Document:

EXHIBIT 10.5

DATE: 4/04/03

LANDLORD: GEOMAX

TENANT: Sierra Monitor Corporation

PREMISES: 1991 Tarob Court Milpitas, CA

                                 LEASE AGREEMENT

                                TABLE OF CONTENTS

Paragraph                                                                   Page
---------                                                                   ----

 1.  Fundamental Lease Provisions............................................. 1
 2.  Premises................................................................. 1
 3.  Use...................................................................... 2
 4.  Rent..................................................................... 2
 5.  Term..................................................................... 3
 6.  Possession............................................................... 3
 7.  Rules and Regulations and Common Area.................................... 3
 8.  Parking.................................................................. 4
 9.  Expenses of Operation and Maintenance of the Complex......................4
10.  Acceptance and Surrender of Premises..................................... 4
11.  Alterations and Additions................................................ 4
12.  Tenant Maintenance........................................................5
13.  Utilities.................................................................5
14.  Taxes.....................................................................5
15.  Liability Insurance.......................................................6
16.  Tenant's Property Insurance and Worker's Compensation.....................6
17.  Landlord's Insurance; Waiver of Subrogation...............................6
18.  Indemnification; Exemption of Landlord from Liability.....................6
19.  Compliance................................................................7
20.  Liens.....................................................................7
21.  Assignment and Subletting.................................................7
22.  Subordination and Mortgages...............................................7
23.  Entry by Landlord.........................................................7
24.  Bankruptcy; Tenant's Default..............................................8
25.  Abandonment...............................................................8
26.  Destruction...............................................................8
27.  Eminent Domain............................................................9
28.  Sale or Conveyance by Landlord............................................9
29.  Attornment to Lender or Third Party.......................................9
30.  Holding Over..............................................................9
31.  Certificate of Estoppel...................................................9
32.  Construction Changes......................................................9
33.  Right of Landlord to Perform.............................................10
34.  Attorney's Fees..........................................................10
35.  Waiver...................................................................10
36.  Notices..................................................................10
37.  Examination of Lease.....................................................10
38.  Default by Landlord......................................................10
39.  Corporate Authority......................................................10
40.  Limitation of Liability..................................................10
41.  Brokers..................................................................10
42.  Signs....................................................................10
43.  Hazardous Materials......................................................11
44.  Interest.................................................................11
45.  Miscellaneous and General Provisions.....................................11

Exhibits
--------

     A  Legal Description
     B  Site Plan of Complex and Building
     C  Tenant Improvements Work Letter
     D  Acknowledgment of Commencement
     E  Hazardous Materials

Riders
------
     1 - Option

NNN
<PAGE>

This Lease  supersedes  the old Lease Dated  7/31/00  which is  Terminated as of
5/1/03.

                                 LEASE AGREEMENT

DATED:    April 4, 2003
LANDLORD: GEOMAX, a California general partnership
TENANT:   Sierra Monitor Corporation, a California Corporation

      1. FUNDAMENTAL LEASE PROVISIONS.

A.    PREMISES:  Approximately  15,788  square  feet  of  leasable  area  in the
      building containing approximately leasable square feet located on a parcel
      of  land in the  County  of  Santa  Clara  State  of  California,  as more
      particularly  described  in the legal  description  attached  as Exhibit A
      hereto,  with a  common  address  of 1991  Tarob  Court  Milpitas,  CA The
      location of Premises is indicated  on the site plan  attached as Exhibit B
      hereto. (Paragraph 2)

B.    LEASE  TERM:  72 full  calendar  months,  plus  any  partial  month at the
      beginning of the Lease Term. (Paragraph 5)

C.    COMMENCEMENT   DATE:  May  1,  2003,  or  twenty-four   (24)  hours  after
      substantial  completion  of the Tenant  Improvements,  whichever is later.
      (Paragraph 5)

D.    INITIAL BASIC RENT: (Paragraph 4.A)

Lease Months (inclusive)   Basic Rent (per leasable sq. ft.)  Basic Rent (total)
------------------------   ---------------------------------  ------------------

01 - 72                    1.656 NNN                          $ 26,149.00

E.    ADDITIONAL  RENT:  Real  Property  Taxes,   insurance   premiums,   tenant
      association dues (if any),  maintenance and other costs and expenses under
      this Lease. (Paragraph 4.E)

F.    TENANT'S SHARE: Forty-two 4/10percent (42.4%) paragraph 4.E)

G.    PREPAID  RENT:  $ None for the  ____________  month(s)  of the Lease Term.
      (Paragraph 4.H)

H.    BASIC RENT ADJUSTMENT: The Basic Rent shall be subject to a CPI adjustment
      on the  first day of each of the  following  full  calendar  months of the
      Lease Term: None (Paragraph 4.B)

I.    SECURITY DEPOSIT: $ 40,000.00 (Paragraph 4.G)

J.    PERMITTED USE:  Research & Development,  light  manufacturing  and related
      activities  including  admin.,  Manufacturing  & design of  instruments to
      monitor hazardous gases. (Paragraph 3)

K.    NUMBER OF PARKING SPACES: Sixty (60) (Paragraph 8)

L.    ADDRESSES FOR NOTICES AND PAYMENT OF RENT (Paragraphs 4.F and 36):

To Landlord:   GEOMAX                    To Tenant: Sierra Monitor Corporation
               2025 Gateway Place, #124             1991 Tarob Court
               San Jose, CA 95111                   Milpitas, CA 95035
Facsimile No.: 408-452-0268                         Facsimile No.: 408-262-9042

M.    TENANT'S BROKER: None (Paragraph 41)

N.    GUARANTORS: None

O.    OTHER  PROVISIONS:  The following  Riders are added hereto and included as
      part of this Lease:

                  Rider No.           Paragraph No.     Title
                  ---------           -------------     -----

                  1                                     Option

Each  reference in this Lease to any of the provisions in this Paragraph 1 shall
be  construed to  incorporate  all of the terms of each such  provision.  In the
event of any conflict between this Paragraph 1 and the balance of the Lease, the
balance of the Lease shall control.

2.    PREMISES.

      A.  Premises.  Landlord  hereby  leases to Tenant and Tenant hereby leases
from Landlord for the Lease Term, at the Rent and upon the terms and  conditions
hereinafter  set forth,  that  certain  space  ("Premises")  within that certain
building ("Building")  described in Paragraph 1.A. As used herein, the "Complex"
shall  mean and  include  all of the land  described  in  Exhibit A and shown on
Exhibit B attached hereto, and all of the buildings, improvements,  fixtures and
equipment now or hereafter situated on said land.

      Said  letting and hiring is upon and subject to the terms,  covenants  and
conditions hereinafter set forth, and Tenant covenants as a material part of the
consideration  for this Lease to perform and observe each and all of said terms,
covenants  and  conditions.  This  Lease  is made  upon  the  condition  of such
performance and observance.

      Landlord  agrees to construct any  improvements  to the Premises  ("Tenant
Improvements") as may be described in Exhibit C attached hereto and incorporated
herein by  reference,  upon such terms and  conditions  as are set forth in such
Exhibit C. The Tenant Improvements shall be deemed  substantially  complete when
Landlord  notifies Tenant in writing that the Tenant  Improvements  (if any) are
substantially  completed  in  accordance  with Exhibit C, subject only to "punch
list" items that do not materially diminish the usefulness of the Premises.

                                       1
Landlord's Initials: ________

Tenant's Initials:   ________
<PAGE>

      B.  Square  Footage.  Landlord  and  Tenant  conclusively  agree  that the
statements of rentable  square  footage  contained  herein shall be deemed to be
correct and binding upon the parties for all purposes under this Lease,  even if
subsequent measurements determine that one or more of such figures is incorrect;
provided,  however, that if the square footage of the Premises,  the Building or
the Complex is increased or decreased as a result of remodeling, reconstruction,
or renovation,  whether due to damage, condemnation or otherwise as permitted or
contemplated  by this Lease,  then upon written  notice from Landlord to Tenant,
such square footage  statements (and all other amounts  calculated based on such
square footage statements) shall be equitable revised in accordance therewith).

3.    USE.  Tenant shall use the Premises only in  conformance  with  applicable
      governmental laws,  regulations,  rules and ordinances,  including without
      limitation the Americans With  Disabilities  Act of 1990 (the "ADA"),  and
      solely  for the  purpose  specified  in  Paragraph  1.J  and for no  other
      purpose. Tenant shall not do or permit to be done in or about the Premises
      or the  Complex  nor bring or keep or permit to be  brought  or kept in or
      about the Premises or the Complex  anything which is prohibited by or will
      in any way increase the existing rate of (or otherwise affect) fire or any
      insurance covering the Premises or the Complex or any part thereof, or any
      of its contents,  or will cause a cancellation  of any insurance  covering
      the Premises or the Complex or any part  thereof,  or any of its contents.
      Tenant  shall  not do or permit  to be done  anything  in, on or about the
      Premises or the Complex  which will in any way obstruct or interfere  with
      the rights of other tenants or occupants of the Complex or injure or annoy
      them, or use or allow the Premises to be used for any  improper,  immoral,
      unlawful or  objectionable  purpose,  nor shall Tenant cause,  maintain or
      permit any nuisance  in, on or about the Premises or the Complex.  No sale
      by auction shall be permitted on the Premises.  Tenant shall not place any
      loads upon the floors, walls, or ceiling, which endanger the structure, or
      place any harmful fluids or other  materials in the drainage system of the
      Building  therein,  or overload  existing  electrical or other  mechanical
      systems. No waste materials or refuse shall be dumped upon or permitted to
      remain upon any part of the Premises or outside of the Premises, except in
      trash containers placed inside exterior enclosures  designated by Landlord
      for that purpose or inside of the  Building  proper  where  designated  by
      Landlord.  No  materials,   supplies,   equipment,  finished  products  or
      semi-finished  products,  raw materials or articles of any nature shall be
      stored upon or permitted to remain outside the Premises. No loudspeaker or
      other device,  system or apparatus which can be heard outside the Premises
      shall be used in or at the Premises  without the prior written  consent of
      Landlord.  Tenant shall not commit or suffer to be committed  any waste in
      or upon the Premises. Tenant shall comply with any covenants,  conditions,
      or  restrictions  ("CC&R's")  affecting  the  Premises,  as the  same  may
      hereafter be amended from time to time,  as well as any  reasonable  rules
      and regulations  promulgated by Landlord from time to time (the "Rules and
      Regulations").  Landlord reserves the right to reasonably amend such Rules
      and Regulations from time to time as Landlord may deem appropriate,  which
      amendment  shall be binding upon Tenant upon delivery of a copy thereof to
      Tenant. Tenant shall use its best efforts to cause its agents,  employees,
      contractors  and  invitees to cooperate  in  observance  of such Rules and
      Regulations,  as the same may be amended from time to time. The provisions
      of this  Paragraph  are for the benefit of Landlord  only and shall not be
      construed  to be for the benefit of any tenant or occupant of the Complex.
      Landlord  shall not be  responsible  to Tenant for the breach of the Rules
      and Regulations by any other tenant or occupant of the Complex.

4.    RENT

      A.    Basic Rent.  Tenant  agrees to pay to Landlord  the sum set forth in
            Paragraph 1.D hereof as monthly basic rent ("Basic Rent"), in lawful
            money of the United States of America,  without  deduction,  offset,
            prior notice, or demand, on the first day of every calendar month of
            the Lease Term, and Landlord agrees to accept such sum as Basic Rent
            for the Premises.

      B.    Partial Months. In the event that the Lease Term commences on a date
            other than the first day of a calendar  month,  on the  Commencement
            Date Tenant  shall pay to Landlord as Basic Rent for the period from
            such  Commencement  Date to the first day of the first full calendar
            month that  proportion of the monthly Basic Rent hereunder which the
            number of days between such  Commencement  Date and the first day of
            the next  succeeding  calendar  month bears to thirty (30), and such
            partial  first month shall not be counted when  computing the number
            of months  in the term of this  Lease.  In the event  that the Lease
            Term is terminated  for any reason on a date other than the last day
            of a calendar  month, on the first day of the last calendar month of
            the Lease Term  Tenant  shall pay to  Landlord as Basic Rent for the
            period  from  said  first  day of said  last  calendar  month to and
            including  the last day of the  Lease  Term that  proportion  of the
            monthly Basic Rent  hereunder  which the number of days between said
            first day of said last  calendar  month and the last day of the term
            hereof bears to thirty (30).

      C.    Late Charge.  Notwithstanding  any other provision of this Lease, if
            Tenant is  delinquent  in the  payment  of Rent as set forth in this
            Paragraph 4, or any part thereof,  Tenant agrees to pay Landlord, in
            addition  to the  delinquent  Rent due, a late  charge for each Rent
            payment which is not actually  received by Landlord  within ten (10)
            days after due date for such  payment.  Said late charge shall equal
            ten (10%)  percent of each Rent payment so in default.  In the event
            that a late charge is payable  hereunder  and not paid by Tenant for
            three (3) consecutive months,  then Rent shall automatically  become
            due and  payable  three (3) months in advance,  rather than  monthly
            notwithstanding  Paragraph 4 or any other provision of this Lease to
            the contrary.

      D.    Additional Rent.  Beginning with the Commencement Date, Tenant shall
            pay  to  Landlord  in  addition  to the  Basic  Rent  the  following
            additional amounts ("Additional Rent"):

            (1)   Tenant's  proportionate  share ("Tenant's Share") as specified
                  in Paragraph  1.F, of all Real Property  Taxes relating to the
                  Complex, as set forth in Paragraph 14, and

            (2)   Tenant's Share of all property  insurance premiums relating to
                  the Complex, as set forth in Paragraph 15, and

            (3)   Tenant's  Share of  expenses  for the  operation,  management,
                  maintenance and repair of the Building (including Common Areas
                  of the  Building) and Common Areas of the Complex in which the
                  Premises are located, as set forth in Paragraph 9, and

            (4)   The  sums  required  to  reimburse  Landlord  for the  cost of
                  repairs  and  maintenance  to the  Premises,  as set  forth in
                  Paragraph 12; and

            (5)   All charges,  costs and expenses,  which Tenant is required to
                  pay hereunder, together with all interest and penalties, costs
                  and expenses including without limitation  attorneys' fees and
                  legal  expenses,  that  may  accrue  thereto  in the  event of
                  Tenant's  failure  to  pay  such  amounts,  and  all  damages,
                  reasonable  costs and  expenses  which  Landlord  may incur by
                  reason of default of Tenant or  failure  on  Tenant's  part to

                                       2
Landlord's Initials: ________

Tenant's Initials:   ________
<PAGE>

                  comply  with  the  terms  of  this  Lease.  In  the  event  of
                  nonpayment by Tenant of Additional  Rent,  Landlord shall have
                  all the rights and remedies  with respect  thereto as Landlord
                  has for nonpayment of Basic Rent.

            The  Additional  Rent due  hereunder  shall be paid to  Landlord  or
Landlord's agent (i) within ten (10) days for taxes and insurance and within ten
(10) days for all other  Additional Rent items after  presentation of an invoice
from Landlord or Landlord's  agent setting forth such  Additional  Rent,  and/or
(ii) at the option of Landlord, directly to the designated recipient thereof, as
and when such  amounts  are due,  in  accordance  with  statements  or  invoices
presented  to  Tenant;  and/or  (iii) at the  option of  Landlord,  to  Landlord
monthly,  in  advance,  in an amount  estimated  by  Landlord  to be  Landlord's
approximate  average monthly  expenditure for such Additional Rent items,  which
estimated  amount  shall  be  reconciled  at the  end of each  calendar  year as
compared to Landlord's  actual  expenditure for said Additional Rent items, with
Tenant paying to Landlord,  upon demand,  any amount of actual expenses expended
by Landlord in excess of said estimated  amount, or Landlord applying any amount
of estimated payments made by Tenant in excess of Landlord's actual expenditures
for said  Additional  Rent  items to Basic  Rent  and/or  Additional  Rent  next
becoming due.

            The  respective  obligations  of  Landlord  and  Tenant  under  this
Paragraph shall survive the expiration or other  termination of this Lease,  and
if the Lease Term shall expire or shall otherwise  terminate on a day other than
the last day of a calendar  year,  the actual  Additional  Rent incurred for the
calendar year in which the Lease Term expires or otherwise  terminates  shall be
determined and settled on the basis of the statement of actual  Additional  Rent
for such calendar year and shall be prorated in the proportion  which the number
of days in such calendar year preceding such expiration or termination  bears to
365.

      E.    Place and Time of Payment  of Rent and  Additional  Rent.  All Basic
            Rent hereunder and all payments  hereunder for Additional Rent shall
            be paid to  Landlord at the  address of  Landlord  as  specified  in
            Paragraph  1.L or such other place as Landlord may from time to time
            designate in writing. It shall be Tenant's  responsibility to ensure
            that all Rent  payments  are mailed or sent in time for  Landlord to
            receive them by the specified  deadline,  and Landlord  shall not be
            responsible  for any  delays  in  delivery  of  payments  by mail or
            otherwise.

      F.    Security  Deposit.  Concurrently  with  Tenant's  execution  of this
            Lease,  Tenant  shall  deposit with  Landlord  the sum  specified in
            Paragraph 1.I hereof as a security deposit (the "Security Deposit"),
            which  shall  be held  by  Landlord  as  security  for the  faithful
            performance by Tenant of all of the terms, covenants, and conditions
            of this Lease to be kept and  performed by Tenant,  and shall not in
            any event be used or  applied by Tenant as "last  month's  rent." If
            Tenant  defaults  with  respect  to any  provision  of  this  Lease,
            including,  but not  limited  to,  the  provisions  relating  to the
            payment of Rent,  Landlord  may (but shall not be required  to) use,
            apply or  retain  all or any part of the  Security  Deposit  for the
            payment of any amount which Landlord may spend by reason of Tenant's
            default or to compensate Landlord for any other loss or damage which
            Landlord may suffer by reason of Tenant's default, including without
            limitation  owing to Landlord under Paragraph 25, and in this regard
            Tenant  hereby  waives  any  restrictions  on the uses to which  the
            Security  Deposit may be put as contained  in Section  1950.7 of the
            California Civil Code. If any portion of said Security Deposit is so
            used or applied,  Tenant  shall,  within ten (10) days after written
            demand therefor, deposit cash with Landlord in the amount sufficient
            to restore the  Security  Deposit to its original  amount.  Tenant's
            failure to do so shall be a material breach of this Lease.  Landlord
            shall not be required to keep this  Security  Deposit  separate from
            its general  funds,  and Tenant shall not be entitled to interest on
            such Security Deposit. If Tenant fully and faithfully performs every
            provision of this Lease to be performed by it, the Security  Deposit
            or any balance thereof shall be returned to Tenant (or at Landlord's
            option, to the last assignee of Tenant's interest  hereunder) at the
            expiration  of the  Lease  Term and after  Tenant  has  vacated  the
            Premises. In the event of termination of Landlord's interest in this
            Lease,  Landlord shall transfer said Security  Deposit to Landlord's
            successor  in interest  whereupon  Landlord  shall be released  from
            liability for the return of such Security  Deposit or any accounting
            therefor.

      G.    Prepaid Rent.  Concurrently  with Tenant's  execution of this Lease,
            Tenant shall pay to Landlord the sum  specified in Paragraph  1.G as
            prepaid Rent for the months designated therein.

      H.    Definition of Rent. The term "Rent" as used in this Lease shall mean
            Basic Rent,  Additional  Rent,  and any and all other sums,  however
            designated,  required to be paid by Tenant under this Lease, whether
            payable to Landlord or third parties.

      I.    Additional  Rights of  Landlord.  In addition to any late payment or
            interest charges payable to Landlord  hereunder and any other rights
            or remedies  that  Landlord may have under this Lease or  applicable
            law, all of which rights and remedies shall be  cumulative,  Tenant,
            as a  material  part of the  consideration  for this  Lease,  hereby
            agrees as follows:

            (1)   If Tenant makes any payment under this Lease by check and such
                  check is dishonored or otherwise  returned  unpaid to Landlord
                  due to insufficient  funds, then Landlord,  at its option, may
                  require Tenant to make all future payments under this Lease by
                  cashier's  check or wire  transfer in  accordance  with wiring
                  instructions given to Tenant by Landlord.

            (2)   If  Landlord  fails to  receive  any  payment  that  Tenant is
                  required  to make  under  this  Lease  when  due and  Landlord
                  thereafter,  and prior to receiving such payment,  proceeds to
                  serve  a  "3-Day  Notice"  or  similar  notice  to  Tenant  as
                  permitted  under Section 1162 of the California  Code of Civil
                  Procedure,  then in each  such  instance,  and  regardless  of
                  whether Tenant thereafter makes such payment, Tenant shall pay
                  to   Landlord,   upon   demand,   as   Additional   Rent,   an
                  administrative   charge  in  the   amount   of  $200.   Tenant
                  acknowledges that such charge  constitutes  liquidated damages
                  and not a penalty and represents a reasonable  estimate of the
                  additional  administrative  costs that  Landlord will incur in
                  serving such notice.

            (3)   If  Landlord  fails to  receive  any  payment  that  Tenant is
                  required  to make under this Lease  within ten (10) days after
                  the due date for such payment,  and such delinquency occurs on
                  two (2) separate  occasions,  then,  at  Landlord's  election,
                  exercisable  by written notice to Tenant at any time after the
                  second  such  delinquency,  any and all rights of first  offer
                  with  respect to any  premises  in the  Building  or  Complex,
                  rights of first refusal with respect to any such premises, and
                  options  to renew or extend the term of this  Lease,  which in
                  any case may be  granted  to Tenant  under  this  Lease or any
                  exhibit,  rider or amendment  hereto (each referred to in this
                  Lease as an "Option") shall terminate.  In such event,  Tenant
                  shall execute a quitclaim  deed or other  similar  document as
                  may be requested by Landlord to evidence  the  termination  of
                  such Option.

            (4)   If  Landlord  fails to  receive  any  payment  that  Tenant is
                  required  to make under this Lease  within ten (10) days after
                  the due date for such payment,  and such delinquency occurs on
                  three (3) separate occasions,  then Landlord, at its election,
                  exercisable  by one or more  written  notices to Tenant at any
                  time after the third such delinquency,  may require any or all
                  of the following:  (i) that all future  payments of Basic Rent
                  be paid three (3)  months in  advance;  (ii) that,  subject to
                  annual  reconciliation as provided in Paragraph

                                       3
Landlord's Initials: ________

Tenant's Initials:   ________
<PAGE>

                  4.E above,  all future  payments of  Additional  Rent shall be
                  payable  three (3)  months  in  advance  based  upon an amount
                  estimated  by  Landlord  to be  Landlord's  average  quarterly
                  expenditure for such items of Additional  Rent; and (iii) that
                  the Security Deposit specified in Paragraph 1.H be immediately
                  increased by one hundred percent (100%), in which event Tenant
                  shall,  within ten (10) days after  written  demand  therefor,
                  deposit such additional amount in cash with Landlord.

5.    TERM. The term of this Lease (the "Lease Term") shall be for the period of
      time specified in Paragraph 1.B (unless  sooner  terminated as hereinafter
      provided) and,  subject to Paragraph 6, shall commence on the commencement
      date  ("Commencement  Date")  specified in Paragraph  1.C.  Within 10 days
      following the Commencement Date of the Lease Term, Tenant will execute and
      deliver to Landlord a certificate  substantially  in the form of Exhibit D
      indicating any exceptions  thereto which may exist at that time.  Tenant's
      failure to execute and  deliver  such  certificate  within such time limit
      shall   constitute   an   unqualified   acceptance  of  the  Premises  and
      acknowledgement  that the  statements  contained in Exhibit D are true and
      correct without exception.

