premises without commencing such Capital Expenditure.

(b)   If such Capital Expenditure is not the result of the specific and unique
use of the Premises by Lessee (such as, governmentally mandated seismic
modifications),then Lessor and Lessee shall allocate the obligation to pay for
the portion of such costs reasonably attributable to the Premises pursuant to
the formula set out in paragraph 7.1(d); provided, however, that if such Capital
Expenditure is required during the last 2 years of this of Lease or if Lessor
reasonably determines that it is not economically feasible to pay its share
thereof, Lessor shall have the option to terminate this lease upon 90 days rear
written notice to Lessee unless Lessee notifies Lessor, in writing, within 10
days after receipt of Lessor's termination notice that Lessee will pay for such
Capital Expenditure. If Lessor does not elect to terminate, and falls to tender
its share of any such Capital Expenditure, Lessee may advance such funds and
deduct same, with interest, from Rent until Lessor's share of such costs have
been fully paid. If Lessee is unable to finance Lessor's share or if the balance
of the Rent due and payable for the remainder of this Lessee is not sufficient
to fully reimburse Lessee on an offset basis, Lessee shall have the right to
terminate this Lease upon 30 days written notice to Lessor.

(c)   Notwithstanding the above, the provisions concerning Capital Expenditures
are intended to apply only to non-voluntary, unexpected, and new Applicable
Requirements. If the Capital Expenditure are instead triggered by Lessee as a
result of an actual or proposed change in use, change in intensity of use, or
modification to the Premises then, and in that event, Lessee shall be fully
responsible for the cost thereof, and Lessee shall not have any right to
terminate this Lease.

      2.4   ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been advised
by Lessor and/or Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical, HVAC and fire sprinkler
systems, security, environmental aspects, and compliance with Applicable
Requirements and the Americans with Disabilities Act) and their suitability for
Lessee's intended use (b) Lessee has made such investigation as it deems
necessary with reference to such matters and assumes all responsibility
therefore as the same relate to its occupancy of the Premises, and (c) neither
Lessor, Lessor's agents, not Brokers have made any oral or written
representations or warranties with respect to said matters other than as set
forth in this Lease. In addition Lessor acknowledges that: (i) Brokers have made
no representations promises or warranties concerning Lessee's ability to honor
the Lease or suitability to occupy the Premises and (ii) it is Lessor's sole
responsibility to investigate the financial capability and/or suitability of all
proposed tenants.

      2.5   LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect it immediately prior to the start
date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.

      2.6   VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking spaces and reserved parking spaces specified in paragraph
1.2(b) and those portions of the common areas designated from time to time by
Lessor by parking. Lessee shall not use more parking spaces than said number
said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "PERMITTED SIZE
VEHICLES," Lessor may regulate the loading and unloading of vehicles by adopting
Rules and Regulations as provided in paragraph 2.8. No vehicles other than
Permitted Size Vehicles may be parked in the Common Area without the prior
written permission of Lessor.

            (a)   Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customer, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.

            (b)   Lessee shall not service or store any vehicles in the Common
Areas.

            (c)   If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6. then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have to remove
or low away the vehicle involved and charge the cost to lessee, which costs
shall be immediately payable upon demand by Lessor.

      2.7   COMMON AREAS - DEFINITION. The term "COMMON AREAS" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Project and interior utility raceways and installations within the Unit
that are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, lessee and other tenants of the Project and their
respective employee, suppliers, shippers, customers, contractors in invitees,
including parking areas, loading and unloading areas, trash areas, roadways,
walkways, driveways and landscaped areas.

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

      2.9   COMMON AREAS-RULES AND REGULATIONS. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify
amend and enforce reasonable rules and regulations ("RULES AND REGULATION ") for
the management, safety, care and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of the Building and the Project and
their invitees. Lessee agrees to abide by and conform to all such Rules and
Regulation , and to cause its employee suppliers, shippers, customers,
contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said Rules and Regulations by
other tenants of the project.

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

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

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

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

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

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

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

3.    TERM.

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

      3.2   EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this Lease
(including but not limited to the obligations to pay Lessee's Share of Common
Area Operating Expenses, Real Property Taxes and Insurance premiums and to
maintain the Premises) shall, however, be in effect during such period. Any such
early possession shall not affect the Expiration Date.

      3.3   DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor, no
shall such failure affect the validity of this Lease. Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premises. If possession is not delivered within 60 days after
the Commencement Date, Lessee may, at its option, by police in writing

1999 AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION  REVISED    FORM MTN - 2-2/99E

                                  PAGE 2 OF 12

<PAGE>

within 10 days after the end of such 60 day period, cancel this Lease, in which
event the Parties shall be discharged from all obligations hereunder. If such
without notice is not received by Lessor within said 10 day period, Lessee's
right to cancel shall terminate. Except as otherwise provided, if possession is
not tendered to Lessee by the Start Date and Lessee does not terminate this
Lease, as aforesaid, any period of rent abatement that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue for
a period equal to what Lessee would otherwise have enjoyed under the terms
hereof, but minus any days of delay caused by the acts or omissions of Lessee.
If possession of the Premises is not delivered within 4 months after the
Commencement Date, this Lease shall terminate unless other agreements are
reached between Lessor and Lessee, in writing.

      3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender possession
of the Premises to Lessee until Lessee complies with its obligation to provide
evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee
shall be required to perform all of its obligations under this Lease from and
after the Start Date, including the payment of Rent, notwithstanding Lessor's
election to withhold possession pending receipt of such evidence of insurance.
Further, if Lessee is required to perform any other conditions prior to or
concurrent with the Start Date, the Start Date shall occur but Lessor may elect
to withhold possession until such conditions are satisfied.

4. RENT.

      4.1 RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease (except for the Security Deposit) are deemed to be rent
("RENT").

      4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease in accordance with the
following provisions:

            (a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Project, including, but not limited to, the following:

                  (i)   The operation, repair and maintenance, in neat, clean,
                        good order and condition of the following:

                        (aa)  The Common Areas and Common Area improvements,
                        including parking areas, loading and unloading areas,
                        trash areas, roadways, parkways, walkways, driveways,
                        landscaped areas, bumpers, irrigation systems, Common
                        Area lighting facilities, fences and gates, elevators,
                        roofs, and roof drainage systems.

                        (bb)  Exterior signs and any tenant directories,

                        (cc)  Any fire detection and/or sprinkler systems.

                  (ii)  The cost of water, gas, electricity and telephone to
                        service the Common Areas and any utilities not
                        separately metered.

                  (iii) Trash disposal, pest control services, property
                        management, security services, and the costs of any
                        environmental inspections.

                  (iv)  Reserves set aside for maintenance and repair of Common
                        Areas.

                  (v)   Real Property Taxes (as defined in Paragraph 10).

                  (vi)  The cost of the premiums for the insurance maintained by
                        Lessor pursuant to Paragraph B.

                  (vii) Any deductible portion of an insured loss concerning the
                        Building or the Common Areas.

                  (viii)The cost of any Capital Expenditure to the Building or
                        the Project not covered under the provisions of
                        Paragraph 2.3 provided; however, that Lessor shall
                        allocate the cost of any such Capital Expenditure over a
                        12 year period and Lessee shall not be required to pay
                        more than Lessee's Share of 1/144th of the cost of such
                        Capital Expenditure in any given month.

                  (ix)  Any other services to be provided by Lessor that are
                        stated elsewhere in this Lease to be a Common Area
                        Operating Expense.

            (b)   Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Unit, the Building or to any other
building in the Project or to the operation, repair and maintenance thereof,
shall be allocated entirely to such Unit, Building, or other building. However,
any Common Area Operating Expenses and Real Property Taxes that are not
specifically attributable to the Building or to any other building or to the
operation, repair and maintenance thereof, shall be equitably allocated by
Lessor to all buildings in the Project.

            (c)   The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Project already has the same, Lessor already provides the
services, or Lessor has agreed elsewhere in this Lease to provide the same or
some of them.

            (d)   Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within 10 days after a reasonably detailed statement of actual
expenses is presented to Lessee. At Lessor's option, however, an amount may be
estimated by Lessor from time to time of Lessee's Share of annual Common Area
Operating Expenses and the same shall be payable monthly or quarterly, as Lessor
shall designate, during each 12 month period of the Lease term, on the same day
as the Base Rent is due hereunder. Lessor shall deliver to Lessee within 60 days
after the expiration of each calendar year a reasonably detailed statement
showing Lessee's Share of the actual Common Area Operating Expensed incurred
during the preceding year. If Lessee's payments under this Paragraph 4.2(d)
during the preceding year exceed Lessee's Share as indicated on such statement,
Lessor shall credit the amount of such over-payment against Lessee's Share of
Common Area Operating Expenses next becoming due. If Lessee's payments under
this Paragraph 4.2(d) during the preceding year were less than Lessee's Share as
indicated on such statement, Lessee shall pay to Lessor the amount of the
deficiency within 10 days after delivery by Lessor to Lessee of the statement.

      4.3   PAYMENT. Lessee shall cause payment of Rent to be received by Lessor
in lawful money of the United States, without offset or deduction (except as
specifically permitted in this Lease), on or before the day on which it is due.
Rent for any period during the term hereof which is for less than one full
calendar month shall be prorated based upon the actual number of days of said
month. Payment of Rent shall be made to Lessor at its address stated herein or
to such other persons or place as Lessor may from time to time designate in
writing. Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessor's rights to the balance of such Rent, regardless of
Lessor's endorsement of any check so stating. In the event that any check,
draft, or other instrument of payment given by Lessee to Lessor is dishonored
for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any
late charges which may be due.

