Document:

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                                                                    EXHIBIT 10.4

                         APPLIED SCIENCE FICTION, INC.
                         -----------------------------

                AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
                ------------------------------------------------

     THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the "Agreement") is
made as of the 29th day of March, 1999, by and among Applied Science Fiction,
Inc., a Delaware corporation (the "Company"), the holders of the Company's
Series C Preferred Stock and Series D Preferred Stock listed on Exhibit A hereto
                                                                ---------
(each an "Investor") and the stockholders of the Company identified on Exhibit B
                                                                       ---------
hereto (each a "Key Employee Stockholder").

                                R E C I T A L S:
                                ---------------

     WHEREAS, certain of the Investors hold shares of the Company's Series C
Preferred Stock (the "Series C Preferred Stock"), and possess registration
rights, information rights and other rights pursuant to an Investors' Rights
Agreement dated as of July 29, 1997, among the Company, such Investors and the
Key Employee Stockholders (the "Original Agreement");

     WHEREAS, the Company, Investors holding in excess of sixty percent (60%) of
the outstanding shares of Series C Preferred Stock and the undersigned Key
Employee Stockholders who hold in excess of a majority of the Key Employee
Shares (as hereinafter defined) desire to amend and restate the Original
Agreement pursuant to Section 3.3 thereof and to accept the rights created
pursuant hereto in lieu of the rights granted to them under the Original
Agreement;

     WHEREAS, the Company and certain of the Investors have entered into the
Series D Purchase Agreement (as defined below) of even date herewith pursuant to
which the Company has agreed to sell, and such Investors have agreed to
purchase, shares of the Series D Preferred Stock of the Company (the "Series D
Preferred Stock");

     WHEREAS, the respective obligations of the parties to consummate the
transactions contemplated by the Series D Purchase Agreement are conditioned
upon the execution and delivery of this Agreement; and

     WHEREAS, in order to induce the Company to enter into the Series D Purchase
Agreement and to induce those Investors that have entered into the Series D
Purchase Agreement to invest funds in the Company pursuant to their purchase of
Series D Preferred Stock, each of the Investors, the Key Employee Stockholders
and the Company hereby agree that this Agreement shall govern the rights of the
Investors to cause the Company to register shares of Common Stock issuable to
the Investors and certain other matters as set forth herein.

     NOW THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the Investors who are parties to the Original Agreement hereby
amend and restate the Original Agreement in its entirety and the parties hereto
agree as follows:
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                                   SECTION 1
                                   ---------

       Restrictions on Transferability of Securities; Registration Rights
       ------------------------------------------------------------------

     1.1  Certain Definitions.  As used in this Agreement, the following
          -------------------
terms shall have the meanings set forth below:

     (a) "Closing" shall mean the date of the initial sale of shares of the
Series D Preferred Stock under the Series D Purchase Agreement.

     (b) "Commission" shall mean the United States Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.

     (c) "Common Stock" shall mean the Company's Common Stock, par value $0.001
per share.

     (d) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.

     (e) "Holder" shall mean any Investor who holds Registrable Securities and
any holder of Registrable Securities to whom the registration rights conferred
by this Agreement have been transferred in compliance with Section 1.11 hereof.

     (f) "Initiating Holders" shall mean any Holder or Holders who, in the
aggregate, hold not less than twenty five percent (25%) of the outstanding
Registrable Securities.

     (g) "Investors" shall mean persons who purchased Shares pursuant to the
Series C Purchase Agreement or the Series D Purchase Agreement, and their
respective affiliates, constituent members and partners.

     (h) "Investor Warrants" shall mean those warrants to purchase up to
1,224,879 shares of Common Stock issued to certain of the Investors pursuant to
the Series C Purchase Agreement.

     (i) "Key Employee Shares" shall mean (i) 8,796,000 shares of Common Stock
or options to acquire Common Stock (as presently constituted and subject to
adjustment for subsequent stock splits, reverse splits and the like) held by the
Key Employee Stockholders on the date hereof, (ii) shares of Common Stock issued
or issuable pursuant to the conversion of 19,143 shares of Series B Preferred
Stock, including shares of Series B Preferred Stock issuable upon the exercise
of warrants to purchase Series B Preferred Stock, held by the Key Employee
Stockholders on the date hereof and (iii) any Common Stock issued as a dividend
or other distribution with respect to or in exchange for or in replacement of
the shares referenced in (i) or (ii) above, provided, however, that Key Employee
                                            --------  -------
Shares shall not include any securities which have previously been registered or
which have been sold to the public pursuant to a registration statement or Rule
144 or which have otherwise been sold or transferred by the Key Employee
Stockholders.

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     (j) "Other Stockholders" shall mean persons other than Holders and Key
Employee Stockholders who, by virtue of agreements with the Company, are
entitled to include their securities in certain registrations hereunder.

     (k) "Preferred Stock" shall mean the Series B Preferred Stock, the Series C
Preferred Stock and the Series D Preferred Stock.

     (l) "Qualified IPO" shall mean the first underwritten public offering of
equity securities by the Company registered under the Securities Act.

     (m) The terms "register," "registered" and registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.

     (n) "Registrable Securities" shall mean (1) shares of Common Stock issued
or issuable pursuant to the conversion of the Shares and Investor Warrants and
(2) any Common Stock issued as (or issuable upon the conversion or exercise of
any warrant, right or other security that is issued as) a dividend or other
distribution with respect to or in exchange for or in replacement of the shares
referenced in (1) above; provided, however, that Registrable Securities shall
                         --------  -------
not include any shares of Common Stock which have previously been registered or
which have been sold to the public either pursuant to a registration statement
or Rule 144 or which have been sold or transferred in a private transaction in
which the transferees rights under this Agreement are not assigned.

     (o) "Registration Expenses" shall mean all expenses incurred by the Company
in effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification, and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, fees and disbursements of a single counsel for the Holders and/or
Key Employee Stockholders and expenses of any regular or special audits incident
to or required by any such registration, but shall not include Selling Expenses
(but excluding the compensation of regular employees of the Company, which shall
be paid in any event by the Company).

     (p) "Rule 144" shall mean Rule 144 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.

     (q) "Rule 145" shall mean Rule 145 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.

     (r) "Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar successor federal statute and the rules and regulations thereunder,
all as the same shall be in effect from time to time.

     (s) "Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities.

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     (t) "Series B Preferred Stock" shall mean the Company's Series B Preferred
Stock, par value $.001 per share.

     (u) "Series B Warrants" shall mean those certain warrants to purchase up to
8,556 shares of Series B Preferred Stock which the Company has issued to holders
of Series B Preferred Stock.

     (v) "Series C Purchase Agreement" shall mean the Stock Purchase Agreement
dated as of July 29, 1997, between the Company and the purchasers of the Series
C Preferred Stock named therein.

     (w) "Series D Purchase Agreement" shall mean the Stock Purchase Agreement
dated as of March 29, 1999, between the Company and the purchasers of the Series
D Preferred Stock named therein.

     (x) "Shares" shall mean the Company's Series C Preferred Stock, par value
$.001 per share, and Series D Preferred Stock, par value $.001 per share.

     1.2 Requested Registration.
         ----------------------

     (a) Request for Registration. If the Company shall receive from the
         ------------------------
Initiating Holders at any time not earlier than one hundred eighty (180) days
after the closing of the Company's Qualified IPO, a written request that the
Company effect a registration with respect to at least twenty five percent (25%)
of the Registrable Securities (or a lesser percentage if the aggregate public
offering price of the Registrable Securities subject to such request will exceed
$7,500,000), then the Company will:

         (i) promptly give written notice of the proposed registration to all
     other Holders; and

         (ii) promptly use its best efforts to effect such registration
     (including, without limitation, filing post-effective amendments,
     appropriate qualifications under applicable blue sky or other state
     securities laws and appropriate compliance with the Securities Act) and to
     take all such actions as would permit or facilitate the sale and
     distribution of all or such portion of such Registrable Securities as are
     specified in such request, together with all or such portion of the
     Registrable Securities of any Holder or Holders joining in such request as
     are specified in a written request received by the Company within twenty
     (20) days after such written notice from the Company is mailed or
     delivered.

     The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 1.2:

            (A) In any particular jurisdiction in which the Company would be
     required to execute a general consent to service of process in effecting
     such registration, qualification, or compliance, unless the Company is
     already subject to service in such jurisdiction and except as may be
     required by the Securities Act;

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             (B) After the Company has initiated one such registration pursuant
     to this Section 1.2(a) (counting for these purposes only registrations
     which have been declared or ordered effective and pursuant to which
     securities have been sold and registrations which have been withdrawn by
     the Holders as to which the Holders have not elected to bear the
     Registration Expenses pursuant to Section 1.4 hereof and would, absent such
     election, have been required to bear such expenses); provided, that if in
                                                          --------
     the registration effected pursuant to this Section 1.2(a), less than sixty-
     seven percent (67%) of all Registrable Securities outstanding at the time
     of the delivery of the Company's notice under Section 1.2(a)(i) were sold
     in such registration and at least one hundred eighty (180) days have
     elapsed since the effective date of such first registration, then such
     first registration shall not be counted against the single registration
     which the Initiating Holders may request under this Section 1.2(a);
     provided, further, that if at the time the Holders elect to withdraw a
     --------  -------
     request for registration, the Holders have learned of a material adverse
     change in the condition, business or prospects of the Company from that
     known to the Holders at the time of their request for registration and have
     withdrawn the request with reasonable promptness following disclosure by
     the Company of such material adverse change, then the Holders shall retain
     their rights to request registration and shall not be required to pay the
     costs of the withdrawn registration.

             (C) During the period beginning sixty (60) days prior to the date
     of the filing of a registration statement by the Company pursuant to a
     Company-initiated registration and ending one hundred eighty (180) days
     after the effective date of such registration statement; provided, that the
                                                              --------
     Company is actively employing in good faith all reasonable efforts to cause
     such registration statement to become effective; or

             (D) If the Initiating Holders propose to dispose of shares of
     Registrable Securities which may be immediately registered on Form S-3
     pursuant to a request made under Section 1.5 hereof.

     (b) Filing of Registration Statement. Subject to the foregoing clauses (A)
         --------------------------------
through (D), the Company shall file a registration statement covering the
Registrable Securities so requested to be registered as soon as practicable
after receipt of the request or requests of the Initiating Holders;
provided, however, that if (i) in the good faith judgment of the Board of
--------  -------
Directors of the Company, such registration would be seriously detrimental to
the Company and the Board of Directors of the Company concludes, as a result,
that it is necessary to defer the filing of such registration statement at such
time, and (ii) the Company shall furnish to such Holders a certificate signed by
the President of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company for such registration statement to be filed in the near future and that
it is, therefore, necessary to defer the filing of such registration statement,
then the Company shall have the right to defer such filing for the period during
which such disclosure would be seriously detrimental, provided that (except as
                                                      --------
provided in clause (C) above) the Company may not defer the filing for a period
of more than ninety (90) days after receipt of the request of the Initiating
Holders, and, provided further, that
              -------- -------

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the Company shall not defer its obligation in this manner more than once in any
twelve (12) month period.

     The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Sections 1.2(b) and 1.13 hereof,
include other securities of the Company, with respect to which registration
rights have been granted, and may include securities of the Company being sold
for the account of the Company.

     (c) Underwriting. The right of any Holder to registration pursuant to
         ------------
Section 1.2 shall be conditioned upon such Holder's participation in any such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Registrable Securities held by the Holders participating in such registration
and such Holder with respect to such participation and inclusion) to the extent
provided herein. A Holder may elect to include in such underwriting all or a
part of the Registrable Securities he holds.

     (d) Procedures. If the Company shall request inclusion in any registration
         ----------
pursuant to Section 1.2 of securities being sold for its own account, or if
other persons shall request inclusion in any registration pursuant to Section
1.2, the Initiating Holders shall on behalf of all Holders, offer to include
such securities in the underwriting and may condition such offer on their
acceptance of the further applicable provisions of this Section 1 (including
Section 1.12). The Company shall (together with all Holders and other persons
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders, which underwriters are reasonably acceptable
to the Company. Notwithstanding any other provision of this Section 1.2, if the
representative of the underwriters advises the Initiating Holders in writing
that marketing factors require a limitation on the number of shares to be
underwritten, the number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section 1.13 hereof. If a person
who has requested inclusion in such registration as provided above does not
agree to the terms of any such underwriting, such person shall be excluded
therefrom by written notice from the Company, the underwriter or the Initiating
Holders. The securities so excluded shall also be withdrawn from registration.
Any Registrable Securities or other securities excluded shall also be withdrawn
from such registration. If shares are so withdrawn from the registration and if
the number of shares to be included in such registration was previously reduced
as a result of marketing factors pursuant to this Section 1.2(d), then the
Company shall offer to all Holders who have retained rights to include
securities in the registration the right to include additional securities in the
registration in an aggregate amount equal to the number of shares so withdrawn,
with such shares to be allocated among such Holders requesting additional
inclusions in accordance with Section 1.13.

     1.3  Company Registration.
          --------------------

     (a) Piggy-back Rights. If the Company shall determine to register any of
         -----------------
its securities either for its own account or the account of a security holder or
holders exercising their respective registration rights (other than pursuant to
Section 1.2 or 1.5 hereof), other than a registration relating solely to
employee benefit plans, or a registration relating solely to a Rule

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145 transaction, or a registration on any registration form that does not permit
secondary sales, the Company will:

         (i) promptly give to each Holder and Key Employee Stockholder written
     notice thereof; and

         (ii) use its best efforts to include in such registration (and any
     related qualification under blue sky laws or other compliance), except as
     set forth in Section 1.3(b) below, and in any underwriting involved
     therein, all the Registrable Securities or Key Employee Shares, as the case
     may be, specified in a written request or requests made by any Holder or
     Key Employee Stockholders, respectively, and received by the Company within
     ten (10) business days after the written notice from the Company described
     in clause (i) above is mailed or delivered by the Company. Such written
     request may specify all or a part of a Holder's Registrable Securities or
     all or any part of a Key Employee Stockholder's Key Employee Shares, as the
     case may be.

     (b) Underwriting. If the registration of which the Company gives notice is
         ------------
for a registered public offering involving an underwriting, the Company shall so
advise the Holders and Key Employee Stockholders as a part of the written notice
given pursuant to Section 1.3(a)(i). In such event, the right of any Holder and
of any Key Employee Stockholder to registration pursuant to this Section 1.3
shall be conditioned upon such persons participation in such underwriting and
the inclusion of such Holder's Registrable Securities or such Key Employee
Stockholder's Key Employee Shares (as applicable) in the underwriting to the
extent provided herein. All Holders and Key Employee Stockholders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders of securities of the Company with registration
rights to participate therein distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
representative of the underwriter or underwriters selected by the Company.