6.    POSSESSION.  If  Landlord,  for  any  reason  whatsoever,  cannot  deliver
      possession  of said  Premises to Tenant on the date set forth in Paragraph
      1.C or any  other  date,  this  Lease  shall not be void or  voidable;  no
      obligation  of Tenant  shall be affected  thereby;  nor shall  Landlord or
      Landlord's  agents be liable  to Tenant  for any loss or damage  resulting
      therefrom; but in that event the commencement and termination dates of the
      Lease, and all other dates affected thereby shall be revised to conform to
      the date of  Landlord's  delivery to Tenant of possession of the Premises,
      and the Lease Term shall be  extended  for a period  equal to the delay in
      delivery of possession, plus the number of days necessary to end the Lease
      Term on the last day of a month.  The above is,  however,  subject  to the
      provision  that the period of delay of delivery of the Premises  shall not
      exceed 180 days from the date  specified  in Paragraph  1.C (except  those
      delays  caused  by Acts  of God,  strikes,  war,  utilities,  governmental
      bodies,  weather,  unavailable  materials,  and delays  beyond  Landlord's
      control shall be excluded in  calculating  such period) in which  instance
      Tenant, at its option,  may, by written notice to Landlord within ten (10)
      days after the end of the  180-day  period,  terminate  this Lease and the
      parties shall have no further  liability  thereafter  accruing  under this
      Lease.

7.    COMMON  AREAS.  Subject to the terms and  conditions of this Lease and any
      Rules and Regulations, Tenant shall have the non-exclusive right in common
      with other  occupants of the  Complex,  to use the access  roads,  parking
      areas, and facilities  provided and designated by Landlord for the general
      use and  convenience  of the  occupants  of the  Complex,  which areas and
      facilities  are  referred  to herein as "Common  Areas".  This right shall
      terminate upon the termination of this Lease.  Landlord reserves the right
      from time to time to make changes in the shape, size, location, amount and
      extent of Common Areas.

8.    PARKING.  Subject to the terms and conditions of this Lease and subject to
      the Rules and  Regulations,  during the Lease Term,  Tenant shall have the
      non-exclusive  right,  in common with other  tenants or  occupants  of the
      Complex,  to use the number of parking  spaces in the common parking areas
      of the  Complex as is  specified  in  Paragraph  1.K.  Neither  Tenant nor
      Tenant's  employees,  agents,  representatives  and/or  invitees shall use
      parking  spaces  in excess of said  number of spaces  allocated  to Tenant
      hereunder.  Tenant  acknowledges that certain other tenants of the Complex
      may have exclusive parking rights to certain parking spaces in the parking
      areas of the  Complex,  and that  Tenant  shall  have no right to use such
      exclusive  spaces upon receiving  notice of the location of such exclusive
      spaces  from  Landlord.  Landlord  shall  have  the  right  (but  not  the
      obligation),  at  Landlord's  sole  discretion,  to designate the specific
      location of Tenant's parking spaces within the common parking areas of the
      Complex.  Landlord  shall  also  have the right to  implement  a system of
      parking charges,  vouchers, fines or other parking control fees to be paid
      by  Tenant  and/or  the  users  of  the  Complex,  if so  required  by any
      governmental agency having jurisdiction over the Complex or if required to
      meet parking programs mandated by government.

      Tenant shall not, at any time, park, or permit to be parked, any trucks or
      vehicles  adjacent to the loading areas so as to interfere in any way with
      the use of such areas,  nor shall  Tenant at any time park,  or permit the
      parking of Tenant's trucks or other vehicles or the trucks and vehicles of
      Tenant's  suppliers  or others,  in any  portion  of the  common  area not
      designated  by Landlord for such use by Tenant.  Tenant shall not park nor
      permit to be parked, any inoperative  vehicles or equipment on any portion
      of the parking area or outside  areas of the Complex,  or use the same for
      storage.  Tenant  agrees to assume  responsibility  for  compliance by its
      employees with the parking provisions contained herein.

      If Tenant or its  employees  park in other  than such  designated  parking
      areas,  then Landlord may charge  Tenant,  as Additional  Rent, and Tenant
      agrees to pay,  ten  ($10.00)  dollars per day for each day or partial day
      each such vehicle is parked in any area other than that designated. Tenant
      hereby  authorizes  Landlord at Tenant's sole expense to tow away from the
      Complex any vehicle  belonging to Tenant or Tenant's  employees  parked in
      violation of these provisions,  or to attach violation stickers or notices
      to such vehicles and levy fines for such  violations.  Landlord shall have
      no obligation to Tenant to police the parking areas or enforce any private
      or public parking  restrictions,  which enforcement shall be at Landlord's
      sole and absolute discretion.

9.    EXPENSES OF OPERATION AND  MAINTENANCE OF THE COMPLEX.  As Additional Rent
      and in accordance  with Paragraph 4.E of this Lease,  and except for those
      expenses  required  to be paid  exclusively  by  Tenant  as set  forth  in
      Paragraphs  12 and 13 or  elsewhere  in this  Lease,  Tenant  shall pay to
      Landlord  Tenant's  Share  of  all  expenses  of  operation,   management,
      maintenance  and  repair  of  the  Building,   Complex  and  Common  Areas
      including,  but not limited to, all sums expended in  connection  with the
      Common  Areas and  Building  exteriors  for all  general  maintenance  and
      repairs;  license, permit, and inspection fees; security;  utility charges
      associated  with exterior  landscaping and lighting  (including  water and
      sewer  charges);  janitorial  services;  trash  removal;  fire  protection
      systems;  general liability insurance protecting against claims related to
      the  condition,  use or occupancy of the Common Areas (in such amounts and
      providing  such coverage as determined  in  Landlord's  sole  discretion);
      exterior  window  cleaning;  maintenance of landscaped  areas,  irrigation
      systems,  parking lots,  sidewalks,  driveways,  and stairways,  including
      without  limitation  resurfacing,   restriping,   cleaning  and  sweeping;
      maintenance,  repair and replacement of all Building systems and fixtures,
      including without limitation electrical,  mechanical,  lighting, plumbing,
      and telecommunication  systems including without limitation intra-Building
      telephone,  telecommunication and network cabling which  telecommunication
      systems are located outside of the Premises,  except as otherwise provided
      in  Paragraph 12 below;  repair and  replacement  of roofs and  structural
      elements of the buildings (excluding new capital  improvements);  salaries
      and employee benefits of personnel (and payroll taxes applicable  thereto)
      to the extent  they are  engaged  in the  operation,  supervision,  and/or
      maintenance  of the Complex;  reasonable  attorneys'  fees with respect to
      matters of common  interest to occupants of the Complex or relating to the
      Complex; fees for accounting,  bookkeeping,  expense collection, and other
      management  services  rendered by Landlord and/or by a third party manager
      engaged by  Landlord  (which  may be a party  affiliated  with  Landlord),
      except that the total  amount  charged for such  management  services  and
      included in Tenant's  share of expenses shall be three percent (3%) of the
      then current Basic Rent payable by Tenant for each respective month; taxes
      on personal property, equipment and machinery utilized in the operation of
      the Complex; supplies, materials,  equipment and tools; maintenance and/or
      insurance  contracts  covering  all or any of the  repairs or  maintenance
      described  in this  Paragraph  9; and the cost of  complying  with  rules,
      regulations  and orders of  governmental  authorities,  including  without
      limitation maintenance,

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      alterations and repairs  required in connection  therewith.  At Landlord's
      election,  Landlord may determine  that with respect to certain  recurring
      items of major repair and maintenance ("Major Repairs"), Landlord will not
      charge the costs thereof as current expenses when such costs are incurred,
      but instead  will  charge  Tenant a  reasonable  monthly fee to be used by
      Landlord for  performing  such Major Repairs as and when the need therefor
      shall arise. Such Major Repairs shall include, at Landlord's election, any
      or all of the  following:  (i) replacing (but not repairing) the roof (ii)
      repaving (but not  resealing)  the parking lot;  (iii)  replacing (but not
      repairing)  the HVAC  compressors or other major system  components;  (iv)
      painting the exterior of the Building;  and (v) other similar items as may
      be determined by Landlord from time to time.

      Also at Landlord's  election,  Landlord may in its  reasonable  discretion
      allocate between the Building and the other buildings,  if any, within the
      Complex (i) certain CAM Expenses  that affect the Complex as a whole,  but
      are not specifically attributable to any particular building(s) within the
      Complex;   and/or  (ii)  certain  CAM  Expenses   that  are   specifically
      attributable to a particular building or buildings.

      "Additional  Rent"  as used  herein  shall  not  include  Landlord's  debt
      repayments;  interest on charges; expenses directly or indirectly incurred
      by Landlord for the benefit of any other tenant; cost for the installation
      of  partitioning  or any other  tenant  improvements;  cost of  attracting
      tenants; depreciation; interest; or executive salaries.

10.   ACCEPTANCE  AND  SURRENDER OF PREMISES.  By taking  possession  hereunder,
      Tenant accepts the Premises as being in good and sanitary order, condition
      and repair and accepts the Building,  the Premises and the Common Areas in
      their then existing  condition and without  representation  or warranty by
      Landlord  as to its  condition,  the use or  occupancy  which  may be made
      thereof,  or the precise  square  footage of the Building or the Premises.
      Any exceptions to the foregoing must be by written  agreement  executed by
      Landlord and Tenant. Subject to Paragraphs 26 and 27, Tenant agrees on the
      last day of the Lease Term, or on the sooner termination of this Lease, to
      surrender  the  Premises  promptly  and  peaceably  to  Landlord  in  good
      condition and repair  (normal wear and tear  excepted),  with all interior
      walls  painted,  or  cleaned  so that they  appear  freshly  painted,  and
      repaired  and  replaced,  if damaged;  all floors  cleaned and waxed;  all
      carpets cleaned and shampooed;  the air conditioning and heating equipment
      serviced by a reputable  and licensed  service firm and in good  operating
      condition  (provided the  maintenance  of such equipment has been Tenant's
      responsibility   during  the  term  of  this  Lease)   together  with  all
      alterations,  additions, and improvements which may have been made in, to,
      or on the Premises (except movable trade fixtures installed at the expense
      of Tenant);  provided,  however, that Tenant shall ascertain from Landlord
      within thirty (30) days before the end of the Lease Term whether  Landlord
      desires to have the  Premises  or any part or parts  thereof  restored  to
      their condition and  configuration  as when the Premises were delivered to
      Tenant and if Landlord  shall so desire,  then Tenant  shall  restore said
      Premises  or such part or parts  thereof  before  the end of this Lease at
      Tenant's sole cost and expense.  Tenant, on or before the end of the Lease
      Term or sooner  termination  of this Lease,  shall  remove all of Tenant's
      personal  property and trade fixtures from the Premises,  and all property
      not so  removed  on or  before  the  end  of  the  Lease  Term  or  sooner
      termination of this Lease shall be deemed abandoned by Tenant and title to
      same shall  thereupon  pass to Landlord  without  compensation  to Tenant.
      Landlord  may,  upon  termination  of  this  Lease,  remove  all  moveable
      furniture and equipment so abandoned by Tenant, at Tenant's sole cost, and
      repair any damage  caused by such  removal at Tenant's  sole cost.  If the
      Premises are not surrendered at the end of the term or sooner  termination
      of this Lease,  Tenant shall indemnify  Landlord against loss or liability
      resulting  from the  delay  by  Tenant  in so  surrendering  the  Premises
      including,  without limitation,  consequential damages to Landlord caused,
      in whole or in part,  by such delay.  Nothing  contained  herein  shall be
      construed  as an  extension of the term hereof or as a consent of Landlord
      to any holding over by Tenant.  The  voluntary or other  surrender of this
      Lease or the  Premises  by Tenant or a mutual  cancellation  of this Lease
      shall not work as a merger and, at the option of  Landlord,  shall  either
      terminate  all or any existing  subleases or operate as an  assignment  to
      Landlord of all or any such subleases.

11.   ALTERATIONS  AND  ADDITIONS.  Tenant shall not make, or suffer to be made,
      any alteration or addition to the Premises,  or any part thereof,  without
      the prior  written  consent  of  Landlord.  All work with  respect  to any
      alteration  or addition  shall be done in a good and  workmanlike  manner,
      shall be under the  supervision  of a  competent  architect  or  competent
      licensed  structural  engineer approved by Landlord,  and shall be made in
      accordance  with all applicable  laws,  ordinances,  codes and regulations
      related  thereto and the plans and  specifications  with  respect  thereto
      shall be  approved  in writing by Landlord  before  commencement  of work.
      Landlord's  approval of Tenant's plans and  specification  shall create no
      responsibility   or   liability   on  the  part  of  Landlord   for  their
      completeness,  design  sufficiency or compliance with  governmental  laws,
      rules or regulations.

      Tenant  agrees  that it  will  not  proceed  to make  such  alteration  or
      additions  without  having  obtained  consent from  Landlord to do so, and
      until ten (10) days  after the  receipt  of such  consent,  in order  that
      Landlord  may  post   appropriate   notices  to  avoid  any  liability  to
      contractors or material  suppliers for payment for Tenant's  improvements.
      Tenant will at all times  permit  such  notices to be posted and to remain
      posted  until  the  completion  of work.  Tenant  shall,  if  required  by
      Landlord,  secure at Tenant's own cost and expense,  a completion and lien
      indemnity bond,  satisfactory to Landlord,  for such work.  Tenant further
      covenants and agrees that any  mechanic's  lien filed against the Premises
      or  against  the  Complex  for work  claimed  to have been  done  for,  or
      materials  claimed to have been furnished to, Tenant will be discharged by
      Tenant,  by bond or otherwise,  within ten (10) days after the  imposition
      thereof,  at the  cost  and  expense  of  Tenant.  Any  exceptions  to the
      foregoing  must be made in  writing  and  executed  by both  Landlord  and
      Tenant.  Upon  completion  of the  work,  Tenant  shall  file a Notice  of
      Completion as permitted by law in the Office of the County  Recorder where
      the Premises is located.

      Any addition to, or alteration of, the Premises, except moveable furniture
      and trade fixtures, shall at once become a part of the Premises and belong
      to Landlord. Tenant shall retain title to all moveable furniture and trade
      fixtures placed in the Premises. All heating,  lighting,  electrical,  air
      conditioning, floor to ceiling partitioning, drapery, carpeting, and floor
      installations  made by Tenant,  together with all property that has become
      an integral part of the Premises, shall not be deemed trade fixtures.

12.   REPAIR AND MAINTENANCE OF THE PREMISES.

            A.    Landlord's  Obligations.  So long as no Event of  Default  (as
                  defined in Paragraph 24) has occurred,  which remains  uncured
                  beyond the  applicable  cure period (if any) set forth in this
                  Lease, Landlord shall, at its sole cost and expense,  maintain
                  and repair the building  foundations,  structural  elements of
                  the exterior walls and structural elements of the roof, except
                  to the extent of any non-insured damage (or deductible portion
                  of any insured damage) that is the result of the negligence or
                  willful  act  of  Tenant  or  Tenant's  employees,  agents  or
                  contractors,  in which  case  Tenant  shall be liable  for the
                  repair at Tenant's sole cost and expense.  Landlord shall also
                  maintain and repair (i) the roof  membrane,  (ii) the exterior
                  surface of the building  (including,  maintenance of equipment
                  located on the roof top,  exterior window washing and exterior
                  painting),   and  (iii)  at  Landlord's  election,   the  HVAC
                  equipment  (through  a  contract  with a  service  company  of
                  Landlord's  choice);  provided,  however,  that  Tenant  shall
                  reimburse  Landlord for the cost thereof as Additional Rent in
                  accordance   with  Paragraph  4.E.   Landlord  shall  have  no
                  obligation  to  make  repairs  under  this  Paragraph  until a
                  reasonable time after receipt of written notice from Tenant of
                  the need for such repairs. In no event shall any payments owed
                  by Tenant under this Lease be abated on account of  Landlord's
                  failure to make repairs  under this  Paragraph.  Tenant hereby
                  waives  all  statutory  rights to make  repairs  for or at the
                  expense of Landlord.

            B.    Tenant's  Obligations.  Except  to the  extent  of  Landlord's
                  express obligations under Paragraph 12.A, Tenant shall, at its
                  sole  cost  and  expense,   keep  and  maintain  the  Premises
                  (including  appurtenances)  and every  part  thereof in a high
                  standard of maintenance  and repair,  and in good and sanitary
                  condition.  Tenant's  maintenance and repair  responsibilities
                  herein  referred  to  include,  but are not  limited  to,  all
                  windows,  window frames,  plate glass,  glazing,  truck doors,
                  plumbing  systems  (such  as water  and  drain  lines,  sinks,
                  toilets,   faucets,  drains,

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<PAGE>

                  showers  and water  fountains),  electrical  systems  (such as
                  panels, conduits,  outlets,  lighting fixtures,  lamps, bulbs,
                  tubes,  ballasts),  heating and air conditioning  distribution
                  and  temperature  control systems (such as fans, air handlers,
                  ducts,  mixing  boxes,  thermostats,  time clocks,  supply and
                  return grills),  telecommunication systems within the Premises
                  (including without limitation all distribution  throughout the
                  Premises    from    Tenant's    computer     closets),     and
                  telecommunication  systems  located  outside  of the  Premises
                  (including  without   limitation  intra  Building   telephone,
                  telecommunication    and   network   cabling)   installed   to
                  exclusively  serve all or any  portion  of the  Premises,  all
                  interior  improvements  within the Premises  including but not
                  limited to wall coverings,  window  coverings,  carpet,  floor
                  coverings,  partitioning,  ceilings,  doors (both interior and
                  exterior,  including closing mechanisms,  latches, and locks),
                  skylights (if any), automatic fire extinguishing  systems, and
                  all other  interior  improvements  of any  nature  whatsoever.
                  Tenant  also  agrees to provide  janitorial  services  for the
                  Premises as well as carpet shields under all rolling chairs or
                  to  otherwise be  responsible  for wear and tear of the carpet
                  caused by such  rolling  chairs if such wear and tear  exceeds
                  that caused by normal foot traffic in surrounding areas. Areas
                  of  excessive  wear  in the  Premises  shall  be  replaced  at
                  Tenant's  sole  expense  upon Lease  termination.  If Landlord
                  elects to  require  Tenant  to  maintain  the HVAC  equipment,
                  Tenant shall contract with a service company for the quarterly
                  maintenance  of the  heating and air  conditioning  equipment,
                  with a  copy  of  the  service  contract  to be  furnished  to
                  Landlord within ten (10) days after opening for business,  and
                  a copy of any  subsequent  contracts to be furnished from time
                  to time. If Tenant needs to access Building system,  including
                  without  limitation  the  Building  telecommunication  system,
                  Tenant  shall  have  the  right to do so only  upon the  prior
                  written consent of Landlord and by utilization of a contractor
                  consented  to by  Landlord,  provided  that  despite  any such
                  consent by Landlord, Tenant shall remain fully responsible for
                  the acts, omissions and negligence of any such contractor.

13.   UTILITIES. Tenant shall pay, directly to the provider of such services, as
      the same shall  become  due,  all  charges  for water,  gas,  electricity,
      telephone,  telex  and  other  electronic  communications  service,  sewer
      service,  waste  pick-up and any other  utilities,  materials  or services
      furnished  directly to or used by Tenant on or about the  Premises  during
      the Lease Term, including,  without limitation, any temporary or permanent
      utility surcharge or other exactions  whether or not hereinafter  imposed.
      If any such services and  utilities  are jointly  metered and not directly
      billed to Tenant,  Tenant shall pay an equitable portion of all charges as
      Additional Rent, with the  determination of Tenant's  equitable portion to
      be made by Landlord. At Landlord's request,  Tenant shall pay Landlord for
      the cost of installing  separate meters.  Tenant shall pay for any and all
      telecommunication or other utility system modifications or additions which
      it may require and which Landlord  expressly agrees to provide pursuant to
      the terms of this Lease or any  subsequent  written  agreement;  provided,
      however,  that  nothing in this Lease shall  require  Landlord to provide,
      modify or install  any  utility  system or utility  system  component  for
      Tenant's  use except to the extent  that the same is required by law or by
      an express written agreement  between Landlord and Tenant.  Landlord shall
      not be liable for, and Tenant  shall not be entitled to, any  abatement or
      reduction of Rent or other  compensation by reason of any  interruption or
      failure of utility services to the Premises.

14.   TAXES.

      A.    Real  Property  Taxes.  As Additional  Rent and in  accordance  with
            Paragraph 4.E of this Lease,  Tenant shall pay to Landlord  Tenant's
            Share of all Real  Property  Taxes that accrue during the Lease Term
            and which  constitute Real Property Taxes pertaining to the Complex.
            This obligation shall survive the expiration or earlier  termination
            of this  Lease,  and if any Real  Property  Taxes are imposed by the
            County  Assessor or other  governmental  authority for the period of
            time constituting the Lease Term,  whether or not Landlord is billed
            for the same  during  the  Lease  Term,  Tenant  shall pay such Real
            Property Taxes when they are ultimately  billed,  in accordance with
            Paragraph 4.E. The term "Real Property Taxes," as used herein, shall
            mean (i) all taxes,  assessments,  levies  and other  charges of any
            kind  or  nature  whatsoever,  general  and  special,  foreseen  and
            unforeseen  (including  all  installments  of principal and interest
            required  to pay any  general  or  special  assessments  for  public
            improvements and any increases  resulting from reassessments  caused
            by any new  improvements  or any change in ownership of the Complex)
            now or hereafter  imposed by any governmental or  quasi-governmental
            authority or special district having the direct or indirect power to
            tax or levy assessments,  which are levied or assessed  against,  or
            with  respect to the value,  occupancy or use of, all or any portion
            of the Complex (as now  constructed  or as may at any time hereafter
            be  constructed,   altered,  or  otherwise  changed)  or  Landlord's
            interest  therein;  any  improvements  located  within  the  Complex
            (regardless  of  ownership);  the  fixtures,   equipment  and  other
            property of Landlord, real or personal, that are an integral part of
            and located in the Complex; or parking areas,  public utilities,  or
            energy within the Complex; (ii) all charges,  levies or fees imposed
            by reason of environmental  regulation or other governmental control
            of the Complex;  and (iii) all costs and fees (including  attorneys'
            fees)  incurred by Landlord in contesting  any Real Property Tax and
            in negotiating with public  authorities as to any Real Property Tax.
            If at any  time  during  the  term of this  Lease  the  taxation  or
            assessment of the Complex  prevailing as of the commencement date of
            this Lease shall be altered so that in lieu of or in addition to any
            Real Property Tax described above there shall be levied, assessed or
            imposed  (whether by reason of a change in the method of taxation or
            assessment,  creation of a new tax or charge, or any other cause) an
            alternate  or  additional  tax or charge  (i) on the  value,  use or
            occupancy of the Complex or Landlord's  interest  therein or (ii) on
            or  measured  by the  gross  receipts,  income or  rentals  from the
            Complex,  on Landlord's business of leasing the Complex, or computed
            in any manner with respect to the operation of the Complex, then any
            such tax or charge, however designated, shall be included within the
            meaning  of the term "Real  Property  Taxes"  for  purposes  of this
            Lease.  If any Real  Property  Tax is based upon  property  or rents
            unrelated to the Complex,  then only that part of such Real Property
            Tax that is fairly allocable to the Complex shall be included within
            the meaning of the term "Real Property Taxes."  Notwithstanding  the
            foregoing,  the term "Real Property Taxes" shall not include estate,
            inheritance,  gift or franchise  taxes of Landlord or the federal or
            state net income tax imposed on Landlord's income from all sources.

      B.    Taxes on Tenant's Property.

            (1)   Tenant  shall be liable for and shall pay ten (10) days before
                  delinquency,  taxes levied  against any  personal  property or
                  trade fixtures  placed by Tenant in or about the Premises.  If
                  any such taxes on Tenant's personal property or trade fixtures
                  are levied against  Landlord or Landlord's  property or if the
                  assessed  value of the Premises is increased by the  inclusion
                  therein of a value placed upon such personal property or trade
                  fixtures of Tenant and if Landlord,  after  written  notice to
                  Tenant,  pays the taxes  based on such  increased  assessment,
                  which  Landlord  shall have the right to do  regardless of the
                  validity  thereof (but only under proper  protest if requested
                  by  Tenant),  Tenant  shall upon  demand,  as the case may be,
                  repay to Landlord the taxes so levied against Landlord, or the
                  proportion of such taxes  resulting  from such increase in the
                  assessment;  provided that in any such event Tenant shall have
                  the right,  in the name of Landlord and with  Landlord's  full
                  cooperation  (but without cost to Landlord),  to bring suit in
                  any court of competent  jurisdiction  to recover the amount of
                  any such  taxes  so paid  under  protest,  and any  amount  so
                  recovered shall belong to Tenant.