5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee falls to pay Rent, or otherwise Defaults
under this Lease, Lessor may use, apply or retain all or any portion of said
Security Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, expense, lose or damage which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of the Security Deposit, Lessee shall within 10 days after written request
therefor deposit monies with Lessor sufficient to restore said Security Deposit
to the full amount required by this Lease. If the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor so that the total amount of the Security Deposit
shall at all times bear the same proportion to the increased Base Rent as the
initial Security Deposit bora to the Initial Base Rent. Should the Agreed Use be
amended to accommodate a material change in the business of Lessee or to
accommodate a sublessee or assignee, Lessor shall have the right to increase the
Security Deposit to the extent necessary, in Lessor's reasonable judgment, to
account for any increased wear and tear that the Premises may suffer as a result
thereof. If a change in control of Lessee occurs during this Lease and following
such change the financial condition of Lessee la, in Lessor's reasonable
Judgment, significantly reduced, Lessee shall deposit such additional monies
with Lessor as shall be sufficient to cause the Security Deposit to be at a
commercially reasonable level based on such change in financial condition.
Lessor shall not be required to keep the Security Deposit separate from its
general accounts. Within 14 days after the expiration or termination of this
Lease. If Lessor elects to apply the Security Deposit only to unpaid Rent, and
otherwise within 30 days after the Premises have been vacated pursuant to
Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit
not used or applied by Lessor. No part of the Security Deposit shall be
considered to be held in trust, to bear interest or to be prepayment for any
monies to be paid by Lessee under this Lease.

6. USE.

      6.1   USE. Lessee shall use and occupy the Premises only for the Agreed
Use, or any other legal use which is reasonably comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that is unlawful, creates damage, waste or a nuisance, or that disturbs
occupants of or causes damage to neighboring premises or properties. Lessor
shall not unreasonably withhold or delay its consent to any written request for
a modification of the Agreed Use, so long as the same will not Impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, and/or is not significantly more burdensome to the
Premises. If Lessor elects to withhold consent, Lessor shall within 7 days after
such request give written notification of same, which notice shall include an
explanation of Lessor's objections to the change in the Agreed Use.

      6.2   HAZARDOUS SUBSTANCES.

            (a)   REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, or waste
whose presence, use, manufacture, disposal, transportation, or release, either
by itself or in combination with other materials expected to be on the Premises
is either: (I) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (II) regulated or monitored by any governmental
authority, or (III) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substances shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, and/or crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in or on the Premises which
constitutes a Reportable Use of Hazardous Substances without the express prior
written consent of Lessor and timely compliance (at Lessee's expense) with all
Applicable Requirements, "REPORTABLE USE" shall mean (I) the

                                   Page 8 of 12

(c)1999-American Industrial Real Estate Association  REVISED    FORM MTN-2-2/99E
<PAGE>
installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a Hazardous
Substance that requires a permit from, or with respect to which a report,
notice, registration or business plan is required to be filled with, any
governmental authority, and/or (iii) the presence at the Premises of a Hazardous
Substance with respect to which any Applicable Requirements requires that a
notice be given to persons entering or occupying the Premises or neighboring
properties. Notwithstanding the foregoing, Lessee may use any ordinary and
customary materials reasonably required to be used in the normal course of the
Agreed Use, so long as such use is in compliance with all Applicable
Requirements , is not a Reportable Use, and does not expose the Premises or
neighboring property to any meaningful risk of contamination or damage or expose
Lessor to any liability therefor. In addition, Lessor may condition its consent
to any Reportable Use upon receiving such additional assurances as Lessor
reasonably deems necessary to protect itself, the public, the Premises and/or
the environment against damage, contamination, injury and/or liability,
including, but not limited to, the installation (and removal on or before Lease
expiration or termination) of protective modifications (such as concrete
encasements) and/or increasing the Security Deposit.

            (b)   DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises, other than as previously consented to by Lessor,
Lessee shall immediately give written notice of such fact to Lessor, and provide
Lessor with a copy of any report, notice, claim or other documentation which it
has concerning the presence of such Hazardous Substance.

            (c)   LESSEE REMEDIATION. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any Hazardous
Substance brought onto the Premises during the term of this Lease, by or for
Lessee, or any third party.

            (d)   LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless
from and against any and all loss of rents and/or damages, liabilities,
judgments, claims, expenses, penalties, and attorneys' and consultants' fees
arising out of or involving any Hazardous Substance brought onto the Premises by
or for Lessee, or any third party (provided, however, that Lessee shall have no
liability under this Lease with respect to underground migration of any
Hazardous Substance under the Premises from areas outside of the Project).
Lessee's obligations shall include, but not be limited to, the effects of any
contamination or injury to person, property or the environment created or
suffered by Lessee, and the cost of investigation, removal, remediation,
restoration and/or abatement, and shall survive the expiration or termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances, unless specifically so agreed by Lessor in
writing at the time of such agreement.

            (e)   LESSOR INDEMNIFICATION. Lessor and its successors and assigns
shall indemnify, defend,reimburse and hold Lessee, its employees and lenders,
harmless from and against any and all environmental damages, including the
cost of remediation, which existed as a result of Hazardous Substances on the
Premises prior to the Start Date or which are caused by the gross negligence or
willful misconduct of Lessor, its agents or employees. Lessor's obligations,as
and when required by the Applicable Requirements, shall include, but not be
limited to, the cost of investigation,removal remediation,restoration and/or
abatement, and shall survive the expiration or termination of this Lease.

            (f)   INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date, unless such
remediation measure is required as a result of Lessee's use (including
"Alterations", as defined in paragraph 7.3(a) below) of the Premises, in which
event Lessee shall be responsible for such payment. Lessee shall cooperate fully
in any such activities at the request of Lessor, including allowing Lessor and
Lessor's agents to have reasonable access to the Premises at reasonable times in
order to carry out Lessor's investigative and remedial responsibilities.

            (g)   LESSOR TERMINATION OPTION. If a Hazardous Substance Condition
(see Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is
legally responsible therefor (in which case Lessee shall make the investigation
and remediation thereof required by the Applicable Requirements and this Lease
shall continue in full force and effect, but subject to Lessor's rights under
Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor's option, either (i)
investigate and remediate such Hazardous Substance Condition, if required, as
soon as reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to remediate
such condition exceeds 12 times the then monthly Base Rent or $100,000,
whichever is greater, give written notice to Lessee, within 30 days after
receipt by Lessor of knowledge of the occurrence of such Hazardous Substance
Condition, of Lessor's desire to terminate this Lease as of the date 60 days
following the date of such notice. In the event Lessor elects to give a
termination notice, Lessee may, within 10 days thereafter, give written notice
to Lessor of Lessee's commitment to pay the amount by which the cost of the
remediation of such Hazardous Substance Condition exceeds an amount equal to 12
times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall
provide Lessor with said funds or satisfactory assurance thereof within 30 days
following such commitment. In such event, this Lease shall continue in full
force and effect, and Lessor shall proceed to make such remediation as soon as
reasonably possible after the required funds are available. If Lessee does not
give such notice and provide the required funds or assurance thereof within the
time provided, this Lease shall terminate as of the date specified in Lessor's
notice of termination.

      6.3   LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as
otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to the Premises, without regard to whether said
requirements are now in effect or become effective after the Start Date. Lessee
shall, within 10 days after receipt of Lessor's written request, provide Lessor
with copies of all permits and other documents, and other information evidencing
Lessee's compliance with any Applicable Requirements specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving the failure of Lessee or
the Premises to comply with any Applicable Requirements.

      6.4   INSPECTION; COMPLIANCE. Lessor and Lessor's "LENDER" (as defined in
Paragraph 30) and consultants shall have the right to enter into Premises at any
time, in the case of an emergency, and otherwise at reasonable times, for the
purpose of inspecting the condition of the Premises and for verifying compliance
by Lessee with this Lease. The cost of any such inspections shall be paid by
Lessor, unless a violation of Applicable Requirements, or a contamination is
found to exist or be imminent, or the inspection is requested or ordered by a
governmental authority. In such case, Lessee shall upon request reimburse Lessor
for the cost of such inspection, so long as such inspection is reasonably
related to the violation or contamination.

7.    MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND
      ALTERATIONS.

      7.1 LESSEE'S OBLIGATIONS.

      (a)   IN GENERAL. Subject to the provisions of Paragraph 2.2 (Condition),
2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable Requirements), 7.2
(Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee
shall, at Lessee's sole expense, keep the Premises. Utility installations
(intended for Lessee's exclusive use, no matter where located), and Alterations
in good order, condition and repair (whether or not the portion of the Premises
requiring repairs, or the means of repairing the same, are reasonably or readily
accessible to Lessee, and whether or not the need for such repairs occurs as a
result of Lessee's use, any prior use, the elements or the age of such portion
of the Premises), Including, but not limited to all equipment or facilities,
such as plumbing, HVAC equipment, electrical, lighting facilities, boilers,
pressure vessels, fixtures, interior walls, interior surfaces of exterior walls,
ceilings, floors, windows, doors, plate glass, and skylights but excluding any
items which are the responsibility of Lessor pursuant to Paragraph 7.2. Lessee,
in keeping the premises in good order, condition and repair, shall exercise and
perform good maintenance practices, specifically including the procurement and
maintenance of the service contracts required by Paragraph 7.1 (b) below.
Lessee's obligations shall include restorations replacements or renewals when
necessary to keep the premises all improvements thereon or a part thereof in
good order, condition and state or repair.