     Notwithstanding any other provision of this Section 1.3, if the
representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
representative may (subject to the limitations set forth below) exclude all
Registrable Securities and Key Employee Shares from, or limit the number of
Registrable Securities and Key Employee Shares to be included in, the
registration and underwriting.  If the registration is the Qualified IPO, the
Company may limit, to the extent so advised by the underwriters, the amount of
securities (including Registrable Securities and Key Employee Shares) to be
included in the registration by the Company's stockholders (including the
Holders and Key Employee Stockholders), or may exclude, to the extent so advised
by the underwriters, such underwritten securities entirely from such
registration.  If such registration is the second or any subsequent registered
offering of the Company's securities to the general public initiated by the
Company or at the request of any other holder, the Company may limit, to the
extent so advised by the underwriters, the amount of securities (including
Registrable Securities and Key Employee Shares) to be included in the
registration by the Company's stockholders (including the Holders and Key
Employee Stockholders); provided, however, that the Company shall permit the
                        --------  -------
Holders to include at least thirty percent (30%) of the total securities to be
offered in such registration.  The Company shall so advise all holders of
securities requesting registration and, subject to the proviso in the
immediately preceding

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sentence, the number of shares of securities that are entitled to be included in
the registration and underwriting shall be allocated first to the Company for
securities being sold for its own account and thereafter as set forth in Section
1.13. If any person does not agree to the terms of any such underwriting, such
person shall be excluded therefrom by written notice from the Company or the
underwriter. Any Registrable Securities, Key Employee Shares or other securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration.

     If shares are so withdrawn from the registration and if the number of
shares of Registrable Securities and Key Employee Shares to be included in such
registration was previously reduced as a result of marketing factors, the
Company shall then offer to all persons who have retained the right to include
securities in the registration the right to include additional securities in the
registration in an aggregate amount equal to the number of shares so withdrawn,
with such shares to be allocated among the persons requesting additional
inclusion in accordance with Section 1.13 hereof.

     1.4 Expenses of Registration. All Registration Expenses incurred in
         ------------------------
connection with any registration, qualification or compliance pursuant to
Section 1.2 hereof, and the reasonable fees of one counsel for all of the
selling stockholders, shall be borne by the Company; provided, however, that if
                                                     --------  -------
the Holders bear the Registration Expenses for any registration proceeding begun
pursuant to Section 1.2 and subsequently withdrawn by the Holders registering
shares therein, such registration proceeding shall not be counted as a requested
registration pursuant to Section 1.2 hereof, except in the event that such
withdrawal is based upon material adverse information relating to the Company
that is different from the information known or available (upon request from the
Company or otherwise) to the Holders requesting registration at the time of
their request for registration under Section 1.2, in which event such
registration shall not be treated as a counted registration for purposes of
Section 1.2 hereof, even though the Holders do not bear the Registration
Expenses for such registration. All Registration Expenses incurred in connection
with any registration, qualification or compliance with respect to Registrable
Securities or Key Employee Shares pursuant to Sections 1.3 or 1.5 hereof, and
the reasonable fees of one counsel for all of the selling stockholders, shall be
paid by the Company. Selling Expenses relating to securities registered under
any section hereof shall be borne by the holders of such securities pro rata on
the basis of the number of shares of securities so registered on their behalf.

     1.5  Registration on Form S-3.
          ------------------------

          (a) After its initial public offering, the Company shall use its best
efforts to qualify for registration on Form S-3 or any comparable or successor
form or forms. After the Company has qualified for the use of Form S-3, in
addition to the rights contained in the foregoing provisions of this Section 1,
the Holders shall have the right to request up to an aggregate of four
registrations, but no more than two in any twelve (12) month period, each on
Form S-3 (such requests shall be in writing and shall state the number of shares
of Registrable Securities to be disposed of and the intended methods of
disposition of such shares by such Holder or Holders), provided, however, that
                                                       --------  -------
the Company shall not be obligated to effect any such registration (i) if the
Holders, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) on Form S-3 at an aggregate price
to the public of less than $1,000,000, (ii) in the event that

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the Company shall furnish the certification described in paragraph 1.2(b)(ii)
(but subject to the limitations set forth therein) or (iii) if it is to be
effected more than five (5) years after the Company's initial public offering.

     (b) If a request complying with the requirements of section 1.5(a)
hereof is delivered to the Company, the provisions of Sections 1.2(a)(i) and
(ii) and Section 1.2(b) hereof shall apply to such registration. If the
registration is for an underwritten offering, the provisions of Sections 1.2(c)
and 1.2(d) hereof shall apply to such registration.

     1.6  Registration Procedures. In the case of each registration effected by
          -----------------------
the Company pursuant to Section 1, the Company will keep each Holder and, if
applicable, Key Employee Stockholder, advised in writing as to the initiation of
each registration and as to the completion thereof. At its expense, the Company
will use its best efforts to:

     (a) Keep such registration effective for a period of one hundred
eighty (180) days or until the Holder or Holders (and, if applicable, Key
Employee Stockholder(s)) have completed the distribution described in the
registration statement relating thereto, whichever first occurs; provided,
                                                                 --------
however, that (i) such one hundred eighty (180) day period shall be extended for
-------
a period of time equal to the period the Holder or Key Employee Stockholder
refrain from selling any securities included in such registration at the request
of an underwriter of Common Stock (or other securities) of the Company; and (ii)
in the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such one hundred eighty
(180) day period shall be extended, if necessary, to keep the registration
statement effective until all such Registrable Securities are sold, provided
that Rule 415, or any successor rule under the Securities Act, permits an
offering on a continuous or delayed basis, and provided further that applicable
rules under the Securities Act governing the obligation to file a post-effective
amendment permit, in lieu of filing a post-effective amendment that (A) includes
any prospectus required by section 10(a)(3) of the Securities Act or (B)
reflects facts or events representing a material or fundamental change in the
information set forth in the registration statement, the incorporation by
reference of information required to be included in (A) and (B) above to be
contained in periodic reports filed pursuant to section 13 or 15(d) of the
Exchange Act in the registration statement;

     (b) Prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement and permit counsel for the Holders participating in such
registration to review all such amendments and supplements and such prospectus
prior to the filing thereof with the Commission;

     (c) Furnish such number of prospectuses in conformity with the requirements
of the Securities Act and other documents incident thereto, including any
amendment of or supplement to the prospectus, as a Holder (and, if applicable,
Key Employee Stockholder) from time to time may reasonably request;

     (d) Use its best efforts to register or qualify such Registrable Securities
under the securities or blue sky laws of such jurisdictions as any Holder
participating in such registration

                                       9
<PAGE>

reasonably requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable such Holder to consummate the
disposition in such jurisdictions of Registrable Securities owned by such
Holder; provided, that the Company will not be required to (i) qualify generally
        --------
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this paragraph (d), (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction;

     (e) Notify each seller of Registrable Securities or Key Employee Shares
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing (and, pending receipt
of such supplemental or amended prospectus or of a written notice from the
Company that the use of the applicable prospectus may be resumed, each seller
shall forthwith discontinue disposition of such Registrable Securities or Key
Employee Shares covered by such registration); provided, however, that the
                                               --------  -------
period set forth in (a) above shall be extended for a number of days equal to
the number of days that the Holder was unable to sell Registrable Securities
under the registration statement;

     (f) Cause all such Registrable Securities (and, if applicable, Key Employee
Shares) registered pursuant hereunder to be listed on each securities exchange
on which similar securities issued by the Company are then listed;

     (g) Provide a transfer agent and registrar for all Registrable Securities
(and, if applicable, Key Employee Shares) registered pursuant to such
registration statement and a CUSIP number for all such Registrable Securities
and Key Employee Shares, in each case not later than the effective date of such
registration; and

     (h) In connection with any underwritten offering pursuant to a registration
statement filed pursuant to Section 1.2 and 1.5 hereof, the Company will enter
into an underwriting agreement reasonably necessary to effect the offer and sale
of Common Stock, provided such underwriting agreement contains customary
underwriting provisions and provided further that if the underwriter so requests
the underwriting agreement will contain customary contribution provisions.

     1.7  Indemnification.
          ---------------

     (a) The Company will indemnify and hold harmless each Holder and Key
Employee Stockholder, each of its officers, directors and partners, legal
counsel, and accountants and each person controlling such Holder or Key Employee
Stockholder within the meaning of Section 15 of the Securities Act, with respect
to which registration, qualification, or compliance has been

                                       10
<PAGE>

effected pursuant to this Section 1, and each underwriter, if any, and each
person who controls within the meaning of Section 15 of the Securities Act any
underwriter, against all expenses, claims, losses, damages, and liabilities (or
actions, proceedings, or settlements in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular, or other document (including any
related registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation or
alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities laws or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities laws applicable to the Company and
relating to action or inaction required of the Company in connection with any
such registration, qualification, or compliance, and will reimburse each such
Holder and Key Employee Stockholder, each of its officers, directors, partners,
legal counsel, and accountants and each person controlling such Holder or Key
Employee Stockholder, each such underwriter, and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending or settling any such claim, loss,
damage, liability, or action, provided, that the Company will not be liable in
                              --------
any such case to the extent that any such claim, loss, damage, liability, or
expense arises out of or is based on any untrue statement or omission based upon
written information furnished to the Company by such Holder, Key Employee
Stockholder or underwriter and stated in writing to be specifically for use
therein. It is agreed that the indemnity agreement contained in this Section
1.7(a) shall not apply to amounts paid in settlement of any such loss, claim
damage, liability, or action if such settlement is effected without the consent
of the Company (which consent has not been unreasonably withheld).

     (b) Each Holder and Key Employee Stockholder will, if Registrable
Securities held by it or him are included in the securities as to which such
registration, qualification, or compliance is being effected, indemnify the
Company, each of its directors, officers, partners, legal counsel, and
accountants and each underwriter, if any, of the Company's securities covered by
such a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, each other
such Holder, Key Employee Stockholder and Other Stockholder, and each of their
officers, directors, and partners, and each person controlling such Holder or
Other Stockholder, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company and such Holders, Key Employee Stockholders, Other Stockholders,
directors, officers, partners, legal counsel, and accountants, persons,
underwriters, or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability, or action, in each case to the extent, but only to the extent
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular,
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder or Key Employee Stockholder and stated
to be specifically for use therein; provided, however, that the obligations of
                                    --------  -------
such Holder or Key Employee Stockholder hereunder shall not apply to amounts
paid in settlement of any such claims, losses, damages, or liabilities (or
actions

                                       11
<PAGE>

in respect thereof) if such settlement is effected without consent of such
Holder or Key Employee Stockholder, as the case may be (which consent shall not
be unreasonably withheld). Notwithstanding the foregoing, in no event shall any
indemnity under this subsection (b) exceed the net proceeds from the offering
received by such Holder or Key Employee Stockholder, as the case may be.

     (c) Each party entitled to indemnification under this Section 1.7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
                                --------
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party (together with all other
Indemnified Parties that may be represented without conflict by one counsel) may
participate in such defense at such party's expense; provided, however, that the
                                                     --------  -------
Indemnifying Party shall pay the fees and expenses of additional counsel if more
than one counsel is required to be retained by other Indemnified Parties due to
actual or potential conflicts for one counsel to represent all of the
Indemnified Parties; and provided, further, that the failure of any Indemnified
                         --------  -------
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 1 to the extent such failure is not
prejudicial. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom.

     (d) If the indemnification provided for in this Section 1.7 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.

     (e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into, in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control.

                                       12
<PAGE>

     1.8  Information by Holder.  Each Holder of Registrable Securities and
          ---------------------
each Key Employee Stockholder shall furnish to the Company such information
regarding such person or entity and the distribution proposed by such person or
entity as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification, or
compliance referred to in this Section 1.

     1.9  Limitations on Registration of Issues of Securities. From and after
          ---------------------------------------------------
the date of this Agreement, the Company shall not, without the prior written
consent of two thirds (2/3rds) in interest of the Holders, enter into any
agreement with any holder or prospective holder of any securities of the Company
giving such holder or prospective holder any rights to initiate a registration
of securities of the Company. Notwithstanding the foregoing, from and after the
date of this Agreement, the Company may enter into any agreement with any holder
or prospective holder of any securities of the Company giving such holder or
prospective holder rights to initiate a registration of securities of the
Company the terms of which are pari passu with the registration rights granted
to the Holders in Section 1.2 hereof only upon the written consent of two thirds
(2/3rds) in interest of the Holders; provided, however, that without the prior
                                     --------  -------
written consent of a majority in interest of the Holders, in no registration may
the amount of Registrable Securities to be included in such registration by the
Holder be limited due to marketing factors, pursuant to Sections 1.2(d) or
1.3(b) of this Agreement, unless the securities held by such third-party holder
or holders are excluded from such registration altogether.

     1.10  Rule 144 Reporting.  With a view to making available the benefits of
           ------------------
certain rules and regulations of the Commission that may permit the sale of
Registrable Securities that are "restricted securities" within the meaning of
the Securities Act ("Restricted Securities") to the public without registration,
the Company agrees to use its best efforts to:

     (a) Make and keep public information regarding the Company available as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times from and after ninety (90) days following the effective date of the
first registration statement under the Securities Act filed by the Company for
an offering of its securities to the general public;

     (b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
at any time after it has become subject to such reporting requirements; and

     (c) So long as a Holder owns any Restricted Securities, furnish to the
Holder forthwith upon written request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a written statement that the
Company is eligible to use Form S-3, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so filed
as a Holder may reasonably request in availing itself of any rule or regulation
of the Commission allowing a Holder to sell any such securities without
registration.

                                       13
<PAGE>

     1.11  Transfer or Assignment of Registration Rights.  The rights to cause
           ---------------------------------------------
the Company to register securities granted to a Holder by the Company under this
Section 1 may be transferred or assigned along with all related obligations
(including, without limitation, those set forth in Section 1.12) by a Holder
only (a) to a transferee or assignee of not less than 300,000 shares
(aggregating all shares of Registrable Securities held by affiliates of such
Holder) of Registrable Securities (as presently constituted and subject to
subsequent adjustments for stock splits, stock dividends, reverse stock splits,
and the like) or, if less, all shares of Registrable Securities held by such
Holder, (b) to an affiliate, constituent partner, limited partner, shareholder
or retired partner of such Holder in connection with a transfer or assignment of
such Holder's Registrable Securities or (c) to a person who is a Holder
immediately prior to such transfer or assignment; provided, in all such cases,
                                                  --------
that the Company is given written notice at the time of or within a reasonable
time after such transfer or assignment, stating the name and address of the
transferee or assignee and identifying the securities with respect to which such
registration rights are being transferred or assigned; and provided further,
                                                           -------- -------
that the transferee or assignee of such rights assumes the obligations of such
Holder under this Section 1. The right of Key Employee Stockholders to cause the
Company to register securities granted to such Key Employee Stockholder under
this Section 1 may not be transferred or assigned.