            (2)   If the Tenant improvements in the Premises, whether installed,
                  and/or  paid for by  Landlord  or Tenant  and  whether  or not
                  affixed to the real  property so as to become a part  thereof,
                  are  assessed  for real  property  tax purposes at a valuation
                  higher   than  the   valuation   at  which   standard   office
                  improvements in other space in the Complex are assessed,  then
                  the  real  property  taxes  and  assessments   levied  against
                  Landlord  or the  Complex  by reason of such  excess  assessed
                  valuation shall be deemed to be taxes levied against  personal
                  property of Tenant and shall be

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<PAGE>

                  governed by the provisions of Paragraph 14.B (1) above. If the
                  records of the County Assessor are available and  sufficiently
                  detailed  to serve as a basis  for  determining  whether  said
                  Tenant  improvements  are assessed at a higher  valuation than
                  standard  office  improvements  in other space in the Complex,
                  such  records  shall be binding on both the  Landlord  and the
                  Tenant.  If  the  records  of  the  County  Assessor  are  not
                  available  or  sufficiently  detailed  to serve as a basis for
                  making said  determination,  the actual  cost of  construction
                  shall be used.

15.   LIABILITY  INSURANCE.  Tenant, at Tenant's  expense,  agrees to obtain and
      keep in force  during  the term of this  Lease a policy  of  comprehensive
      public liability insurance against any and all claims for personal injury,
      death, property damage, or other liabilities related to the condition, use
      or occupancy of the Premises or to Tenant's  operations  on the  Premises,
      including  an  extended  liability   endorsement   providing   contractual
      liability and broad form property  damage  coverage.  Such insurance shall
      also  contain  a   cross-liability   clause  and  shall  insure   Tenant's
      performance of the indemnity agreement set forth in Paragraph 18, although
      Tenant's  obligations  pursuant to such indemnity  shall not be limited to
      the amount of any insurance  required of, or otherwise carried by, Tenant.
      Such liability  insurance  shall have a combined  single limit of not less
      than Two Million Dollars  ($2,000,000)  and  certificates  evidencing such
      insurance  shall be furnished to Landlord  prior to Tenant's  occupancy of
      the Premises.  The policy or policies  affecting such insurance shall name
      Landlord and the beneficiary or mortgagee of any deed of trust or mortgage
      affecting  the  Premises  as  additional  insureds,  and shall  insure any
      liability of Landlord, contingent or otherwise, with respect to any act or
      omission of Tenant, its agents,  employees or invitees or otherwise by any
      conduct or  transactions  of any of said persons in or about or concerning
      the Premises, including any failure of Tenant to observe or perform any of
      its  obligations  hereunder;  shall  be  issued  by an  insurance  company
      admitted to transact  business in the State of California  having a rating
      of A or better in "Best's  Insurance  Guide";  and shall  provide that the
      insurance effected thereby shall not be canceled,  except upon thirty (30)
      days' prior written notice to Landlord.  Said liability insurance shall be
      primary and not contributing to any insurance  available to Landlord,  and
      Landlord's  insurance  shall be in excess  thereto.  If,  during the Lease
      Term, in the considered opinion of Landlord's  lender,  insurance advisor,
      or counsel,  the amount of insurance described in this Paragraph 15 is not
      adequate,  Tenant  agrees to increase  said  coverage  to such  reasonable
      amount as  Landlord's  lender,  insurance  advisor,  or counsel shall deem
      adequate.

16.   TENANT'S  PROPERTY  INSURANCE  AND  WORKER'S  COMPENSATION.  Tenant  shall
      maintain a policy or policies of fire and  property  damage  insurance  in
      "all risk" form with a sprinkler leakage endorsement insuring the personal
      property, inventory, trade fixtures, and leasehold improvements within the
      Premises for the full replacement value thereof.  The proceeds from any of
      such policies shall be used for the repair or replacement of such items so
      insured.  Tenant  shall also  maintain a policy or  policies  of  worker's
      compensation insurance and any other employee benefit insurance sufficient
      to comply with all laws.

17.   LANDLORD'S INSURANCE; WAIVER OF SUBROGATION.

      A.    Landlord's Property  Insurance.  Landlord shall purchase and keep in
            force, a policy or policies of casualty  insurance  covering loss or
            damage  to  the   Premises,   Building   and  related   Common  Area
            improvements  in the amount of the full  replacement  value thereof,
            providing  protection  against  those  perils  covered by "all risk"
            insurance,   and  including  such  other  casualty  endorsements  as
            Landlord  may elect.  Landlord  shall also  maintain  at  Landlord's
            election,  or if  required by  Landlord's  lender from time to time,
            earthquake  and/or flood  damage  insurance,  worker's  compensation
            insurance,  sprinkler  leakage insurance and rental income insurance
            in the amount of one  hundred  (100%)  percent of twelve (12) months
            Basic Rent, plus sums paid as Additional  Rent.  Tenant shall pay to
            Landlord  Tenant's  Share of the cost of  Landlord's  insurance,  as
            described  herein,  as Additional  Rent in accordance with Paragraph
            4.E hereof.  If such insurance cost is increased due to Tenant's use
            of the Premises or the Complex, Tenant agrees to pay to Landlord the
            full cost of such increase. Tenant shall have no interest in nor any
            right to the  proceeds  of any  insurance  procured  by  Landlord as
            described in this Paragraph 17.

      B.    Waiver of  Subrogation.  Each party hereby releases the other party,
            and its partners,  officers,  agents,  employees, and servants, from
            any and  all  claims,  demands,  loss,  expense,  or  injury  to the
            Premises or to the furnishings,  fixtures, equipment,  inventory, or
            other property in, about,  or upon the Premises,  which is caused by
            or results from perils,  events, or happenings which are the subject
            of fire or  other  casualty  insurance  in force at the time of such
            loss  irrespective  of any  negligence  on the part of the  released
            party which may have contributed to or caused such loss;  subject to
            the following limitations: (i) the party being released shall not be
            released  from any liability to the extent that such damages are not
            covered by the insurance  recovery  obtained by the releasing party,
            and  (ii)  the  party  being  released  shall  be  responsible   for
            reimbursing  the releasing party for any deductible owed as a result
            of such  damages.  Each  party  shall  use  commercially  reasonable
            efforts  to  obtain,  if  needed,  appropriate  endorsements  to its
            policies  of  insurance  with  respect  to the  foregoing  releases;
            provided,  however,  that failure to obtain such endorsements  shall
            not affect the releases hereinabove given.

18.   INDEMNIFICATION; EXEMPTION OF LANDLORD FROM LIABILITY.

      A.    Indemnification.  Subject to Section  2782 of the  California  Civil
            Code, Tenant shall defend, protect, indemnify, and hold Landlord and
            its agents,  contractors  and employees  harmless  (except for gross
            negligence  or willful  misconduct  of Landlord and then only to the
            extent that such loss is not waived under  Paragraph  17.B) from and
            against  any  and  all   obligations,   losses,   costs,   expenses,
            liabilities,  claims, damages, demands, fines, penalties, attorneys'
            fees,  investigation  costs,  court  costs or  expert  witness  fees
            incurred in  connection  with or on account of, or arising  from any
            injury  or  death or  property  damage  resulting  from (i) the use,
            condition  or  occupancy of the Premises or (ii) any act or omission
            or negligence of Tenant or Tenant's agents, contractors,  employees,
            or invitees or (iii) any occurrence in, upon or at the Premises from
            any   cause   whatsoever   or  (iv)   any   breach,   violation   or
            non-performance by Tenant of any of its obligations hereunder.

      B.    Exemption  of Landlord  from  Liability.  Neither  Landlord  nor its
            agents or  contractors or employees  shall be liable to Tenant,  and
            Tenant  waives  all  claims  against   Landlord,   and  its  agents,
            contractors  and  employees  for  injury  or  death  to  any  person
            (including without limitation Tenant and Tenant's  employees) or for
            damage  or  loss  to  Tenant's  business  (including   consequential
            damages) or for damage or loss to any  property  (including  without
            limitation  Tenant's  personal  property)  by and from  all  causes,
            including without  limitation (i) any latent or patent defect in the
            Premises,  Building or Complex,  or (ii) fire,  steam,  electricity,
            gas, dampness, water or rain which may leak or flow from or into any
            part  of  the  Premises  or  the  Complex,  or  (iii)  interruption,
            breakage,  leakage,  obstruction  or defects  of pipes,  sprinklers,
            wires, appliances, or Building Systems, including without limitation
            plumbing, heating, air conditioning,  telecommunications or lighting
            systems  or  fixtures,  whether  the damage or injury  results  from
            conditions  arising in,  upon,  or about the  Premises,  Building or
            Complex or from other sources or (iv) any act or omission or neglect
            of any  other  tenant  of the  Building  or  Complex.  Tenant  shall
            immediately  notify  Landlord in writing of any known  defect in the
            Premises.  The  provisions of this Paragraph 18.B shall not apply to
            any damage or injury  caused by  Landlord's  willful  misconduct  or
            gross  negligence,  except to the  extent  the same is waived  under
            Paragraph 17.B.

19.   COMPLIANCE.  Tenant,  at its sole cost and expense,  shall promptly comply
      with all laws, statutes, ordinances and governmental rules, regulations or
      requirements  now or hereafter  in effect;  with the  requirements  of any
      board  of  fire  underwriters  or  other  similar  body  now or  hereafter
      constituted;  and with  any  direction  or  occupancy  certificate  issued
      pursuant to law by any public  officer;  provided,  however,  that no such
      failure  shall  be  deemed  a  breach  of  these   provisions  if  Tenant,
      immediately  upon  notification,  commences  to  remedy  or  rectify  said
      failure.  The  judgment  of any  court of  competent  jurisdiction  or the
      admission by Tenant in any action against  Tenant,  whether  Landlord be a
      party  thereto or not,  that Tenant has  violated  any such law,  statute,
      ordinance or  governmental  rule,  regulation,  requirement,  direction or

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      provision,  shall be  conclusive  of that  fact as  between  Landlord  and
      Tenant.  This Paragraph  shall not be  interpreted as requiring  Tenant to
      make structural changes or structural  improvements,  except to the extent
      such changes or  improvements  are required as a result of Tenant's use or
      alteration  of the Premises.  Tenant shall,  at its sole cost and expense,
      comply with any and all requirements  pertaining to said Premises,  of any
      insurance  organization  or  company,  necessary  for the  maintenance  of
      reasonable fire and public liability insurance covering the Premises.

20.   LIENS.  Tenant shall keep the Premises and the Complex free from any liens
      arising  out of any work  performed,  materials  furnished  or  obligation
      incurred by Tenant.  In the event that Tenant  shall not,  within ten (10)
      days following the imposition of such lien,  cause the same to be released
      of record,  by bond or otherwise,  Landlord shall have, in addition to all
      other  remedies  provided  herein  and by  law,  the  right,  but  not the
      obligation,  to cause the same to be  released  by such  means as it shall
      deem proper,  including payment of the claim giving rise to such lien. All
      sums paid by Landlord for such purpose, and all expenses incurred by it in
      connection  therewith,  shall be payable to  Landlord  by Tenant on demand
      with interest thereon as specified in Paragraph 44 below.

21.   ASSIGNMENT AND SUBLETTING.

      A.    Landlord's Consent Required.  Tenant shall not assign,  transfer, or
            hypothecate  the leasehold  estate under this Lease, or any interest
            herein, and shall not sublet the Premises,  or any part thereof,  or
            any  right or  privilege  appurtenant  thereto  (including,  but not
            limited  to,  the  parking  spaces  to be  used in  connection  with
            Tenant's occupancy),  or suffer any other person or entity to occupy
            or use the Premises, or any portion thereof,  without, in each case,
            the prior  written  consent of Landlord,  which  consent will not be
            unreasonably  withheld.  Any  attempt  to do so  without  such prior
            consent  shall be wholly  void and  shall  constitute  a default  by
            Tenant  under this  Lease.  In the event  Landlord  consents  to any
            assignment or subletting, such consent shall not constitute a waiver
            of any of the  restrictions  of this Paragraph 21 and the same shall
            apply to each successive assignment or subletting hereunder, if any.
            In no event shall Landlord's  consent to an assignment or subletting
            affect the continuing primary liability of Tenant (which,  following
            assignment,  shall be joint  and  several  with  the  assignee),  or
            relieve  Tenant  of any  of its  obligations  hereunder  without  an
            express written  release being given by Landlord.  In the event that
            Landlord  shall consent to an  assignment  or subletting  under this
            Paragraph 21, such  assignment or subletting  shall not be effective
            until the assignee or sublessee  shall assume all of the obligations
            of this Lease on the part of Tenant to be  performed or observed and
            whereby the  assignee or sublessee  shall agree that the  provisions
            contained in this Lease shall,  notwithstanding  such  assignment or
            subletting,  continue  to be  binding  upon it with  respect  to all
            future  assignments  and  sublettings.  Such  assignment or sublease
            agreement  shall be duly executed and a fully  executed copy thereof
            shall be delivered  to  Landlord,  and Landlord may collect Rent due
            hereunder  directly  from the assignee or  sublessee.  Collection of
            Rent directly from an assignee or sublessee  shall not  constitute a
            consent or a waiver of the  necessity of consent to such  assignment
            or subletting, nor shall such collection constitute a recognition of
            such  assignee or sublessee as the Tenant  hereunder or a release of
            Tenant from the performance of all of its obligations hereunder.

      B.    Reasonable   Consent.   If  Tenant   complies   with  the  following
            conditions,  Landlord shall not unreasonably withhold its consent to
            the assignment of the Lease or the subletting of the Premises or any
            portion thereof:  Tenant shall submit in writing to Landlord (a) the
            name and legal  composition  of the proposed  assignee or subtenant;
            (b) the nature of the proposed assignee's or subtenant's business to
            be carried on in the Premises;  (c) the terms and  provisions of the
            proposed  assignment  or  sublease;  (d) such  reasonable  financial
            information as Landlord may request concerning the proposed assignee
            or  subtenant  including,  without  limitation,  financial  history,
            credit  rating and business  experience.  Tenant  acknowledges  that
            Landlord has entered  into this Lease in reliance on the  particular
            skills,  knowledge  and  experience  of Tenant  and/or the principal
            officer of Tenant  with  respect to the  conduct of  business in the
            Premises.  Without limiting  Landlord's right to refuse to give such
            consent on any other reasonable grounds, Landlord reserves the right
            to refuse to give such consent if in Landlord's  reasonable business
            judgment  (i) the quality of  operation of the Complex may be in any
            way  adversely  affected  during the Lease Term;  (ii) the  proposed
            assignee  or  quasi-governmental  department  or  agency  (iii)  the
            financial  worth of the  proposed  new  tenant  is less than that of
            Tenant  executing  this  Lease:  (iv)  the  proposed  assignee's  or
            subtenant's  use  of  the  Premises  involves  the  storage,  use or
            disposal of any Hazardous  Materials;  (v) the proposed  assignee or
            subtenant has been required by any  governmental  authority to clean
            up Hazardous  Materials;  (vi) the proposed assignee or subtenant is
            subject  to   investigation   or  enforcement  by  any  governmental
            authority  in  connection  with the use,  disposal  or  storage of a
            Hazardous Material;  (vii) investigation discloses other information
            reasonably unsatisfactory to Landlord.

      C.    Bonus Rent.  Tenant  agrees that fifty  percent (50%) of any amounts
            paid by the assignee or  sublessee as Basic Rent or its  equivalent,
            however  described,  in excess of the Basic  Rent  payable by Tenant
            hereunder (or, in the case of sublease of a portion of the Premises,
            in excess of the Basic Rent  reasonably  allocable to such portion),
            shall be the property of Landlord and such amounts  shall be payable
            directly to Landlord by the  assignee or  sublessee.  At  Landlord's
            request,  a written  agreement  shall be  entered  into by and among
            Tenant,  Landlord and the proposed assignee or sublessee  confirming
            the requirements of this paragraph.

      D.    Recapture. If the proposed assignment or subletting shall affect 80%
            or more of the  Premises,  Landlord  shall  have the  options to (i)
            terminate  this  Lease  as of the  proposed  effective  date for the
            assignment  or for the  commencement  of the  term  of the  proposed
            sublease,  and this Lease shall then be terminated  accordingly,  or
            (ii) take  assignment of or sublet from Tenant the affected  portion
            of the  Premises  pursuant to the same terms and  conditions  as set
            forth in the executed assignment of sublease submitted by Tenant.

      E.    Certain  Transactions.  The  sale  of  all or  substantially  all of
            Tenant's  assets  (other than bulk sales in the  ordinary  course of
            business),  or,  if  Tenant  is  a  corporation,  limited  liability
            company,  an  unincorporated  association,  or  a  partnership,  the
            transfer,  assignment or  hypothecation  of any stock or interest in
            such  corporation,   company,  association  or  partnership  in  the
            aggregate  in  excess  of  twenty-five  percent  (25%)  (except  for
            publicly   traded  shares  of  stock   constituting  a  transfer  of
            twenty-five  percent (25%) or more in the  aggregate,  so long as no
            change in the  controlling  interests  of Tenant  occurs as a result
            thereof)  shall be deemed  an  assignment  within  the  meaning  and
            provisions of this Paragraph 21.

      F.    Costs; Acknowledgment of Reasonableness.  Tenant agrees to reimburse
            Landlord for  Landlord's  expenses  (including  attorneys'  fees and
            costs)  incurred in connection  with  processing  and  documentation
            associated  with  any  consents   requested  by  Tenant  under  this
            Paragraph 21. Tenant agrees that the provisions of this Paragraph 21
            are not  unreasonable  standards  or  conditions  for  any  purpose,
            including  for  purposes  of  the  California   Civil  Code  Section
            1951.4(b).

22.   SUBORDINATION  AND MORTGAGES.  In the event  Landlord's title or leasehold
      interest in the Premises or the Complex is now or hereafter  encumbered by
      the lien of any  mortgage  or deed of trust to secure a loan from a lender
      (hereinafter referred to as a "Lender") to Landlord,  Tenant shall, at the
      request  of   Landlord  or  Lender,   execute  in  writing  an   agreement
      subordinating  its rights under this Lease to the lien of such mortgage or
      deed of trust,  or, if so  requested,  agreeing  that the lien of Lender's
      mortgage or deed of trust shall be or remain  subject and  subordinate  to
      the  rights  of  Tenant  under  this  Lease.   Notwithstanding   any  such
      subordination, Tenant's possession under this Lease shall not be disturbed
      if Tenant is not in default  and so long as Tenant  shall pay all Rent and
      fully and  faithfully  observe and perform all of the provisions set forth
      in this Lease.  Tenant  acknowledges  that upon receipt from a lender of a
      "Demand to Pay Rent to Party other than  Landlord"  under  Section 2938 of
      the  California  Civil Code,  Tenant shall be required to pay all Rents to
      the Lender as they become due.

23.   ENTRY BY  LANDLORD.  At all  reasonable  times after 24 hours prior notice
      (except  in  emergencies,  in which case no notice is  required)  Landlord
      shall have,  the right to enter the Premises to inspect  them;  to perform
      any services to be

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<PAGE>

      provided  by Landlord  hereunder;  to submit the  Premises to  prospective
      purchasers,  lenders,  or tenants  and to post "For Rent" or "For Sale" or
      other signs  relative to the same;  to post notices of  nonresponsibility;
      and to alter,  improve or repair the  Premises,  all without  abatement of
      Rent;  and may erect  scaffolding  and other  necessary  structures  in or
      through the Premises  where  reasonably  required by the  character of the
      work to be performed;  provided,  however that Landlord shall endeavor not
      to unreasonably  interfere with Tenant's use of the Premises.  For each of
      the foregoing purposes,  Landlord shall at all times have and retain a key
      with  which to unlock all of the doors in an  emergency.  Any entry to the
      Premises  obtained by Landlord by any of said means,  or otherwise,  shall
      not under any  circumstances  be  construed  or deemed to be a forcible or
      unlawful  entry into or a detainer of the Premises or an eviction,  actual
      or  constructive,  of Tenant from the  Premises  or any  portion  thereof.
      Landlord  shall also have the right at any time to change the  arrangement
      or location of entrances or  passageways,  doors and doorways,  corridors,
      elevators,  stairs,  toilets or other  public  parts of the Complex and to
      change the name,  number or  designation  by which the Complex is commonly
      known, and none of the foregoing shall be deemed an actual or constructive
      eviction of Tenant, or shall entitle Tenant to any damages or reduction of
      Rent hereunder.

24.   TENANT'S  DEFAULT.  The  occurrence  of any of the  following  shall be an
      "Event of Default" (sometimes referred to herein as a "default") by Tenant
      and a material breach of this Lease:

            (1)   Tenant  shall fail to make any  payment  owed by Tenant  under
                  this  Lease,  as and when due,  and such  failure is not cured
                  within three (3) days after  Tenant  receives  written  notice
                  from Landlord specifying such failure. At Landlord's election,
                  any such notice shall be concurrent  with, and not in addition
                  to, any notice  required  under Section 1161 of the California
                  Code of Civil Procedure;

            (2)   Tenant  shall  fail to  observe,  keep or  perform  any of the
                  terms,  covenants,  agreements or conditions  under this Lease
                  that Tenant is  obligated  to observe or  perform,  other than
                  that described in subsection (1) above, for a period of thirty
                  (30) days after Tenant  receives  written notice from Landlord
                  of said  failure;  provided,  however,  that if the  nature of
                  Tenant's  default is such that more than  thirty (30) days are
                  reasonably  required  for its cure,  then Tenant  shall not be
                  deemed to be in  default  under  this  Lease if  Tenant  shall
                  commence the cure of such default  within said thirty (30) day
                  period and diligently  prosecute the same to completion within
                  such time  period as is  reasonably  needed  but not to exceed
                  ninety  (90)  days  from the  date of  Landlord's  notice.  At
                  Landlord's  election,  any such notice from Landlord  shall be
                  concurrent  with, and not in addition to, any notice  required
                  under Section 1161 of the California Code of Civil Procedure;

            (3)   Tenant shall (i) make any general  arrangement  or  assignment
                  for the  benefit  of  creditors;  (ii)  become a  "debtor"  as
                  defined  in 11 U.S.C.  Section  101 or any  successor  statute
                  thereto  (unless,  in case of a petition filed against Tenant,
                  the same is  dismissed  within  60  days);  (iii)  suffer  the
                  appointment  of a trustee or  receiver to take  possession  of
                  substantially  all of Tenant's  assets located at the Premises
                  or of Tenant's interest in this Lease, where possession is not
                  restored  to  Tenant  within  30  days;  or  (iv)  suffer  the
                  attachment,   execution   or   other   judicial   seizure   of
                  substantially  all of Tenant's  assets located at the Premises
                  or of Tenant's  interest in this Lease,  where such seizure is
                  not  discharged   within  30  days.  The  provisions  of  this
                  subparagraph  24(3) shall also apply to any  Guarantor of this
                  Lease.  However,  in the  event  that  any  provision  of this
                  subparagraph is contrary to any applicable law, such provision
                  shall be of no force or effect; or

            (4)   Tenant shall vacate or abandon the Premises at any time during
                  the Lease Term  (except  that  Tenant may vacate so long as it
                  pays Rent,  provides an on site  security  guard during normal
                  business  hours from  Monday  through  Friday,  and  otherwise
                  performs its obligations hereunder).

25.   LANDLORD'S REMEDIES AND RIGHTS

      A.    Termination  of Lease.  In case of an Event of  Default  by  Tenant,
            Landlord  shall  have the right,  in  addition  to all other  rights
            available to Landlord under this Lease or now or hereafter permitted
            by law or in equity,  to terminate  this Lease by  providing  Tenant
            with a notice of termination. Upon termination, Landlord may recover
            any damages  proximately caused by Tenant's failure to perform under
            this Lease,  or which are likely in the ordinary  course of business
            to be incurred,  including any amount  expended or to be expended by
            Landlord  in an effort  to  mitigate  damages,  as well as any other
            damages which  Landlord is entitled to recover under any statute now
            or  hereafter  in  effect.   Landlord's  damages  include,   without
            limitation, the following:

            (1)   the worth at the time of the award of any  unpaid  Rent  which
                  had been earned at the time of termination;

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

            (3)   the worth at the time of the award of the  amount by which the
                  unpaid  Rent for the balance of the term after the time of the
                  award  exceeds the amount of the loss of such Rent that Tenant
                  proves could have been reasonably avoided.