            (b)   SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements, any, if and when
installed on the Premises: (i) HVAC equipment, (ii) boiler and pressure vessels,
(iii) clarifiers, and (iv) any other equipment, if reasonably required by
Lessor. However, Lessor reserves the right, upon notice to Lessee, to procure
and maintain any or all of such service contracts, and if Lessor's elects,
Lessee shall reimburse Lessor, upon demand, for the cost thereof.

            (c)   FAILURE TO PERFORM. If Lessee fails to perform Lessee's
obligations under this Paragraph 7.1, Lessor may enter upon the Premises after
10 days' prior written notice to Lessee (except in the case of an emergency, in
which case no notice shall be required), perform such obligations on Lessee's
behalf, and put the Premises in good order, condition and repair, and Lessee
shall promptly reimburse Lessor for the cost thereof.

            (d)   REPLACEMENT. Subject to Lessee's indemnification of Lessor as
set forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if an item described in Paragraph 7.1(b) cannot be repairs other than
at a cost which is in excess of 50% of the cost of replacing such item, then
such item shall be replaced by Lessor, and the cost thereof shall to prorated
between the Parties and Lessee shall only be obligated to pay, each month during
the remainder of the term of this Lease, on the date on which Base Rent is due,
and amount equal to the product of multiplying the cost of such replacement by a
fraction, the numerator of which is one, and the denominator of which is 144
(i.e. 1/144th of the cost per month). Lessee shall pay interest on the
unamortized balance at a rate that is commercial reasonable in the judgment of
Lessor's accountants. Lessee may, however, prepay its obligation at any time.

      7.2   LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Conditions), 2.3 (Compliance), 4.2 (Common Area Operating Expenses), 6 (Use),
7.1 (Lessee's Obligations), 9 (Damage or Destruction) and 14 (Condemnation),
Lessor, subject to reimbursement pursuant to Paragraph 4.2, shall keep in good
order, condition and repair the foundations, exterior walls, structural
condition of interior bearing walls, exterior roof, fire sprink
system, Common Area fire alarm and/or smoke detection systems, fire hydrants,
parking lots, walkways, parkways, driveways, landscaping, fences, sign
and utility systems serving the Common Areas and all parts thereof, as well as
providing the services for which there is a Common Area Operating Expenses
pursuant to Paragraph 4.2. Lessor shall not be obligated to paint the exterior
or interior surfaces of exterior walls nor shall Lessor be obligated to
maintain.

(C)1999-AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION   REVISED   FORM MTN-2-2/99E

                                  Page 4 of 12
<PAGE>
repair or replace windows, doors or plate glass of the Premises. Lessee
expressly waives the benefit of any statute now or hereafter in effect to the
extent it is inconsistent with the terms of this Lease.

      7.3   UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.

            (a)   DEFINITIONS. The term "UTILITY INSTALLATIONS" refers to all
floor and window coverings, air lines, power panels, electrical distribution,
security and fire protection systems, communication systems, lighting fixtures,
HVAC equipment, plumbing, and fencing in or on the Premises. The term "TRADE
FIXTURES" shall mean Lessee's machinery and equipment that can be removed
without doing material damage to the Premises. The term "ALTERATIONS" shall mean
any modification of the improvements, other than Utility Installations or Trade
Fixtures, whether by addition deletion  "LESSEE OWNED ALTERATIONS AND/OR UTILITY
INSTALLATIONS" are defined as Alterations and/or Utility Installations made by
Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).

            (b)   CONSENT. Lessee shall not make any Alterations or Utility
Installations to the Premises without Lessor's prior written consent. Lessee
may, however, make non-structural Utility Installations to the interior of the
Premises (excluding the roof) without such consent but upon notice to Lessor,
as long as they are not vialble from the outside, do not involve puncturing,
relocating or removing the roof or any existing walls, and the cumulative cost
thereof during this Lease as extended does not exceed a sum equal to 3 month's
Base Rent in the aggregate or a sum equal to one month's Base Rent in any one
year. Notwithstanding the foregoing, Lessee shall not make or permit any roof
penetrations and/or install anything on the roof without the prior written
approval of Lessor. Lessor may, as a precondition to granting such approval,
require Lessee to utilize a contractor chosen and/or approved by Lessor. Any
Alterations or Utility Installations that Lessee shall desire to make and which
require the consent of the Lessor shall be presented to Lessor in written form
with detailed plans. Consent shall be deemed conditioned upon Lessee's: (I)
acquiring all applicable governmental permits, (II) furnishing Lessor with
copies of both the permits and the plans and specifications prior to
commencement of the work, and (III) compliance with all conditions of said
permits and other Applicable Requirements in a prompt and expeditious manner.
Any Alterations or Utility Installations shall be performed in a workmanlike
manner with good and sufficient materials. Lessee shall promptly upon completion
furnish Lessor with as-built plane and specifications. For work which costs an
amount in excess of one month's Base Rent, Lessor may condition its consent upon
Lessee providing a lien and completion bond in an amount equal to 150% of the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor.

            (c)   INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialman's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than 10 days notice prior to the commencement
of any work in, on or about the Premises, and Lessor shall have the right to
post notices of non-responsibility. If Lessee shall contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof. If Lessor shall require, Lessee shall furnish a surety
bond in an amount equal to 150% of the amount of such contested lien, claim or
demand, indemnifying Lessor against liability for the same. If Lessor elects to
participate in any such action, Lessee shall pay Lessor's attorneys' fees and
costs.

      7.4   OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.

            (a)   OWNERSHIP. Subject to Lessor's right to require removal or
elect ownership as hereinafter provided , all Alterations and Utility
Installations made by Lessee shall be the property of Lessee, but considered a
part of the premises. Lessor may, at any time, elect in writing to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per paragraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility installations shall, at the expiration or
termination of this Lease, become the property of Lessor and be surrendered by
Lessee with the Premises.

            (b)   REMOVAL. By delivery to Lessee of written notice from Lessor
not earlier than 90 and not later than 30 days prior to the end of the term of
this Lease, Lessor may require that any or all Lessee Owned Alterations or
Utility Installations be removed by the expiration or termination of this Lease.
Lessor may require the removal at any time of all or any part of any Lessee
Owned Alterations or Utility Installations made without the required consent.

            (c)   SURRENDER; RESTORATION. Lessee shall surrender the Premises by
the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom clean and free of debris, and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice. Notwithstanding the
foregoing, if this Lease is for 12 months or less, then Lessee shall surrender
the Premises in the same condition as delivered to Lessee on the Start Date with
NO allowance for ordinary wear and tear. Lessee shall repair any damage
occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee
owned Alterations and/or Utility Installations, furnishings, and equipment as
well as the removal of any storage tank installed by or for Lessee. Lessee shall
also completely remove from the Premises any and all Hazardous Substances
brought onto the premises by or for Lessee, or any third party (except hazardous
Substances which were deposited via underground migration from areas outside of
the Project) even if such removal would require Lessee to perform or pay for
work that exceeds statutory requirements. Trade fixtures shall remain the
property of Lessee and shall be removed by Lessee. The failure by Lessee to
timely vacate the premises pursuant to this Paragraph 7.4 (c) without the
express written consent of Lessor shall constitute a holdover under the
provisions of Paragraph 26 below.

8.     INSURANCE; INDEMNITY.

      8.1   PAYMENT OF PREMIUMS. The cost of the premiums for the insurance
policies required to be carried by Lessor, pursuant to Paragraphs 8.2(b), 8.3(a)
and 8.3(b), shall be a Common Area Operating Expense. Premiums for policy
periods commencing prior to, or extending beyond, the term of this Lease shall
be prorated to coincide with the corresponding Start Date or Expiration Date.

      8.2   LIABILITY INSURANCE.

            (a)   CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability policy of Insurance protecting Lessee and Lessor as
an additional insured against claims for bodily injury, personal injury and
property damage based upon or arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such Insurance
shall be on an occurrence basis providing single limit coverage in an amount not
less than $1,000,000 per occurrence with an annual aggregate of not less than
$2,000,000, an "Additional Insured-Managers or Lessors of Premises Endorsement"
and contain the "Amendment of the Pollution Exclusion Endorsement" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any Intra-Insured exclusions as between Insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "INSURED
CONTRACT" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance shall not, however, limit the liability or
Lessee nor relieve Lessee of any obligation hereunder. All Insurance carried by
Lessee shall be primary to and not contributory with any similar insurance
carried by Lessor, whose insurance shall be considered excess Insurance only.

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

      8.3  PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.

            (a)   BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force a policy or policies of Insurance in the name of Lessor, with loss payable
to Lessor, any ground-lessor, and to any Lender Insuring loss or damage to the
Premises. The amount of such Insurance shall be equal to the full replacement
cost of the Premises, as the same shall exist from time to time, or the amount
required by any Lender, but in no event more than the commercially reasonable
and available insurable value thereof. Lessee Owned Alterations and Utility
Installations, Trade Fixtures, and Lessee's personal property shall be insured
by Lessee under Paragraph 8.4. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), Including coverage for debris removal and the enforcement
of any Applicable Requirements requiring the upgrading, demolition,
reconstruction or replacement of any portion of the Premises as the result of a
covered loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U.S. Department of
Labor Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located. If such Insurance coveraged has a deductible clause,
the deductible amount shall not exceed $1,000 per occurrence.