     1.12  "Market Stand-Off" Agreement.  If requested by the Company or an
            ---------------------------
underwriter of Common Stock (or other securities) of the Company, no Holder or
Key Employee Stockholder shall sell or otherwise transfer or dispose of any
Registrable Securities or Key Employee Shares and any other shares of capital
stock acquired prior to the date of the Company's Qualified IPO held by such
Holder or Key Employee Stockholder, respectively (other than those included in
the registration) during a period not to exceed one hundred eighty (180) days
following the effective date of the Company's Qualified IPO; provided, that (i)
                                                             --------
each officer, director and holder of at least one percent (1%) of the Company's
securities entitled to vote generally in the election of directors (calculated
assuming full conversion of all voting securities which are convertible into
Common Stock), enter into similar agreements and (ii) if the Company or any
representative of the underwriters of the Qualified IPO shall provide, in its
discretion, a waiver or termination of the "market stand-off" restrictions for
the benefit of any of the Company's shareholders (the "Waiver Recipient"), then
the "market stand-off" restriction imposed hereunder shall immediately cease to
be applicable to all Holders and Key Employee Stockholders on a pro rata basis
according to the number of shares subject to the waiver or termination held by
the Waiver Recipient bears to the total number of shares held by all Holders and
Key Employee Stockholders.

     The obligations described in this Section 1.12 shall apply only to the
Qualified IPO.  The Company may impose stop-transfer instructions with respect
to the shares (or securities) subject to the foregoing restriction until the end
of such one hundred eighty (180) day period.

     1.13  Allocation of Registration Opportunities.  In any circumstance
           ----------------------------------------
in which all of the Registrable Securities, Key Employee Shares and shares of
Common Stock of the Company (including shares of Common Stock issued or issuable
upon conversion of shares of any currently unissued series of Preferred Stock of
the Company) with registration rights held by Other Stockholders (the "Other
Shares") requested to be included in a registration on behalf of the Holders,
Key Employee Stockholders or Other Stockholders cannot be so included as a
result of limitations of the aggregate number of shares of Registrable
Securities, Key Employee Shares and Other Shares that may be so included, the
number of shares of Registrable Securities, Key Employee Shares

                                       14
<PAGE>

and Other Shares that may be so included shall be allocated as follows:

       (a) if the registration is initiated by Holders, then Holders requesting
inclusion of Registrable Securities shall be entitled to include shares first on
a pro rata basis among them, with any additional shares that may be included
allocated pro rata among the Key Employee Stockholders and Other Stockholders;

       (b) if the registration is initiated by the Company, then the shares
available for sale by the Holders, Key Employee Stockholders and Other
Stockholders requesting inclusion of shares in such registration shall be
allocated among the Holders and the Other Stockholders pro rata on the basis of
the number of shares of Registrable Securities, Key Employee Shares and Other
Shares that would be held by such Holders, Key Employee Stockholders and Other
Stockholders, assuming conversion, with any additional shares that may be
included allocated pro rata among the Key Employee Stockholders, subject to
Section 1.3(b) hereof;

       (c) if the registration is initiated by Other Stockholders, then the
shares available for sale by the Holders, Key Employee Stockholders and Other
Stockholders requesting inclusion of shares in such registration shall be
allocated first among the Holders and the Other Stockholders pro rata on the
basis of the number of shares of Registrable Securities and Other Shares that
would be held by such Holders and Other Stockholders, assuming conversion, with
any additional shares that may be included allocated pro rata among the Key
Employee Stockholders; or

       (d) if the registration is initiated by Key Employee Stockholder (should
they, after the date hereof, receive rights to initiate a registration), then
the shares available for sale by the Holders, Key Employee Stockholders and
Other Stockholders requesting inclusion of shares in such registration shall be
allocated first among the Holders and the Key Employee Stockholders pro rata on
the basis of the number of shares of Registrable Securities and Key Employee
Shares that would be held by such Holders and Key Employee Stockholders,
assuming conversion, with any additional shares that may be included allocated
pro rata among the Other Stockholders;

provided, however, so that any such allocation shall not operate to reduce the
--------  -------
aggregate number of Registrable Securities, Key Employee Shares and Other Shares
to be included in such registration, if any Holder, Key Employee Stockholder or
Other Stockholder does not request inclusion of the maximum number of shares of
Registrable Securities, Key Employee Shares and Other Shares allocated to it
pursuant to the above-described procedure, the remaining portion of its
allocation shall be reallocated among those requesting Holders, Key Employee
Stockholders and Other Stockholders whose allocations did not satisfy their
requests in accordance with the allocation provisions set forth above, and this
procedure shall be repeated until all of the shares of Registrable Securities,
Key Employee Shares and Other Shares which may be included in the registration
on behalf of the Holders, Key Employee Stockholders and Other Stockholders have
been so allocated.  Notwithstanding the foregoing, the Company shall not limit
the number of Registrable Securities or Key Employee Shares to be included in a
registration pursuant to this Agreement in order to include shares held by
stockholders with no registration rights, and with respect to registrations
under Sections 1.2 or 1.5 hereof, shall not limit the number of Registrable

                                       15
<PAGE>

Securities included in such registration in order to include therein any Key
Employee Shares, Other Shares or securities registered for the Company's own
account.

     1.14  Delay of Registration. No Holder shall have any right to take any
           ---------------------
action to restrain, enjoin, or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Section 1.

     1.15  Termination of Registration Rights. The right to request registration
           ----------------------------------
or inclusion in any registration pursuant to Section 1.2, 1.3 or 1.5 (and the
right of any Key Employee Stockholder to request inclusion in any registration
pursuant to Section 1.3) shall terminate five (5) years after the closing of a
Qualified IPO in which all shares of Preferred Stock convert into Common Stock
or earlier, with respect to any Holder or Key Employee Stockholder, at such time
as such Holder or Key Employee Stockholder shall be able to sell all of such
Holder's Registrable Securities or such Key Employee Stockholder's Key Employee
Shares, as the case may be, under Rule 144 during any three (3) month period.

                                   SECTION 2
                                   ---------

                            Covenants of the Company
                            ------------------------

     The Company hereby covenants and agrees, so long as any Holder owns any
Registrable Securities and subject to the other terms and conditions provided
herein, as follows:

     2.1  Financial Information. The Company will furnish the following reports
          ---------------------
to each Holder owning at least 150,000 shares of Registrable Securities (for
purposes of calculating the ownership of any Holder under this Section 2,
Registrable Securities owned by any entity that is, within the meaning of the
Securities Act, controlling, controlled by or under common control with such
Holder shall be aggregated with Registrable Securities owned by such Holder), as
presently constituted and subject to subsequent adjustment for stock splits,
stock dividends, reverse stock splits and the like (each, a "Significant
Holder"):

     (a) As soon as practicable after the end of each fiscal year (beginning
with the fiscal year ending December 31, 1999) of the Company, and in any event
within ninety (90) days thereafter, an audited consolidated balance sheet of the
Company and its subsidiaries, if any, as at the end of such fiscal year, and
audited consolidated statements of income and cash flows of the Company and its
subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles consistently applied, all in reasonable detail
and prepared by accountants of nationally recognized standing;

     (b) At least thirty (30) days prior to the end of each fiscal year of the
Company, an annual operating budget and updated business plan of the Company;
and

     (c) As soon as practicable after the end of the first, second, and third
quarterly accounting periods in each fiscal year of the Company, and in any
event within forty-five (45) days thereafter, an unaudited consolidated balance
sheet of the Company and its subsidiaries, if any, as of the end of each such
quarterly period, and unaudited consolidated statements of income and cash flows
of the Company and its subsidiaries for such period and for the current fiscal
year to date, prepared in accordance with generally accepted accounting
principles

                                       16
<PAGE>

consistently applied, subject to changes resulting from normal year-end audit
adjustments, all in reasonable detail and certified by the principal financial
or accounting officer of the Company, except that such financial statements need
not contain the notes required by generally accepted accounting principles.

     2.2   Inspection. The Company shall permit each Investor that holds at
           ----------
least 150,000 shares of Registrable Securities, at such Investor's expense and
upon forty-eight hours prior notice, to visit and inspect the Company's
properties, to examine its books of account and records and to discuss the
Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by the Investor; provided, however, that
the Company shall not be obligated pursuant to this Section 2.2 to provide
access to any information that it reasonably considers to be a trade secret or
similar confidential information.

     2.3  Right of First Offer. The Company hereby grants to each Investor the
          --------------------
right of first offer to purchase a pro rata share of New Securities (as defined
in this Section 2.3) which the Company may, from time to time, propose to sell
and issue. An Investor's pro rata share, for purposes of this right of first
offer, is the ratio of (i) the sum of (x) the number of shares of Common Stock
owned by such Investor immediately prior to the issuance of New Securities,
assuming full conversion of the Shares, and (y) the shares issuable upon
exercise of the Investor Warrants owned by such Investor, to (ii) the sum of the
total number of shares of Common Stock outstanding immediately prior to the
issuance of New Securities, assuming full conversion of the Shares and exercise
of all outstanding rights, options and warrants to acquire Common Stock of the
Company, and the 2,211,900 shares currently reserved for issuance under options
that may be granted in the future under the Company's director-approved stock
option/stock issuance plan. Each Investor shall have a right of over-allotment
such that if any Investor, or any other securities holder of the Company with
rights of first offer to purchase New Securities, fails to exercise its right
hereunder or under any other agreement with the Company to purchase its pro rata
share of New Securities, the other Investors may purchase the non-purchasing
Investor's or other securities holder's portion on a pro rata basis within five
(5) days from the date of notice of such failure to exercise provided by the
Company such non-purchasing Investor or other securities holder fails to
exercise its right to purchase its pro rata share of New Securities. This right
of first offer shall be subject to the following provisions:

     (a) "New Securities" shall mean any capital stock (including Common Stock
and/or Preferred Stock) of the Company whether now authorized or not, and
rights, options or warrants to purchase such capital stock, and securities of
any type whatsoever that are, or may become, convertible into capital stock;
provided, that the term "New Securities" does not include (i) securities
--------
purchased under the Series D Purchase Agreement; (ii) securities issued or
issuable upon the conversion or exercise of currently outstanding options,
warrants, rights or other convertible or exercisable securities (including,
without limitation, upon conversion or exercise of the Shares, the Series B
Preferred Stock, the Series B Warrants and the Investor Warrants); (iii)
securities issued pursuant to any acquisition by the Company of another business
entity or business segment of any such entity by merger, purchase of assets or
otherwise, or pursuant to any other business combination, or in connection with
any joint venture or other corporate partnering transaction, in each such case,
so long as such issuance has been approved by the Board of Directors of the
Company; (iv) any warrants issued pursuant to contractual obligations of the
Company existing on the date of this Agreement; (v) any borrowings or guarantees

                                       17
<PAGE>

thereof, direct or indirect, from financial institutions or other persons by the
Company, whether or not presently authorized, including any type of loan or
payment evidenced by any type of debt instrument; (vi) any warrants, options or
similar rights issued to financial institutions, other lenders or guarantors in
connection with borrowings or commitments or agreements therefor, whether or not
involving present borrowings, or to a lessor, guarantor or other person in
connection with obtaining lease financing, provided that such issuance is
approved by the Company's Board of Directors and does not have equity financing
as its principal purpose; (vii) up to 2,211,900 shares of Common Stock issuable
after the date of this Agreement to employees, consultants, officers or
directors of the Company pursuant to any stock option, stock purchase or stock
bonus plan, agreement or arrangement for the primary purpose of soliciting or
retaining such persons' services; (viii) securities issued to vendors or
customers or to other persons in similar commercial situations with the Company
if such issuance is approved by the Board of Directors and is for other than
primarily equity financing purposes; (ix) Common Stock issued in a Qualified IPO
in which all Preferred Stock converts into Common Stock; and (x) securities
issued in connection with any stock split, stock dividend or recapitalization of
the Company.

     (b) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Investor written notice of its intention,
describing the type of New Securities, and their price and the general terms
upon which the Company proposes to issue the same. Each Investor shall have
twenty (20) days after any such notice is mailed or delivered to agree to
purchase such Investor's pro rata share of such New Securities for the price and
upon the terms specified in the notice by giving written notice to the Company
and stating therein the quantity of New Securities to be purchased.

     (c) In the event the Investors fail to exercise fully the right of first
offer within such twenty (20) day period and after the expiration of the five
(5) day period for the exercise of the over-allotment provisions of this Section
2.2, the Company shall have ninety (90) days thereafter to sell or enter into an
agreement (pursuant to which the sale of New Securities covered thereby shall be
closed, if at all, within ninety (90) days from the date of such agreement) to
sell the New Securities respecting which the Investors' right of first offer
option set forth in this Section 2.2 was not exercised, at a price and upon
terms no more favorable to the purchasers thereof than specified in the
Company's notice to the Investors pursuant to Section 2.2(b). In the event the
Company has not sold within such ninety (90) day period or entered into an
agreement to sell the New Securities in accordance with the foregoing within
ninety (90) days from the date of such agreement, the Company shall not
thereafter issue or sell any New Securities, without first again offering such
securities to the Investors in the manner provided in Section 2.2(b) above.

     (d) The right of first offer granted under this Agreement shall expire
upon, and shall not be applicable to, the first sale of Common Stock of the
Company to the public effected pursuant to a registration statement filed with,
and declared effective by, the Commission under the Securities Act in which all
classes of Preferred Stock are converted into shares of the Company's Common
Stock.

     (e) The right of first offer set forth in this Section 2.2 may not be
assigned or transferred, except that such right shall be assignable by each
Investor to any affiliate of such Investor (within the meaning of the Securities
Act) or to any constituent partner, limited partner, shareholder or retired
partners of such Investor; provided, however, that no such assignment or
                           --------  -------

                                       18
<PAGE>

transfer shall be permitted except in connection with the sale or transfer of at
least 150,000 Shares (as presently constituted and subject to subsequent
adjustments for stock splits, stock dividends, reverse stock splits, and the
like) (or, if less, all of the Shares held by such Investor), to the proposed
assignee or transferee of such right, provided that the Company is given written
notice at the time of or within a reasonable time after such transfer or
assignment, stating the name and address of the transferee or assignee and
identifying the Shares with respect to which such right of first offer is being
transferred or assigned and provided, further, that the proposed assignee or
transferee is an "accredited investor" (as defined in Regulation D under the
Securities Act) and provides the Company, upon request, with written
certification of its qualifications as a permitted assignee under this Section
2.2(e).