                  As used in subparagraphs  (1) and (2) above, the "worth at the
                  time of award" shall be determined by allowing interest at the
                  maximum rate of interest  permitted by applicable law. As used
                  in subparagraph (3), the "worth at the time of award" shall be
                  determined by  discounting to present value such amount at one
                  percent  (1%)  more  than  the  discount  rate of the  Federal
                  Reserve  Bank in San  Francisco  in  effect at the time of the
                  award.

      B.    Continuation  of Lease.  In accordance  with  California  Civil Code
            Section 1951.4 (or any successor statute),  Tenant acknowledges that
            in the event  Tenant  has  breached  this  Lease and  abandoned  the
            Premises,  this  Lease  shall  continue  in  effect  for so  long as
            Landlord  does  not  terminate  Tenant's  right to  possession,  and
            Landlord may enforce all its rights and  remedies  under this Lease,
            including the right to recover the Rent as it becomes due under this
            Lease.  Acts of maintenance or  preservation or efforts to relet the
            Premises  or  the  appointment  of a  receiver  upon  initiative  of
            Landlord to protect  Landlord's  interest under this Lease shall not
            constitute a termination of Tenant's right to possession.

      C.    Right of Entry.  In case of an Event of Default by Tenant,  Landlord
            shall also have the right,  with or without  terminating this Lease,
            to enter the Premises  and remove all persons and personal  property
            from the  Premises,  such  property  being  removed  and stored in a
            public  warehouse or elsewhere at Tenant's sole cost and expense for
            at least  thirty  (30) days,  and after such thirty (30) day period,
            Landlord  shall have the right to discard  or  otherwise  dispose of
            such  property  in  accordance  with  California  law. No removal by
            Landlord of any persons or property in the Premises shall constitute
            an election to terminate  this Lease.  Such an election to terminate
            may only be made by Landlord in writing, or decreed by an arbitrator
            or a court  of  competent  jurisdiction.  Landlord's  right of entry
            shall  include  the  right to  remodel  the  Premises  and relet the
            Premises.  All costs  incurred in such entry and reletting  shall be
            paid by Tenant.  Rents  collected by Landlord  from any other tenant
            which occupies the Premises shall be offset against the amounts owed
            to Landlord by Tenant.  Tenant shall be responsible  for any amounts
            not recovered by Landlord  from any other tenant which  occupies the
            Premises.  Any  payments  made by Tenant  shall be  credited  to the
            amounts owed by Tenant in the sole order and discretion of Landlord,
            irrespective  of any  designation or request by Tenant.  No entry by
            Landlord shall prevent Landlord from later terminating this Lease by
            written notice.

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<PAGE>

      D.    Remedies.  Tenant hereby waives, for itself and all persons claiming
            by,  through or under  Tenant,  all rights and  privileges  which it
            might have under any present or future law to redeem the Premises or
            to continue this Lease after being legally  dispossessed  or ejected
            from the Premises.  The rights and remedies of Landlord set forth in
            this Lease are not  exclusive,  and  Landlord may exercise any other
            right or  remedy  available  to it under  this  Lease,  at law or in
            equity.

26.   DESTRUCTION.  In the event the Premises are  destroyed in whole or in part
      from any cause,  except damage and  destruction  caused from  vandalism or
      accident for which Tenant is responsible  for under Paragraph 12, Landlord
      may, at its option:

                  (a)   Rebuild or restore the Premises to their condition prior
                        to the damage or destruction, or

                  (b)   Terminate  this  Lease,  provided  that the  Premises is
                        damaged  to the  extent  of  thirty-three  (33%)  of the
                        replacement  cost  thereof  or to any  extent if (i) the
                        damage is not  covered  by  insurance,  and/or  (ii) the
                        damage  occurs during the last twelve (12) months of the
                        Lease Term.

                        Landlord  shall give  Tenant  notice in  writing  within
                        thirty (30) days from the destruction of the Premises of
                        its election to either  rebuild and restore  them, or to
                        terminate this Lease.  In the event  Landlord  agrees to
                        rebuild or restore the  Premises,  Landlord  shall do so
                        promptly at its expense. Unless such damage is caused by
                        Tenant or Tenant's  agents,  employees  or  contractors,
                        Tenant  shall be entitled  to a reduction  in Rent while
                        such  repair is being  made in the  proportion  that the
                        area  of the  Premises  rendered  untenantable  by  such
                        damage  bears  to the  total  area of the  Premises.  If
                        Landlord  initially  estimates  that the  rebuilding  or
                        restoration will exceed 180 days or if Landlord does not
                        complete  the  rebuilding  or  restoration   within  one
                        hundred   eighty  (180)  days   following  the  date  of
                        destruction  (such  period  of time to be  extended  for
                        delays  caused  by the  fault or  neglect  of  Tenant or
                        because of Acts of God, acts of public  agencies,  labor
                        disputes,  strikes,  fires, freight embargoes,  rainy or
                        stormy weather, inability to obtain materials,  supplies
                        or fuels,  acts of  contractors  or  subcontractors,  or
                        delay of the contractors or  subcontractors  due to such
                        causes or other  contingencies  beyond  the  control  of
                        Landlord), then Tenant shall have the right to terminate
                        this  Lease by giving  thirty  (30) days  prior  written
                        notice to Landlord.  Notwithstanding  anything herein to
                        the  contrary,   Landlord's  obligation  to  rebuild  or
                        restore shall not include  restoration of Tenant's trade
                        fixtures,   equipment,    (including   telecommunication
                        equipment,  whether or not located within the Premises),
                        merchandise,   or  any  improvements,   alterations,  or
                        additions  made by Tenant to the Premises,  which Tenant
                        shall forthwith replace or fully repair at Tenant's sole
                        cost and expense  provided  this Lease is not  cancelled
                        according to the provisions above.

                        Unless  this  Lease  is   terminated   pursuant  to  the
                        foregoing  provisions,  this Lease shall  remain in full
                        force and effect.  Tenant  hereby  expressly  waives any
                        statutory  rights  of  termination  which  may  arise by
                        reason  of  any  partial  or  total  destruction  of the
                        Premises.

                        In the event the damage or  destruction  of the Premises
                        is caused by Tenant  or  Tenant's  employees,  agents or
                        independent contractors, Tenant shall pay the deductible
                        portion of Landlord's insurance proceeds.

27.   EMINENT  DOMAIN.  If all or any part of the Premises shall be taken by any
      public or  quasi-public  authority  under the power of  eminent  domain or
      conveyance in lieu thereof,  this Lease shall  terminate as to any portion
      of the  Premises  so taken or conveyed on the date when title vests in the
      condemnor,  and Landlord shall be entitled to any and all payment, income,
      rent, award, or any interest therein  whatsoever which may be paid or made
      in  connection  with such taking or  conveyance,  and Tenant shall have no
      claim against Landlord or otherwise for the value or any unexpired term of
      this Lease.  Notwithstanding  the foregoing  Paragraph,  any  compensation
      specifically  awarded to Tenant for loss of  business,  Tenant's  personal
      property,  moving  cost or loss  of  goodwill,  shall  be and  remain  the
      property of Tenant.

      If (i) any  action  or  proceeding  is  commenced  for such  taking of the
Premises or any part thereof, or if Landlord is advised in writing by any entity
or body having the right or power of  condemnation  of its  intention to condemn
the Premises or any portion  thereof,  or (ii) any of the foregoing events occur
with respect to the taking of any other space in the Complex,  or (iii) any such
spaces are taken or conveyed  in lieu of such  taking,  Landlord  shall have the
right to terminate  this Lease by giving Tenant  written  notice  thereof within
sixty (60) days of the date of receipt of said written  advice,  or commencement
of said action or proceeding, taking or conveyance, which termination shall take
place as of the  first to occur  of the  last  day of the  calendar  month  next
following  the month in which such notice is given or the date on which title to
the Premises shall vest in the condemnor.

      In the event of a partial  taking or conveyance  of the  Premises,  if the
portion of the Premises taken or conveyed is so substantial  that the Tenant can
no longer  reasonably  conduct its business,  Tenant shall have the privilege of
terminating  this Lease  within  sixty (60) days from the date of such taking or
conveyance,  upon written notice to Landlord of its intention to do so, and upon
giving of such notice this Lease shall terminate on the last day of the calendar
month next  following  the month in which such notice is given,  upon payment by
Tenant of the Rent from the date of such  taking  or  conveyance  to the date of
termination.

        If a  portion  of  the  Premises  shall  be  taken  by  condemnation  or
conveyance in lieu thereof and neither  Landlord nor Tenant terminate this Lease
as provided herein, this Lease shall continue in full force and effect as to the
part of the  Premises  not so taken or  conveyed,  and the Rent herein  shall be
apportioned  as of the date of such taking or conveyance so that  thereafter the
Rent to be paid by Tenant  shall be in the ratio that the area of the portion of
the  Premises  not so taken or conveyed  bears to the total area of the Premises
prior to such taking.

28.   SALE OR  CONVEYANCE  BY LANDLORD.  In the event of a sale or conveyance of
      the Complex or any interest  therein,  by any owner of the reversion  then
      constituting  Landlord,  the transferor shall thereby be released from any
      further liability upon any of the terms,  covenants or conditions (express
      or  implied)  herein  contained  in favor of  Tenant,  and in such  event,
      insofar as such transfer is concerned, Tenant agrees to look solely to the
      responsibility  of the successor in interest of such  transferor in and to
      the Complex  and this Lease.  This Lease shall not be affected by any such
      sale or  conveyance,  and  Tenant  agrees to attorn  to the  successor  in
      interest of such transferor.

29.   ATTORNMENT TO LENDER OR THIRD PARTY. In the event the interest of Landlord
      in the  Complex  is  encumbered  by  mortgage  or deed of trust,  and such
      interest is acquired  by the lender or any third  party  through  judicial
      foreclosure,  non-judicial  foreclosure,  or  conveyance  in lieu thereof,
      Tenant  hereby  agrees to attorn to such  purchaser or  transferee  and to
      recognize  such  purchaser or transferee as the landlord under this Lease.
      In the event the lien of the deed of trust securing the loan from a lender
      to  Landlord  is prior  and  paramount  to the  Lease,  this  Lease  shall
      nonetheless  continue  in full force and effect for the  remainder  of the
      unexpired term hereof, at the same rental herein reserved and upon all the
      other terms, conditions and covenants herein contained.

30.   HOLDING  OVER.  Any  holding  over by  Tenant  after  expiration  or other
      termination  of the Lease Term shall not constitute a

                                       10
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Tenant's Initials:   ________
<PAGE>

      renewal of the Lease or give Tenant any rights to the  Premises  except as
      expressly provided in this Lease. Any holding over after the expiration or
      other  termination  of the Lease Term,  with the prior written  consent of
      Landlord,  shall be construed to be a tenancy from month to month,  on the
      same terms and conditions  herein specified  insofar as applicable  except
      that the monthly  Basic Rent shall be  increased to an amount equal to one
      hundred fifty (150%) percent of the monthly Basic Rent required during the
      last month of the Lease Term.

31.   CERTIFICATE OF ESTOPPEL.  Tenant shall, within ten (10) days after written
      notice from Landlord,  at any time,  execute,  acknowledge  and deliver to
      Landlord  a  statement  in  writing  (i)  certifying  that  this  Lease is
      unmodified  and in full force and effect  (or,  if  modified,  stating the
      nature  of  such  modification  and  certifying  that  this  Lease,  as so
      modified,  is in full force and effect) and the date to which the rent and
      other charges are paid in advance,  if any; (ii)  acknowledging that there
      are not,  to  Tenant's  knowledge,  any  uncured  defaults  on the part of
      Landlord hereunder,  or specifying such defaults,  if any are claimed; and
      (iii) certifying to such other matters concerning the Premises,  the Lease
      or Tenant's  tenancy as Landlord may request.  Any such  statement  may be
      conclusively  relied upon by any prospective  purchaser or encumbrancer of
      the Premises.  Tenant's failure to deliver such statement within such time
      shall be  conclusive  upon  Tenant  that this  Lease is in full  force and
      effect,  without  modification  except as may be  represented by Landlord,
      that there are no uncured defaults in Landlord's performance, and that not
      more than one month's Rent has been paid in advance.

32.   CONSTRUCTION  CHANGES.  It is  understood  that  the  description  of  the
      Premises  and the  location of  ductwork,  plumbing  and other  facilities
      therein  are  subject to such  minor  changes as  Landlord  or  Landlord's
      architect  determines to be desirable in the course of construction of the
      Premises,  and no such  changes,  or any  changes  in plans  for any other
      portions of the Premises or the Complex shall affect this Lease or entitle
      Tenant to any  reduction of Rent  hereunder or result in any  liability of
      Landlord  to Tenant.  Landlord  does not  guarantee  the  accuracy  of any
      drawings  supplied  to Tenant and  verification  of the  accuracy  of such
      drawings rests with Tenant.

33.   RIGHT OF LANDLORD TO PERFORM. All terms,  covenants and conditions of this
      Lease to be performed or observed by Tenant shall be performed or observed
      by Tenant at Tenant's  sole cost and expense and without any  reduction of
      Rent.  If  Tenant  shall  fail  to pay  Rent,  required  to be  paid by it
      hereunder, or shall fail to perform any other term or covenant required to
      be performed by it hereunder, and such failure shall continue for five (5)
      days after written notice thereof from Landlord, Landlord, without waiving
      or releasing  Tenant from any  obligation  of Tenant  hereunder,  may, but
      shall not be obligated to, make any such payment or perform any such other
      term or  covenant on Tenant's  part to be  performed.  All sums so paid by
      Landlord and all necessary costs of such performance by Landlord  together
      with  interest  thereon at the rate of interest  specified in Paragraph 44
      below,  shall be paid to  Landlord  on  demand  as  Additional  Rent,  and
      Landlord shall have (in addition to any other right or remedy of Landlord)
      the same rights and remedies in the event of  nonpayment by Tenant of Rent
      hereunder.

34.   ATTORNEY'S  FEES. In the event that either Landlord or Tenant should bring
      suit or  become  involved  in any  proceeding  for the  possession  of the
      Premises,  for the recovery of any sum due under this Lease, or because of
      the breach of any provision of this Lease, or for any other relief against
      the  other  party  hereunder,  then  all  costs  and  expenses,  including
      reasonable attorneys' fees, incurred by the prevailing party therein shall
      be paid by the  other  party,  which  obligation  on the part of the other
      party shall be deemed to have accrued on the date of the  commencement  of
      such  action or  proceeding  and shall be  enforceable  whether or not the
      action or proceeding is prosecuted to judgment.  Should  Landlord be named
      as a defendant in any suit brought  against  Tenant in connection  with or
      arising out of Tenant's occupancy hereunder,  Tenant shall pay to Landlord
      its costs and  expenses  incurred  in such suit,  including  a  reasonable
      attorneys' fees.

35.   WAIVER.  No covenant,  term or condition  or the breach  thereof  shall be
      deemed  waived,  except by written  consent of the party  against whom the
      waiver is claimed,  and any waiver of the breach of any covenant,  term or
      condition shall not be deemed to be a waiver of any other  covenant,  term
      or condition or any subsequent  failure of the party failing to perform or
      observe the same or any other such term, covenant or condition. Acceptance
      by Landlord  of any  performance  by Tenant  after the time the same shall
      have become due shall not constitute a waiver by Landlord of the breach or
      default of any  covenant,  term or condition  unless  otherwise  expressly
      agreed to by Landlord in writing.

36.   NOTICES.  All  notices,   demands,   requests,   advises  or  designations
      (collectively  "Notices")  which  may be or are  required  to be  given by
      either party to the other party hereunder shall be in writing. All Notices
      shall  be  sufficiently  given,  made  or  delivered  if  (i)  to  Tenant,
      personally  served on Tenant by leaving the same at the Premises,  or (ii)
      to Landlord,  if personally  served on a Landlord  Owner  (defined  below)
      executing this Lease.  Notice shall also be  sufficiently  given,  made or
      delivered if sent by (a) postage  prepaid  United States mail or overnight
      courier,  addressed  as  specified  in  Paragraph  1.L,  or (b)  facsimile
      transmission  to the numbers  specified in Paragraph 1.L, with  confirming
      copy sent by United States mail. Each Notice referred to in this Paragraph
      shall be deemed  received on the date of the  personal  service,  the next
      business   day  after   sending  via   overnight   courier  or   facsimile
      transmission,  or on the third (3rd) day after  mailing  thereof by United
      States mail, postage prepaid, as the case may be.

37.   EXAMINATION OF LEASE.  Submission of this  instrument  for  examination or
      signature by Tenant does not  constitute a reservation  of or option for a
      lease,  and this instrument is not effective as a lease or otherwise until
      its execution and delivery by both Landlord and Tenant.

38.   DEFAULT BY  LANDLORD.  Landlord  shall not be in default  unless  Landlord
      fails to perform  obligations  required  of Landlord  within a  reasonable
      time,  but in no event earlier than thirty (30) days after written  notice
      by Tenant to Landlord  and to the holder of any  mortgage or deed of trust
      covering the Premises  whose name and address shall have  previously  been
      furnished to Tenant in writing,  specifying wherein Landlord has failed to
      perform  such  obligations;  provided,  however,  that  if the  nature  of
      Landlord's  obligations  is such  that  more  than  thirty  (30)  days are
      required  for  performance,  then  Landlord  shall  not be in  default  if
      Landlord  commences  performance  within  such  thirty (30) day period and
      thereafter diligently prosecutes the same to completion.

39.   AUTHORITY.  If Tenant is a corporation  (or other entity) each  individual
      executing  this  Lease on behalf  of said  corporation  (or other  entity)
      represents  and warrants that he or she is duly  authorized to execute and
      deliver  this  Lease on behalf of said  corporation  (or other  entity) in
      accordance with the by-laws of said corporation (or in accordance with the
      agreement  of such other  entity) and that this Lease is binding upon said
      corporation (or other entity) in accordance with its terms.  Tenant shall,
      within sixty (60) days after execution of this Lease,  deliver to Landlord
      a certified  copy of the  resolution  of the Board of  Directors  or other
      governing  members of said  corporation  (or other entity)  authorizing or
      ratifying the execution of this Lease.

40.   LIMITATION  OF  LIABILITY.  In  consideration  of  the  benefits  accruing
      hereunder,  Tenant and all successors and assigns covenant and agree that,
      in the event of any actual or alleged failure, breach or default hereunder
      by Landlord:

                  (i)   the sole and exclusive remedy and source of recovery for
                        any  judgment  or  award  shall  be  against  Landlord's
                        interest in the Premises;

                                       11
Landlord's Initials: ________

Tenant's Initials:   ________
<PAGE>

                   (ii) no  partner,  member,  shareholder  or  other  owner  of
                        Landlord (collectively,  "Landlord Owner") shall be sued
                        or named as a party in any suit or action (except as may
                        be necessary to secure jurisdiction of the partnership);

                  (iii) no  service of process  shall be made  against  Landlord
                        Owner (except as may be necessary to secure jurisdiction
                        of Landlord);

                   (iv) no  Landlord  Owner  shall  be  required  to  answer  or
                        otherwise plead to any service of process;

                    (v) no judgment will be taken against Landlord Owner;

                   (vi) any judgment  taken  against any  Landlord  Owner may be
                        vacated and set aside at any time without hearing;

                  (vii) no writ of  execution  will ever be levied  against  the
                        assets of any Landlord Owner;

                 (viii) these covenants and agreements are  enforceable  both by
                        Landlord and also by any Landlord Owner.

Tenant  agrees that each of the  foregoing  covenants  and  agreements  shall be
applicable to any covenant or agreement either expressly contained in this Lease
or imposed by statute or at common law.

41.   BROKERS.  Tenant  warrants  that it has had  dealings  with  only the real
      estate broker(s) or agent(s) specified in Paragraph 1.M in connection with
      the  negotiation  of this Lease and that it knows of no other real  estate
      broker or agent who is entitled to a commission  in  connection  with this
      Lease. Tenant shall indemnify,  defend, protect and hold harmless Landlord
      and Landlord's  agents,  employees and  independent  contractors  from and
      against  any and all  liabilities,  losses,  costs,  expenses  and damages
      (including  attorneys'  fees and costs) arising out of any  allegations or
      claim by any third party, other than the broker(s)  specified above, for a
      commission or fee in connection with the negotiation of this Lease.

42.   SIGNS. No sign, placard, picture,  advertisement,  name or notice shall be
      inscribed,  displayed  or  printed  or  affixed  on or to any  part of the
      outside of the  Premises or any exterior  windows of the Premises  without
      the  prior  written  consent  of  Landlord.  If  Tenant  does  not  obtain
      Landlord's  prior  written  consent  pursuant to the  preceding  sentence,
      Landlord shall have the right to remove any such sign,  placard,  picture,
      advertisement,  name or notice  without  notice to and at the  expense  of
      Tenant.  If Tenant is allowed to print or affix or in any way place a sign
      in, on, or about the Premises, upon expiration or other sooner termination
      of this Lease,  Tenant at Tenant's sole cost and expense shall both remove
      such sign and repair all damage in such a manner as to restore all aspects
      of the appearance of the Premises to the condition  prior to the placement
      of said sign.

      All  approved  signs or  lettering  on  outside  doors  shall be  printed,
painted,  affixed or inscribed at the expense of Tenant or by a person  approved
of by Landlord.

      Tenant  shall not place  anything or allow  anything to be placed near the
glass of any window,  door partition or wall which may, in Landlord's  judgment,
appear unsightly from outside the Premises.

43.   HAZARDOUS MATERIALS.

      A.    Definitions.  As used herein,  the term  "Hazardous  Material" shall
            mean any  substance  or material  which has been  determined  by any
            state,  federal,  or local  government  authority  to be  capable of
            posing a risk of injury to health,  safety or property including all
            of those  materials and substances  designated as hazardous or toxic
            by the Environmental Protection Agency, the California Water Quality
            Control Board, the Department of Labor, the California Department of
            Industrial   Relations,   the  Department  of  Transportation,   the
            Department of  Agriculture,  the Department of Human  Services,  the
            Food  and  Drug  Agency  or  any  other  governmental  agency  which
            regulates hazardous or toxic substances in the environment.  Without
            limiting  the  generality  of the  foregoing,  the  term  "Hazardous
            Material"  shall include (i) all of those  materials and  substances
            listed as hazardous or toxic in Sections  66261.1 through  66261.126
            of  Title  22 of the  California  Code of  Regulations,  Article  4,
            Chapter 11, as the same shall be amended  from time to time,  or any
            other federal,  state or local statute, law, ordinance,  resolution,
            code, rule, regulation, order or decree regulating,  relating to, or
            imposing   liability  or  standards  of  conduct   concerning,   any
            hazardous, toxic or dangerous waste, substance or material as now or
            at any time hereafter in effect, (ii) any substance,  product, waste
            or other  material of any nature  whatsoever  which may give rise to
            liability  under  any  statutory  or  common  law  theory  based  on
            negligence, trespass, intentional tort, nuisance or strict liability
            or under any  reported  decisions  of a state or federal  court,  or
            (iii)  petroleum  or crude oil other than  petroleum  and  petroleum
            products  which  are  contained  within  regularly   operated  motor
            vehicles.

      B.    Restriction  on Use.  Tenant shall not cause or permit any Hazardous
            Material to be used, generated, released, discharged, transported to
            or from,  stored,  or  disposed  of in or about  the  Premises,  the
            Complex,  or any other land or  improvements  in the vicinity of the
            Premises  or the  Complex,  without  the prior  written  consent  of
            Landlord,  which  consent  may be withheld  in  Landlord's  sole and
            absolute  discretion.  However,  subject to the terms and conditions
            set forth herein, Landlord agrees that so long as the original party
            named herein as Tenant  remains the Tenant under this Lease,  and so
            long as no uncured Event of Default exists under this Lease,  Tenant
            shall  be  permitted  to use and  store  in the  Premises  only  the
            substances  listed  on  Exhibit  E  attached  hereto  (however,  the
            inclusion  of  Exhibit E shall in no way be  deemed  to  create  any
            obligation  on  Landlord's  part to  review  the  list of  Hazardous
            Materials for conformity to laws).  Without  limiting the generality
            of the foregoing, Tenant, at its sole cost and expense, shall comply
            with all laws  relating to the storage,  use,  generation,  release,
            transportation and disposal of Hazardous Materials.  If the presence
            of any  Hazardous  Material on the  Premises  caused or permitted by
            Tenant results in contamination of the Premises, the Complex, or any
            nearby  premises,  Tenant,  at its  sole  cost  and  expense,  shall
            promptly  take  all  actions  necessary  to  return  the same to the
            condition existing prior to such contamination.