            (b)   RENTAL VALUE. Lessor shall also obtain and keep in force a
policy in the name of Lessor with loss payable to Lessor and any Lender,
Insuring the loss of the full Rent for one year with an extended period of
indemnity for an additional 180 days ("RENTAL VALUE INSURANCE"). Said insurance
shall contain an agreed valuation provision in lieu of any coinsurance clause,
and the amount of coverage shall be adjusted annually to reflect the projected
Rent otherwise payable by Lessee, for the next 12 month period.

            (c)   ADJACENT PREMISES. Lessee shall pay for any increase in the
premium for the property Insurance of Building and for the Common Areas or
other buildings in the Project if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.

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

      8.4   LESSEE'S PROPERTY; BUSINESS INTERRUPTION INSURANCE.

            (a)   PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures and Lessee Owned
Alteration and Utility Installations, Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence.
The proceede from any such insurance shall be used by Lessee for the replacement
of personal property, Trade Fixtures and Lessee Owne Alterations and Utility
Installations. Lessee shall provide Lessor with written evidence that such
insurance is in force.

            (b)   BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss
of income and extra expense insurance in amounts as will reimburse Lessee for
direct or indirect loss of earnings attributable to all perils commonly insured
against by prudent lessees in the business of Lessee attributable to prevention
of access to the Premises as a result of such perils.

            (c)   NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance

                                  PAGE 5 OF 12

(C) 1999 - AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION  REVISED
    FORM MTN - 2-2/99E
<PAGE>

specified herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.

      8.5   INSURANCE POLICIES. Insurance required herein shall be by companies
duly licensed or admitted to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, as set forth in the most current issue of "Best's
Insurance Guide", or such other rating as may be required by a Lender. Lessee
shall not do or permit to be done anything which invalidates the required
Insurance policies Lessee shall, prior to the Start Date, deliver to Lessor
certified copies of policies of such insurance or certificates evidencing the
existence and amounts of the required insurance. No such policy shall be
cancelable or subject to modification except after 30 days prior written notice
to Lessor. Lessee shall, at least 30 days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand. Such policies shall be for a term of at least one year, or the length of
the remaining term of this Lease, whichever is less. If either Party shall fall
to procure and maintain the insurance required to be carried by it, the other
Party may, but shall not be required to, procure and maintain the same.

      8.6   WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages against the other, for loss of or damage
to its property arising out of or incident to the perils required to be insured
against herein. The effect of such releasee and waivers is not listed by the
amount of insurance carried or required, or by any deductibles applicable
hereto. The parties agree to have their respective property damage Insurance
carriers waive any right to subrogation that such companies may have against
Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.

      8.7   INDEMNITY. Except for Lessor's gross negligence or willful
misconduct, Lessee shall Indemnify, protect, defend and hold harmless the
Premises. Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or
liabilities arising out of, Involving, or in connection with, the use and/or
occupancy or the Premises by Lessee. If any action or proceeding is brought
against Lessor by reason of any of the foregoing matters, Lessee shall upon
notice define the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be defended or indemnified.

8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury or
damage to the person or goods, wares, merchandise or other property of Lessee,
Lessee's employee, contractors, invitee, customers, or any other person in or
about the Premises, whether such damage or injury is caused by or results from
fire, steam, electricity, gas, waiver or rain, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires, appliances,
plumbing, HVAC or lighting fixtures, or from any other cause, whether the said
injury or damage results from conditions arising upon the Premises or upon other
portions of the Building, or from other sources or places. Lessor shall not be
liable for any damages arising from any act or neglect of any other tenant of
Lessor nor from the failure of Lessor to enforce the provisions of any other
lease in the Project. Notwithstanding Lessor's negligence of breach of this
Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.

9.    DAMAGE OR DESTRUCTION.

      9.1   DEFINITIONS

            (a)   "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, which can reasonably be repaired in 3 months or less from
the date of the damage or destruction, and the cost thereof does not exceed a
sum equal to 8 month's Base Rent. Lessor shall notify Lessee in writing within
30 days from the date of the damage or destruction as to whether or not the
damage is Partial or Total.

            (b)   "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the improvements on the Premises, other than Lessee Owned Alterations and
Utility installations and trade Fixtures, which cannot reasonably be repaired in
3 months or less from the date of the damage or destruction and/or the cost
thereof exceeds a sum equal to 6 month's Base Rent. Lessor shall
notify Lessee in written within 30 days from the date of the damage or
destruction as to whether or not the damage is Partial or Total.

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

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

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

      9.2   PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is
an insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
installations) as soon as reasonable possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $5,000 or less, and, in such event, Lessor shall make any applicable
insurance proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the insuring Party
shall promptly contribute the shortage in proceeds as and when required to
complete said repairs. In the event, however, such shortage was due to the fact
that, by reason of the unique nature of the improvements, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover some, or adequate assurance thereof, within 10 days following
receipt of written notice of such shortage and request therefor, If Lessor
receives said funds or adequate assurance thereof, within 10 days following
receipt of written notice of such shortage and request term as soon as
reasonably possible and this lease shall remain in full force and effect. If
such funds or assurance are not received, Lessor may nevertheless elect by
written notice to Lessee within 10 days thereafter to: (i) make such restoration
and repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect, or
(ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled
to reimbursement of any funds contributed by Lessee to repair any such damage or
destruction. Premises Partial Damage due to flood or earthquake shall be subject
to Paragraph 9.3, nothwithstanding that there may be some insurance coverage,
but the net proceeds of any such insurance shall be made available for the
repairs if made by either Party.

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

      9.4   TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs, this Lease shall terminate 60 days following
such Destruction. If the damage or destruction was caused by the gross
negligence or willful misconduct of Lessee. Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided
in Paragraph 8.6.

      9.5   DAMAGE NEAR END OF TERM. If at any time during the last 6 months of
this Lease there is damage for which the cost to repair exceeds one month's
Base Rent, whether or not an insured Loss, Lessor may terminate this Lease
effective 60 days following the date of occurrence of such amage by giving a
written termination notice to Lessee within 30 days after the date of occurrence
of such damage. Notwithstanding the foregoing. If Lessee at the time has an
exercisable option to extend this Lease or to purchase the Premises, then Lessee
may preserve this Lease by, (a) exercising such option and (b) providing Lessor
with any shortage in insurance proceeds (or adequate assurance thereof) needed
to make the repairs on or before the earlier of (i) the date which is 10 days
after Lessee's receipt of Lessor's written notice purporting to terminate this
Lease, or (ii) the day prior to the date upon which such option expires. If
Lessee duly exercises such option during such period and provides Lessor with
funds (or adequate assurance thereof) to cover any shortage I insurance
proceeds, Lessor shall, at Lessor's commercially reasonable expense, repair such
damage as soon as reasonably possible and this Lease the continue in full force
and effect. If Lessee falls to exercise such option and provide such funds or
assurance during such period, then this Lease the terminate on the date
specified in the termination notice and Lessee's option shall be extinguished.

      9.6   ABATEMENT OF RENT; LESSEE'S REMEDIES.

            (a)   ABATEMENT. In the event of Premises Partial Damage or Premises
Total Destruction or a Hazardous Substance Condition to which Lessee is not
responsible under this Lease, the Rent payable by Lessee for the period required
for the repair, remediation or restoration of such damage shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired, but
not to exceed the proceeds received from the Rental Value insurance. All other
obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall
have no liability for any such damage destruction, remediation, repair or
restoration except as provided herein.

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

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the actual work on the Premises of, whichever first occurs.

      9.7   TERMINATION; ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance base Rent and any other advance payments made by lessee
to Lessor. Lessor shall, in addition, return to lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by Lessor.

      9.8   WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.

10.   REAL PROPERTY TAXES.

      10.1  DEFINITION. As used herein, the term "REAL PROPERTY TAXES" shall
include any form of assessment; real estate, general, special, ordinary or
extraordinary, or rental levy or tax (other than inheritance, personal income or
estate taxes); improvement bond; and/or license fee imposed upon or levied
against any legal or equiptable interest of Lessor in the Project ,Lessor's
right to other income therefrom, and/or Lessor's business of leasing, by any
authority having the direct or indirect power to tax and where the funds are
generated with references to the Project address and where the proceeds so
generated are to be applied by the city, county or other local taxing authority
of a jurisdiction within which the project is located. The term "Real Property
Taxes" shall also include any tax, fee, levy, assessment or charge, or any
increase therein, imposed by reason of events occurring during the term of this
Lease, including but not limited to, a change in the ownership of the Project or
any portion thereof or a change in the improvement thereon. In calculating Real
Property Taxes for any calendar year, the Real Property Taxes for any real
estate tax year shall be included in the calculation of Real Property Taxes for
such calendar year based upon the number of days which such calendar year and
tax year have in common.

      10.2  PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes
applicable to the Project, and except as otherwise provided in Paragraph 10.3,
any such amounts shall be including in the calculation of Common Area Operating
Expenses in accordance with the provisions of Paragraph 4.2.

      10.3  ADDITIONAL IMPROVEMENTS. Common area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's record and work
sheets as being caused by additional improvements placed upon the Project by
other lesses or by Lessor for the exclusive enjoyment of such other lessees.
Notwithstanding Paragraph 10.2 hereof, Lessee shall, however, pay to Lessor at
the time Common Area Operating Expenses are payable under Paragraph 4.2, the
entirely of any increase in Real Property Taxes if assessed solely by reason of
Alteration, Trade Fixtures or Utility Installations placed upon the Premises by
Lessee or at Lessee's request.