     (f) In the event that Investors holding, in the aggregate, at least two
thirds (2/3rds) of the Shares shall waive their rights under this Section 2.2,
such waiver shall be binding upon all Investors; provided, however, that if
                                                 --------  -------
an Investor is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, such waiver shall only be effective as to such
Investor if executed by it.

     2.4   Board of Directors. Until the time of effectiveness of a Qualified
           ------------------
IPO in which all shares of Preferred Stock convert into Common Stock, the
parties agree to take all appropriate actions such that the Company shall fix
and maintain a Board of Directors of no more than nine persons. The makeup of
the Board of Directors immediately following the Closing under the Series D
Purchase Agreement shall be Mark Urdahl, Sada Cumber, Albert Edgar, Laura
Kilcrease (such person being referred to as the "Interim Director"), Terrence
Rock, Charles Phipps, Harvey B. Cash, Richard Kimball (as the designee of the
holders of the Series D Preferred Stock) and Mike Wilkes. All holders of Series
D Preferred Stock hereby agree that entities affiliated with Technology
Crossover Ventures ("TCV") shall be entitled to designate one person to serve as
a member of the Board of Directors and agree to vote their Shares in favor of
the election of such person (and for any successor or replacement) so long as
TCV and its affiliates continue to own at least seventy five percent (75%) of
the shares of Series D Preferred Stock purchased by TCV and its affiliates under
the Series D Purchase Agreement. All holders of Series C Preferred Stock hereby
agree that CenterPoint Venture Partners ("CenterPoint") shall be entitled to
designate two persons, and InterWest Partners ("InterWest") shall be entitled to
designate one person, to serve as members of the Board of Directors and agree to
vote their Shares in favor of the election of such persons (and for any
successors or replacements) so long as CenterPoint or InterWest, respectively,
and their respective affiliates continue to own at least a majority of the
shares of Series C Preferred Stock purchased by CenterPoint and InterWest and
their respective affiliates under the Series C Purchase Agreement. The parties
agree to work cooperatively to identify a replacement director of recognized
standing in the Company's industry as soon as practicable after the date hereto
and the Key Employee Stockholders agree to use their respective best efforts to
cause such replacement director to be elected to the Board of Directors in
replacement of the Interim Director, as soon as practicable thereafter. Such
replacement director shall serve on the Board of Directors in accordance with
the Fourth Restated Certificate of Incorporation and Bylaws. Each Director shall
be entitled to reimbursement of reasonable expenses incurred by him or her in
connection with attending meetings of the Board of Directors.

                                       19
<PAGE>

     2.5  Qualified Small Business Stock.  In the event that the Company
          ------------------------------
proposes to act or engage in a transaction that would be reasonably expected to
result in the termination or impairment of the Company's capital stock status as
"qualified small business stock" as set forth in Section 1202(c) of the Internal
Revenue Code of 1986, as amended (the "Code"), the Company shall notify the
Investors and consult in good faith to devise a mutually agreeable and
reasonable alternative transaction structure that would preserve such status. In
addition, the Company shall submit to the Investors and to the Internal Revenue
Service any reports that may re required under Section 1202(d)(1)(c) of the Code
and any related Treasury Regulations. In addition, within twenty (20) days after
any Investor has delivered to the Company a written request therefor, the
Company shall deliver to such Investor a written statement informing the
Investor whether such Investor's interest in the Company constitutes "qualified
small business stock" as defined in Section 1202 (c) of the Code; provided,
                                                                  ---------
however, that an Investor shall only be entitled to make one such request in any
-------
twelve (12) month period at the expense of the Company and any expenses directly
related to fulfilling any additional request within such twelve (12) month
period shall be borne by the Investor making such request with the estimated
amount of such expenses (based on such expenses incurred to fulfill prior
requests) being payable in advance to the Company by the Investor. The Company's
obligation to furnish a written statement pursuant to this Section 2.5 shall
continue notwithstanding the fact that a class of the Company's stock may be
traded on an established securities market.

     2.6  Termination of Covenants. The covenants set forth in this Section 2
          ------------------------
(except for Section 2.5) shall terminate and be of no further force and effect
after the time of effectiveness of the registration statement for the Company's
Qualified IPO in which all shares of Preferred Stock will convert into Common
Stock upon the consummation thereof.

                                   SECTION 3
                                   ---------

                                 Miscellaneous
                                 -------------

     3.1  Governing law.  This Agreement shall be governed in all respects by
          -------------
the laws of the State of Delaware, as if entered into by and between Delaware
residents exclusively for performance entirely within Delaware.

     3.2  Successors and Assigns. Except as otherwise expressly provided herein,
          ----------------------
the provisions hereof shall inure to the benefit of and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.

     3.3  Entire Agreement Amendment: Waiver. This Agreement (including the
Exhibits hereto) constitutes the full and entire understanding and agreement
between the parties with regard to the subject matter hereof and supersedes all
prior agreements, including, but not limited to, the Original Agreement which is
hereby terminated and of no further force or effect. Neither this Agreement nor
any term hereof may be amended, waived, discharged or terminated, except by a
written instrument signed by the Company, the holders of at least two thirds
(2/3rds) of the Series C Preferred Stock and the holders of at least two thirds
(2/3rds) of the Series D Preferred Stock (and, in the case of an amendment,
waiver, discharge or termination of the rights of Key Employee Stockholders
adverse in a manner different from the affect on the Holders under Section 1.3
hereof, at least a majority of the Key Employee Shares) and any such amendment,

                                       20
<PAGE>

waiver, discharge or termination shall be binding on all the Holders and Key
Employee Stockholders, but in no event shall the obligation of any Holder or Key
Employee Stockholder hereunder be materially increased, except upon the written
consent of such Holder or Key Employee Stockholder, and in no event shall any
amendment or waiver be effective as to an Investor that is an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
unless consented to in writing by such Investor.

     3.4  Notices, etc.  All notices and other communications required or
          ------------
permitted hereunder shall be in writing and shall be sent by registered United
States mail, postage prepaid, or delivered personally by hand or nationally
recognized courier addressed (a) if to a Holder or Key Employee Stockholder, as
indicated on the list of Holders and Key Employee Stockholders attached hereto
as Exhibits A and B or at such other address as such Holder, Key Employee
Stockholder or permitted assignee shall have furnished to the Company in
writing, or (b) if to the Company, at 8920 Business Park Drive, Austin, Texas
78759, Attention: President, or at such other address as the Company shall have
furnished to each holder in writing. All such notices and other written
communications shall be effective (i) if mailed, five (5) days after mailing and
(ii) if delivered, upon delivery.

     3.5  Delays or Omissions.  No delay or omission to exercise any right,
          -------------------
power or remedy accruing to any Holder or Key Employee Stockholder, upon any
breach or default of the Company under this Agreement shall impair any such
right, power or remedy of such Holder or Key Employee Stockholder nor shall it
be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring, nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default therefore or thereafter occurring. All remedies, either under
this Agreement or by law or otherwise afforded to any Holder or Key Employee
Stockholder, shall be cumulative and not alternative.

     3.6  Rights; Separability.  Unless otherwise expressly provided herein, a
          --------------------
Holder's or Key Employee Stockholder's rights hereunder are several rights, not
rights jointly held with any of the other Holders or Key Employee Stockholders.
In case any provision of the Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

     3.7  Information Confidential.  Each Holder and Key Employee Stockholder
          ------------------------
acknowledges that the information received by such holder pursuant hereto may be
confidential and for its use only, and it will not use such confidential
information in violation of the Exchange Act or reproduce, disclose or
disseminate such information to any other person (other than to the general
partners of a Holder, or the affiliates of such general partners, limited
partners, or to the directors, employees or agents of a Holder having a need to
know the contents of such information, and its attorneys, or to the extent
required by any law, or any rule or regulation of a government agency or any
order or mandate of any court or similar judicial body), except in connection
with the exercise of rights under this Agreement, unless the Company has made
such information available to the public generally or such Holder or Key
Employee Stockholder is required to disclose such information by a governmental
body.

                                       21
<PAGE>

     3.8   Titles and Subtitles.  The titles of the paragraphs and
           --------------------
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.

     3.9   Counterparts.  This Agreement may be executed in any number of
           ------------
counterparts, each of which shall be an Original, but all of which together
shall constitute one instrument.

     3.10  Condition Precedent to Agreement.  This Agreement shall not bind or
           --------------------------------
grant rights to any Key Employee Stockholder who does not execute this
Agreement. In any such event all references to such person who is not bound
hereby shall be deleted herefrom, and such person shall not be considered a Key
Employee Stockholder for purposes of this Agreement but this Agreement shall
otherwise remain in effect.

                                       22
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Investors Rights Agreement effective as of the day and year first above
written.

                              Applied Science Fiction, inc.

                              By:
                                 ------------------------------
                                 Mark Urdahl,
                                 President and Chief Executive Officer

                                       23
<PAGE>

                              HOLDERS:
                              --------

                              TCV III (GP)

                              By: Technology Crossover Management III, L.L.C.,
                                  its General Partner

                              By:
                                 ----------------------------------
                                 Robert C. Bensky,
                                 Chief Financial Officer

                              TCV III, L.P.

                              By: Technology Crossover Management III, L.L.C.,
                                  its General Partner

                              By:
                                 ----------------------------------
                                 Robert C. Bensky,
                                 Chief Financial Officer

                              TCV III (Q), L.P.

                              By: Technology Crossover Management III, L.L.C.,
                                  its General Partner

                              By:
                                 ----------------------------------
                                 Robert C. Bensky,
                                 Chief Financial Officer

                              TCV III Strategic Partners, L.P.

                              By: Technology Crossover Management III, L.L.C.,
                                  its General Partner

                              By:
                                 ----------------------------------
                                 Robert C. Bensky,
                                 Chief Financial Officer

     [Signature page to amended and Restated Investors' Rights Agreement]

<PAGE>

                              AMERINDO INVESTMENT ADVISORS

                              By:

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

                              SELIGMAN COMMUNICATIONS AND
                                   INFORMATION FUND, INC.

                              By:  J. & W. Seligman & Co. Incorporated,
                                   its investment adviser

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

                              BEAGLE LIMITED

                              By:

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

                              ASF LLC

                              By:
                                  ----------------------------------
                                  Anthony B. Davis,
                                  General Partner

     [Signature page to Amended and Restated Investors' Rights Agreement]

<PAGE>

                              HAMBRECHT & QUIST CALIFORNIA

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

                              HAMBRECHT & QUIST EMPLOYEE
                                   VENTURE FUND, L.P. II

                              By:  H & Q Venture Management, L.L.C., its
                                   General Partner

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

                              ACCESS TECHNOLOGY PARTNERS, L.P.

                              By:  Access Technology Management, L.L.C., its
                                   General Partner

                              By:  H & Q Venture Management, L.L.C., its
                                   Managing Member

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

                              ACCESS TECHNOLOGY PARTNERS
                                   BROKERS FUND, L.P. II

                              By:  H & Q Venture Management, L.L.C., its
                                   General Partner

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

     [Signature page to Amended and Restated Investors' Rights Agreement]

<PAGE>

                              VF FAMILY PARTNERSHIP

                              By:
                                 -----------------------------------
                                 Gary D. Vollen,
                                 Partnership Manager

                              SCULLEY BROTHERS, LLC

                              By:
                                 ----------------------------------
                                 Arthur Sculley,
                                 General Partner

                              GROSVENOR SELECT LP

                              By:  Grosvenor Select Partners LLC, its General
                                   Partner

                              By:
                                 -----------------------------------
                                 Doug Dunnan,
                                 [Title]

     [Signature page to Amended and Restated Investors' Rights Agreement]

<PAGE>

                              INTERWEST PARTNERS VI, L.P.

                              By:  InterWest Management Partners VI,
                                   L.L.C., its General Partner

                              By:
                                 ------------------------------------
                                 Stephen Holmes,
                                 Managing Director

                              INTERWEST INVESTORS VI, L.P.

                              By:  InterWest Management Partners VI,
                                   L.L.C., its General Partner

                              By:
                                 -------------------------------------
                                 Stephen Holmes,
                                 Managing Director

     [Signature page to Amended and Restated Investors' Rights Agreement]

<PAGE>

                              SEVIN ROSEN FUND V, L.P.

                              By: SRB Associates V L.P., its General
                                  Partner

                              By:
                                  --------------------------------------
                                  John V. Jaggers,
                                  General Partner

                              SEVIN ROSEN V AFFILIATES FUND L.P.

                              By: SRB Associates V L.P., its General
                                  Partner

                              By:
                                  -----------------------------------------
                                  John V. Jaggers,
                                  General Partner

                              SEVIN ROSEN FUND VI L.P.

                              By: SRB Associates VI L.P., its General
                                  Partner

                              By:
                                  -----------------------------------------
                                  John V. Jaggers,
                                  General Partner

                              SEVIN ROSEN VI AFFILIATES FUND L.P.

                              By: SRB Associates VI L.P., its General
                                  Partner

                              By:
                                  -----------------------------------------
                                  John V. Jaggers,
                                  General Partner

     [Signature page to Amended and Restated Investors' Rights Agreement]

<PAGE>

                              TIMARK L.P.