            Tenant shall indemnify,  defend,  protect and hold harmless Landlord
            and Landlord's  agents,  employees and independent  contractors from
            and  against  any and all  claims,  judgments,  damages  (including,
            without limitation,  punitive damages),  losses,  penalties,  fines,
            demands,  liabilities  (including strict  liability),  encumbrances,
            liens, costs and expenses of investigation and defense of any claim,
            including,  without  limitation,   reasonable  attorneys'  fees  and
            disbursements and consultants'  fees, arising out of, relating to or
            resulting from any storage, use, generation,  discharge,  treatment,
            transportation,  release or disposal by Tenant,  or Tenant's agents,
            employees or  independent  contractors,  of any  Hazardous  Material
            upon,  about,  above or beneath  the  Premises,  the  Complex or any
            nearby  premises.  This  indemnity  shall survive the  expiration or
            earlier  termination of this Lease. Tenant shall not suffer any lien
            to be recorded  against the Premises or the Complex as a consequence
            of a Hazardous Material,  including any so-called state,  federal or
            local  "super  fund" lien  related to the "clean up" of a  Hazardous
            Material  in or  about  the  Premises,  the  Complex  or  any  other
            premises.

      C.    Compliance. Tenant shall immediately notify Landlord of any inquiry,
            test, investigation,  or enforcement

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Tenant's Initials:   ________
<PAGE>

            proceeding  by or  against  Tenant  or  the  Premises  concerning  a
            Hazardous Material.  Tenant acknowledges that Landlord, as the owner
            of the  Premises,  at its  election,  shall have the sole right,  at
            Tenant's  expense,  to  negotiate,  defend,  approve  and appeal any
            action taken or order issued with regard to a Hazardous  Material by
            an applicable governmental authority.  Landlord shall have the right
            to  appoint  a  consultant,  at  Tenant's  expense,  to  conduct  an
            investigation to determine  whether any Hazardous  Material is being
            used,  stored and disposed of in an appropriate  manner.  Tenant, at
            its  expense,   shall  comply  with  all   recommendations   of  the
            consultant.

      D.    Certification  Upon  Termination  of Lease.  Upon the  expiration or
            earlier  termination of the Lease,  Tenant,  at its sole cost, shall
            remove all Hazardous Materials from the Premises and shall provide a
            certificate to Landlord at Landlord's  request certifying that there
            is no  contamination of soil in or about the Premises and that there
            is no other contamination of Hazardous Materials in the Premises. If
            Tenant fails to so surrender the Premises, Tenant shall, in addition
            to its obligations  under Paragraph 43.B above,  indemnify,  defend,
            protect and hold harmless Landlord and Landlord's agents,  employees
            and  independent  contractors  from and  against any and all damages
            arising out of,  related to or resulting  from  Tenant's  failure to
            surrender  the  Premises as required  by this  Paragraph,  including
            without  limitation  any claims or damages  in  connection  with the
            condition  of  the  Premises  such  as  damages  occasioned  by  the
            inability  to relet the  Premises or a reduction  in the fair market
            and/or  rental value of the  Premises by reason of the  existence of
            any Hazardous  Material upon, about,  above or beneath the Premises,
            the Complex or any nearby premises.

      E.    Clean-up  Activities.  If any  action is  required  to be taken by a
            governmental  authority  to clean-up  Hazardous  Materials  from the
            Premises and such action is not completed prior to the expiration or
            earlier  termination  of the Lease,  Tenant  shall be deemed to have
            impermissibly  held over until such time as such required  action is
            completed,  and in addition to the  requirements  of  Paragraph  30,
            Landlord  shall be entitled to all  damages  directly or  indirectly
            incurred in  connection  with such holding over,  including  without
            limitation,  damages  occasioned  by  the  inability  to  relet  the
            Premises or a reduction  of the fair market  and/or  rental value of
            the Premises.

44.   INTEREST.  Any sum accruing to Landlord under the provisions of this Lease
      which shall not be paid by Tenant  within  thirty (30) days after such sum
      becomes  due,  shall  bear  interest  from the  expiration  of such 30 day
      period,  until paid, at the rate of twelve percent (12%) per annum, or the
      maximum rate then permitted under applicable law, whichever is less.

45.   MISCELLANEOUS AND GENERAL PROVISIONS.

      A.    Use of Building Name.  Tenant shall not, without the written consent
            of Landlord, use the name of the Building for any purpose other than
            as the address of the business conducted by Tenant in the Premises.

      B.    Governing Law; Partial Invalidity.  This Lease shall in all respects
            be  governed by and  construed  in  accordance  with the laws of the
            State  of  California.  If any  provision  of this  Lease  shall  be
            invalid, unenforceable or ineffective for any reason whatsoever, all
            other  provisions  hereof  shall be and  remain  in full  force  and
            effect.

      C.    Definitions;  Binding Effect. The term "Premises" includes the space
            leased  hereby  and  any  improvements  now or  hereafter  installed
            therein or attached thereto. The term "Landlord" or any pronoun used
            in place thereof includes the plural as well as the singular and the
            successors and assigns of Landlord. The term "Tenant" or any pronoun
            used in place  thereof  includes  the plural as well as the singular
            and individuals, firms, associations, partnerships and corporations,
            and  their   and  each  of  their   respective   heirs,   executors,
            administrators,  successors and permitted assigns,  according to the
            context hereof,  and the provisions of this Lease shall inure to the
            benefit  of  and  bind  such   heirs,   executors,   administrators,
            successors and permitted assigns.

            The term  "person"  includes  the plural as well as the singular and
individuals, firms, associations,  partnerships and corporations.  Words used in
any  gender  include  other  genders.  If there be more  than  one  Tenant,  the
obligations of Tenant hereunder are joint and several. The paragraph headings of
this Lease are for  convenience  of reference only and shall have no effect upon
the construction or interpretation of any provision hereof.

      D.    Time of the  Essence.  Time is of the  essence  of this Lease and of
            each and all of its provisions.

      E.    Quitclaim  of  Leasehold  Interest.  At the  expiration  or  earlier
            termination  of this Lease,  Tenant shall execute,  acknowledge  and
            deliver to Landlord,  within ten (10) days after written demand from
            Landlord to Tenant, any quitclaim deed or other document required by
            any  reputable  title  company  licensed  to operate in the State of
            California, to remove the cloud or encumbrance created by this Lease
            from the real property of which Tenant's Premises are a part.

      F.    Entire Agreement. All exhibits, riders and attachments referenced in
            this Lease are hereby  incorporated into this Lease. This instrument
            along with any exhibits,  riders and attachments  hereto constitutes
            the entire  agreement  between  Landlord and Tenant  relative to the
            Premises and this agreement and the exhibits and  attachments may be
            altered,  amended or revoked only by an instrument in writing signed
            by both Landlord and Tenant.  Landlord and Tenant hereby acknowledge
            that neither party has relied upon any representation concerning the
            Premises  that is not set forth in this  Lease  and  agree  that all
            prior  or   contemporaneous   oral  agreements   between  and  among
            themselves  and their  agents  or  representatives  relative  to the
            leasing of the Premises are merged in or revoked by this agreement.

      G.    Recording  of Lease.  Neither  Landlord nor Tenant shall record this
            Lease or a short form  memorandum  hereof without the consent of the
            other.

      H.    Amendments Required by Lender.  Tenant further agrees to execute any
            amendments  required  by a  lender  to  enable  Landlord  to  obtain
            financing,   so  long  as   Tenant's   rights   hereunder   are  not
            substantially affected.

      I.    Air Rights Retained by Landlord. Tenant covenants and agrees that no
            diminution  or shutting off of light,  air or view by any  structure
            which may be hereafter erected (whether or not by Landlord) shall in
            any way affect this Lease,  entitle  Tenant to any reduction of Rent
            hereunder or result in any liability of Landlord to Tenant.

      J.    Early  Occupancy.  If  Tenant  occupies  the  Premises  prior to the
            Commencement  Date,  such  occupancy  shall be subject to all of the
            provisions  of  this  Lease,   and  Tenant  shall  pay  Basic  Rent,
            Additional  Rent and all other  charges  specified in this Lease for
            the early  occupancy  period.  Early  occupancy  of the  Premises by
            Tenant shall not advance the termination date of this Lease.

      K.    Options Personal to Tenant. Any Options shall (i) be personal to the
            original  Tenant  executing  this Lease,  (ii) not be assignable and
            (iii) not be  separated  from this Lease in any  manner,  whether by
            reservation  or otherwise.  Any such Option may be exercised only by
            the  original  Tenant  executing  this  Lease  while  occupying  the
            Premises  and  provided  that such Option shall be exercised in good
            faith  without  the  intent of  thereafter  assigning  this Lease or
            subletting  the  Premises,  or any portion  thereof,  and may not be
            exercised or assigned,  voluntarily or  involuntarily,  by or to any
            other person or entity.

                                       13
Landlord's Initials: ________

Tenant's Initials:   ________
<PAGE>

IN WITNESS  WHEREOF,  Landlord and Tenant have executed and delivered this Lease
as of the day and year first above written.

LANDLORD: GEOMAX                              TENANT: SIERRA MONITOR CORPORATION

          a California General Partnership            a California Corporation

By: Max Gahrahmat                             By: Gordon R. Arnold
    --------------------------------------        ------------------------------

    /s/ Max Gahrahmat                         /s/ Gordon R. Arnold
    --------------------------------------    ----------------------------------
    Signature                                 Signature

    Partner                                   President
    --------------------------------------    ----------------------------------
    Title of Signatory                        Title of Signatory

LANDLORD:                                     TENANT:

By: George L. Quinn Jr.                       By: Gordon R. Arnold
    --------------------------------------        ------------------------------

    /s/ George L. Quinn Jr.                   /s/ Gordon R. Arnold
    --------------------------------------    ----------------------------------
    Signature                                 Signature

    Partner                                   President
    --------------------------------------    ----------------------------------
    Title of Signatory                        Title of Signatory

NNNLEASE99

                                       14
Landlord's Initials: ________

Tenant's Initials:   ________
<PAGE>

                                    EXHIBIT A

                          LEGAL DESCRIPTION OF COMPLEX

The real  property  referred  to in this Lease as the  "Complex"  shall mean and
include all that  certain  real  property  situated in the County of Santa Clara
State of California, more particularly described as follows:

Parcel 3, as shown on that  certain map  entitled  "Parcel  Map",  which map was
filed for record in the Office of the Reorder of the County of Santa Clara State
of California on November 28,1978 in Book 431 of Maps, at page(s) 2 and 3.

                                       15
Landlord's Initials: ________

Tenant's Initials:   ________
<PAGE>

                                    EXHIBIT B

                        SITE PLAN OF COMPLEX AND BUILDING

                                [Graphic Omitted]

                                       16
Landlord's Initials: ________

Tenant's Initials:   ________
<PAGE>

                                    EXHIBIT D

                         ACKNOWLEDGMENT OF COMMENCEMENT

Landlord: GEOMAX

Tenant: SIERRA MONITOR
CORPORATION
Complex: Tarob Court Business Park
Premises: 1991 Tarob Court Milpitas, CA

For the Lease dated April 4th, 2003, the undersigned hereby certifies:

I.    That  the  undersigned  Tenant  occupies  the   above-described   Premises
      consisting of approximately 15,788 square feet.

II.   That the initial Lease term commenced on 5/01,  2003 and will terminate on
      4/30, 2009

III.  That  Tenant's  obligation  to pay  monthly  Basic Rent in the amount of $
      26,149 commenced or will commence on 5/01, 2003.

IV.   That a security deposit of $40,000.00 has been paid by Tenant to Landlord.

V.    That all construction to be performed by Landlord is complete and has been
      accepted by Tenant.

Dated as of this 14 day of April, 2003.

LANDLORD: GEOMAX                              TENANT: SIERRA MONITOR CORPORATION

By: Max Gahrahmat                             By: Gordon R. Arnold
    --------------------------------------        ------------------------------

    /s/ Max Gahrahmat                         /s/ Gordon R. Arnold
    --------------------------------------    ----------------------------------
    Signature                                 Signature

    Partner                                   President
    --------------------------------------    ----------------------------------
    Title of Signatory                        Title of Signatory

LANDLORD:                                     TENANT:

By: George L. Quinn Jr.                       By: Gordon R. Arnold
    --------------------------------------        ------------------------------

    /s/ George L. Quinn Jr.                   /s/ Gordon R. Arnold
    --------------------------------------    ----------------------------------
    Signature                                 Signature

    Partner                                   President
    --------------------------------------    ----------------------------------
    Title of Signatory                        Title of Signatory

                                       17
Landlord's Initials: ________

Tenant's Initials:   ________
<PAGE>

                                    EXHIBIT E

                               HAZARDOUS MATERIALS

        Subject to the terms and  conditions  set forth in  Paragraph  43 of the
Lease,  so long as the original party named therein as Tenant remains the Tenant
under the Lease,  and so long as no uncured  Event of Default  exists  under the
Lease,  Tenant  shall be  permitted  to use and store in the  Premises  only the
substances  listed  below.  If no items are  listed,  then  Tenant  shall not be
entitled to use or store any Hazardous Material on or about the Premises.

                           Chemical Inventory Listing

Hazard Class            Physical State      *Manner of Storage          ** Note

Non Flammable Gas       Gas                 E
Flammable Gas           Gas                 E
Oxidizer                Gas                 E
Poison                  Liquid              A
N/A                     Liquid              A                           1
N/A                     Liquid              A                           2
N/A                     Liquid              A                           3
N/A                     Liquid              A                           4
Flammable               Liquid              A                           5

*Indicates as: E: Pressurized Vessels
               A: Container on Shelf

** Note

1 - Various aerosol canisters (quart) of urethane, acrylic
2 - Cleaning fluids (quart and smaller)  i.e.  Household  ammonia,  soaps
3 - Adhesives and gules in tubes and pint containers
4 - Blue line activator
5 - Laboratory chemicals including alcohols, acids, bases (pint containers)

                                       18
Landlord's Initials: ________

Tenant's Initials:   ________EXHIBIT 4.1

                             FIXED RATE SENIOR NOTE

REGISTERED                                                 REGISTERED
No. FXR                                                    U.S.$
                                                           CUSIP:

     Unless this certificate is presented by an authorized representative of
The Depository Trust Company (55 Water Street, New York, New York) to the
issuer or its agent for registration of transfer, exchange or payment, and any
certificate issued is registered in the name of Cede & Co. or such other name
as requested by an authorized representative of The Depository Trust Company
and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered
owner hereof, Cede & Co., has an interest herein.

                                      A-1
<PAGE>

                                 MORGAN STANLEY
                    SENIOR GLOBAL MEDIUM-TERM NOTE, SERIES C
                                  (Fixed Rate)

                   1.5% EXCHANGEABLE NOTES DUE JUNE 30, 2011
                       (EXCHANGEABLE FOR SHARES OF COMMON
                      STOCK OF WAL-MART STORES, INC.)

<TABLE>
===================================================================================================================
<S>                           <C>                          <C>                          <C>
ORIGINAL ISSUE DATE:          INITIAL REDEMPTION           INTEREST RATE: 1.5%          MATURITY DATE:
                                DATE: April 1, 2005.         per annum
                                See also "Morgan
                                Stanley Call Right"
                                below.
-------------------------------------------------------------------------------------------------------------------
INTEREST ACCRUAL              INITIAL REDEMPTION           INTEREST PAYMENT             OPTIONAL
  DATE:                         PERCENTAGE: See              DATE(S):                     REPAYMENT
                                "Morgan Stanley Call                                      DATE(S): N/A
                                Right" below.
-------------------------------------------------------------------------------------------------------------------
SPECIFIED CURRENCY:           ANNUAL REDEMPTION            INTEREST PAYMENT             APPLICABILITY OF
  U.S. dollars                  PERCENTAGE                   PERIOD: Semi-annually        MODIFIED
                                REDUCTION: N/A                                            PAYMENT UPON
                                                                                          ACCELERATION:
                                                                                          See "Alternate
                                                                                          Exchange Calculation
                                                                                          in Case of an Event
                                                                                          of Default" below.
-------------------------------------------------------------------------------------------------------------------
IF SPECIFIED                  REDEMPTION NOTICE            APPLICABILITY OF             If yes, state Issue Price:
  CURRENCY                      PERIOD: See also             ANNUAL INTEREST
  OTHER THAN U.S.               "Morgan Stanley Notice       PAYMENTS: N/A
  DOLLARS, OPTION               Date" below.
  TO ELECT
  PAYMENT IN U.S.
  DOLLARS: N/A
-------------------------------------------------------------------------------------------------------------------
EXCHANGE RATE                 TAX REDEMPTION AND                                        ORIGINAL YIELD TO
  AGENT: N/A                  PAYMENT OF                                                MATURITY: N/A
                              ADDITIONAL
                              AMOUNTS: NO
-------------------------------------------------------------------------------------------------------------------
OTHER PROVISIONS:             IF YES, STATE INITIAL
  See below.                  OFFERING DATE: N/A
===================================================================================================================
</TABLE>

Exchange Right.............  On any Exchange Date, subject to a prior call of
                             this Note for cash in an amount equal to the
                             applicable Call Price (as defined below) by the
                             Issuer as described under "Morgan Stanley Call
                             Right" below, the holder of this Note shall be
                             entitled, upon the holder's:

                                      A-2
<PAGE>

                             o  completion and delivery to the Issuer and the
                                Calculation Agent of an Official Notice of
                                Exchange (in the form of Annex A attached
                                hereto) prior to 11:00 a.m. (New York City
                                time) on such date; and

                             o  transfer of this Note to the Trustee on the
                                Issuer's behalf on or before the Exchange
                                Settlement Date (as defined below),

                             to exchange each $1,000 principal amount of this
                             Note for a number of shares of common stock of
                             Wal-Mart Stores, Inc. ("Wal-Mart Stock") at the
                             Exchange Ratio (as defined below) as of the close
                             of business on such Exchange Date, subject to any
                             adjustment (x) to the Exchange Ratio or (y)
                             resulting in other Exchange Property (as defined
                             below) being required to be delivered instead of
                             or in addition to such Wal-Mart Stock as a result
                             of any corporate event described under
                             "Antidilution Adjustments" below, in each case,
                             required to be made prior to the close of business
                             on such Exchange Date.

                             Upon any exercise of the Exchange Right (including
                             upon the automatic exercise of the Exchange
                             Right), the holder of this Note shall not be
                             entitled, with respect to the principal amount of
                             this Note that is exchanged, to receive any cash
                             payment representing any accrued but unpaid
                             interest on this Note. Consequently, if this Note
                             is exchanged so that the Exchange Settlement Date
                             occurs during the period from the close of
                             business on a Record Date (as defined below) for
                             the payment of interest and prior to the next
                             succeeding Interest Payment Date, this Note must,
                             as a condition to the delivery of Wal-Mart Stock,
                             other Exchange Property or cash, be accompanied by
                             funds equal to the interest payable on the
                             succeeding Interest Payment Date on the principal
                             amount so exchanged.

                             Upon any such exchange, the Issuer may, at its
                             sole option, either deliver such shares of
                             Wal-Mart Stock (or such other Exchange Property)
                             or pay an amount in cash for each $1,000 principal
                             amount of this Note equal to the Exchange Ratio as
                             of the close of business on such Exchange Date
                             times the Closing Price (as defined below) of
                             Wal-Mart Stock (or such other Exchange Property)
                             on

                                      A-3
<PAGE>

                             the Exchange Date, as determined by the
                             Calculation Agent, in lieu of such Wal-Mart Stock
                             (or such other Exchange Property).

                             The Issuer shall, or shall cause the Calculation
                             Agent to, deliver such shares of Wal-Mart Stock or
                             cash to the Trustee for delivery to the holder of
                             this Note on the third Business Day after any
                             Exchange Date, subject to delivery of this Note to
                             the Trustee on such day (such third Business Day,
                             or, if later, the day on which this exercised Note
                             is delivered to the Trustee, the "Exchange
                             Settlement Date"); provided, that upon the
                             automatic exercise of the Exchange Right, the
                             Exchange Settlement Date shall be the Maturity
                             Date.

                             Prior to 9:30 a.m. on the first Business Day
                             immediately succeeding any Exchange Date,
                             including upon the automatic exercise of the
                             Exchange Right, the Issuer shall cause the
                             Calculation Agent to provide written notice to the
                             Trustee at its New York office and to The
                             Depository Trust Company, or any successor
                             depositary (the "Depositary"), on which notice the
                             Trustee and the Depositary may conclusively rely,
                             (i) of its receipt of any such "Official Notice of
                             Exchange" (which shall not be required upon the
                             automatic exercise of the Exchange Right), (ii) of
                             the Issuer's determination to deliver Wal-Mart
                             Stock (or, if applicable, any other Exchange
                             Property to be delivered as a result of any
                             corporate event described in paragraphs 3 or 4
                             under "Antidilution Adjustments" below) or to pay
                             an equivalent amount of cash for each $1,000
                             principal amount of this Note and (iii) if
                             Wal-Mart Stock (or, if applicable, any other
                             Exchange Property) is to be delivered, of the
                             number of shares of Wal-Mart Stock (or the amount
                             of such other Exchange Property) to be delivered
                             for each $1,000 principal amount of this Note and
                             of the amount of any cash to be paid in lieu of
                             any fractional share of Wal-Mart Stock (or of any
                             other securities included in other Exchange
                             Property, if applicable), or, if cash is to be
                             paid, of the amount of such cash for each $1,000
                             principal amount of this Note.

Minimum Exchange...........  The Exchange Right may only be exercised with
                             respect to aggregate principal amounts of $25,000
                             or greater, unless the principal amount of this
                             Note to be exchanged

                                      A-4
<PAGE>

                             represents the entire principal amount of the
                             interest in this Note beneficially owned by the
                             owner causing the exchange, as determined by the
                             Calculation Agent.

No Fractional Shares.......  If upon any exchange or call of this Note the
                             Issuer delivers shares of Wal-Mart Stock (and, if
                             applicable, any other stock or other securities),
                             the Issuer shall pay cash in lieu of delivering
                             any fractional share of Wal-Mart Stock (and, if
                             applicable, of any other stock or securities) in
                             an amount equal to the corresponding fractional
                             Closing Price of Wal-Mart Stock (and, if
                             applicable, any such other stock or other
                             securities) as determined by the Calculation Agent
                             on the applicable Exchange Date or on the second
                             Trading Day immediately preceding the Call Date
                             (as defined below).

Exchange Ratio.............             , subject to adjustment for certain
                             corporate events relating to Wal-Mart Stores, Inc.
                             ("Wal-Mart") described under "Antidilution
                             Adjustments" below.

Exchange Date..............  Any Trading Day on which a holder of this Note has
                             duly completed and delivered to the Issuer and the
                             Calculation Agent, as described under "Exchange
                             Right" above, through the Depositary an official
                             notice of exchange prior to 11:00 a.m., or if the
                             Issuer receives it after 11:00 a.m., the next
                             Trading Day; provided that such Trading Day falls
                             during the period beginning May 1, 2004 and ending
                             on the Trading Day prior to the earliest of (i)
                             the fifth scheduled Trading Day prior to the
                             Maturity Date, (ii) the fifth scheduled Trading
                             Day prior to the Call Date and (iii) in the event
                             of a call for the applicable cash Call Price as
                             described under "Morgan Stanley Call Right" below,
                             the Morgan Stanley Notice Date.