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

      10.5  PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon lessee Owned Alterations and Utility
Installations, Trade Fixtures, furnishing, equipment and all personal property
of Lessee contained in the premises. When possible, Lessee shall cause its
lessee Owned Alterations and Utility Installations, Trade fixtures,
furnishings, equipments and all other personal property to be assessed and
billed separately from the real property of Lessor. If any of Lessee's sold
property shall be assessed with Lessor's real property. Lessee shall pay Lessor
the taxes attributable to lessee's property within 10 days after receipt of a
written statement setting forth the taxes applicable to Lessee's property.

11.   UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
premises, together with any taxes thereon. Notwithstanding the provisions of
Paragraph 4.2, if at any time in lessor's sole judgment, Lessors determines
that Lessee is using a disproportionate amount of water, electricity or other
commonly metered utilities, or that Lessee generating such a large volume of
trash as to require an increase in the size of the dumpster and/or an increase
in the number of times per month that the dumpster is emptied, then Lessor may
increase Lessee's Base Rent by an amount equal to such increased costs.

12.   ASSIGNMENT AND SUBLETTING.

      12.1  LESSOR'S CONSENT REQUIRED.

            (a)   Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "assign or assignment") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent.

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

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

            (d)   An assignment or subletting without consent shall, at Lessor's
option, be a Default curable after notice Per Paragraph 13.1(c), or a noncurable
Breach without the necessity of any notice and grace period. If Lessor elects to
treat such unapproved assignment or subletting as a noncurable Breach, Lessor
may either: (i) terminate this Lease, or (ii) upon 30 days written notice,
increase the monthly Base Rent to 110% of the Base Rent then in effect. Further,
in the event of such Breach and rental adjustment, (i) the purchase price of any
option to purchase the Premises held by Lessee shall be subject to similar
adjustment to 110% of the price previously in effect, and (ii) all fixed and
non-fixed rental adjustments scheduled during the remainder of the Lease term
shall be increased to 110% of the scheduled adjusted rent.

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

      12.2  TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.

            (a)   Regardless of Lessor's consent, no assignment or subletting
shall: (i) be effective without the express written assumption by such assignee
or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee
of any obligations hereunder, or (iii) after the primary liability of Lessee for
the payment of Rent or for the performance of any other obligations to be
performed by Lessee.

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

            (c)   Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.

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

            (e)   Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any. As consideration for
Lessor's considering and processing said request; Lessee agrees to reimburse
Lessor for actual legal costs incurred by Lessor, not to exceed $500 per
occurence. Lessee agrees to provide Lessor with such other or additional
information and/or documentation as may be reasonably requested.

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

            (g)   Lessor's consent to any assignment or subletting shall not
transfer to the assignee or sublessee any Option granted to the original Lessee
by this Lease unless such transfer is specifically consented to by Lessor in
writing. (See Paragraph 39.2)

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

            (a)   Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all Rent payable on any sublease, and Lessor may collect such Rent
and apply same toward Lessee's obligations under this Lease; provided, however,
that until a Breach shall occur in the performance of Lessee's obligations,
Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or
any assignment of such sublease, nor by reason of the collection of Rent, be
deemed liable to the sublessee for any failure of Lessee to perform and comply
with any of Lessee's obligations to such sublessee. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice from
Lessor stating that a Breach exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor all Rent due and to become due under the
sublease. Sublessee shall rely upon an such notice from Lessor and shall pay all
Rents to Lessor without any obligation or right to inquire as to whether such
Breach exists, notwithstanding any claim from Lessee to the contrary.

            (b)   In the event of a Breach by Lessee, Lessor may, at its option,
require sublessee to attorn to Lessor, in which event Lessor shall undertake the
obligations of the sublessor under such sublease from the time of the exercise
of said option to the expiration of such sublease; provider however, Lessor
shall not be liable for any prepaid rents or security deposit paid by such
sublessee to such sublessor or for any prior Defaults or Breaches of such
sublessor.

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

            (d)   No sublesses shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.

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

13.   DEFAULT; BREACH; REMEDIES.

      13.1  DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the Lessee
to comply with or perform any of the terms, covenants, conditions or Rules and
Regulations under this Lease. A "BREACH" is defined as the occurrence of one or
more of the following Defaults, and the failure of Lessee to cure such Default
within any applicable grace period:

            (a)   The abandonment of the Premises; or the vacating of the
Premises without providing a commercially reasonable level of security, or where
the coverage of the property insurance described in Paragraph 8.3 is jeopardized
as a result thereof, or without providing reasonable assurances to minimize
potential vandalism.

            (b)   The failure of Lessee to make any payment of Rent or any
Security Deposit required to be made by Lessee hereunder, whether to Lessor or
to a third party, when due, to provide reasonable evidence of insurance or
surety bond, or to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of 3
business days following written notice to Lessee.

            (c)   The failure by Lessee to provide (i) reasonable written
evidence of compliance with Applicable Requirements, (ii) the service contracts,
(iii)the rescission of an unauthorized assignment or subletting, (iv) an
Estoppel Certificate, (v) a requested subordination,(vi) evidence concerning any
guaranty and/or Guarantor, (vii) any document requested under Paragraph 41
(easements), or (viii) any other documentation or information which Lessor may
reasonably require of Lessee under the terms of this Lease, where any such
failure continues for a period of 10 days following written notice to Lessee.

            (d)   A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 2.9 hereof,
other than those described in subparagraphs 13.1(a),(b) or (c), above, where
such Default continues for a period of 30 days after written notice; provided,
however, that if the nature of Lessee's Default is such that more that 30 days
are reasonable required for its cure, then it shall not be deemed to be a Breach
if Lessee commences such cure within said 30 day period and thereafter
diligently prospectus such cure to completion.

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

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

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

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

            (a)   Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of the District within which the Premises are located
at the time of award plus one percent. Efforts by Lessor to mitigate damages
caused by Lessee's Breach of this Lease shall not waive Lessor's right to
recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding any unpaid Rent and damages as are recoverable
therein, or Lessor may reserve the right to recover all or any part thereof in a
separate suit. If a notice and grace period required under Paragraph 13.1 was
not previously given, a notice to pay rent or quit, or to perform or quit given
to Lessee under the unlawful detainer statute shall also constitute the notice
required by Paragraph 13.1. In such case, the applicable grace period required
by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and
the failure of Lessee to cure the Default within the greater of the two such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.

            (b)   Continue the Lease and Lessee's right to possession and
recover the Rent as it becomes due, in which event Lessee may sublet or assign,
subject only to reasonable limitations. Acts of maintenance efforts to relet,
and/or the appointment of a receiver to protect the Lessor's interests, shall
not constitute a termination of the Lessee's right to possession.

            (c)   Pursue any other remedy now or hereafter available under the
laws or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's right
to possession shall not relieve Lessee from liability under any indemnity
provisions of this Lease as to matters occurring or accruing during the term
hereof or by reason of Lessee's occupancy of the Premises.

      13.3  INDUCEMENT RECAPTURE. Any agreement for free or abated rent or other
charges, or for the giving or paying by Lessor to or for Lessee of any cash or
other bonus, inducement or consideration for Lessee's entering into this Lease,
all of which concessions are hereinafter referred to as "INDUCEMENT
PROVISIONS", shall be deemed conditioned upon Lessee's full and faithful
performance of all of the terms, covenants and conditions of this Lease. Upon
Breach of this Lease by Lessee, any such inducement Provision shall
automatically be deemed deleted from this Lease and of no further force or
effect, and any rent, other charge, bonus, inducement or consideration
theretofore abated, given or paid by Lessor under such an inducement Provision
shall be immediately due and payable by Lessee to Lessor, notwithstanding any
subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or
the cure of the Breach which initiated the operation of this paragraph shall not
be deemed a waiver by Lessor of the provisions of this paragraph unless
specifically so stated in writing by Lessor at the time of such acceptance.

      13.4  LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
of Rent will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent
shall not be received by Lessor within 5 days after such amount shall be due,
then without any requirement for notice to Lessee, Lessee shall pay to Lessor a
one-time late charge equal to 10% of each such overdue amount or $100, whichever
is greater. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of such late
payment. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent the exercise of any of the other rights and remedies granted hereunder.
In the event that a late charge is payable hereunder, whether or not collected,
for 3 consecutive installments of Base Rent, then notwithstanding any provision
of this Lease to the contrary Base Rent shall, at Lessor's option, become due
and payable quarterly in advance.

      13.5  INTEREST. Any monetary payment due Lessor hereunder, other than late
charges, not received by Lessor, when due as to scheduled payments (such as Base
Rent) or within 30 days following the date on which it was due for non-scheduled
payment, shall bear interest from the date when due, as to scheduled payments,
or the 31st day after it was due as to non-scheduled payments. The interest
("INTEREST") charged shall be equal to the prime rate reported in the Wall
Street Journal as published closest prior to the date when due plus 4%, but
shall not exceed the maximum rate allowed by law interest is payable in addition
to the potential late charge provided for in Paragraph 13.4.