                              By:
                                  -----------------------------------------
                                  Frank J. Marshall
                                  General Partner

                              KNCL ASSOCIATES LIMITED

                              By:
                                  -----------------------------------------
                                  Kent Fuka,
                                  General Partner

                              CROWN GROWTH PARTNERS, LP

                              By: Crown Partners LLC, its General Partner

                              By:
                                  -----------------------------------------
                                  David F. Bellet,
                                  General Partner

                              PARSON FINANCE LIMITED

                              By: Crown Advisors International Ltd, its
                                  Investment Manager

                              By:
                                  -----------------------------------------
                                  David F. Bellet,
                                  Chairman

     [Signature page to Amended and Restated Investors' Rights Agreement]
<PAGE>

                              INDIVIDUAL HOLDERS:

                                 -----------------------------------------
                                   Thomas Aschenbrenner

                                 -----------------------------------------
                                   Joseph Arsenio

                                 -----------------------------------------
                                   Harvey B. Cash

                                 -----------------------------------------
                                   Neil Cohen

                                 -----------------------------------------
                                   James Davidson

                                 -----------------------------------------
                                   Dietrich R. Erdmann

                                 -----------------------------------------
                                   Ken Hao

                                 -----------------------------------------
                                   Eugene Lowenthal

                                 -----------------------------------------
                                   Regis McKenna

                                 -----------------------------------------
                                   Benjamin Rosen

                                 -----------------------------------------
                                   L.J. Sevin

                                 -----------------------------------------
                                   Steven J. Wallach

     [Signature page to Amended and Restated Investors' Rights Agreement]
<PAGE>

                              KEY EMPLOYEE STOCKHOLDERS:

                              -----------------------------------------
                                 Mark Urdahl

                              -----------------------------------------
                                 Sada Cumber

                              -----------------------------------------
                                 Albert Edgar

                              -----------------------------------------
                                 Mark Bishop

                              -----------------------------------------
                                 Sheppard Parker

                              -----------------------------------------
                                 Mike Wilkes

                              -----------------------------------------
                                 Steven Penn

      [Signature page to Amended and Restated Investors' Rights Agreement]

<PAGE>

                              TRITON VENTURE PARTNERS, L.P.

                              By:  Triton Venture Management, LLC, its General
                                   Partner

                              By:
                                   -----------------------------------------
                                   Laura J. Kilcrease,
                                   Manager

    [Signature page to Amended and Restated Investors' Rights Agreement]

<PAGE>

                             GREENOVER GROUP L.P.

                              By: Greenover Managers, L.L.C., its General
                                  Partner

                              By:
                                  -----------------------------------------
                                  Kelley Williams, Jr.,
                                  General Partner

      [Signature page to Amended and Restated Investors' Rights Agreement]

<PAGE>

                              CENTERPOINT VENTURE PARTNERS L.P.

                              By:  Paluck Associates, L.P., its General Partner

                              By:
                                   -----------------------------------------
                                   Robert J. Paluck,
                                   General Partner

      [Signature page to Amended and Restated Investors' Rights Agreement]

<PAGE>

                                   EXHIBIT A
                                   ---------

                             SCHEDULE OF INVESTORS
                             ---------------------

<TABLE>
<CAPTION>
                                                        Shares of Series C        Shares of Series D
                 Name and Address                         Preferred Stock          Preferred Stock
---------------------------------------------------     ------------------        ------------------
<S>                                                   <C>                       <C>
TCV III (GP)                                                        --                   10,554
c/o Technology Crossover Management III, L.L.C.
Attn:  Robert C. Bensky
56 Main Street
Milburn, New Jersey  07041

and

CC:  Mike Linnert
575 High Street, Suite 400
Palo Alto, California 94301

TCV III, L.P.                                                       --                   50,132
c/o Technology Crossover Management III, L.L.C.
Attn:  Robert C. Bensky
56 Main Street
Milburn, New Jersey  07041

and

CC:  Mike Linnert
575 High Street, Suite 400
Palo Alto, California 94301

TCV III (Q), L.P.                                                   --                1,332,462
c/o Technology Crossover Management III, L.L.C.
Attn:  Robert C. Bensky
56 Main Street
Milburn, New Jersey  07041

and

CC:  Mike Linnert
575 High Street, Suite 400
Palo Alto, California 94301
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                        Shares of Series C        Shares of Series D
                 Name and Address                         Preferred Stock           Preferred Stock
---------------------------------------------------     ------------------        ------------------
<S>                                                   <C>                       <C>

TCV III Strategic Partners, L.P.                                   --                   60,341
c/o Technology Crossover Management III, L.L.C.
Attn:  Robert C. Bensky
56 Main Street
Milburn, New Jersey  07041

and

CC:  Mike Linnert
575 High Street, Suite 400
Palo Alto, California 94301

ATGF II                                                            --                  205,174
Attn:  Marc Weiss
399 Park Avenue
18th Floor
New York, New York  10022

Litton Master Trust                                                --                  179,923
Attn:  Marc Weiss
399 Park Avenue
18th Floor
New York, New York  10022

Marc Weiss                                                         --                    2,499
399 Park Avenue
18th Floor
New York, New York  10022

J.W. Seligman                                                      --                  387,595
Attn:  Paul Goucher
100 Park Avenue
New York, New York  10017

Beagle Limited                                                     --                  193,798
Attn:  Victor Cunningham
1 West 67th Street
Suite 101
New York, New York  10023

Triton Venture Partners, L.P.                                      --                  183,075
Attn:  Laura Kilcrease
1301 W. 25th Street
Suite 300
Austin, Texas  78705
</TABLE>

                                      A-2

<PAGE>

<TABLE>
<CAPTION>

                                                        Shares of Series C        Shares of Series D
                 Name and Address                         Preferred Stock           Preferred Stock
---------------------------------------------------     ------------------        ------------------
<S>                                                   <C>                       <C>

ASF LLC                                                              --                   96,899
Attn:  Joe Tate
2119 E. 30th Place
Tulsa, Oklahoma  74114

Hambrecht & Quist California                                         --                    6,298
Attn:  Michael Beblo
One Bush Street
San Francisco, California  94104

Hambrecht & Quist Employee Venture Fund, L.P. II                     --                    2,422
Attn:  Michael Beblo
One Bush Street
San Francisco, California  94104

Access Technology Partners, L.P.                                     --                   51,034
c/o Hambrecht & Quist
Attn:  Michael Beblo
One Bush Street
San Francisco, California  94104

Access Technology Partners Brokers Fund, L.P.                        --                      565
c/o Hambrecht & Quist
Attn:  Michael Beblo
One Bush Street
San Francisco, California  94104

VF Family Partnership                                                --                      689
c/o Hambrecht & Quist
Attn:  Michael Beblo
One Bush Street
San Francisco, California  94104

Kenneth Hao                                                          --                      689
c/o Hambrecht & Quist
Attn:  Michael Beblo
One Bush Street
San Francisco, California  94104

Joseph Arsenio                                                       --                      689
c/o Hambrecht & Quist
Attn:  Michael Beblo
One Bush Street
San Francisco, California  94104
</TABLE>

                                      A-3

<PAGE>

<TABLE>
<CAPTION>

                                                        Shares of Series C        Shares of Series D
                 Name and Address                         Preferred Stock           Preferred Stock
---------------------------------------------------     ------------------        ------------------
<S>                                                   <C>                       <C>

James Davidson                                                  --                    2,218
c/o Hambrecht & Quist
Attn:  Michael Beblo
One Bush Street
San Francisco, California  94104

Sculley Brothers                                                --                   64,599
Attn:  Arthur Sculley
90 Park Avenue
32nd Floor
New York, New York  10016

Neil Cohen                                                      --                   32,300
10501 Rhode Island Avenue
Beltsville, Maryland  20705

Greenover Group L.P.                                            --                   32,300
Attn:  Kelley Williams, Jr.
4418 Hickory Ridge
Jackson, Mississippi  39211

Grosvenor Select Partners LLC                                   --                   32,300
Attn:  Bruce Dunnan
1717 Pennsylvania Avenue, N.W.
Suite 225
Washington, D.C.  20006

CenterPoint Venture Partners, L.P.                         594,595                  258,398
Attn:  Robert J. Paluck
Two Galleria Tower
13455 Noel Road, Suite 1670
Dallas, Texas 75240

InterWest Partners VI, L.P.                                393,407                  250,543
Attn:  Stephen Holmes
Building 3, Suite 255
3000 Sand Hill Road
Menlo Park, California  94025

InterWest Investors VI, L.P.                                11,999                    7,855
Building 3, Suite 255
3000 Sand Hill Road
Menlo Park, California  94025
</TABLE>

                                      A-4

<PAGE>

<TABLE>
<CAPTION>

                                                        Shares of Series C        Shares of Series D
                 Name and Address                         Preferred Stock           Preferred Stock
---------------------------------------------------     ------------------        ------------------
<S>                                                   <C>                       <C>

Sevin Rosen Fund V L.P.                                          311,208                  123,902
Attn:  John Jaggers
Two Galleria Tower
13455 Noel Road, Suite 1670
Dallas, Texas 75240

Sevin Rosen V Affiliates Fund L.P.                                13,297                    5,297
Attn:  John Jaggers
Two Galleria Tower
13455 Noel Road, Suite 1670
Dallas, Texas 75240

Sevin Rosen Fund VI L.P.                                              --                  359,302
Attn:  John Jaggers
Two Galleria Tower
13455 Noel Road, Suite 1670
Dallas, Texas 75240

Sevin Rosen VI Affiliates Fund L.P.                                   --                   28,295
Attn:  John Jaggers
Two Galleria Tower
13455 Noel Road, Suite 1670
Dallas, Texas 75240

L.J. Sevin                                                        25,000                   32,300
Two Galleria Tower
13455 Noel Road, Suite 1670
Dallas, Texas 75240

Benjamin Rosen                                                    25,000                        0
One Central Park West
Apartment 43A
New York, New York  10023

Thomas H. Aschenbrenner                                           19,065                   18,605
6016 Oakcrest
Dallas, Texas 75248

Steven J. Wallach                                                  2,703                    3,230
7314 Wester Way
Dallas, Texas 75248

Eugene Lowenthal                                                   5,406                    4,522
9600 Crumley Ranch Road
Austin, Texas 78736
</TABLE>

                                      A-5

<PAGE>

<TABLE>
<CAPTION>

                                                         Shares of Series C       Shares of Series D
                 Name and Address                          Preferred Stock         Preferred Stock
------------------------------------------------         ------------------       ------------------
<S>                                                      <C>                      <C>
David Bellet                                                   13,513                        0
The Lincoln Building
Suite # 3405
60 East 42nd Street
New York, NY 10165

Crown Growth Partners, LP                                          --                   11,628
Attn:  David Bellet
The Lincoln Building
Suite # 3405
60 East 42nd Street
New York, NY 10165

Parson Finance Limited                                             --                    7,752
Attn:  David Bellet
The Lincoln Building
Suite # 3405
60 East 42nd Street
New York, NY 10165

Harvey B. Cash                                                 13,513                        0
c/o CenterPoint Venture Partners, L.P.
13455 Noel Road, Suite 1670
Dallas, Texas 75240

Dietrich R. Erdman                                             13,507                   13,175
c/o CenterPoint Venture Partners, L.P.
13455 Noel Road, Suite 1670
Dallas, Texas 75240

KNCL Associates Limited                                         2,441                        0
Kent Fuka, General Partner
10904 Low Bridge Lane
Austin, Texas 78750

Regis McKenna                                                  13,513                   13,178
c/o The McKenna Group
1755 Embarcadero Road
Palo Alto, California 94303

TIMARK, L.P.                                                   13,513                    3,230
Frank J. Marshall, General Partner
20100 Hill Ave.
Saratoga, California 95070
                                                            1,471,500                4,069,767
                                                            =========                =========
</TABLE>

                                      A-6
<PAGE>

                                   EXHIBIT B
                                   ---------

                       LIST OF KEY EMPLOYEE STOCKHOLDERS
                       ---------------------------------

<TABLE>
<CAPTION>

                                                                                              Shares of and
                                                                 Shares of and                 Warrants to
                                                               Options to Acquire            Purchase Series B
                 Name and Address                                 Common Stock                Preferred Stock
                 ----------------                                 ------------                ---------------

<S>                                                              <C>                         <C>
Mark Urdahl                                                       2,515,998                         9,734
c/o Applied Science Fiction, Inc.
8920 Business Park Drive
Austin, TX 78759-5321

Sada Cumber                                                       1,616,001                            --
c/o Applied Science Fiction, Inc.
8920 Business Park Drive
Austin, TX 78759-5321

Dr. Albert Edgar                                                  2,515,998                         4,867
c/o Applied Science Fiction, Inc.
8920 Business Park Drive
Austin, TX 78759-5321

Mark Bishop                                                         716,001                         4,542
c/o Applied Science Fiction, Inc.
8920 Business Park Drive
Austin, TX 78759-5321

Sheppard Parker                                                     716,001                            --
c/o Applied Science Fiction, Inc.
8920 Business Park Drive
Austin, TX 78759-5321

Mike Wilkes                                                         716,001                            --
c/o Applied Science Fiction, Inc.
8920 Business Park Drive
Austin, TX 78759-5321
</TABLE>

                                      B-1<PAGE>

                                                                    EXHIBIT 10.5

                                 BALCONES NORTH

                                 OFFICE BUILDING

                             OFFICE LEASE AGREEMENT

                                 LEASE AGREEMENT
                                 BY AND BETWEEN
                         RGK RENTALS, LTD., AS LESSOR
                                       AND
                          APPLIED SCIENCE FICTION, INC
                                    AS LESSEE

                                 March 19, 1998
<PAGE>

                                 LEASE AGREEMENT

STATE OF TEXAS    )
                  )
                  )    KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF TRAVIS  )

     1. PARTIES. This Lease Agreement (the "Lease") is made and entered into by
and between RGK RENTALS, LTD., a Texas limited partnership (hereinafter
referred to as the "Lessor") and APPLIED SCIENCE FICTION, INC., a Delaware
corporation (hereinafter referred to as "Lessee").

     2. LEASED PREMISES. In return for the consideration, covenants and
agreements hereinafter set forth to be paid, observed and/or performed by
Lessee, Lessor hereby demises and lets unto Lessee, and Lessee does hereby lease
from Lessor, that certain real property and improvements including an
approximately 53,984 rentable square foot building (the "Building") together
with the related parking, driveways and landscaped areas, locally known as 8920
Business Park Drive in Austin, Travis County, Texas, legally described as Lot 1,
Block A, North Crossing Subdivision, Section I-B, City of Austin, recorded at
Volume 80, Page 286 of the Plat Records of Travis County, Texas (all of which is
hereinafter collectively referred to as the "Leased Premises") indicated on the
Site Plan attached hereto as Exhibit A.

     3. TERM, RENEWAL AND CANCELLATION. The term of this Lease shall commence on
April 1, 1998, ("Commencement Date") and shall end on March 31, 2003 (the
"Term"). Lessee shall have two (2) two-year renewal options at then market
rates. Market rates shall be governed by Exhibit D attached hereto. In the event
Lessee desires to exercise such option to renew this Lease, Lessee shall give
Lessor 180 days prior written notice of such exercise. After the first thirty-
six (36) months of this Lease, Lessee shall have the right to cancel the Lease
by giving Lessor one-hundred and eighty (180) days written notice and by paying
Lessor Two Hundred and Fifty Thousand Dollars ($250,000) plus the then
unamortized portion of the cost of Lessor's Allowance for Improvements (as
defined in paragraph 22 herein) and brokerage fees. Any sublease agreements,
pursuant to paragraph 18 below, shall contain appropriate cancellation
provisions, reflecting Lessee's right to terminate this Lease contained in this
Paragraph 3.