Automatic Exercise of
Exchange Right at Maturity.  Notwithstanding the procedures described under
                             "Exchange Right" above and subject to the exercise
                             of the Morgan Stanley Call Right, if (i) Parity
                             (as defined below) on June 27, 2011 is equal to or
                             greater than $1,000 and (ii) the Issuer has not
                             issued its notice of exercise of the Morgan
                             Stanley Call Right on or prior to June 27, 2011,
                             the Exchange Right shall be automatically
                             exercised on June 27, 2011, and such date or any
                             other date on which the Exchange Right shall be
                             automatically exercised in accordance with this
                             paragraph shall be deemed an

                                      A-5
<PAGE>

                             Exchange Date, even though the holder of this Note
                             has not delivered an Official Notice of Exchange
                             in respect of this Note or transferred this Note
                             to the Trustee; provided, that if a Market
                             Disruption Event (as defined below) occurs on June
                             27, 2011, Parity shall be determined and, if
                             applicable, the Exchange Right shall be
                             automatically exercised on the immediately
                             succeeding Trading Day; provided further, that if
                             a Market Disruption Event occurs on each scheduled
                             Trading Day through and including the second
                             scheduled Trading Day prior to the Maturity Date,
                             Parity shall be determined and, if applicable, the
                             Exchange Right shall be automatically exercised on
                             such second scheduled Trading Day prior to the
                             Maturity Date notwithstanding the occurrence of a
                             Market Disruption Event on such day. In such
                             event, the Closing Price used by the Calculation
                             Agent to calculate Parity shall be determined as
                             provided under "Closing Price" below.

                             Upon automatic exercise of the Exchange Right, the
                             Trustee shall deliver shares of Wal-Mart Stock, or
                             the cash value of those shares, as described above
                             under "Exchange Right."

                             If this Note is not surrendered for exchange on or
                             before the Exchange Settlement Date relating to an
                             automatic exercise of the Exchange Right, it shall
                             be deemed to be no longer Outstanding under, and
                             as defined in, the Senior Indenture (as defined
                             below) after said Exchange Settlement Date, except
                             with respect to the holder's right to receive
                             Wal-Mart Stock (and, if applicable, any other
                             Exchange Property) or cash due in connection with
                             such Exchange Right.

Morgan Stanley Call Right..  On or after April 1, 2005 to and including the
                             Maturity Date, the Issuer may call this Note, in
                             whole but not in part, for mandatory exchange into
                             Wal-Mart Stock (and, if applicable, any other
                             Exchange Property) at the Exchange Ratio (with
                             respect to each $1,000 principal amount of this
                             Note); provided that, if Parity (as defined below)
                             on the Trading Day immediately preceding the
                             Morgan Stanley Notice Date, as determined by the
                             Calculation Agent, is less than the Call Price (as
                             defined below) for the specified Call Date, the
                             Issuer shall pay the applicable Call Price,
                             described under "Call Price" below, in cash on the
                             Call Date.

                                      A-6
<PAGE>

                             Unless the Issuer has called this Note for the
                             Call Price in cash pursuant to the Morgan Stanley
                             Call Right, prior to the fifth scheduled Trading
                             Day prior to the Call Date, the holder of this
                             Note shall continue to be entitled to exchange
                             this Note and receive any amounts described under
                             "Exchange Right" above.

                             On the Morgan Stanley Notice Date, the Issuer
                             shall give notice of the Issuer's exercise of the
                             Morgan Stanley Call Right (i) to the holder of
                             this Note by mailing notice of such exercise by
                             first class mail, postage prepaid, at the holder's
                             last address as it shall appear upon the registry
                             books, (ii) to the Trustee by telephone or
                             facsimile confirmed by mailing such notice to the
                             Trustee by first class mail, postage prepaid, at
                             its New York office and (iii) to the Depositary by
                             telephone or facsimile confirmed by mailing such
                             notice to the Depositary by first class mail,
                             postage prepaid, at its New York office. Any
                             notice which is mailed in the manner herein
                             provided shall be conclusively presumed to have
                             been duly given, whether or not the holder of this
                             Note receives the notice. Failure to give notice
                             by mail, or any defect in the notice to the holder
                             of any Note shall not affect the validity of the
                             proceedings for the exercise of the Morgan Stanley
                             Call Right with respect to any other Note.

                             The notice of the Issuer's exercise of the Morgan
                             Stanley Call Right shall specify (i) the Call Date
                             (as defined below), (ii) whether Parity on the
                             Trading Day immediately prior to the Morgan
                             Stanley Notice Date, as determined by the
                             Calculation Agent, is less than the applicable
                             Call Price for the specified Call Date so that the
                             Issuer shall pay such Call Price in cash on the
                             Call Date, (iii) the place or places of payment in
                             cash (in the event of a call for the applicable
                             Call Price) or, if Parity on the Trading Day
                             immediately prior to the Morgan Stanley Notice
                             Date, as determined by the Calculation Agent, is
                             equal to or greater than the applicable Call
                             Price, the place or places of delivery of the
                             Wal-Mart Stock (and, if applicable, of any other
                             Exchange Property to be delivered as a result of
                             any corporate event described in paragraphs 3 or 4
                             under "Antidilution Adjustments" below) (and of
                             any cash to be paid in lieu of any fractional
                             share of Wal-Mart Stock (and, if applicable, of
                             any such other stock or securities)), (iv) the

                                      A-7
<PAGE>

                             number of shares of Wal-Mart Stock (and, if
                             applicable, the quantity of any other Exchange
                             Property), if any, to be delivered per $1,000
                             principal amount of this Note, (v) that such
                             delivery shall be made upon presentation and
                             surrender of this Note and (vi) that such exchange
                             is pursuant to the Morgan Stanley Call Right.

                             The notice of the Issuer's exercise of the Morgan
                             Stanley Call Right shall be given by the Issuer
                             or, at the Issuer's request, by the Trustee in the
                             name and at the expense of the Issuer.

                             If shares of Wal-Mart Stock (and, if applicable,
                             any other Exchange Property) are to be delivered
                             and, as a result of any corporate event described
                             under "Antidilution Adjustments" occurring during
                             the period from and including the Morgan Stanley
                             Notice Date to the close of business on the third
                             Trading Day prior to the Call Date, the
                             Calculation Agent makes any adjustment to the
                             Exchange Ratio and consequent adjustment to the
                             number of shares of Wal-Mart Stock to be delivered
                             or any adjustment to the quantity of any other
                             Exchange Property due to the holder of this Note,
                             the Calculation Agent shall give prompt notice of
                             any such adjustments to the Trustee at its New
                             York office and to the Depositary, on which notice
                             the Trustee and the Depositary may conclusively
                             rely. No adjustment to the Exchange Ratio shall be
                             made as a result of any corporate event occurring
                             after the close of business on the third Trading
                             Day prior to the Call Date.

                             If this Note is so called for mandatory exchange
                             by the Issuer, then, unless the holder of this
                             Note subsequently exercises the Exchange Right
                             (the exercise of which shall not be available to
                             the holder of this Note following a call for cash
                             in an amount equal to the applicable Call Price),
                             the Wal-Mart Stock (and, if applicable, any other
                             Exchange Property) or (in the event of a call for
                             cash in an amount equal to the applicable Call
                             Price, as described above, or a Subsequent Cash
                             Payment (as defined below)) cash to be delivered
                             to the holder of this Note shall be delivered on
                             the Call Date fixed by the Issuer and set forth in
                             its notice of its exercise of the Morgan Stanley
                             Call Right, upon delivery of this Note to the
                             Trustee. The Issuer shall, or shall cause the
                             Calculation Agent to,

                                      A-8
<PAGE>

                             deliver such shares of Wal-Mart Stock or cash to
                             the Trustee for delivery to the holder of this
                             Note.

                             Upon any call by the Issuer (as described above),
                             the holder of this Note shall not receive any
                             accrued but unpaid interest on the Note for the
                             period from and including the most recent Interest
                             Payment Date to but excluding the specified Call
                             Date.

                             If this Note is not surrendered for exchange on
                             the Call Date, it shall be deemed to be no longer
                             Outstanding under, and as defined in, the Senior
                             Indenture (as defined below) after the Call Date,
                             except with respect to the holder's right to
                             receive Wal-Mart Stock (and, if applicable, any
                             other Exchange Property) or cash due in connection
                             with the Morgan Stanley Call Right.

Morgan Stanley Notice Date.  The scheduled Trading Day on which the Issuer
                             issues its notice of mandatory exchange, which
                             must be at least 30 but no more than 60 days prior
                             to the Call Date.

Call Date..................  The scheduled Trading Day on or after April 1,
                             2005 or the Maturity Date (regardless of whether
                             the Maturity Date is a scheduled Trading Day) as
                             specified by the Issuer in its notice of mandatory
                             exchange on which the Issuer shall deliver shares
                             of Wal-Mart Stock or, the Subsequent Cash Payment,
                             or cash equal to the applicable Call Price to the
                             holder of this Note for mandatory exchange.

Parity.....................  With respect to any Trading Day, an amount equal
                             to the Exchange Ratio on such Trading Day times
                             the Closing Price (as defined below) of Wal-Mart
                             Stock (and any other Exchange Property) on such
                             Trading Day.

Call Price.................  The table below sets forth the Call Price per each
                             $1,000 principal amount of this Note, in effect
                             for any Call Date or other day during each of the
                             periods presented.

<TABLE>
                                                  Call Period                            Call
                                                                                        Price
                             ------------------------------------------------------------------
<S>                                                                                     <C>
                             From April 1, 2005 to and including June 30, 2006          103.0%
                             From July 1, 2006 to and including June 30, 2007           102.5%
                             From July 1, 2007 to and including June 30, 2008           102.0%
</TABLE>

                                      A-9
<PAGE>

<TABLE>
<S>                                                                                     <C>
                             From July 1, 2008 to and including June 30, 2009           101.5%
                             From July 1, 2009 to and including June 30, 2010           101.0%
                             From July 1, 2010 to and including June 30, 2011           100.5%
</TABLE>

Subsequent Cash Payment....  If the Issuer has provided notice of its exercise
                             of the Morgan Stanley Call Right (other than a
                             call for the applicable cash Call Price) and, on
                             or after the Morgan Stanley Notice Date, Wal-Mart
                             Stock becomes subject to a trading restriction
                             under the trading restriction policies of the
                             Issuer or any of its affiliates that would
                             restrict the ability of the Issuer or any of its
                             affiliates to deliver Wal-Mart Stock without
                             registration, as determined by the Calculation
                             Agent in its sole discretion, the Issuer shall, in
                             lieu of shares of Wal-Mart Stock equal to the
                             Exchange Ratio, deliver on the Call Date the
                             "Subsequent Cash Payment," which shall be an
                             amount of cash per $1,000 principal amount of this
                             Note equal to the value of the shares of Wal-Mart
                             Stock that would have been deliverable per $1,000
                             principal amount of this Note on the Call Date
                             based on the Closing Price of Wal-Mart Stock and
                             the Exchange Ratio, each determined by the
                             Calculation Agent as of the third scheduled
                             Trading Day prior to the Call Date.

                             If the Issuer is required to deliver the
                             Subsequent Cash Payment following its exercise of
                             the Morgan Stanley Call Right in lieu of
                             delivering Wal-Mart Stock, the Issuer shall
                             provide notice of such requirement on the second
                             scheduled Trading Day prior to the Call Date (i)
                             to the holder of this Note by mailing notice of
                             such requirement by first class mail, postage
                             prepaid, at the holder's last address as it shall
                             appear upon the registry books, (ii) to the
                             Trustee by telephone or facsimile confirmed by
                             mailing such notice to the Trustee by first class
                             mail, postage prepaid, at its New York office and
                             (iii) to the Depositary by telephone or facsimile
                             confirmed by mailing such notice to the Depositary
                             by first class mail, postage prepaid, at its New
                             York office. Any notice which is mailed in the
                             manner herein provided shall be conclusively
                             presumed to have been duly given, whether or not
                             the holder of this Note receives the notice.
                             Failure to give notice by mail, or any defect in
                             the notice to the holder of any Note shall not
                             affect the validity of the proceedings for the
                             exercise of the Morgan Stanley Call

                                      A-10
<PAGE>

                             Right with respect to any other Note. The notice
                             of such requirement to make the Subsequent Cash
                             Payment shall specify (i) the place or places of
                             payment in cash, (ii) the amount of cash to be
                             delivered per $1,000 principal amount of this Note
                             and (iii) that such delivery shall be made upon
                             presentation and surrender of this Note. The
                             Subsequent Cash Payment shall be delivered to the
                             holder of this Note on the Call Date set forth by
                             the Issuer in its notice of mandatory exchange,
                             upon delivery of this Note to the Trustee. The
                             Issuer shall, or shall cause the Calculation Agent
                             to, deliver such cash to the Trustee for delivery
                             to the holder of this Note. Upon a call of this
                             Note and the payment of the Subsequent Cash
                             Payment, the holder of this Note shall not receive
                             any accrued but unpaid interest on this Note for
                             the period from and including the most recent
                             Interest Payment Date to but excluding the
                             specified Call Date.

Closing Price..............  The Closing Price for one share of Wal-Mart Stock
                             (or one unit of any other security for which a
                             Closing Price must be determined) on any Trading
                             Day (as defined below) means:

                             o if Wal-Mart Stock (or any such other security)
                             is listed or admitted to trading on a national
                             securities exchange, the last reported sale price,
                             regular way, of the principal trading session on
                             such day on the principal United States securities
                             exchange registered under the Securities Exchange
                             Act of 1934, as amended (the "Exchange Act"), on
                             which Wal-Mart Stock (or any such other security)
                             is listed or admitted to trading,

                             o if Wal-Mart Stock (or any such other security)
                             is a security of the Nasdaq National Market (and
                             provided that the Nasdaq National Market is not
                             then a national securities exchange), the Nasdaq
                             official closing price published by The Nasdaq
                             Stock Market, Inc. on such day, or

                             o if Wal-Mart Stock (or any such other security)
                             is not listed or admitted to trading on any
                             national securities exchange or a security of the
                             Nasdaq National Market but is included in the OTC
                             Bulletin Board Service (the "OTC Bulletin Board")
                             operated by the National Association of Securities
                             Dealers, Inc. (the "NASD"), the last reported

                                      A-11
<PAGE>

                             sale price of the principal trading session on the
                             OTC Bulletin Board on such day.

                             If Wal-Mart Stock (or any such other security) is
                             listed or admitted to trading on any national
                             securities exchange or is a security of the Nasdaq
                             National Market but the last reported sale price
                             or Nasdaq official closing price, as applicable,
                             is not available pursuant to the preceding
                             sentence, then the Closing Price for one share of
                             Wal-Mart Stock (or one unit of any such other
                             security) on any Trading Day will mean the last
                             reported sale price of the principal trading
                             session on the over-the-counter market as reported
                             on the Nasdaq National Market or the OTC Bulletin
                             Board on such day. If, because of a Market
                             Disruption Event (as defined below) or otherwise,
                             the last reported sale price or Nasdaq official
                             closing price, as applicable, for Wal-Mart Stock
                             (or any such other security) is not available
                             pursuant to either of the two preceding sentences,
                             then the Closing Price for any Trading Day will be
                             the mean, as determined by the Calculation Agent,
                             of the bid prices for Wal-Mart Stock (or any such
                             other security) obtained from as many recognized
                             dealers in such security, but not exceeding three,
                             as will make such bid prices available to the
                             Calculation Agent. Bids of MS & Co. or any of its
                             affiliates may be included in the calculation of
                             such mean, but only to the extent that any such
                             bid is the highest of the bids obtained. The term
                             "security of the Nasdaq National Market" will
                             include a security included in any successor to
                             such system, and the term OTC Bulletin Board
                             Service will include any successor service
                             thereto.

Trading Day................  A day, as determined by the Calculation Agent, on
                             which trading is generally conducted on the New
                             York Stock Exchange, Inc. ("NYSE"), the American
                             Stock Exchange LLC, the Nasdaq National Market,
                             the Chicago Mercantile Exchange and the Chicago
                             Board of Options Exchange and in the
                             over-the-counter market for equity securities in
                             the United States and on which a Market Disruption
                             Event has not occurred.

Calculation Agent..........  Morgan Stanley & Co. Incorporated and its
                             successors ("MS & Co.").

                                      A-12
<PAGE>

                             All determinations made by the Calculation Agent
                             shall be at the sole discretion of the Calculation
                             Agent and shall, in the absence of manifest error,
                             be conclusive for all purposes and binding on the
                             holder of this Note, the Trustee and the Issuer.

Antidilution Adjustments...  The Exchange Ratio shall be adjusted as follows:

                             1. If Wal-Mart Stock is subject to a stock split
                             or reverse stock split, then once such split has
                             become effective, the Exchange Ratio shall be
                             adjusted to equal the product of the prior
                             Exchange Ratio and the number of shares issued in
                             such stock split or reverse stock split with
                             respect to one share of Wal-Mart Stock.

                             2. If Wal-Mart Stock is subject (i) to a stock
                             dividend (issuance of additional shares of
                             Wal-Mart Stock) that is given ratably to all
                             holders of shares of Wal-Mart Stock or (ii) to a
                             distribution of Wal-Mart Stock as a result of the
                             triggering of any provision of the corporate
                             charter of Wal-Mart, then once the dividend has
                             become effective and Wal-Mart Stock is trading
                             ex-dividend, the Exchange Ratio shall be adjusted
                             so that the new Exchange Ratio shall equal the
                             prior Exchange Ratio plus the product of (i) the
                             number of shares issued with respect to one share
                             of Wal-Mart Stock and (ii) the prior Exchange
                             Ratio.

                             3. There shall be no adjustments to the Exchange
                             Ratio to reflect cash dividends or other
                             distributions paid with respect to Wal-Mart Stock
                             other than distributions described in paragraph 2
                             and clauses (i), (iv) and (v) of the first
                             sentence of paragraph 4 and Extraordinary
                             Dividends. "Extraordinary Dividend" means each of
                             (a) the full amount per share of Wal-Mart Stock of
                             any cash dividend or special dividend or
                             distribution that is identified by Wal-Mart as an
                             extraordinary or special dividend or distribution,
                             (b) the excess of any cash dividend or other cash
                             distribution (that is not otherwise identified by
                             Wal-Mart as an extraordinary or special dividend
                             or distribution) distributed per share of Wal-
                             Mart Stock over the immediately preceding cash
                             dividend or other cash distribution, if any, per
                             share of Wal-Mart Stock that did not include an
                             Extraordinary Dividend (as adjusted for any
                             subsequent corporate event requiring an adjustment
                             hereunder, such as a stock split or reverse

                                      A-13
<PAGE>

                             stock split) if such distribution or excess
                             portion of the dividend is more than 5% of the
                             Closing Price of Wal-Mart Stock on the Trading
                             Day preceding the "ex-dividend date" (that is, the
                             day on and after which transactions in Wal-Mart
                             Stock on an organized securities exchange or
                             trading system no longer carry the right to
                             receive that cash dividend or other cash
                             distribution) for the payment of such cash
                             dividend or other cash distribution (such Closing
                             Price, the "Base Closing Price") and (c) the full
                             cash value of any non-cash dividend or
                             distribution per share of Wal-Mart Stock
                             (excluding Marketable Securities, as defined in
                             paragraph 4 below). Subject to the following
                             sentence, if any cash dividend or distribution of
                             such other property with respect to Wal-Mart Stock
                             includes an Extraordinary Dividend, the Exchange
                             Ratio with respect to Wal-Mart Stock shall be
                             adjusted on the ex-dividend date so that the new
                             Exchange Ratio shall equal the product of (i) the
                             prior Exchange Ratio and (ii) a fraction, the
                             numerator of which is the Base Closing Price, and
                             the denominator of which is the amount by which
                             the Base Closing Price exceeds the Extraordinary
                             Dividend. If any Extraordinary Dividend is at
                             least 35% of the Base Closing Price, then, instead
                             of adjusting the Exchange Ratio, upon any exchange
                             or, if we call this Note and Parity exceeds the
                             principal amount per Note, upon our call of this
                             Note, the payment, upon such exchange or call of
                             this Note, shall be determined as described in
                             paragraph 4 below, and the Extraordinary Dividend
                             shall be allocated to Reference Basket Stocks in
                             accordance with the procedures for a Reference
                             Basket Event as described in clause 3(b) of
                             paragraph 4 below. The value of the non-cash
                             component of an Extraordinary Dividend shall be
                             determined on the ex-dividend date for such
                             distribution by the Calculation Agent, whose
                             determination shall be conclusive in the absence
                             of manifest error. A distribution on Wal-Mart
                             Stock described in clause (i), (iv) or (v) of the
                             first sentence of paragraph 4 below shall cause an
                             adjustment to the Exchange Ratio pursuant only to
                             clause (i), (iv) or (v) of the first sentence of
                             paragraph 4, as applicable.

                             4. Any of the following shall constitute a
                             Reorganization Event: (i) Wal-Mart Stock is
                             reclassified or changed, including, without
                             limitation, as a result of the issuance of any
                             tracking stock by Wal-Mart, (ii) Wal-Mart has been

                                      A-14
<PAGE>

                             subject to any merger, combination or
                             consolidation and is not the surviving entity,
                             (iii) Wal-Mart completes a statutory exchange of
                             securities with another corporation (other than
                             pursuant to clause (ii) above), (iv) Wal-Mart is
                             liquidated, (v) Wal-Mart issues to all of its
                             shareholders equity securities of an issuer other
                             than Wal-Mart (other than in a transaction
                             described in clause (ii), (iii) or (iv) above) (a
                             "spinoff stock") or (vi) Wal-Mart Stock is the
                             subject of a tender or exchange offer or going
                             private transaction on all of the outstanding
                             shares. If any Reorganization Event occurs, in
                             each case as a result of which the holders of
                             Wal-Mart Stock receive any equity security listed
                             on a national securities exchange or traded on The
                             Nasdaq National Market (a "Marketable Security"),
                             other securities or other property, assets or cash
                             (collectively "Exchange Property"), upon any
                             exchange or upon our call of this Note for shares
                             of Wal-Mart Stock, the payment with respect to
                             the $1,000 principal amount of each Note following
                             the effective date for such Reorganization Event
                             (or, if applicable, in the case of spinoff stock,
                             the ex-dividend date for the distribution of such
                             spinoff stock) shall be determined in accordance
                             with the following:

                                (1) if Wal-Mart Stock continues to be
                                outstanding, Wal-Mart Stock (if applicable, as
                                reclassified upon the issuance of any tracking
                                stock) at the Exchange Ratio in effect on the
                                third Trading Day prior to the scheduled
                                Maturity Date (taking into account any
                                adjustments for any distributions described
                                under clause (3)(a) below); and

                                (2) for each Marketable Security received in
                                such Reorganization Event (each a "New Stock"),
                                including the issuance of any tracking stock or
                                spinoff stock or the receipt of any stock
                                received in exchange for Wal-Mart Stock where
                                Wal-Mart is not the surviving entity, the
                                number of shares of the New Stock received with
                                respect to one share of Wal-Mart Stock
                                multiplied by the Exchange Ratio for Wal-Mart
                                Stock on the Trading Day immediately prior to
                                the effective date of the Reorganization Event
                                (the "New Stock Exchange Ratio"), as adjusted
                                to the third Trading Day prior to the scheduled
                                Maturity Date

                                      A-15
<PAGE>

                                (taking into account any adjustments for
                                distributions described under clause (3)(a)
                                below); and

                                (3) for any cash and any other property or
                                securities other than Marketable Securities
                                received in such Reorganization Event (the
                                "Non-Stock Exchange Property"),

                                   (a) if the combined value of the amount of
                                   Non-Stock Exchange Property received per
                                   share of Wal-Mart Stock, as determined by
                                   the Calculation Agent in its sole discretion
                                   on the effective date of such Reorganization
                                   Event (the "Non-Stock Exchange Property
                                   Value"), by holders of Wal-Mart Stock is
                                   less than 25% of the Closing Price of
                                   Wal-Mart Stock on the Trading Day
                                   immediately prior to the effective date of
                                   such Reorganization Event, a number of
                                   shares of Wal-Mart Stock, if applicable, and
                                   of any New Stock received in connection with
                                   such Reorganization Event, if applicable, in
                                   proportion to the relative Closing Prices of
                                   Wal-Mart Stock and any such New Stock, and
                                   with an aggregate value equal to the
                                   Non-Stock Exchange Property Value multiplied
                                   by the Exchange Ratio in effect for Wal-Mart
                                   Stock on the Trading Day immediately prior
                                   to the effective date of the Reorganization
                                   Event, based on such Closing Prices, in each
                                   case as determined by the Calculation Agent
                                   in its sole discretion on the effective date
                                   of such Reorganization Event; and the number
                                   of such shares of Wal-Mart Stock or any New
                                   Stock determined in accordance with this
                                   clause (3)(a) shall be added at the time of
                                   such adjustment to the Exchange Ratio in
                                   subparagraph (1) above and/or the New Stock
                                   Exchange Ratio in subparagraph (2) above, as
                                   applicable, or

                                   (b) if the Non-Stock Exchange Property Value
                                   is equal to or exceeds 25% of the Closing
                                   Price of Wal-Mart Stock on the Trading Day
                                   immediately prior to the effective date
                                   relating to such Reorganization Event or, if
                                   Wal-Mart Stock is surrendered exclusively
                                   for Non-Stock Exchange

                                      A-16
<PAGE>

                                   Property (in each case, a "Reference Basket
                                   Event"), an initially equal-dollar weighted
                                   basket of three Reference Basket Stocks (as
                                   defined below) with an aggregate value on
                                   the effective date of such Reorganization
                                   Event equal to the Non-Stock Exchange
                                   Property Value multiplied by the Exchange
                                   Ratio in effect for Wal-Mart Stock on the
                                   Trading Day immediately prior to the
                                   effective date of the Reorganization Event.
                                   The "Reference Basket Stocks" shall be the
                                   three stocks with the largest market
                                   capitalization among the stocks that then
                                   comprise the S&P 500 Index (or, if
                                   publication of such index is discontinued,
                                   any successor or substitute index selected
                                   by the Calculation Agent in its sole
                                   discretion) with the same primary Standard
                                   Industrial Classification Code ("SIC Code")
                                   as Wal-Mart; provided, however, that a
                                   Reference Basket Stock shall not include any
                                   stock that is subject to a trading
                                   restriction under the trading restriction
                                   policies of Morgan Stanley or any of its
                                   affiliates that would materially limit the
                                   ability of Morgan Stanley or any of its
                                   affiliates to hedge the Notes with respect
                                   to such stock (a "Hedging Restriction");
                                   provided further that if three Reference
                                   Basket Stocks cannot be identified from the
                                   S&P 500 Index by primary SIC Code for which
                                   a Hedging Restriction does not exist, the
                                   remaining Reference Basket Stock(s) shall be
                                   selected by the Calculation Agent from the
                                   largest market capitalization stock(s)
                                   within the same Division and Major Group
                                   classification (as defined by the Office of
                                   Management and Budget) as the primary SIC
                                   Code for Wal-Mart. Each Reference Basket
                                   Stock shall be assigned a Basket Stock
                                   Exchange Ratio equal to the number of shares
                                   of such Reference Basket Stock with a
                                   Closing Price on the effective date of such
                                   Reorganization Event equal to the product of
                                   (a) the Non-Stock Exchange Property Value,
                                   (b) the Exchange Ratio in effect for
                                   Wal-Mart Stock on the Trading Day
                                   immediately prior to the effective date of
                                   such Reorganization Event and (c) 0.3333333.