      13.6  BREACH BY LESSOR.

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

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            (b)   PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that
neither Lessor nor Lander cures said breech within 30 days after receipt of said
notice, or if having commenced said cure they do not diligently pursue it to
completion, then Lessee may elect to cure said breach at Lessee's expense and
offset from Rent an amount equal to the greater of one month's Base Rent or the
Security Deposit, and to pay an excess of such expense under protest, reserving
Lessee's right to reimbursement from Lessor. Lessee shall document the cost of
said cure and supply said documentation to Lessor.

14.   CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(collectively "CONDEMNATION"), this Lease shall terminate as to the part taken
as of the date the condemning authority takes title or possession, whichever
first occurs. If more than 10% of the floor area of the Unit, or more than 25%
of Lessee's Reserved Parking Spaces, is taken by Condemnation, Lessee may, at
Lessee's option, to be exercised in writing within 10 days after Lessor shall
have given Lessee written notice of such taking (or in the absence of such
notice, within 10 days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in proportion
to the reduction in utility of the Premises caused by such Condemnation.
Condemnation awards and/or payments shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold, the value of the part taken, or for severance damages; provided,
however, that Lessee shall be entitled to any compensation for Lessee's
relocation expenses, loss of business goodwill and/or Trade Fixtures, without
regard to whether or not this Lease is terminated pursuant to the provisions of
this Paragraph. All Alterations and Utility Installations made to the Premises
by Lessee, for purposes of Condemnation only, shall be considered the property
of the Lessee and Lessee shall be entitled to any and all compensation which is
payable therefor. In the event that this Lease is not terminated by reason of
the Condemnation, Lessor shall repair any damage to the Premises caused by such
Condemnation.

15.   BROKERAGE FEES.

      15.1  ADDITIONAL COMMISSION. In addition to the payments owed pursuant to
Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in
writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee
acquires from Lessor any rights to the Premises or other premises owned by
Lessor and located within the Project, (c) if Lessee remains in possession of
the Premises, with the consent of Lessor, after the expiration of this Lease, or
(d) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then, Lessor shall pay Brokers a fee in accordance
with the schedule of the Brokers in effect at the time of the execution of this
Lease.

      15.2  ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease shall be deemed to have assumed Lessor's obligation
hereunder. Brokers shall be third party beneficiaree of the provisions of
Paragraphs 1.10, 15, 22 and 31. If Lessor falls to pay to Brokers any amounts
due as and for brokerage fees pertaining to this Lease when due, then such
amounts shall accrue interest. In addition, if Lessor falls to pay any amounts
to Lessee's Broker when due, Lessee's Broker may send written notice to Lessor
and Lessee of such failure and if Lessor falls to pay such amounts within 10
days after said notice, Lessee shall pay said monies to its Broker and offset
such amounts against Rent. In addition, Leesee's Broker shall be deemed to be a
third party beneficiary of any commission agreement entered into by and/or
between Lessor and Lessor's Broker for the limited purpose of collecting any
brokerage fee owed.

      15.3  REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee and
Lessor each represent and warrant to the other that it has had no dealings with
any person, firm, broker or finder (other than the Brokers, if any) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.

16.   ESTOPPEL CERTIFICATES.

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

            (b)   If the Responding Party shall fall to execute or deliver the
Estoppel Certificate within such 10 day period, the Requesting Party may execute
an Estoppel Certificate stating that: (i) the Lease is in full force and effect
without modification except as may be represented by the Requesting Party, (ii)
there are no uncured defaults in the Requesting Party's performance, and (iii)
if Lessor is the Requesting Party, not more than one month's rent has been paid
in advance. Prospective purchasers and encumbrances may rely upon the Requesting
Party's Estoppel Certificate, and the Responding Party shall be estopped from
denying the truth of the facts contained in said Certificate.

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

17.   DEFINITION OF LESSOR, The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's interest in the prior lease. In the event of
a transfer of Lessor's title or interest in the Premises or this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined. Notwithstanding the above, and subject to the provisions of Paragraph
20 below, the original Lessor under this Lease, and all subsequent holders of
the Lessor's interest in this Lease shall remain liable and responsible with
regard to the potential duties and liabilities of Lessor pertaining to Hazardous
Substances as outlined in Paragraph 6.2 above.

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

19.   DAYS. Unless otherwise specifically indicated to the contrary, the word
"DAYS" as used in this Lease shall mean and refer to calendar days.

20.   LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17 above,
the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the individual partners of Lessor or its or their
individual partners, directors, officers or shareholders, and Lessee shall look
to the Premises, and to no other assets of Lessor, for the satisfaction of any
liability of Lessor with respect to this Lease, and shall not seek recourse
against the individual partners of Lessor, or its or their individual partners,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.

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

22.   NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the use, nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. The liability (including court costs and attorneys'
fees), of any Broker with respect to negotiation, execution, delivery or
performance by either Lessor or Lessee under this Lease or any amendment or
modification hereto shall be limited to an amount up to the fee received by
such, Broker pursuant to this Lease; provided, however, that the foregoing
limitation on each Broker's liability shall not be applicable to any gross
negligence of willful misconduct of such Broker.

23.   NOTICES.

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

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

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means shall be deemed delivered upon telephone confirmation of receipt
(confirmation report from fax machine is sufficient), provided a copy is also
delivered via delivery or mail. If notice is received on a Saturday, Sunday or
legal holiday, it shall be deemed received on the next business day.

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

25.   DISCLOSURES REGARDING THE NATURE OF A REAL ESTATE AGENCY RELATIONSHIP.

      (a)   When entering into a discussion with a real estate agent regarding a
real estate transaction, a Lessor or Lessee should from the outset understand
what type of agency relationship or representation it has with the agent or
agents in the transaction. Lessor and Lessee acknowledge being advised by the
Brokers in this transaction, as follows:

            (i)   Lessor's Agent. A Lessor's agent under a listing agreement
with the Lessor acts as the agent for the Lessor only. A Lessor's agent or
subagent has the following affirmative obligations: To the Lessor: A fiduciary
duty of utmost care, integrity, honesty, and loyalty in dealings with the
Lessor. To the Lessee and the Lessor: (a) Diligent exercise of reasonable skills
and care in performance of the agent's duties. (b) A duty of honest and fair
dealing and good faith. (c) A duty to disclose all facts known to the agent
materially affecting the value or desirability of the property that are not
known to, or within the diligent attention and observation of, the Parties. An
agent is not obligated to reveal to either Party any confidential information
obtained from the other Party which does not involve the affirmative duties set
forth above.

            (ii)  Lessee's Agent. An agent can agree to act as agent for the
Lessee only. In these situations, the agent is not the Lessor's agent, even if
by agreement the agent may receive compensation for services rendered, either in
full or in part from the Lessor. An agent acting only for a Lessee has the
following affirmative obligations. To the Lessee: A fiduciary duty of utmost
care, integrity, honesty, and loyalty in dealings with the Lessee. To the
Lessee and the Lessor: (a) Diligent exercise of reasonable skills and care in
performance of the agent's duties. (b) A duty of honest and fair dealing and
good faith. (c) A duty to disclose all facts known to the agent materially
affecting the value or desirability of the property that are not known to, or
within the diligent attention and observation of, the Parties. An agent is not
obligated to reveal to either Party any confidential information obtained from
the other Party which does not involve the affirmative duties set forth above.

            (iii) Agent Representing Both Lessor and Lessee. A real estate
agent, either acting directly or through one or more associate licenses, can
legally be the agent of both the Lessor and the Lessee in a transaction, but
only with the knowledge and consent of both the Lessor and the Lessee. In a dual
agency situation, the agent has the following affirmative obligations to both
the Lessor and the Lessee: (a) A fiduciary duty of utmost care, integrity,
honesty and loyalty in the dealings with either Lessor or the Lessee. (b) Other
duties to the Lessor and the Lessee as stated above in subparagraphs (i) or
(ii), in representing both Lessor and Lessee, the agent may not without the
express permission of the respective Party, disclose to the other Party that the
Lessor will accept rent in an amount less than that indicated in the listing or
that the Lessee is willing to pay a higher rent than that offered. The above
duties of the agent in a real estate transaction do not relieve a Lessor or
Lessee from the responsibility to protect their own interests. Lessor and Lessee
should carefully read all agreements to assure that they adequately express
their understanding of the transaction. A real estate agent is a person
qualified to advise about real estate. If legal or tax advice is desired,
consult a competent professional.

      (b)   Brokers have no responsibility with respect to any default or breach
hereof by either Party. The liability (including court costs and attorneys'
fees), of any Broker with respect to any breach of duty, error or omission
relating to this Lease shall not exceed the fee received by such Broker pursuant
to this Lease; provided, however, that the foregoing limitation on each Broker's
liability shall not be applicable to any gross negligence or willful misconduct
of such Broker.

      (c)   Buyer and Seller agree to identify to Brokers as "Confidential" any
communication or information given Brokers that is considered by such Party to
be confidential.

26.   NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increased to
150% of the Base Rent applicable immediately preceding the expiration or
termination. Nothing contained herein shall be construed as consent by Lessor to
any holding over by Lessee.

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

28.   COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the Parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. This Lease shall not be construed as if prepared by one of the
Parties, but rather according to its fair meaning as a whole, as if both Parties
had prepared it.

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

30.   SUBORDINATION; ATTORNMENT: NON-DISTURBANCE.

      30.1  SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed upon the Premises, to any and all advances made on the security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices (in this Lease together
referred to as "LENDER") shall have no liability or obligation to perform any of
the obligations of Lessor under this Lease. Any Lender may elect to have this
Lease and/or any Option granted hereby superior to the lien of its Security
Device by giving written notice thereof to Lessee, whereupon this Lease and such
Options shall be deemed prior to such Security Device, notwithstanding the
relative dates of the documentation or recordation thereof.