/s/                                       /s/
----------------------------------        -------------------------------------
Lessor                                                                  Lessee

                                       1
<PAGE>

     4. COMMENCEMENT OF LESSEE'S POSSESSION. On March 20, 1998, Lessee has
possession of the Leased Premises subject to all the terms of this Lease, with
the exception of the payment of rent which will commence on April 1, 1998, as
more fully described below.

     5.   RENTAL PAYMENTS.

     (a) Commencing on the Commencement Date and continuing throughout the Term,
Lessee hereby agrees to pay the Base Rental as described in paragraph 6, plus
Forecast Additional Rental and Additional Rental as descfibed in paragraph 7.
The Base Rental and Forecast Additional Rental shall be due and payable in equal
installments on the first day of each calendar month during the Term and any
renewals or extensions thereof, and Lessee hereby agrees to make such payments
monthly in advance to Lessor at Lessor's address as provided herein (or such
other address as may be designated by Lessor from time to time).

     (b) If the Term commences or terminates on other than the first day of a
calendar month or terminates on other than the last day of a calendar month,
then the installments of Base Rental and Forecast Additional Rental for such
month or months shall be prorated and the installment or installments so
prorated shall be paid in advance. The payment for such prorated month shall be
calculated by multiplying the monthly installment by a fraction, the numerator
of which shall be the number of days of the Term occurring during said
commencement or termination month, as the case may be, and the denominator of
which shall be the total number of days occurring in said commencement or
termination month. Also, if the Term commences or terminates on other than the
first day of a calendar year, Additional Rent shall be prorated for such
commencement or termination year, as the case may be, by multiplying each by a
fraction, the numerator of which shall be the number of days of the Term during
the commencement or termination year, as the case may be, and the denominator
of which shall be 365.

     (c) Lessee shall pay all rent and other sums of money as they shall become
due and payable to Lessor under this Lease at the time and in the manner
provided herein, without demand, set-off or counterclaims. At Lessor's option,
Lessee shall pay (i) five percent (5%) of the monthly rent (including Base
Rental, Forecast Additional Rental and all other sums owed by Lessee to Lessor
under the provisions this Lease), if same are not fully paid within ten (10)
days of the due date as specified herein, or (ii) $25.00 per day from due date
(if not paid within ten (10) days of due date) until all sums due, including
late charges, are paid in full. The parties hereby agree that such charges
represent a fair and reasonable estimate of expenses Lessor

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Lessor                                                                  Lessee

                                       2
<PAGE>

would incur by reason of Lessee's late payments. Acceptance of such late charge
by Lessor shall neither constitute a waiver of Lessee's default nor, in the
event of Lessee's default, shall it prevent Lessor from exercising any rights or
remedies specified herein or otherwise.

     6. BASE RENTAL. (Beginning on April 1, 1998, Lessee shall pay to Lessor a
monthly rental (the "Base Rental") as follows:

April 1, 1998       until   September 30, 1998   $20,625.00 per month
October 1, 1998     until   December 31, 1998    $35,291.67 per month
January 1, 1999     until   March 31, 1999       $49,485.33 per month
April 1, 1999       until   March 31, 2000       $58,482.67 per month
April 1, 2000       until   March 31, 2002       $62,981.33 per month
April 1, 2002       until   March 31, 2003       $71,978.67 per month

     7.   ADDITIONAL RENTAL.

     (a) Beginning on the Commencement Date and continuing thereafter for each
calendar year during the Term, Lessor shall present to Lessee, prior to the
beginning of said period, a statement of Forecast Additional Rental. Lessee
shall pay Forecast Additional Rental in equal monthly installments in advance.
"Forecast Additional Rental" shall mean Lessor's reasonable estimate of
Additional Rental. Lessee shall be liable also for any Additional Rental.

     (b) The term "Additional Rental" shall mean Lessor's Actual Operating
Expenses (defined below in paragraph 8) for the Leased Premises incurred during
each calendar year.

     (c) By April 1 of each year during the Term, or as soon as possible
thereafter, Lessor shall provide Lessee a statement showing the Actual
Operating Expenses for the twelve-month period then ended, and a statement
prepared by Lessor comparing Forecast Additional Rental with Additional Rental.
In the event that Forecast Additional Rental exceeds Additional Rental for said
calendar year, Lessor shall pay Lessee (in the form of a credit against rentals
next due) an amount equal to such excess. In the event that the Additional
Rental exceeds Forecast Additional Rental for said calendar year, Lessee shall
pay Lessor, within thirty (30) days of receipt of the statement, an amount equal
to such difference. The calculation described in this paragraph 6(c) shall be
made as soon as possible after the termination of the Lease, and all provisions
of this Lease relating to said calculation shall survive the termination of this
Lease.

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Lessor                                                                  Lessee

                                       3
<PAGE>

     8. LESSOR'S ACTUAL OPERATING EXPENSES. Lessor shall pay all of Lessor's
"Actual Operating Expenses," which term shall include solely the following:

     (a) Ad valorem taxes for the Leased Premises.

     (b) Casualty insurance on the Leased Premises to be carried by Lessor as
described in paragraph 12 below.

     9. LESSEE'S OPERATING EXPENSES. Lessee is responsible for paying when due
Lessee's Operating Expenses for the Leased Premises. The term "Lessee's
Operating Expenses" shall mean the aggregate all of operating and maintenance
expenses incurred by Lessor or Lessee in connection with the Leased Premises,
other than Lessor's Actual Operating Expenses, and shall include without
limitation the following:

     (a) The cost of all wages, salaries and any ancillary expenses of all
employees actually engaged in operation and maintenance of the Leased Premises,
including taxes, insurance and benefits relating thereto.

     (b) The cost of all supplies and material used in operation and
maintenance of the Leased Premises.

     (c) The cost of all utilities, including but not limited to electric, gas,
water, heating, lighting, air conditioning and ventilation of the Building.

     (d) The cost of all maintenance, service and operating agreements for the
Leased Premises and related equipment, including but not limited to security
service, window cleaning, elevator maintenance and janitorial service.

     (e) The gross cost of liability insurance applicable to the Leased Premises
and Lessor's personal property used in connection therewith; excluding however
cost of casualty insurance on the Building included in Lessor's Actual Operating
Expenses.

     (f) The cost of all taxes and assessments and governmental charges whether
federal, state, county or municipal, whether they be by taxing district or
authorities presently taxing the Leased Premises or by others, subsequently
created or otherwise, and any other taxes and assessments attributable to the
Leased Premises or its operator and maintenance or its operation,

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Lessor                                                                  Lessee

                                       4
<PAGE>

excluding only Lessor's federal and state taxes on income, franchise tax and
inheritance tax. Lessee will be responsible for all ad valorem taxes on its
personal property and on the Leased Premises not covered by Lessor's Actual
Operating Expenses as described above. If any such taxes, assessments or charges
are paid by Lessor, Lessee will reimburse Lessor therefor, upon Lessor's demand
accompanied by a supporting statement setting forth Lessor's reasonable
calculation of the amount of such taxes chargeable to the Leased Premises.

     (g) The cost of repairs, replacements and maintenance on or of the Leased
Premises (excluding repairs to the structure, foundation and the exterior walls
of the Building or replacement of the roof membrane). Lessee's obligation to
maintain, repair and make replacements to the Leased Premises shall cover, but
not be limited to, pest control (including termites), roof repairs, trash
removal and the maintenance, repair and replacement of all window glass, HVAC,
electrical, plumbing, fire and security and other mechanical systems.

     (h) The cost of expenditures, capital or otherwise, made for the specific
purpose of installing equipment, devices or materials intended to reduce
operating expenses of the Building if required by law or regulation of a
governmental authority.

     (i) The cost of landscaping and any other costs necessary to maintain the
Leased Premises in a first class condition.

     10. SECURITY DEPOSIT. Upon the execution of this Lease, Lessee shall pay
Lessor a security deposit in the amount of Three Hundred Thousand Dollars
($300,000) as security for Lessee's full performance of all the provisions of
this Lease. If Lessee fails to pay rent or otherwise defaults with respect to
any provision of this Lease, Lessor may use, apply or retain all or any portion
of the security deposit for the payment of Base Rent, Additional Rent, or any
other charge in default, or for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor for
any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies
all or any portion of the security deposit, Lessee must within five days after
written demand, deposit cash with Lessor in any amount sufficient to restore the
security deposit to the original amount and Lessee's failure to do so is a
material breach of this Lease. The security deposit shall be placed in an
interest bearing account or other instruments chosen by Lessee in Lessor's name
at a bank chosen by Lessee. If Lessee performs all of Lessee's obligations
hereunder, the security deposit, or as much thereof as has not been applied by
Lessor shall be returned to Lessee with accrued interest. At the end of the

/s/                                       /s/
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Lessor                                                                  Lessee

                                       5
<PAGE>

twenty-fourth month of this lease, so long as Lessee has paid all Base Rental
and Additional Rental amounts on or before the due date each month, Lessor will
refund $75,000 of Lessee's security deposit. At the end of the thirty-sixth
month of this lease, so long as Lessee has paid all Base Rental and Additional
Rental amounts on before the due date each month, Lessor will refund $50,000 of
Lessee's security deposit plus one-half of the accrued interest on Lessee's
security deposit. At the end of the forty-eighth month of this lease, so long as
Lessee has paid all Base Rental and Additional Rental amounts on or before the
due date each month, Lessor will refund $50,000 of Lessee's security deposit
plus one-half of the accrued interest over the last twelve months. Lessee will
request in writing any refunds of its security deposit. Lessee's security
deposit shall never drop below $150,000.

     11. LESSEE'S DUTIES.

     (a) Use of Leased Premises. The Leased Premises are to be used and occupied
by the Lessee solely for the purpose of general office, engineering labs and
computer rooms and for no other purpose without the prior written consent of
Lessor, which consent shall not be unreasonably withheld. Lessee agrees not to
commit or suffer to be committed on the Leased Premises any nuisance or other
act or thing against public policy or which violates any law or governmental
regulation or which is disreputable or which may disturb the quiet enjoyment of
any sublease of the Building. Lessee will not use, occupy, or permit the use or
occupancy of the Leased Premises for any unlawful, disreputable, immoral, or
hazardous purpose, or maintain or permit the maintenance of any public or
private nuisance, or keep any substance or carry on or permit any operation
which might emit offensive odors into other portions of the Building or permit
anything to be done which would increase the fire insurance rate of the Building
or contents or which could lead to the cancellation of the fire insurance
coverage.

     (b) Condition of the Leased Premises. Lessee shall not damage the Leased
Premises and will maintain the Leased Premises in a clean, attractive condition
and in good repair, ordinary wear and tear excepted. Upon termination of this
Lease, Lessee will surrender and deliver up the Leased Premises in good order
and repair and in the same condition as upon the Commencement Date of this
Lease, ordinary wear and tear excepted.

     (c) Compliance with Laws. Lessee will comply with all applicable federal,
state, municipal and other laws, ordinances, rules, and regulations applicable
to the Leased Premises and to the business conducted therein by Lessee,
including without limitation the American's

/s/                                       /s/
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Lessor                                                                  Lessee

                                       6
<PAGE>

with Disabilities Act (collectively, "Applicable Laws"). Within fourteen (14)
days of receipt, Lessee shall forward to Lessor copies of any notices received
from any governmental authority regarding noncompliance with any Applicable
Laws. Lessor represents and warrants to Lessee, that to the best of Lessor's
knowledge, that at the commencement of the Lease, the Leased Premises are in
compliance with all applicable laws.

     (d) Liens. Lessee shall allow no liens to be filed against the Leased
Premises, or any part thereof, and shall promptly cause the release any liens
that are filed against the Leased Premises, or any part thereof

     (e) Alterations, Addition and Improvements. Lessee covenants and agrees not
to permit the Leased Premises to be used for any purpose other than that stated
in paragraph 10(a) hereof, or make or allow to be made any alterations or
physical additions in or to the Leased Premises, or place on the Leased Premises
any signs visible from outside the Leased Premises, or place any safes or vaults
(whether movable or not) upon or in the Leased Premises, without first obtaining
the written consent of Lessor. All plans and drawings pertaining to buildout or
remodeling of the Building exterior, corridors or core, shall first be submitted
to Lessor for review and reasonable determination of Lessor's approval or
disapproval. Remodeling and buildout of the general office and lab areas are
excluded from Lessor review. Within 7 days of any and all remodeling, Lessee
will provide Lessor an electronic file and blue line drawing of changes to the
as-built of the Building. Any and all such alterations, physical additions, or
improvements made to the Leased Premises shall at once become the property of
Lessor and shall be surrendered to Lessor upon the termination of this Lease,
whether by lapse of time or otherwise; however, this clause shall not apply to
movable equipment or furniture owned by Lessee, provided no damage is caused to
the Leased Premises by the removal thereof If not in default at the termination
of this Lease, Lessee may remove all such fixtures, equipment, decoration,
furniture or other such items installed by Lessee. Any damage occasioned and
caused by the installation or removal of such fixtures and equipment shall be
repaired at Lessee's expense. Upon written request by Lessor, Lessee shall
remove all such furniture and equipment and repair the damage caused by the
removal of same. In the event Lessee does not remove such fixtures, equipment
and other installed items, Lessor shall have the right to remove the same and to
repair any damage caused by such removal, and Lessee shall be obligated to pay
the cost of such removal and repair.

/s/                                       /s/
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Lessor                                                                  Lessee

                                       7
<PAGE>

     (f) Rules and Regulations. Lessee shall comply with the Rules and
Regulations of the Building provided in Exhibit B attached hereto and made a
part hereof. Lessor reserves the right from time to time, after consultation
with Lessee and upon written notice to Lessee, to make such changes, additions
or amendments to the Rules and Regulations as it may deem necessary or
advisable. Lessor shall have no liability to Lessee for any failure of any
sublessees or lessees of the Building to comply with such Rules and Regulations.

     (g) Operation. Lessee shall not place, install, or operate on the Leased
Premises or in any part of the Building any engine, refrigerating, heating or
air conditioning apparatus, stove, or machinery, or conduct mechanical
operations, or place or use in or about the Leased Premises any inflammable,
explosive, hazardous, or odorous solvents or materials without the prior written
consent of Lessor. No portion of the Leased Premises shall at any time be used
for cooking, residential quarters; provided, however, that Lessee may place
refrigerators and microwave ovens in the Building.