                                      A-17
<PAGE>

                             Following the allocation of any Extraordinary
                             Dividend to Reference Basket Stocks pursuant to
                             paragraph 3 above or any Reorganization Event
                             described in this paragraph 4, Parity on any
                             Trading Day determined by the Calculation Agent
                             upon any exchange, call or at maturity of this
                             Note with respect to the $1,000 principal amount
                             of each Note shall be an amount equal to:

                                (i)   if applicable, the Closing Price of
                                      Wal-Mart Stock times the Exchange Ratio
                                      then in effect; and

                                (ii)  if applicable, for each New Stock, the
                                      Closing Price of such New Stock times the
                                      New Stock Exchange Ratio then in effect
                                      for such New Stock; and

                                (iii) if applicable, for each Reference Basket
                                      Stock, the Closing Price of such
                                      Reference Basket Stock times the Basket
                                      Stock Exchange Ratio then in effect for
                                      such Reference Basket Stock.

                             In each case, the applicable Exchange Ratio
                             (including for this purpose, any New Stock
                             Exchange Ratio or Basket Stock Exchange Ratio)
                             shall be determined, as applicable, upon any
                             exchange, call or at maturity of this Note.

                             5. No adjustments to the Exchange Ratio shall be
                             required other than those specified above. The
                             adjustments specified above do not cover all of
                             the events that could affect the Closing Price of
                             Wal-Mart Stock, including, without limitation, a
                             partial tender or exchange offer for Wal-Mart
                             Stock.

                             For purposes of paragraph 4 above, in the case of
                             a consummated tender or exchange offer or
                             going-private transaction involving Exchange
                             Property of a particular type, Exchange Property
                             shall be deemed to include the amount of cash or
                             other property paid by the offeror in the tender
                             or exchange offer with respect to such Exchange
                             Property (in an amount determined on the basis of
                             the rate of exchange in such tender or exchange
                             offer or going-private transaction). In the event
                             of a tender or exchange offer or a going-private
                             transaction with respect to Exchange Property in
                             which an offeree may elect to receive cash or
                             other property, Exchange Property shall be

                                      A-18
<PAGE>

                             deemed to include the kind and amount of cash and
                             other property received by offerees who elect to
                             receive cash.

                             Following the occurrence of any Reorganization
                             Event referred to in paragraphs 3 or 4 above, (i)
                             references to "Wal-Mart Stock" under "No
                             Fractional Shares," "Closing Price" and "Market
                             Disruption Event" shall be deemed to also refer to
                             any New Stock or Reference Basket Stock, and (ii)
                             all other references in this pricing supplement to
                             "Wal-Mart Stock" shall be deemed to refer to the
                             Exchange Property into which this Note is
                             thereafter exchangeable and references to a
                             "share" or "shares" of Wal-Mart Stock shall be
                             deemed to refer to the applicable unit or units of
                             such Exchange Property, including any New Stock or
                             Reference Basket Stock, unless the context
                             otherwise requires. The New Stock Exchange
                             Ratio(s) or Basket Stock Exchange Ratios resulting
                             from any Reorganization Event described in
                             paragraph 4 above or similar adjustment under
                             paragraph 3 above shall be subject to the
                             adjustments set forth in paragraphs 1 through 4
                             hereof.

                             No adjustment to the Exchange Ratio shall be
                             required unless such adjustment would require a
                             change of at least .1% in the Exchange Ratio then
                             in effect. The Exchange Ratio resulting from any
                             of the adjustments specified above shall be
                             rounded to the nearest ten-thousandth, with five
                             one hundred-thousandths rounded upward.

                             The Calculation Agent shall be solely responsible
                             for the determination and calculation of any
                             adjustments to the Exchange Ratio and of any
                             related determinations and calculations with
                             respect to any distributions of stock, other
                             securities or other property or assets (including
                             cash) in connection with any corporate event
                             described in paragraphs 3 or 4 above, and its
                             determinations and calculations with respect
                             thereto shall be conclusive in the absence of
                             manifest error.

                             The Calculation Agent shall provide information as
                             to any adjustments to the Exchange Ratio upon
                             written request by the holder of this Note.

                             If the holder of this Note exercises the Exchange
                             Right and the Issuer elects to deliver Wal-Mart
                             Stock or if the

                                      A-19
<PAGE>

                             Issuer calls this Note for Wal-Mart Stock, the
                             Calculation Agent shall continue to make such
                             adjustments until, but not beyond, the close of
                             business on the Exchange Date or the third Trading
                             Day prior to the Call Date, as applicable.

Market Disruption Event....  "Market Disruption Event" means, with respect to
                             Wal-Mart Stock:

                                (i) a suspension, absence or material
                                limitation of trading of Wal-Mart Stock on the
                                primary market for Wal-Mart Stock for more than
                                two hours of trading or during the one-half
                                hour period preceding the close of the
                                principal trading session in such market; or a
                                breakdown or failure in the price and trade
                                reporting systems of the primary market for
                                Wal-Mart Stock as a result of which the
                                reported trading prices for Wal-Mart Stock
                                during the last one-half hour preceding the
                                close of the principal trading session in such
                                market are materially inaccurate; or the
                                suspension, absence or material limitation of
                                trading on the primary market for trading in
                                options contracts related to Wal-Mart Stock, if
                                available, during the one-half hour period
                                preceding the close of the principal trading
                                session in the applicable market, in each case
                                as determined by the Calculation Agent in its
                                sole discretion; and

                                (ii) a determination by the Calculation Agent
                                in its sole discretion that any event described
                                in clause (i) above materially interfered with
                                the ability of the Issuer or any of its
                                affiliates to unwind or adjust all or a
                                material portion of the hedge with respect to
                                the 1.5% Exchangeable Notes due June 30, 2011
                                (Exchangeable for Shares of Common Stock of
                                Wal-Mart Stores, Inc.).

                             For purposes of determining whether a Market
                             Disruption Event has occurred: (1) a limitation on
                             the hours or number of days of trading shall not
                             constitute a Market Disruption Event if it results
                             from an announced change in the regular business
                             hours of the relevant exchange, (2) a decision to
                             permanently discontinue trading in the relevant
                             options contract shall not constitute a Market
                             Disruption Event, (3) limitations pursuant to NYSE
                             Rule 80A (or any applicable rule or regulation
                             enacted or promulgated by the NYSE, any other
                             self-regulatory

                                     A-20
<PAGE>

                             organization or the Securities and Exchange
                             Commission of scope similar to NYSE Rule 80A as
                             determined by the Calculation Agent) on trading
                             during significant market fluctuations shall
                             constitute a suspension, absence or material
                             limitation of trading, (4) a suspension of trading
                             in options contracts on Wal-Mart Stock by the
                             primary securities market trading in such options,
                             if available, by reason of (x) a price change
                             exceeding limits set by such securities exchange
                             or market, (y) an imbalance of orders relating to
                             such contracts or (z) a disparity in bid and ask
                             quotes relating to such contracts shall constitute
                             a suspension, absence or material limitation of
                             trading in options contracts related to Wal-Mart
                             Stock and (5) a suspension, absence or material
                             limitation of trading on the primary securities
                             market on which options contracts related to
                             Wal-Mart Stock are traded shall not include any
                             time when such securities market is itself closed
                             for trading under ordinary circumstances.

Alternate Exchange
Calculation in Case of
an Event of Default........  In case an Event of Default with respect to this
                             Note shall have occurred and be continuing, the
                             amount declared due and payable per each $1,000
                             principal amount of this Note upon any
                             acceleration of this Note shall be determined by
                             MS & Co., as Calculation Agent, and shall be equal
                             to the principal amount of this Note plus any
                             accrued and unpaid interest at the Interest Rate
                             to but not including the date of acceleration;
                             provided that if (x) the holder of this Note has
                             submitted an Official Notice of Exchange to the
                             Issuer in accordance with the Exchange Right or
                             (y) the Issuer has called this Note, other than a
                             call for the applicable cash Call Price, in
                             accordance with the Morgan Stanley Call Right, the
                             amount declared due and payable upon any such
                             acceleration with respect to each $1,000 principal
                             amount of this Note (i) for which such Official
                             Notice of Exchange has been duly submitted or (ii)
                             that has been called (other than a call for the
                             applicable cash Call Price) shall be an amount in
                             cash equal to the Exchange Ratio times the Closing
                             Price of Wal-Mart Stock (and any other Exchange
                             Property), determined by the Calculation Agent as
                             of the Exchange Date or as of the date of
                             acceleration (or if the Issuer is required to make
                             a Subsequent Cash Payment, the Closing Price of
                             Wal-Mart Stock (and any other Exchange Property)
                             as of the third scheduled Trading Day prior to the
                             Call Date), respectively, and

                                      A-21
<PAGE>

                             shall not include any accrued and unpaid interest
                             thereon; provided further that if the Issuer has
                             called this Note for the applicable Call Price in
                             cash, in accordance with the Morgan Stanley Call
                             Right, the amount declared due and payable upon
                             any such acceleration shall be an amount in cash
                             per each $1,000 principal amount of this Note
                             equal to such Call Price and shall not include any
                             accrued and unpaid interest thereon.

                                      A-22
<PAGE>

     Morgan Stanley (formerly known as Morgan Stanley Dean Witter & Co.), a
Delaware corporation (together with its successors and assigns, the "Issuer"),
for value received, hereby promises to pay to CEDE & Co., or registered
assignees, the principal sum of U.S.$         (UNITED STATES DOLLARS          ),
on the Maturity Date specified above (except to the extent redeemed or repaid
prior to maturity) and to pay interest thereon at the Interest Rate per annum
specified above, from and including the Interest Accrual Date specified above
until the principal hereof is paid or duly made available for payment weekly,
monthly, quarterly, semiannually or annually in arrears as specified above as
the Interest Payment Period on each Interest Payment Date (as specified above),
commencing on the Interest Payment Date next succeeding the Interest Accrual
Date specified above, and on the Maturity Date (or on any redemption or
repayment date); provided, however, that if the Interest Accrual Date occurs
between a Record Date, as defined below, and the next succeeding Interest
Payment Date, interest payments shall commence on the second Interest Payment
Date succeeding the Interest Accrual Date to the registered holder of this Note
on the Record Date with respect to such second Interest Payment Date; and
provided, further, that if this Note is subject to "Annual Interest Payments,"
interest payments shall be made annually in arrears and the term "Interest
Payment Date" shall be deemed to mean the first day of March in each year.

     Interest on this Note shall accrue from and including the most recent date
to which interest has been paid or duly provided for, or, if no interest has
been paid or duly provided for, from and including the Interest Accrual Date,
until but excluding the date the principal hereof has been paid or duly made
available for payment. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date shall, subject to certain exceptions
described herein, be paid to the person in whose name this Note (or one or more
predecessor Notes) is registered at the close of business on the date 15
calendar days prior to such Interest Payment Date (whether or not a Business
Day (as defined below)) (each such date, a "Record Date"); provided, however,
that interest payable at maturity (or any redemption or repayment date) shall
be payable to the person to whom the principal hereof shall be payable. As used
herein, "Business Day" means any day, other than a Saturday or Sunday, (a) that
is neither a legal holiday nor a day on which banking institutions are
authorized or required by law or regulation to close (x) in The City of New
York or (y) if this Note is denominated in a Specified Currency other than U.S.
dollars, euro or Australian dollars, in the principal financial center of the
country of the Specified Currency, or (z) if this Note is denominated in
Australian dollars, in Sydney and (b) if this Note is denominated in euro, that
is also a day on which the Trans-European Automated Real-time Gross Settlement
Express Transfer System ("TARGET") is operating (a "TARGET Settlement Day").

     Payment of the principal of this Note, any premium and the interest due at
maturity (or any redemption or repayment date), unless this Note is denominated
in a Specified Currency other than U.S. dollars and is to be paid in whole or
in part in such Specified Currency, shall be made in immediately available
funds upon surrender of this Note at the office or agency of the Paying Agent,
as defined on the reverse hereof, maintained for that purpose in the Borough of
Manhattan, The City of New York, or at such other paying agency as the Issuer
may determine, in U.S. dollars. U.S. dollar payments of interest, other than
interest due at maturity or on any date of redemption or repayment, shall be
made by U.S. dollar check mailed to the address of the person entitled thereto
as such address shall appear in the Note register. A holder of U.S. $10,000,000
(or the equivalent in a Specified Currency) or more in aggregate principal
amount of Notes having the same Interest

                                      A-23
<PAGE>

Payment Date, the interest on which is payable in U.S. dollars, shall be
entitled to receive payments of interest, other than interest due at maturity
or on any date of redemption or repayment, by wire transfer of immediately
available funds if appropriate wire transfer instructions have been received by
the Paying Agent in writing not less than 15 calendar days prior to the
applicable Interest Payment Date.

     If this Note is denominated in a Specified Currency other than U.S.
dollars, and the holder does not elect (in whole or in part) to receive payment
in U.S. dollars pursuant to the next succeeding paragraph, payments of
interest, principal or any premium with regard to this Note shall be made by
wire transfer of immediately available funds to an account maintained by the
holder hereof with a bank located outside the United States if appropriate wire
transfer instructions have been received by the Paying Agent in writing, with
respect to payments of interest, on or prior to the fifth Business Day after
the applicable Record Date and, with respect to payments of principal or any
premium, at least ten Business Days prior to the Maturity Date or any
redemption or repayment date, as the case may be; provided that, if payment of
interest, principal or any premium with regard to this Note is payable in euro,
the account must be a euro account in a country for which the euro is the
lawful currency, provided, further, that if such wire transfer instructions are
not received, such payments shall be made by check payable in such Specified
Currency mailed to the address of the person entitled thereto as such address
shall appear in the Note register; and provided, further, that payment of the
principal of this Note, any premium and the interest due at maturity (or on any
redemption or repayment date) shall be made upon surrender of this Note at the
office or agency referred to in the preceding paragraph.

     If so indicated on the face hereof, the holder of this Note, if
denominated in a Specified Currency other than U.S. dollars, may elect to
receive all or a portion of payments on this Note in U.S. dollars by
transmitting a written request to the Paying Agent, on or prior to the fifth
Business Day after such Record Date or at least ten Business Days prior to the
Maturity Date or any redemption or repayment date, as the case may be. Such
election shall remain in effect unless such request is revoked by written
notice to the Paying Agent as to all or a portion of payments on this Note at
least five Business Days prior to such Record Date, for payments of interest,
or at least ten calendar days prior to the Maturity Date or any redemption or
repayment date, for payments of principal, as the case may be.

     If the holder elects to receive all or a portion of payments of principal
of, premium, if any, and interest on this Note, if denominated in a Specified
Currency other than U.S. dollars, in U.S. dollars, the Exchange Rate Agent (as
defined on the reverse hereof) shall convert such payments into U.S. dollars.
In the event of such an election, payment in respect of this Note shall be
based upon the exchange rate as determined by the Exchange Rate Agent based on
the highest bid quotation in The City of New York received by such Exchange
Rate Agent at approximately 11:00 a.m., New York City time, on the second
Business Day preceding the applicable payment date from three recognized
foreign exchange dealers (one of which may be the Exchange Rate Agent unless
such Exchange Rate Agent is an affiliate of the Issuer) for the purchase by the
quoting dealer of U.S. dollars for the Specified Currency of U.S. dollars for
settlement on such payment date in the amount of the Specified Currency payable
in the absence of such an election to such holder and at which the applicable
dealer commits to execute a contract. If such bid quotations are not available,
such

                                      A-24
<PAGE>

payment shall be made in the Specified Currency. All currency exchange costs
shall be borne by the holder of this Note by deductions from such payments.

     Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place.

     Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Note shall
not be entitled to any benefit under the Senior Indenture, as defined on the
reverse hereof, or be valid or obligatory for any purpose.

                                      A-25
<PAGE>

     IN WITNESS WHEREOF, the Issuer has caused this Note to be duly executed.

DATED:                                       MORGAN STANLEY

                                             By:
                                                --------------------------------
                                                Name:
                                                Title:

TRUSTEE'S CERTIFICATE
   OF AUTHENTICATION

This is one of the Notes referred
    to in the within-mentioned
    Senior Indenture.

JPMORGAN CHASE BANK,
    as Trustee

By:
   ------------------------------------
   Authorized Officer

                                      A-26
<PAGE>

                              REVERSE OF SECURITY

     This Note is one of a duly authorized issue of Senior Global Medium-Term
Notes, Series C, having maturities more than nine months from the date of issue
(the "Notes") of the Issuer. The Notes are issuable under an Amended and
Restated Senior Indenture, dated as of May 1, 1999, between the Issuer and
JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank), as Trustee
(the "Trustee," which term includes any successor trustee under the Senior
Indenture) (as may be amended or supplemented from time to time, the "Senior
Indenture"), to which Senior Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities of the Issuer, the Trustee and holders of the
Notes and the terms upon which the Notes are, and are to be, authenticated and
delivered. The Issuer has appointed JPMorgan Chase Bank at its corporate trust
office in The City of New York as the paying agent (the "Paying Agent," which
term includes any additional or successor Paying Agent appointed by the Issuer)
with respect to the Notes. The terms of individual Notes may vary with respect
to interest rates, interest rate formulas, issue dates, maturity dates, or
otherwise, all as provided in the Senior Indenture. To the extent not
inconsistent herewith, the terms of the Senior Indenture are hereby
incorporated by reference herein.

     Unless otherwise indicated on the face hereof, this Note shall not be
subject to any sinking fund and, unless otherwise provided on the face hereof
in accordance with the provisions of the following two paragraphs, shall not be
redeemable or subject to repayment at the option of the holder prior to
maturity.

     If so indicated on the face of hereof, this Note may be redeemed in whole
or in part at the option of the Issuer on or after the Initial Redemption Date
specified on the face hereof on the terms set forth on the face hereof,
together with interest accrued and unpaid hereon to the date of redemption. If
this Note is subject to "Annual Redemption Percentage Reduction," the Initial
Redemption Percentage indicated on the face hereof shall be reduced on each
anniversary of the Initial Redemption Date by the Annual Redemption Percentage
Reduction specified on the face hereof until the redemption price of this Note
is 100% of the principal amount hereof, together with interest accrued and
unpaid hereon to the date of redemption. Notice of redemption shall be mailed
to the registered holders of the Notes designated for redemption at their
addresses as the same shall appear on the Note register not less than 30 nor
more than 60 calendar days prior to the date fixed for redemption or within the
Redemption Notice Period specified on the face hereof, subject to all the
conditions and provisions of the Senior Indenture. In the event of redemption
of this Note in part only, a new Note or Notes for the amount of the unredeemed
portion hereof shall be issued in the name of the holder hereof upon the
cancellation hereof.

     If so indicated on the face of hereof, this Note shall be subject to
repayment at the option of the holder on the Optional Repayment Date or Dates
specified on the face hereof on the terms set forth herein. On any Optional
Repayment Date, this Note shall be repayable in whole or in part in increments
of $1,000 or, if this Note is denominated in a Specified Currency other than
U.S. dollars, in increments of 1,000 units of such Specified Currency (provided
that any remaining principal amount hereof shall not be less than the minimum
authorized denomination hereof) at the option of the holder hereof at a price
equal to 100% of the principal amount to be repaid, together with interest

                                      A-27
<PAGE>

accrued and unpaid hereon to the date of repayment, provided that this Note is
issued with original issue discount, this Note will be repayable on the
applicable Optional Repayment Date or Dates at the price(s) specified on the
face hereof. For this Note to be repaid at the option of the holder hereof, the
Paying Agent must receive at its corporate trust office in the Borough of
Manhattan, The City of New York, at least 15 but not more than 30 calendar days
prior to the date of repayment, (i) this Note with the form entitled "Option to
Elect Repayment" below duly completed or (ii) a telegram, telex, facsimile
transmission or a letter from a member of a national securities exchange or the
National Association of Securities Dealers, Inc. or a commercial bank or a
trust company in the United States setting forth the name of the holder of this
Note, the principal amount hereof, the certificate number of this Note or a
description of this Note's tenor and terms, the principal amount hereof to be
repaid, a statement that the option to elect repayment is being exercised
thereby and a guarantee that this Note, together with the form entitled "Option
to Elect Repayment" duly completed, shall be received by the Paying Agent not
later than the fifth Business Day after the date of such telegram, telex,
facsimile transmission or letter; provided, that such telegram, telex,
facsimile transmission or letter shall only be effective if this Note and form
duly completed are received by the Paying Agent by such fifth Business Day.
Exercise of such repayment option by the holder hereof shall be irrevocable. In
the event of repayment of this Note in part only, a new Note or Notes for the
amount of the unpaid portion hereof shall be issued in the name of the holder
hereof upon the cancellation hereof.

     Interest payments on this Note shall include interest accrued to but
excluding the Interest Payment Dates or the Maturity Date (or any earlier
redemption or repayment date), as the case may be. Unless otherwise provided on
the face hereof, interest payments for this Note shall be computed and paid on
the basis of a 360 day year of twelve 30 day months.

     In the case where the Interest Payment Date or the Maturity Date (or any
redemption or repayment date) does not fall on a Business Day, payment of
interest, premium, if any, or principal otherwise payable on such date need not
be made on such date, but may be made on the next succeeding Business Day with
the same force and effect as if made on the Interest Payment Date or on the
Maturity Date (or any redemption or repayment date), and no interest on such
payment shall accrue for the period from and after the Interest Payment Date or
the Maturity Date (or any redemption or repayment date) to such next succeeding
Business Day.

     This Note and all the obligations of the Issuer hereunder are direct,
unsecured obligations of the Issuer and rank without preference or priority
among themselves and pari passu with all other existing and future unsecured
and unsubordinated indebtedness of the Issuer, subject to certain statutory
exceptions in the event of liquidation upon insolvency.