      30.2  ATTORNMENT. In the event that Lessor transfers title to the
Premises, or the Premises are acquired by another upon the foreclosure or
termination of a Security Device to which this Lease is subordinated (i) Lessee
shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to
such new owner, and upon request, enter into a new lease, containing all of the
terms and provisions of this Lease, with such new owner for the remainder of the
term hereof, or, at the election of such new owner, this Lease shall
automatically become a new Lease between Lessee and such new owner, upon all of
the terms and conditions hereof, for the remainder of the term hereof, and (ii)
Lessor shall thereafter be relieved of any further obligations hereunder and
such new owner shall assume all of Lessor's obligations hereunder, except that
such new owner shall not: (a) be liable for any act or omission of any prior
lessor or with respect to events occurring prior to acquisition of ownership;
(b) be subject to any offsets or defenses which Lessee might have against any
prior lessor, (c) be bound by prepayment of more than one month's rent, or (d)
be liable for the return of any security deposit paid to any prior lessor.

      30.3  NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
including any options to extend the term hereof, will not be disturbed so long
as Lessee is not in Breach hereof and attorns to the record owner of the
Premises. Further, within 60 days after the execution of this Lease, Lessor
shall use its commercially reasonable efforts to obtain a Non-Disturbance
Agreement from the holder of any pre-existing Security Device which is secured
by the Premises. In the event that Lessor is unable to provide the
Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee's
option, directly contact Lender and attempt to negotiate for the execution and
delivery of a Non-Disturbance Agreement.

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

31.   ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
involving the Premises whether founded in tort, contract or equity, or to
declare rights hereunder, the Prevailing Party (as hereafter defined) in any
such proceeding, action, or appeal thereon, shall be entitled to reasonable
attorneys' fees. Such fees may be awarded in the same suit or recovered in a
separate suit, whether or not such action or proceeding is pursued to decision
or judgement. The term, "PREVAILING PARTY" shall include, without limitation, a
Party or Broker who substantially obtains or defeats the relief sought, as the
case may be, whether by compromise, settlement, judgment, or the abandonment by
the other Party or Broker of its claim or defense. The attorneys' fees award
shall not be computed in accordance with any court fee schedule, but shall be
such as to fully reimburse all attorneys' fees reasonably incurred. In addition,
Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in connection
with such Default or resulting Breach ($200 is a reasonable minimum per
occurrence for such services and consultation).

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32.   LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time. In the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or tenants, and making such alterations,
repairs, improvements or additions to the Premises as Lessor may deem necessary.
All such activities shall be without abatement of rent or, liability to Lessee.
Lessor may at any time place on the Premises any ordinary "FOR SALE" signs and
Lessor may during the last 6 months of the term hereof place on the Premises any
ordinary "FOR LEASE" signs. Lessee may at any time place on the Premises any
ordinary "FOR SUBLEASE" sign.

33.   AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.

34.   SIGNS. Except for ordinary "FOR SUBLEASE" signs which may be placed only
on the Premises, Lessee shall not place any sign upon the Project without
Lessor's prior written consent. All signs must comply with all Applicable
Requirements.

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

36.   CONSENTS. Except as otherwise provided herein, wherever in this Lease the
consent of a Party is required to an act by or for the other Party, such consent
shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs
and expenses (Including but not limited to architects', attorneys'. engineers'
and other consultants' fees) incurred in the consideration of, or response to, a
request by Lessee for any Lessor consent, including but not limited to consents
to an assignment, a subletting or the presence or use of a Hazardous Substance,
shall be paid by Lessee upon receipt of an invoice and supporting documentation
therefor. Lessor's consent to any act, assignment or subletting shall not
constitute an acknowledgment that no Default or Breach by Lessee of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent. The failure to specify herein any particular
condition to Lessor's consent shall not preclude the imposition by Lessor at the
time of consent of such further or other conditions as are then reasonable with
reference to the particular matter for which consent is being given. In the
event that either Party disagrees with any determination made by the other
hereunder and reasonably requests the reasons for such determination, the
determining party shall furnish its reasons in writing and in reasonable detail
within 10 business days following such request.

37.   GUARANTOR.

      37.1  EXECUTION. The Guarantors, if any, shall each execute a guaranty in
the form most recently published by the American Industrial Real Estate
Association, and each such Guarantor shall have the same obligations as Lessee
under this Lease.

      37.2  DEFAULT. It shall constitute a Default of the Lessee if any
Guarantor falls or refuses, upon request to provide: (a) evidence of the
execution of the guaranty, Including the authority of the party signing on
Guarantor's behalf to obligate Guarantor, and in the case of a corporate
Guarantor, a certified copy of a resolution of its board of directors
authorizing the making of such guaranty, (b) current financial statements, (c)
an Estoppel Certificate, or (d) written confirmation that the guaranty is still
in effect.

38.   QUIET POSSESSION. Subject to payment by Lessee of the Rent and
performance of all of the covenants, conditions and provisions on Lessee's part
to be observed and performed under this Lease, Lessee shall have quiet
possession and quiet enjoyment of the Premises during the term hereof.

39.   OPTIONS. If Lessee is granted an option, as defined below, then the
following provisions shall apply.

      39.1  DEFINITION. "OPTION" shall mean: (a) the right to extend the term of
or renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor: (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.

      39.2  OPTIONS PERSONAL TO ORIGINAL LESSEE. Any Option granted to Lessee in
this Lease is personal to the original Lessee, and cannot be assigned or
exercised by anyone other than said original Lessee and only while the original
Lessee is in full possession of the Premises and, if requested by Lessor, with
Lessee certifying that Lessee has no intention of thereafter assigning or
subletting.

      39.3  MULTIPLE OPTIONS. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options have been validly exercised.

      39.4 EFFECT OF DEFAULT ON OPTIONS.

            (a)   Lessee Shall have no right to exercise an Option: (i) during
the period commencing with the giving of any notice of Default and continuing
until said Default is cured. (ii) during the period of time any Rent is unpaid
(without regard to whether notice thereof is given Lessee), (iii) during the
time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has
been given 3 or more notices of separate Default, whether or not the Defaults
are cured, during the 12 month period immediately preceding the exercise of the
Option.

            (b)   The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).

            (c)   An Option shall terminate and be of no further force or
effect, notwithstanding Lessee's due and timely exercise of the Option, If,
after such exercise and prior to the commencement of the extended term, (i)
Lessee fails to pay Rent for a period of 30 days after such Rent becomes due
(without any necessity of Lessor to give notice thereof). (ii) Lessor gives to
Lessee 3 or more notices of separate Default during any 12 month period, whether
or not the Defaults are cured, or (iii) if Lessee commits a Breach of this
Lease.

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

41.   RESERVATIONS. Lessor reserves the right: (i) to grant, without the consent
or joinder of Lessee, such easements, rights and dedications that Lessor deems
necessary, (ii) to cause the recordation of parcel maps and restrictions, and
(iii) to create and/or install new utility raceways, so long as such easements,
rights, dedications, maps, restrictions, and utility raceways do not
unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to
sign any documents reasonably requested by Lessor to effectuate such rights.

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

43.    AUTHORITY If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each Individual executing
this Lease  on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each party
shall, within 30 days after request, deliver to the other party satisfactory
evidence of such authority.

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

45.   OFFER. Preparation of this Lease by either party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.

46    AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.

47.   MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.

48.   WAIVER OF JURY TRIAL. The Parties hereby waive their respective rights to
trial by jury in any action or proceeding involving the Property or arising

                                  Page 11 of 12

(C) 1999 - AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION            REVISED
<PAGE>

out of this Agreement.

49.   MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the Mediation
and/or the Arbitration of all disputes between the Parties and/or Brokers
arising out of this Lease [ ]s [ ]s not attached to this Lease.

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

ATTENTION; NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO;

1.    SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2.    RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS,
COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND THE SUITABILITY OF THE
PREMISES FOR LESSEE'S INTENDED USE,

WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA. CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES ARE LOCATED.

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

Executed at:  Newport Beach,Ca            Executed at: CARLSBAD
on:         8/30/00                       on:   AUGUST 28, 2000

By LESSOR:                                By LESSEE:
SM/CT Partners L.P., a Delaware Limited   Xenonics, Inc., a Delaware Corporation
Partnership

By:  Koll Bren, Schreiber Realty Advisors, Inc., as
    Agent

By: Ken McKay                             By: Jeff Kennedy
    ----------------------------              ----------------
Name Printed: Ken McKav                   Name Printed: Jeff  Kennedy
Title: Senior V.P.                        Title:President

By:______________________________________ By:________________________________
Name Printed:____________________________ Name Printed:______________________
Title:___________________________________ Title:_____________________________
Address: c/o Essex Realty Management      Address:___________________________
3146  Redhill, #150, Costa Mesa, CA 92626 ___________________________________

Telephone: (214) 540-5188                 Telephone: (760) 438 - 4004
                                                     ------------------------
Facsimile: (214) 540 -3741                Facsimile:_________________________
Federal ID No. __________________________ Federal ID No._____________________

These forms are often modified to meet changing requirements of law and needs of
the Industry. Always write or call to make sure you are utilizing the most
current form: American Industrial Real Estate Association, 700 South Flower
Street, Suite 600, Los Angeles, CA 90017. (213) 687 - 8777

       (C)Copyright 1999 By American Industrial Real Estate Association.
                              All rights reserved.
   No part of these works may be reproduced In any form without permission In
                                    writing.