     (h) Repair and Maintenance. Lessee shall, at its own cost, repair/replace
any damage or injury done to the Leased Premises or any part thereof caused by
Lessee or Lessee's agents, contractors, employees, invitees, or visitors. If
Lessee fails promptly to make such repairs/replacements to the Leased Premises,
Lessor may make such repairs/replacement, and Lessee shall repay the cost of
such repairs/replacement plus ten percent (10%) thereof to Lessor on demand.

     (i)  Telephone System.

          (i) As part of this Lease, Lessor hereby leases to Lessee, the
existing telephone system "as is where is", including without limitation all
cabling, telephone switch, telephone instruments, voice mail system, network
cabling in the Building (collectively called the "Telephone System") as more
particularly described on Exhibit C attached hereto for all purposes. Lessee
may, at its own cost, add upgrades to the Telephone System at any time during
the Term. Any such upgrades shall become the property of Lessor and shall
remain with the Telephone System after departure of Lessee from the Leased
Premises.

          (ii) Lessee shall maintain and pay for telephone service provided by a
third party approved by Lessor. Any existing unexpired service agreements at the
commencement or

/s/                                       /s/
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Lessor                                                                  Lessee

                                       8
<PAGE>

termination of this Lease shall be paid in full by Lessee or shall be paid by
Lessor and reimbursed to Lessor by Lessee.

          (iii) Lessee must not sell, mortgage or part with possession or
control, or attempt to sell, mortgage or part with possession or control of the
Telephone System, except as provided in paragraph 18 hereof.

          (iv) Lessee may not pledge, encumber, create a security interest in,
or permit any lien to become effective on all or any portion of the Telephone
System. On the occurrence of any of these events, Lessee will be in default.
Lessee must promptly notify Lessor of any such liens, charges, or other
encumbrances of which Lessee has knowledge. Lessee must promptly pay or satisfy
any obligation from which any such lien or encumbrance arises. Lessee must
deliver to Lessor appropriate satisfactions, waivers, or evidence of payment of
any such lien or encumbrance.

          (v) On the expiration of the Term, or on any earlier termination of
this Lease, Lessee must return the Telephone System to Lessor in good repair,
condition and working order, normal wear and tear excepted. In addition, Lessee
will provide Lessor a complete and updated inventory of the Telephone System.

     (j) Signage. Lessee shall be allowed exterior signage on the Building
subject to Lessor and City of Austin design approval.

     (k) Lessor Access. Lessor shall have the right to enter upon and inspect
the Leased Premises following reasonable notice to Lessee in accordance with
paragraph 21(b).

     12. QUIET ENJOYMENT. So long as Lessee is not in default under the terms
and provisions of this Lease, Lessee shall peaceably hold and enjoy the Leased
Premises during the said term.

     13.  INSURANCE; INDEMNITY.

     (a) Lessee's Insurance. Lessee shall, at Lessee's expense, obtain and keep
in force during the term of this Lease:

/s/                                       /s/
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Lessor                                                                  Lessee

                                       9
<PAGE>

          (i) Comprehensive general liability insurance with broad form general
liability endorsement, in an amount of not less than $1,000,000 per occurrence
of bodily injury and property damage combined, or in a greater amount as
reasonably determined by Lessor, and shall insure Lessee with Lessor as an
additional insured against liability arising out of the use, occupancy or
maintenance of the Leased Premises. Compliance with the above requirement
shall not, however, limit the liability of Lessee hereunder.

          (ii) Worker's compensation coverage as required by law, together with
employer's liability coverage, with a limit of not less than $500,000.

          (iii) Fire and extended coverage insurance, with vandalism and
malicious mischief, in an amount sufficient to cover not less than 100% of the
full replacement cost, as the same may exist from time to time, of all Lessee's
personal property, fixtures, equipment, and tenant improvements.

     (b) Insurance Policies. Lessee shall deliver to Lessor copies of liability
insurance policies required under (a) above, or certificates evidencing the
existence and amounts of such insurance, within seven (7) days after the
Commencement Date. No such policy shall be cancelable or subject to reduction of
coverage or other modification except after thirty (30) days prior written
notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals thereof.

    (c) No Representation of Adequate Coverage. Lessor makes no representation
that the limits or forms of coverage of insurance specified in this Paragraph 13
are adequate to cover Lessee's property or obligations under this Lease.

    (d) Hazard Insurance. During the Lease term, Lessor shall maintain policies
of insurance covering loss of or damage to the Leased Premises in an amount
equal to 100% of the replacement value of the Building. Such policies shall
provide protection against all perils included within the classification of
fire, extended coverage, vandalism, malicious mischief, special extended perils
(all risk), and Inflation Guard endorsement, and any other perils (except flood
and earthquake, unless required by any lender holding a security interest in the
Leased Premises) which Lessor deems necessary.

/s/                                       /s/
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Lessor                                                                  Lessee

                                       10
<PAGE>

          (e) INDEMNITY. LESSEE SHALL INDEMNIFY AND HOLD HARMLESS LESSOR AND
LESSOR'S DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, GUESTS, INVITEES, AND LENDERS
FROM AND AGAINST ALL LOSSES, CLAIMS, COSTS, DAMAGE, LIABILITY OR EXPENSES,
INCLUDING BUT NOT LIMITED TO REASONABLE ATTORNEYS' FEES, ARISING OUT OF ANY AND
ALL INJURIES TO OR DEATH OF ANY PERSON OR DAMAGE TO ANY PROPERTY ARISING OUT OF
ANY OCCURRENCE ON OR IN THE PREMISES, INCLUDING THAT CAUSED BY THE NEGLIGENCE OF
LESSOR, BUT NOT TO THE EXTENT CAUSED BY THE INTENTIONAL ACT OR GROSS NEGLIGENCE
OF LESSOR, OR ARISING FROM ANY BREACH OR DEFAULT IN THE PERFORMANCE OF ANY OF
LESSEE'S OBLIGATIONS UNDER THIS LEASE, OR ARISING FROM ANY ACT OR OMISSION OF
LESSEE OR LESSEE'S DIRECTORS, OFFICERS, CONTRACTORS, CUSTOMERS, INVITEES,
EMPLOYEES. IF ANY ACTION OR PROCEEDING IS BROUGHT AGAINST LESSOR BY REASON OF
ANY SUCH MATTER, LESSEE UPON NOTICE FROM LESSOR SHALL DEFEND THE SAME AT
LESSEE'S EXPENSE BY COUNSEL REASONABLY SATISFACTORY TO LESSOR AND LESSOR SHALL
COOPERATE WITH LESSEE IN SUCH DEFENSE. LESSOR NEED NOT HAVE FIRST PAID ANY SUCH
CLAIM IN ORDER TO BE SO INDEMNIFIED. LESSEE, AS A MATERIAL PART OF THE
CONSIDERATION TO LESSOR, HEREBY ASSUMES ALL RISK OF DAMAGE TO PROPERTY OF LESSEE
OR INJURY TO PERSONS, IN, UPON OR ABOUT THE LEASED PREMISES ARISING FROM ANY
CAUSE AND LESSEE HEREBY WAIVES ALL CLAIMS IN RESPECT THEREOF AGAINST LESSOR,
EXCEPT TO THE EXTENT CAUSED BY THE INTENTIONAL ACT OR GROSS NEGLIGENCE OF
LESSOR.

     (f) Exemption of Lessor from Liability. Lessee hereby agrees that except to
the extent caused by the intentional act or gross negligence of Lessor, Lessor
shall not be liable to Lessee's business or any loss of income therefrom or for
loss of or damage to the goods, wares, merchandise or other property of Lessee,
Lessee's employees, invitees, customers, or any other person in or about the
Leased Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, regardless of whether such damage or
injury is caused by or results from theft, fire, steam, electricity, gas, water
or rain, or from the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air-conditioning or lighting fixtures,
or from any other cause, including the negligence of Lessor, regardless of
whether said damage or injury results from conditions arising upon the Leased

/s/                                       /s/
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Lessor                                                                  Lessee

                                       11
<PAGE>

Premises, or of the equipment, fixtures or appurtenances applicable thereto, and
regardless of whether the cause of such damage or injury or the means of
repairing the same is inaccessible. Lessor shall not be liable for any damages
arising from any act or neglect of any other tenant, occupant or user of the
Leased Premises, nor from the failure of Lessor to enforce the provisions of any
lease of any other sublessee of the Leased Premises.

     (g) Waiver of Subrogation. Anything in this Lease to the contrary
notwithstanding, as and to the extent permitted by applicable insurance
policies, Lessor and Lessee each hereby waive any and all rights of recovery,
claim, action, or cause of action, against the other, its agents, officers, or
employees, for any loss or damage that may occur to the Leased Premises, or any
improvements thereto, or the Building, or any improvements thereto, or any
personal property of such party therein, by reason of fire, the elements, or any
other cause to the extent but only to the extent the foregoing are insured
against under the terms of standard fire and extended coverage insurance
policies, regardless of cause or origin, including negligence of the other party
hereto, its agents, officers, or employees, and covenants that no insurer shall
hold any right of subrogation against such other party.

     (h) Fire or Other Casualty. The parties hereto mutually agree that if any
time during the Term the Leased Premises or any portion of the Building are
partially (more than 20% of replacement cost) or totally destroyed by fire or
other casualty covered by the fire and extended coverage insurance, the Lessor
may, at its option, upon written notice to Lessee, delivered within sixty (60)
days after such occurrence, elect either (i) to promptly repair and restore the
Leased Premises and the Building, as soon as it is reasonably practicable, to
substantially the same conditions in which the Leased Premises and the Building
were before such damage, or (ii) to terminate the Lease with such termination
to be effective on the date of such fire or other casualty; provided, however in
the event Lessee has occupied and conducted business on the Leased Premises
during the interim between the fire or other casualty and the delivery of the
written notice, the termination will be effective on the date Lessee last
occupied and conducted business on the Leased Premises.

     In the event the Leased Premises are completely destroyed or so damaged by
fire or other casualty covered by the fire and extended coverage insurance to be
carried by Lessor under the terms hereof that it cannot reasonably be used by
Lessee for the purposes herein provided and this Lease is not terminated as
above provided, then there shall be a total

/s/                                       /s/
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Lessor                                                                  Lessee

                                       12
<PAGE>

abatement of rent until the Leased Premises are made usable. In the event the
Leased Premises are substantially destroyed or damaged by fire or other hazard
so that the Leased Premises can be only partially used by Lessee for the
purposes herein provided, then there shall be a partial abatement in the rent
corresponding to the time and extent to which the Leased Premises cannot be used
by Lessee.

     If the Leased Premises shall be damaged by fire or other casualty
resulting from the fault or negligence of Lessee, or the agents employees,
licensees, or invitees of Lessee, then, to the extent not covered by insurance,
such damage shall be repaired by and at the expense of Lessee, under the
direction and supervision of Lessor, and rent shall continue without abatement.

     (i) Condemnation and Loss or Damage. If the Leased Premises or any part
thereof shall be taken or condemned for any public purpose to such an extent as
to render the remainder of the Leased Premises, in the opinion of Lessor and
Lessee, not reasonably suitable for Lessee's occupancy, this Lease shall, at the
option of either party, forthwith cease and terminate. All proceeds from any
taking or condemnation of the Leased Premises shall belong to and be paid to
Lessor. In addition, Lessor shall not be liable or responsible to Lessee for any
loss or damage to any property or persons occasioned by theft, fire, act of God,
public enemy, injunction, riot, strike, insurrection, war, court order,
requisition or order of governmental body or authority, force majeure or any
other cause beyond the control of Lessor, or for any damage or inconvenience
which may arise through repair or alteration of any part of the Building, or
failure to make repairs, except to the extent caused by the intentional act or
gross negligence of Lessor.

     14. DEFAULT BY LESSEE. The occurrence of any one or more of the following
events shall constitute a default and breach of the Lease by Lessee.

     (a) The vacating or abandonment of the Leased Premises by Lessee. Such
vacating or abandonment shall be deemed to have occurred upon the absence of the
Lessee from the Leased Premises for ten (10) consecutive days while Lessee is in
default in the payment of any sum to be paid by Lessee hereunder, during the
term of the Lease or any renewals or extensions thereof.

     (b) The failure by Lessee to make any payment of Monthly Rental, Additional
Rental or Forecast Additional Rental or any other payment required to be made by
Lessee hereunder as

/s/                                       /s/
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Lessor                                                                  Lessee

                                       13
<PAGE>

and when due, provided such failure shall continue for a period of ten (10)
business days after written notice thereof by Lessor to Lessee.

     (c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by the
Lessee, other than described in Paragraph 13(a) and (b) above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof by Lessor to Lessee; provided, however, that if the nature of Lessee's
default is such that more than thirty (30) days are reasonably required for its
cure, then Lessee shall not be deemed to be in default if Lessee commences such
cure within said thirty (30) day period and thereafter diligently prosecutes
such cure to completion.

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

     15. REMEDIES IN DEFAULT BY LESSEE. Except as otherwise required herein, in
the event of any such default or breach by Lessee, from time to time, in its
sole discretion, and without notice and without limiting Lessor in the exercise
of any other right or remedy which Lessor may be entitled to exercise at law or
in equity, Lessor may elect to:

     (a) Terminate this Lease, after ten (10) business days written notice to
Lessee, and forthwith repossess the Leased Premises and be entitled to recover
as damages a sum of money equal to the total of (1) the cost of recovering the
Leased Premises; (2) all unpaid Base Rental, Additional Rental and Forecast
Additional Rental earned at the time of termination, plus interest thereon at
the maximum lawful rate; (3) an amount equal to the difference between (i) the
total rental (Base Rental, Additional Rental and Forecast Additional Rental
computed as stated in this

/s/                                       /s/
----------------------------------        -------------------------------------
Lessor                                                                  Lessee

                                       14
<PAGE>

Lease) for the remaining portion of the Term; and (ii) the then present value
of the fair rental value of the Leased Premises for such period (the parties
hereto agreeing that the fair rental value of the Leased Premises shall be the
sum of all rentals to be paid during such period discounted at the rate of ten
percent (10%) per annum); (4) the cost of repairs or of alteration of the Leased
Premises that are the Lessee's responsibility under this Lease; (5) that portion
of any leasing commission paid by Lessor applicable to the unexpired term of
Lease; and (6) any other sum of money and damages owed by Lessee to Lessor.