     This Note, and any Note or Notes issued upon transfer or exchange hereof,
is issuable only in fully registered form, without coupons, and, if denominated
in U.S. dollars, unless otherwise stated above, is issuable only in
denominations of U.S. $1,000 and any integral multiple of U.S. $1,000 in excess
thereof. If this Note is denominated in a Specified Currency other than U.S.
dollars, then, unless a higher minimum denomination is required by applicable
law, it is issuable only in denominations of the equivalent of U.S. $1,000
(rounded to an integral multiple of 1,000 units of such Specified Currency), or
any amount in excess thereof which is an integral multiple of 1,000

                                      A-28
<PAGE>

units of such Specified Currency, as determined by reference to the noon dollar
buying rate in The City of New York for cable transfers of such Specified
Currency published by the Federal Reserve Bank of New York (the "Market
Exchange Rate") on the Business Day immediately preceding the date of issuance.

     The Trustee has been appointed registrar for the Notes, and the Trustee
shall maintain at its office in The City of New York a register for the
registration and transfer of Notes. This Note may be transferred at the
aforesaid office of the Trustee by surrendering this Note for cancellation,
accompanied by a written instrument of transfer in form satisfactory to the
Issuer and the Trustee and duly executed by the registered holder hereof in
person or by the holder's attorney duly authorized in writing, and thereupon
the Trustee shall issue in the name of the transferee or transferees, in
exchange herefor, a new Note or Notes having identical terms and provisions and
having a like aggregate principal amount in authorized denominations, subject
to the terms and conditions set forth herein; provided, however, that the
Trustee shall not be required (i) to register the transfer of or exchange any
Note that has been called for redemption in whole or in part, except the
unredeemed portion of Notes being redeemed in part, (ii) to register the
transfer of or exchange any Note if the holder thereof has exercised his right,
if any, to require the Issuer to repurchase such Note in whole or in part,
except the portion of such Note not required to be repurchased, or (iii) to
register the transfer of or exchange Notes to the extent and during the period
so provided in the Senior Indenture with respect to the redemption of Notes.
Notes are exchangeable at said office for other Notes of other authorized
denominations of equal aggregate principal amount having identical terms and
provisions. All such exchanges and transfers of Notes shall be free of charge,
but the Issuer may require payment of a sum sufficient to cover any tax or
other governmental charge in connection therewith. All Notes surrendered for
exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Issuer and the Trustee and executed by the registered
holder in person or by the holder's attorney duly authorized in writing. The
date of registration of any Note delivered upon any exchange or transfer of
Notes shall be such that no gain or loss of interest results from such exchange
or transfer.

     In case this Note shall at any time become mutilated, defaced or be
destroyed, lost or stolen and this Note or evidence of the loss, theft or
destruction thereof (together with the indemnity hereinafter referred to and
such other documents or proof as may be required in the premises) shall be
delivered to the Trustee, the Issuer in its discretion may execute a new Note
of like tenor in exchange for this Note, but, if this Note is destroyed, lost
or stolen, only upon receipt of evidence satisfactory to the Trustee and the
Issuer that this Note was destroyed or lost or stolen and, if required, upon
receipt also of indemnity satisfactory to each of them. All expenses and
reasonable charges associated with procuring such indemnity and with the
preparation, authentication and delivery of a new Note shall be borne by the
owner of the Note mutilated, defaced, destroyed, lost or stolen.

     The Senior Indenture provides that (a) if an Event of Default (as defined
in the Senior Indenture) due to the default in payment of principal of,
premium, if any, or interest on, any series of debt securities issued under the
Senior Indenture, including the series of Senior Medium-Term Notes of which
this Note forms a part, or due to the default in the performance or breach of
any other covenant or warranty of the Issuer applicable to the debt securities
of such series but not applicable

                                      A-29
<PAGE>

to all outstanding debt securities issued under the Senior Indenture shall have
occurred and be continuing, either the Trustee or the holders of not less than
25% in aggregate principal amount of the outstanding debt securities of each
affected series, voting as one class, by notice in writing to the Issuer and to
the Trustee, if given by the securityholders, may then declare the principal of
all debt securities of all such series and interest accrued thereon to be due
and payable immediately and (b) if an Event of Default due to a default in the
performance of any other of the covenants or agreements in the Senior Indenture
applicable to all outstanding debt securities issued thereunder, including this
Note, or due to certain events of bankruptcy, insolvency or reorganization of
the Issuer, shall have occurred and be continuing, either the Trustee or the
holders of not less than 25% in aggregate principal amount of all outstanding
debt securities issued under the Senior Indenture, voting as one class, by
notice in writing to the Issuer and to the Trustee, if given by the
securityholders, may declare the principal of all such debt securities and
interest accrued thereon to be due and payable immediately, but upon certain
conditions such declarations may be annulled and past defaults may be waived
(except a continuing default in payment of principal or premium, if any, or
interest on such debt securities) by the holders of a majority in aggregate
principal amount of the debt securities of all affected series then
outstanding.

     If the face hereof indicates that this Note is subject to "Modified
Payment upon Acceleration and Redemption," then (i) if the principal hereof is
declared to be due and payable as described in the preceding paragraph, the
amount of principal due and payable with respect to this Note shall be limited
to the aggregate principal amount hereof multiplied by the sum of the Issue
Price specified on the face hereof (expressed as a percentage of the aggregate
principal amount) plus the original issue discount amortized from the Interest
Accrual Date to the date of declaration, which amortization shall be calculated
using the "interest method" (computed in accordance with generally accepted
accounting principles in effect on the date of declaration), (ii) for the
purpose of any vote of securityholders taken pursuant to the Senior Indenture
prior to the acceleration of payment of this Note, the principal amount hereof
shall equal the amount that would be due and payable hereon, calculated as set
forth in clause (i) above, if this Note were declared to be due and payable on
the date of any such vote and (iii) for the purpose of any vote of
securityholders taken pursuant to the Senior Indenture following the
acceleration of payment of this Note, the principal amount hereof shall equal
the amount of principal due and payable with respect to this Note, calculated
as set forth in clause (i) above.

     If the face hereof indicates that this Note is subject to "Tax Redemption
and Payment of Additional Amounts," this Note may be redeemed, as a whole, at
the option of the Issuer at any time prior to maturity, upon the giving of a
notice of redemption as described below, at a redemption price equal to 100% of
the principal amount hereof, together with accrued interest to the date fixed
for redemption (except that if this Note is subject to "Modified Payment upon
Acceleration or Redemption," such redemption price would be limited to the
aggregate principal amount hereof multiplied by the sum of the Issue Price
specified on the face hereof (expressed as a percentage of the aggregate
principal amount) plus the original issue discount amortized from the Interest
Accrual Date to the date of redemption, which amortization shall be calculated
using the "interest method" (computed in accordance with generally accepted
accounting principles in effect on the date of redemption) (the "Amortized
Amount")), if the Issuer determines that, as a result of any change in or
amendment to the laws, or any regulations or rulings promulgated thereunder, of
the United States

                                      A-30
<PAGE>

or of any political subdivision or taxing authority thereof or therein
affecting taxation, or any change in official position regarding the
application or interpretation of such laws, regulations or rulings, which
change or amendment becomes effective on or after the Initial Offering Date
hereof, the Issuer has or shall become obligated to pay Additional Amounts, as
defined below, with respect to this Note as described below. Prior to the
giving of any notice of redemption pursuant to this paragraph, the Issuer shall
deliver to the Trustee (i) a certificate stating that the Issuer is entitled to
effect such redemption and setting forth a statement of facts showing that the
conditions precedent to the right of the Issuer to so redeem have occurred, and
(ii) an opinion of independent legal counsel satisfactory to the Trustee to
such effect based on such statement of facts; provided that no such notice of
redemption shall be given earlier than 60 calendar days prior to the earliest
date on which the Issuer would be obligated to pay such Additional Amounts if a
payment in respect of this Note were then due.

     Notice of redemption shall be given not less than 30 nor more than 60
calendar days prior to the date fixed for redemption or within the Redemption
Notice Period specified on the face hereof, which date and the applicable
redemption price shall be specified in the notice.

     If the face hereof indicates that this Note is subject to "Tax Redemption
and Payment of Additional Amounts," the Issuer shall, subject to certain
exceptions and limitations set forth below, pay such additional amounts (the
"Additional Amounts") to the holder of this Note who is a United States Alien
as may be necessary in order that every net payment of the principal of and
interest on this Note and any other amounts payable on this Note, after
withholding or deduction for or on account of any present or future tax,
assessment or governmental charge imposed upon or as a result of such payment
by the United States, or any political subdivision or taxing authority thereof
or therein, shall not be less than the amount provided for in this Note to be
then due and payable. The Issuer shall not, however, be required to make any
payment of Additional Amounts to any such holder who is a United States Alien
for or on account of:

          (a) any present or future tax, assessment or other governmental
     charge that would not have been so imposed but for (i) the existence of
     any present or former connection between such holder, or between a
     fiduciary, settlor, beneficiary, member or shareholder of such holder, if
     such holder is an estate, a trust, a partnership or a corporation for
     United States federal income tax purposes, and the United States,
     including, without limitation, such holder, or such fiduciary, settlor,
     beneficiary, member or shareholder, being or having been a citizen or
     resident thereof or being or having been engaged in a trade or business or
     present therein or having, or having had, a permanent establishment
     therein or (ii) the presentation by or on behalf the holder of this Note
     for payment on a date more than 15 calendar days after the date on which
     such payment became due and payable or the date on which payment thereof
     is duly provided for, whichever occurs later;

          (b) any estate, inheritance, gift, sales, transfer, excise or
     personal property tax or any similar tax, assessment or governmental
     charge;

          (c) any tax, assessment or other governmental charge imposed by
     reason of such holder's past or present status as a personal holding
     company or foreign personal holding

                                      A-31
<PAGE>

     company or controlled foreign corporation or passive foreign investment
     company with respect to the United States or as a corporation which
     accumulates earnings to avoid United States federal income tax or as a
     private foundation or other tax exempt organization or a bank receiving
     interest under Section 881(c)(3)(A) of the Internal Revenue Code of 1986,
     as amended;

          (d) any tax, assessment or other governmental charge that is payable
     otherwise than by withholding or deduction from payments on or in respect
     of this Note;

          (e) any tax, assessment or other governmental charge required to be
     withheld by any Paying Agent from any payment of principal of, or interest
     on, this Note, if such payment can be made without such withholding by any
     other Paying Agent in a city in Western Europe;

          (f) any tax, assessment or other governmental charge that would not
     have been imposed but for the failure to comply with certification,
     information or other reporting requirements concerning the nationality,
     residence or identity of the holder or beneficial owner of this Note, if
     such compliance is required by statute or by regulation of the United
     States or of any political subdivision or taxing authority thereof or
     therein as a precondition to relief or exemption from such tax, assessment
     or other governmental charge;

          (g) any tax, assessment or other governmental charge imposed by
     reason of such holder's past or present status as the actual or
     constructive owner of 10% or more of the total combined voting power of
     all classes of stock entitled to vote of the Issuer or as a direct or
     indirect subsidiary of the Issuer; or

          (h) any combination of items (a), (b), (c), (d), (e), (f) or (g).

In addition, the Issuer shall not be required to make any payment of Additional
Amounts (i) to any such holder where such withholding or deduction is imposed
on a payment to an individual and is required to be made pursuant to any law
implementing or complying with, or introduced in order to conform to, any
European Union Directive on the taxation of savings; or (ii) by or on behalf of
a holder who would have been able to avoid such withholding or deduction by
presenting this Note or the relevant coupon to another Paying Agent in a member
state of the European Union. Nor shall the Issuer pay Additional Amounts with
respect to any payment on this Note to a United States Alien who is a fiduciary
or partnership or other than the sole beneficial owner of such payment to the
extent such payment would be required by the laws of the United States (or any
political subdivision thereof) to be included in the income, for tax purposes,
of a beneficiary or settlor with respect to such fiduciary or a member of such
partnership or a beneficial owner who would not have been entitled to the
Additional Amounts had such beneficiary, settlor, member or beneficial owner
been the holder of this Note.

     The Senior Indenture permits the Issuer and the Trustee, with the consent
of the holders of not less than a majority in aggregate principal amount of the
debt securities of all series issued under the Senior Indenture then
outstanding and affected (voting as one class), to execute supplemental

                                      A-32
<PAGE>

indentures adding any provisions to or changing in any manner the rights of the
holders of each series so affected; provided that the Issuer and the Trustee
may not, without the consent of the holder of each outstanding debt security
affected thereby, (a) extend the final maturity of any such debt security, or
reduce the principal amount thereof, or reduce the rate or extend the time of
payment of interest thereon, or reduce any amount payable on redemption
thereof, or change the currency of payment thereof, or modify or amend the
provisions for conversion of any currency into any other currency, or modify or
amend the provisions for conversion or exchange of the debt security for
securities of the Issuer or other entities or for other property or the cash
value of the property (other than as provided in the antidilution provisions or
other similar adjustment provisions of the debt securities or otherwise in
accordance with the terms thereof), or impair or affect the rights of any
holder to institute suit for the payment thereof or (b) reduce the aforesaid
percentage in principal amount of debt securities the consent of the holders of
which is required for any such supplemental indenture.

     Except as set forth below, if the principal of, premium, if any, or
interest on this Note is payable in a Specified Currency other than U.S.
dollars and such Specified Currency is not available to the Issuer for making
payments hereon due to the imposition of exchange controls or other
circumstances beyond the control of the Issuer or is no longer used by the
government of the country issuing such currency or for the settlement of
transactions by public institutions within the international banking community,
then the Issuer shall be entitled to satisfy its obligations to the holder of
this Note by making such payments in U.S. dollars on the basis of the Market
Exchange Rate on the date of such payment or, if the Market Exchange Rate is
not available on such date, as of the most recent practicable date; provided,
however, that if the euro has been substituted for such Specified Currency, the
Issuer may at its option (or shall, if so required by applicable law) without
the consent of the holder of this Note effect the payment of principal of,
premium, if any, or interest on any Note denominated in such Specified Currency
in euro in lieu of such Specified Currency in conformity with legally
applicable measures taken pursuant to, or by virtue of, the Treaty establishing
the European Community, as amended. Any payment made under such circumstances
in U.S. dollars or euro where the required payment is in an unavailable
Specified Currency shall not constitute an Event of Default. If such Market
Exchange Rate is not then available to the Issuer or is not published for a
particular Specified Currency, the Market Exchange Rate shall be based on the
highest bid quotation in The City of New York received by the Exchange Rate
Agent at approximately 11:00 a.m., New York City time, on the second Business
Day preceding the date of such payment from three recognized foreign exchange
dealers (the "Exchange Dealers") for the purchase by the quoting Exchange
Dealer of the Specified Currency for U.S. dollars for settlement on the payment
date, in the aggregate amount of the Specified Currency payable to those
holders or beneficial owners of Notes and at which the applicable Exchange
Dealer commits to execute a contract. One of the Exchange Dealers providing
quotations may be the Exchange Rate Agent unless the Exchange Rate Agent is an
affiliate of the Issuer. If those bid quotations are not available, the
Exchange Rate Agent shall determine the market exchange rate at its sole
discretion.

     The "Exchange Rate Agent" shall be Morgan Stanley & Co. Incorporated,
unless otherwise indicated on the face hereof.

                                      A-33
<PAGE>

     All determinations referred to above made by, or on behalf of, the Issuer
or by, or on behalf of, the Exchange Rate Agent shall be at such entity's sole
discretion and shall, in the absence of manifest error, be conclusive for all
purposes and binding on holders of Notes and coupons.

     So long as this Note shall be outstanding, the Issuer shall cause to be
maintained an office or agency for the payment of the principal of and premium,
if any, and interest on this Note as herein provided in the Borough of
Manhattan, The City of New York, and an office or agency in said Borough of
Manhattan for the registration, transfer and exchange as aforesaid of the
Notes. The Issuer may designate other agencies for the payment of said
principal, premium and interest at such place or places (subject to applicable
laws and regulations) as the Issuer may decide. So long as there shall be such
an agency, the Issuer shall keep the Trustee advised of the names and locations
of such agencies, if any are so designated. If any European Union Directive on
the taxation of savings comes into force, the Issuer will, to the extent
possible as a matter of law, maintain a Paying Agent in a member state of the
European Union that will not be obligated to withhold or deduct tax pursuant to
any such Directive or any law implementing or complying with, or introduced in
order to conform to, such Directive.

     With respect to moneys paid by the Issuer and held by the Trustee or any
Paying Agent for payment of the principal of or interest or premium, if any, on
any Notes that remain unclaimed at the end of two years after such principal,
interest or premium shall have become due and payable (whether at maturity or
upon call for redemption or otherwise), (i) the Trustee or such Paying Agent
shall notify the holders of such Notes that such moneys shall be repaid to the
Issuer and any person claiming such moneys shall thereafter look only to the
Issuer for payment thereof and (ii) such moneys shall be so repaid to the
Issuer. Upon such repayment all liability of the Trustee or such Paying Agent
with respect to such moneys shall thereupon cease, without, however, limiting
in any way any obligation that the Issuer may have to pay the principal of or
interest or premium, if any, on this Note as the same shall become due.

     No provision of this Note or of the Senior Indenture shall alter or impair
the obligation of the Issuer, which is absolute and unconditional, to pay the
principal of, premium, if any, and interest on this Note at the time, place,
and rate, and in the coin or currency, herein prescribed unless otherwise
agreed between the Issuer and the registered holder of this Note.

     Prior to due presentment of this Note for registration of transfer, the
Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
holder in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and none of the Issuer, the
Trustee or any such agent shall be affected by notice to the contrary.

     No recourse shall be had for the payment of the principal of, premium, if
any, or the interest on this Note, for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Senior Indenture or any
indenture supplemental thereto, against any incorporator, shareholder, officer
or director, as such, past, present or future, of the Issuer or of any
successor corporation, either directly or through the Issuer or any successor
corporation, whether by virtue of any constitution, statute or rule of law or
by the enforcement of any assessment or penalty or otherwise,

                                      A-34
<PAGE>

all such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.

     This Note shall for all purposes be governed by, and construed in
accordance with, the laws of the State of New York.

     As used herein, the term "United States Alien" means any person who is,
for United States federal income tax purposes, (i) a nonresident alien
individual, (ii) a foreign corporation, (iii) a nonresident alien fiduciary of
a foreign estate or trust or (iv) a foreign partnership one or more of the
members of which is, for United States federal income tax purposes, a
nonresident alien individual, a foreign corporation or a nonresident alien
fiduciary of a foreign estate or trust.

     All terms used in this Note which are defined in the Senior Indenture and
not otherwise defined herein shall have the meanings assigned to them in the
Senior Indenture.

                                      A-35
<PAGE>

                                 ABBREVIATIONS

     The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:

          TEN COM - as tenants in common
          TEN ENT - as tenants by the entireties
          JT TEN  - as joint tenants with right of survivorship and not as
                    tenants in common

     UNIF GIFT MIN ACT - ____________________ Custodian ________________________
                                (Minor)                         (Cust)

     Under Uniform Gifts to Minors Act ________________________
                                               (State)

     Additional abbreviations may also be used though not in the above list.

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

                                      A-36
<PAGE>

     FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto

________________________________________
[PLEASE INSERT SOCIAL SECURITY OR OTHER
   IDENTIFYING NUMBER OF ASSIGNEE]

_______________________________________________________________________________

_______________________________________________________________________________

_______________________________________________________________________________
[PLEASE PRINT OR TYPE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE]

the within Note and all rights thereunder, hereby irrevocably constituting and
appointing such person attorney to transfer such note on the books of the
Issuer, with full power of substitution in the premises.

Dated:_________________

NOTICE: The signature to this assignment must correspond with the name
        as written upon the face of the within Note in every particular
        without alteration or enlargement or any change whatsoever.

                                      A-37
<PAGE>

                           OPTION TO ELECT REPAYMENT

     The undersigned hereby irrevocably requests and instructs the Issuer to
repay the within Note (or portion thereof specified below) pursuant to its
terms at a price equal to the principal amount thereof, together with interest
to the Optional Repayment Date, to the undersigned at

_______________________________________________________________________________

_______________________________________________________________________________

_______________________________________________________________________________
        (Please print or typewrite name and address of the undersigned)

     If less than the entire principal amount of the within Note is to be
repaid, specify the portion thereof which the holder elects to have repaid:
__________; and specify the denomination or denominations (which shall not be
less than the minimum authorized denomination) of the Notes to be issued to the
holder for the portion of the within Note not being repaid (in the absence of
any such specification, one such Note shall be issued for the portion not being
repaid): _________.

Dated: ____________________________     ________________________________________
                                        NOTICE: The signature on this Option
                                        to Elect Repayment must correspond with
                                        the name as written upon the face of the
                                        within instrument in every particular
                                        without alteration or enlargement.

                                      A-38
<PAGE>

                                                                        ANNEX A

                          OFFICIAL NOTICE OF EXCHANGE

                                               Dated: [On or after May 1, 2004]

Morgan Stanley                           Morgan Stanley & Co. Incorporated, as
1585 Broadway                              Calculation Agent
New York, New York 10036                 1585 Broadway
                                         New York, New York 10036
                                         Fax No.: (212) 761-0674
                                         (Attn: Meghan Maloney)

Dear Sirs:

     The undersigned holder of the Global Medium-Term Notes, Series C, Senior
Fixed Rate Notes, 1.5% Exchangeable Notes due June 30, 2011 (Exchangeable for
Shares of Common Stock of Wal-Mart Stores, Inc.) of Morgan Stanley (CUSIP No.
617446MK2) (the "Notes") hereby irrevocably elects to exercise with respect to
the principal amount of the Notes indicated below, as of the date hereof (or,
if this letter is received after 11:00 a.m. on any Trading Day, as of the next
Trading Day), provided that such day is on or after May 1, 2004 and is no later
than the Trading Day prior to the earliest of (i) the fifth scheduled Trading
Day prior to June 30, 2011, (ii) the fifth scheduled Trading Day prior to the
Call Date and (iii) in the event of a call for the applicable cash Call Price,
the Morgan Stanley Notice Date, the Exchange Right as described in Pricing
Supplement No. 41 dated March 24, 2004 (the "Pricing Supplement") to the
Prospectus Supplement dated August 26, 2003 and the Prospectus dated August 26,
2003 related to Registration Statement No. 333-106789. Terms not defined herein
have the meanings given to such terms in the Pricing Supplement. Please date
and acknowledge receipt of this notice in the place provided below on the date
of receipt, and fax a copy to the fax number indicated, whereupon Morgan
Stanley will deliver, at its sole option, shares of common stock of Wal-Mart
Stores, Inc. or cash on the third business day after the Exchange Date in
accordance with the terms of the Notes, as described in the Pricing Supplement.

     The undersigned certifies to you that (i) it is, or is duly authorized to
act for, the beneficial owner of the principal amount of the Notes indicated
below its signature (and attaches evidence of such ownership as provided by the
undersigned's position services department or the position services department
of the entity through which the undersigned holds its Notes), (ii) it will
cause the principal amount of Notes to be exchanged to be transferred to the
Trustee on the Exchange Settlement Date and (iii) the principal amount of Notes
to be exchanged pursuant to this notice is equal to or greater than $25,000,
unless the Notes identified for exchange hereby constitute the undersigned's
entire holding of Notes.

     If the Exchange Settlement Date for this exchange falls after a Record
Date and prior to the succeeding Interest Payment Date, the undersigned will
deliver to the Trustee on the Exchange Settlement Date an amount of cash equal
to the interest payable on the succeeding Interest Payment Date with respect to
the principal amount of Notes to be exchanged. The amount of any such cash
payment will be determined by the Calculation Agent and indicated in its
acknowledgment of this Official Notice of Exchange.

                                                 Very truly yours,

                                                 _______________________________
                                                 [Name of Holder]

                                                 By:____________________________
                                                    [Title]

                                                 _______________________________
                                                 [Fax No.]

                                                 $______________________________
Receipt of the above Official                    Principal Amount of Notes to be
Notice of Exchange is hereby acknowledged        surrendered for exchange
MORGAN STANLEY, as Issuer
MORGAN STANLEY & CO. INCORPORATED, as Calculation Agent
By MORGAN STANLEY & CO. INCORPORATED, as Calculation Agent

By:________________________________________
   Title:

Date and time of acknowledgment _____________________
Accrued interest, if any, due upon surrender of the Notes for exchange: $_______

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