                                  Page 12 of 12

(C)1999- AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION REVISED
<PAGE>
                                   ADDENDUM I

THIS ADDENDUM IS ATTACHED TO AND MADE A PART OF THE LEASE AGREEMENT
DATED AUGUST 16, 2000, BETWEEN SM/CT PARTNERS, L.P., A DELAWARE LIMITED
PARTNERSHIP ("LESSOR"), AND XENONICS, INC., A DELAWARE CORPORATION
("LESSEE"), FOR THE PREMISES COMMONLY KNOWN AS 2236 RUTHERFORD ROAD,
SUITE 121-123, CARLSBAD, CALIFORNIA 92008.

50.   BASE LEASE RATE SCHEDULE:

      September 2000 : Free - early occupancy
      Month 1:         $8,261/month ($.90/sf)NNN*
      Month 2-3:       Free of base rent
      Month 4-12:      $8,261/month ($.90/sf)NNN
      Years 2-4:       4.0% fixed annual increases

51.   *Tenant shall pay prorata share of all operating expenses including, but
      not limited to, real estate taxes, insurance, common area maintenance,
      maintenance and utilities - currently estimated at $.18/sf /month. NNN
      charges will be collected during the free rent period.

52.   SECURITY DEPOSIT:

      Tenant shall pay a Security Deposit upon lease execution equal to $25,000,
      Such Security Deposit will be reduced to the sum of $12,500 after Month 13
      of the lease term if Xenonics' audited financial statement show the
      company has reached profitability. After month twenty-five (25) of the
      lease term the Security Deposit will be reduced to one (1) month's rent
      provided that Tenant is not in default of the lease and maintains
      profitability.

53.   TENANT IMPROVEMENTS:

      Landlord, at Landlord's sole cost and expense, shall provide the
      following:

      a) Install building standard tile floor in the area designated in Exhibit
      A;

      b) Construct three (3) offices along the window line on the 2nd floor per
      Exhibit A;

      c) Install four (4) electrical drops in the production area (standard 4
      prong; 110v); and

      d) Install door between warehouse and restroom area per Exhibit A.

      Executed at: Newport Beach Ca.             Execute at:  CARLSBAD
                  ---------------------                     --------------------
          8/30/00                                    AUGUST 28, 2000
      on: ----------------------------           on: ---------------------------

      BY LESSOR:                                         BY LESSEE:

      SM/CT Partners,L.P.,a Delaware Limited Partnership  Xenonics, Inc.,
      --------------------------------------------------  --------------
      By: Koll Bren Schreiber Realty Advisors, Inc., as  a Delaware Corporation
          Agent                                          ----------------------

      By: /s/ Ken Mc Kay                     By: /s/ JEFFREY P. KENNEDY
        ---------------------------------        -------------------------------
      Name Printed: Ken Mc KAy               Name Printed: JEFFREY P. KENNEDY

      Title: Senior VP                       Title: PRESIDENT/COO

      By: ________________________________  By: ________________________________
      Name Printed: ______________________  Name Printed: ______________________
      Title: _____________________________  Title: _____________________________
      Address: ___________________________  Address: ___________________________
      ____________________________________  ____________________________________
      Telephone: _________________________  Telephone:    (760) 438-4004
      Fascsimile: ________________________  Fascsimile: ________________________

<PAGE>

                                   EXHIBIT "A"
                                  THE PREMISES

                                      [MAP]

<PAGE>

                                  EXHIBIT "B"
                             RESEARCH CENTER PLAZA
                        2232, 2234, 2236 RUTHERFORD ROAD
                                  CARLABAD, CA

                                      [MAP]
<PAGE>

                                   EXHIBIT "C"

                              Rules and Regulations

      (1)   Security. Lessor may from time to time adopt systems and procedures
for the security or safety of the Industrial Center, any persons occupying,
using or entering the same, or any equipment, furnishings or contents thereof,
and Lessee shall comply with Lessor's reasonable requirements relating thereto.

      (2)   Return of Keys. At the end of the Term, Lessee shall promptly return
to Lessor all keys for the Building and Premises which are in the possession of
Lessee.

      (3)   Window Coverings. Lessee shall observe Lessor's rules with respect
to the Building maintaining a uniform exterior appearance, and shall not install
deflective film, window shades, screens, drapes, covers or other materials on or
at any window in the Premises without Lessor's prior written consent.

      (4)   Repair, Maintenance, Alterations and Improvements. Lessee shall
perform Lessee's repair, maintenance, alterations and improvements at the
Premises and in a manner which will not interfere with the rights of other
tenants in the Industrial Center.

      (5)   Water Fixtures. Lessee shall not use water closets or water fixtures
for any purposes for which they are not intended. Lessee shall pay any cost
incurred as a result of any misuse of water closets or fixtures by Lessee.

      (6)   Antennas and Aerials. No antenna or aerial shall be erected on the
roof or exterior walls of the Building without the prior written consent of
Lessor. Notwithstanding that Lessor consents, Lessor reserves the right to
assess a reasonable charge for such use which shall be paid monthly as
Additional Rent. Any antenna or aerial so installed without prior consent shall
be subject to removal without notice at any time, and Lessee shall bear all
costs of removal and any repairs necessitated by virtue of its attachment to the
Building.

      (7)   Personal Use of Premises. The Premises shall not be used or
permitted to be used for residential lodging or sleeping purposes.

      (8)   Deliveries. Lessee shall insure that deliveries of materials and
supplies to the Premises are made through such entrances, elevators and
corridors and in a manner so as to not interfere with other tenants. Lessee
shall promptly pay or cause to be paid to Lessor the cost of repairing any
damage in or to the Industrial Center caused by any person making such
deliveries.

      (9)   Solicitations. Lessor reserves the right to restrict or prohibit
canvassing, soliciting or peddling in the Industrial Center.

      (10)  Refuse. Lessee shall place all refuse in proper receptacles
contracted for by Lessor at its expense at the Premises within the appropriate
trash enclosures (if any) provided by Lessor for the Industrial Center, and
shall not place such refuse in the Common Areas of the Industrial Center.

      (11)  Dangerous or illegal Activities. Lessee shall not make any use of
the Premises which involves any danger of injury to any person, nor shall the
same be used for any illegal purpose.

      (12)  Proper Conduct. Lessee shall not conduct itself in any manner which
is inconsistent with the character of the Building as a first quality building
or which will impair the comfort and convenience of other tenants in the
Industrial Center.

<PAGE>
      (13) Employees, Agents and Invitees. In these Rules and Regulations,
"Lessee" includes the employees, contractors, agents, invitees and licensees of
Lessee and other permitted by Lessee to use or occupy the Premises.

      (14) Extermination. If the Premises shall become inferred with vermin,
Lessee, at its expense, shall cause the same to be exterminated as may be
required by contractors approved by Lessor.

      (15) Building Program. To the extent required by any governmental
direction, approval, permit or certificate of occupancy issued to or for the
Building, upon the request of Lessor, Lessee at its sole cost and expense,
shall cooperate with Lessor in the implementation of programs of general public
and social benefit applicable to Lessor and the occupants of the Building.

      (16) Outside Storage. In no event shall Lessee be permitted to store any
materials, supplies or equipment in any areas outside the Building.

      (17) Noise. No loud speakers, televisions, phonographs, radios or other
devices shall be used in a manner so as to be heard or seen outside of the
Premises without the prior written consent of the Lessor.

      (18) Locks. No additional locks or bolts of any kind shall be placed upon
any of the doors or windows by Lessee, nor shall any changes be made in existing
locks or the mechanisms thereof, without Lessor's approval. Lessee shall upon
the termination of Lessee's tenancy return to Lessor all keys to stores, offices
and toilet rooms either furnished to or otherwise procured by Lessee, and in the
vent of the loss of any keys so furnished, Lessee shall pay to Lessor the cost
thereof.

      (19) Windows Shades. Lessee will not install blinds, shades, awnings or
other forms of inside or outside window coverings, or window ventilators or
similar devices without the prior written consent of Lessor.

      (20)  Installation of Floor Coverings. Lessee shall not lay vinyl asbestos
tile or other similar floor covering so that the same shall be affixed to the
floor of the Premises in any manner except by a paste, or other material, which
may easily be removed with water, the use of cement or other similar adhesive
materials being expressly prohibited. The method of affixing any such vinyl
asbestos tile or other similar floor covering to the floor, as well as the
method of affixing carpets or rugs to the Premises, shall be subject to approval
by Lessor. The expense of repairing any damage resulting from a violation of
this rule, shall be borne by such Lessee by whom, or by whose agents, clerks,
employees, or visitors, the damage shall have been caused.

      (21)  Requirements of Lessee. The requirements of Lessee will be attended
to only upon application at the office of Lessor. Lessor's employee shall not
perform any work nor do anything outside of their regular duties unless under
special instructions from the office, and shall not admit any persons (Lessee or
otherwise) to any office without instructions from the office of Lessor.

      (22)  Amendments to Rules. Lessor reserves the right from time to time to
amend or supplements the foregoing rules and regulations, and to adopt and
promulgate additional reasonable rules and regulations applicable to the
Premises. Notice of such rules and regulations and amendments and supplements
thereto, if any, shall be given  to the Lessee.

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