     (b) Terminate, after five (5) days written notice to Lessee, Lessee's right
of possession (but not the Lease) and repossess the Leased Premises by forcible
entry or otherwise, without demand or notice of any kind to Lessee and without
terminating this Lease, in which event Lessor may, but shall be under no
obligation to do so, re-let the same for the account of Lessee for such rent and
upon such terms as shall be satisfactory to Lessor. For the purpose of such re-
letting, Lessor is authorized to make any repairs, changes, alterations, or
additions in or to Leased Premises that may be desirable, necessary or
convenient, and, if the same are re-let and a sufficient sum shall not be
realized from such re-letting after paying the unpaid Rental, Additional Rental
or Forecast Additional Rental due hereunder earned but unpaid at the time of re-
letting, plus interest thereon at a maximum lawful rate, the cost of recovering
possession, and all of the costs and expenses of such repairs, changes,
alterations, and additions and the expenses of such re-letting and of the
collection of the rent accruing therefrom to satisfy all rent provided for in
this Lease to be paid, the Lessee shall satisfy and pay any such deficiency upon
demand therefor from time to time. If Lessor is unable to re-let the Lease
Premises, then Lessee shall pay to Lessor as damages a sum equal to the amount
of all rentals specified in this Lease for the term thereof. Lessee agrees that
Lessor may file suit to recover any sums falling due under the terms of this
paragraph from time to time, and that no delivery or recovery of any portion due
Lessor hereunder shall be any defense to any subsequent action brought for any
amount not previously reduced to judgment in favor of Lessor, nor shall such re-
letting be construed as an election on the part of the Lessor to terminate this
Lease unless a written notice of such intention be given to Lessee by Lessor.
Notwithstanding any such re-letting without termination, Lessor may at any time
thereafter elect to terminate this lease for any previous breach.

     (c) In the event of abandonment as defined in paragraph 14(a) above, of the
Leased Premises by Lessee, Lessor may enter the premises to make inspections, to
show prospective tenants and to remove and store any property of Lessee in the
Leased Premises, without

/s/                                       /s/
----------------------------------        -------------------------------------
Lessor                                                                  Lessee

                                       15
<PAGE>

terminating this Lease or limiting any other remedy of Lessor under this Lease.
In addition to any other rights of Lessor, Lessor may dispose of the stored
property if Lessee does not claim such property within sixty (60) days after the
property is stored. Lessor shall deliver by certified mail to Lessee at Lessee's
last known address a notice stating that Lessor may dispose of Lessee's property
if Lessee does not claim the property within sixty (60) days after the date the
property is stored. Lessee's rights in and to such stored property and Lessor's
obligations as herein set forth with regard to such stored property are subject
to and subordinated to the landlord's lien in and to all personal property of
Lessee on the Leased Premises as set forth in paragraph 15(g). Notwithstanding
anything herein to the contrary, upon an abandonment of the Leased Premises by
Lessee, Lessor shall be under no obligation to re-enter the Leased Premises,
store any property or take any other action. In any such event, Lessor may
continue this Lease and recover the full amount of the rent to be paid hereunder
as it comes due.

     (d) Pursuit of any remedy by Lessor, whether hereunder or otherwise, shall
never be deemed an election of remedies. Lessee further agrees that failure by
Lessor to use diligence in enforcing its rights against Lessee, or in requiring
performance by Lessee of any of its obligations hereunder or in preserving the
liability of Lessee hereunder, shall not impair, reduce or in any manner affect
Lessor's rights or remedies hereunder, or Lessee's liability or obligations
hereunder.

     (e) Exercise by Lessor of any one or more remedies hereunder granted or
otherwise available shall not be deemed to be an acceptance of surrender of the
Leased Premises by Lessee, whether by agreement or by operation of law, it being
understood that such surrender can be effected only by the written agreement of
Lessor and Lessee. No removal or other exercise of dominion by Lessor over the
property of Lessee or others on the Leased Premises shall be deemed unauthorized
or constitute a conversion, Lessee hereby consenting, after any event of
default, to the aforesaid exercise of dominion over Lessee's property within the
Leased Premises. All claims for damages, except to the property of Lessee or
others on the Leased Premises, by reason of such re-entry and/or repossession
are hereby waived, as are all claims for damages by reason of any distress
warrant, forcible entry and detainer proceedings, sequestration proceedings or
other legal process. Lessee agrees that any re-entry by Lessor may be pursuant
to judgment contained in forcible entry and detainer proceedings or other legal
proceedings or without the necessity for any legal proceedings if such re-entry
may be accomplished without force, as Lessor may elect, and Lessor shall not be
liable in trespass or otherwise.

/s/                                       /s/
----------------------------------        -------------------------------------
Lessor                                                                  Lessee

                                       16
<PAGE>

     (f) If Lessee should fail to make any payment or cure any default hereunder
within the time herein permitted, Lessor, without being under any obligation to
do so and without thereby waiving such default, may make such payment and/or
remedy such other default for the account of Lessee (and enter the Leased
Premises for such purpose), and thereupon Lessee shall be obligated to, and
hereby agrees, to pay Lessor, upon demand, all reasonable costs, expenses and
disbursements (including reasonable attorneys' fees) incurred by Lessor in
taking such remedial action.

     (g) In the event that Lessor shall have taken possession of the Leased
Premises pursuant to the authority herein granted, then Lessor shall have the
right to keep in place and use all of the furniture, fixtures, equipment, and
other personal property at the Leased Premises, including that which is owned by
or leased to Lessee, at all times prior to any foreclosure thereon by Lessor or
repossession thereof by any Lessor thereof or third party having a lien thereon.
Lessor shall also have the right to remove from the Leased Premises (without
notice to Lessee and without the necessity of obtaining a distress warrant, writ
of sequestration or other legal process) all or any portion of such furniture,
fixtures, equipment and other property located thereon and place same in storage
at any place within Travis County; and in such event, Lessee shall be liable to
Lessor for costs incurred by Lessor in connection with such removal and storage.
Lessor shall also have the right to relinquish possession of all or any portion
of such furniture, fixtures, equipment and other property to any person
("Claimant") claiming to be entitled to possession thereof who presents to
Lessor a copy of any instrument represented to Lessor by Claimant to have been
executed by Lessee granting Claimant the right under the circumstances to take
possession of such furniture, fixtures, equipment or other property, without the
necessity on the part of Lessor to inquire into the authenticity of said
instrument and without the necessity of Lessor making any investigation or
inquiry as to the validity of the factual or legal basis upon which Claimant
purports to act.

     16. HOLDING OVER. In the event of holding over by Lessee after expiration
or termination of this Lease without the written consent of Lessor, Lessee shall
pay monthly as liquidated damages a sum equal to one and one-half (1 1/2) times
the amount of the monthly Base Rental, Forecast Additional Rental and Additional
Rental paid, or to be paid, by Lessee to Lessor for the last month of the Term
for the entire holdover period. No holding over by Lessee after the Term of the
lease shall operate to extend the Lease. In the event of any unauthorized
holding over, Lessee shall indemnify Lessor against all claims for damages by
any other Lessee to whom

/s/                                       /s/
----------------------------------        -------------------------------------
Lessor                                                                  Lessee

                                       17
<PAGE>

Lessor may have leased all or any part of the Leased Premises covered hereby
effective upon the termination of this Lease. Any holding over with the consent
of Lessor in writing shall thereafter constitute this Lease a lease from month
to month.

     17. NON-WAIVER. Failure of Lessor to declare any default immediately upon
occurrence thereof, or delay in taking any action in connection therewith, shall
not waive such default, but Lessor shall have the right to declare any such
default at any time and take such action as might be lawful or authorized
hereunder, either at law or in equity.

     18. DEFAULT BY LESSOR. Except as may otherwise be provided herein, Lessor
shall not be in default unless Lessor fails to perform obligations required of
Lessor within a reasonable time, but in no event later than thirty (30) days
after written notice by Lessee to Lessor and to the holder of any first mortgage
or deed of trust covering the Leased Premises whose name and address shall have
been furnished previously to Lessee in writing, specifying wherein Lessor has
failed to perform such obligations; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days are required for
performance, then Lessor shall not be in default if Lessor commences performance
within such thirty (30) day period and thereafter diligently prosecutes the
same to completion. Except as may otherwise be provided herein, Lessee shall
not have the right to terminate this Lease, it being agreed that Lessee's
remedies shall be limited to actual damages, without any award for incidental
or consequential damages.

     19.  ASSIGNMENT AND SUBLETTING.

     (a) Lessee may assign the Leased Premises or any part thereof or sublease,
mortgage, pledge, or hypothecate its leasehold interest only with the prior
express written permission of Lessor. Such permission shall not be unreasonably
withheld or delayed. Any attempt to do any of the foregoing without the prior
express written permission of Lessor, shall be void and of no effect. Lessee
must furnish to Lessor the name and terms of any proposed assignment or sublease
of each proposed assignee or sublessee.

     (b) Any assignment or sublease of the leasehold, whether or not consent is
required under the terms of this Lease, and consent to any assignment or
sublease by Lessor, shall not operate to release Lessee of any obligation
hereunder and Lessee shall remain liable for the performance of all of the
covenants, duties, and obligations hereunder including without limitation

/s/                                       /s/
----------------------------------        -------------------------------------
Lessor                                                                  Lessee

                                       18
<PAGE>

the obligation to pay all rent and other sums herein provided to be paid, and
Lessor shall be entitled to enforce the provisions of this instrument against
the Lessee and/or against any assignee or sublessee, or either of them, at the
election of Lessor.

     (c) Lessee shall give Lessor written notice of the consummation of any
assignment or sublease consented to by Lessor, shall furnish to Lessor copies of
all assignments, transfers, subleases, and other documents executed in
connection with such assignment or sublease, and shall notify Lessor in writing
of the date the assignee or sublessee takes possession of the Leased Premises or
a portion thereof.

     (d) Lessee shall require of any sublessee a security deposit equal to at
least one month's rent with Lessor to be held pursuant to the terms of paragraph
9 above.

     20. SUBORDINATION. This Lease and Lessee's rights hereunder are and will
remain subordinate to any ground lease, mortgage, deed of trust or any other
hypothecation for security now or hereafter placed upon the Leased Premises, and
to all increases, renewals, modifications, consolidations, replacements, and
extension thereof (collectively referred to as the "Mortgage"). If the holder of
a Mortgage becomes the owner of the Leased Premises by reason of foreclosure or
acceptance of a deed in lieu of foreclosure, at such holder's election Lessee
will be bound to such holder or its successor-in-interest under all terms and
conditions of this Lease, and Lessee will be deemed to have attorned to and
recognized such holder or successor as Lessor's successor-in-interest for the
remainder of the Lease term or any extension thereof. In such event, the holder
of such Mortgage will agree that, so long as Lessee is not then in default
hereunder, such holder will recognize this Lease and will not disturb Lessee in
its possession of the Leased Premises for any reason other than one which would
entitle the Lessor to terminate this Lease under its terms. The foregoing is
self-operative and no further instrument of subordination and/or attornment will
be necessary unless required by Lessor or the holder of a Mortgage, in which
case Lessee will, within ten (10) days after written request, execute and
deliver without charge any documents reasonably required by Lessor or such
holder in order to confirm the subordination and attornment set forth above.
Should the holder of a Mortgage request that this Lease and Lessee's rights
hereunder be made superior, rather than subordinate, to the Mortgage, then
Lessee will, within ten (10) days after written request, execute and deliver
without charge such agreement as may be reasonably required by such holder in
order to effectuate and evidence such superiority of the Lease to the Mortgage.

/s/                                       /s/
----------------------------------        -------------------------------------
Lessor                                                                  Lessee

                                       19
<PAGE>

     21.  MISCELLANEOUS.

     (a) Attorney's Fees. In case it should be necessary or proper for Lessor or
Lessee to bring any action under this Lease, then the prevailing party in any
such action shall be entitled to reasonable attorneys' fees, expenses and court
costs from the non-prevailing party.

     (b) Lessor's Entry/Inspections. With 4 hours notice, Lessor's agents and
representatives shall have the right to enter the Leased Premises at any
reasonable time during business hours (or at any time in case of emergency) (i)
to inspect the Premises, (ii) to make such repairs as may be required or
permitted pursuant to this Lease, and/or (iii) during the last 180 day period
prior to expiration of this Lease or following notice from Lessee of Lessee's
intent to cancel this Lease pursuant to paragraph 3 above, for showing the
Leased Premises to any prospective tenant. In addition, Lessor shall have the
right to erect a suitable sign on the Leased Premises stating the Leased
Premises are available for lease. Lessee will provide Lessor with all keys
necessary to enter the Leased Premises in case of an emergency.

     (c) No Partnership or Agency. Lessor does not in any way or for any purpose
become a partner of Lessee in the conduct of its business or otherwise, or a
joint venturer with Lessee. Lessee shall not be deemed an agent of Lessor for
any purpose.

     (d) Accord and Satisfaction. No payment by Lessee or receipt by Lessor of a
lesser amount than the monthly consideration or other payments herein stipulated
shall be deemed to be other than an account of the earliest stipulated monthly
consideration or other payments then due, or shall any check or writing
accompanying any check or payment as monthly consideration or other payment
provided for herein be deemed an accord or satisfaction; and Lessor may accept
such check or payment without prejudice to Lessor's right to recover the
balance of such monthly consideration or other payments or to pursue other
remedies provided in this Lease or by law.

     (e) Acceptance of Leased Premises and Building by Lessee. In consideration
of the Allowance granted by Lessor to Lessee under paragraph 22 hereof, the
taking of possession of the Leased Premises by Lessee shall be conclusive
evidence as against Lessee (1) that Lessee accepts the Leased Premises in "AS
IS" condition and as suitable for the purpose for which same is leased; (2) that
it accepts the Building and the land and each and every part and appurtenance
thereof as being in a good and satisfactory condition; and (3) that Lessee
waives any defects in the Leased Premises and its appurtenances. Lessor shall
not be liable, except in the

/s/                                       /s/
----------------------------------        -------------------------------------
Lessor                                                                  Lessee

                                       20
<PAGE>

event of negligence if and to the extent such liability is indemnified by
insurance, and in the event of the intentional act or gross negligence
notwithstanding whether such claim is indemnified by insurance, to Lessee or any
of its agents, employees, and servants for any injury or damage to person or
property due to the condition or design of or any defect in the Building or its
mechanical systems and equipment which may exist or occur. Lessor shall be
liable for simple negligence only to the extent Lessor is indemnified by
insurance.

     In addition to a visual inspection of the Leased Premises, Lessor warrants
and conveys to Lessee that the Leased Premises are in good working order at
lease commencement including but not limited to: the roof membrane, HVAC,
Telephone System and security system.

     (f) Laws Governing. The laws of the State of Texas shall govern the
interpretation and validity of, and other matters pertaining to, this lease.

     (g) Notice. Any notice which may or shall be given under the terms of this
Lease shall, unless otherwise provided herein, be in writing and shall be either
delivered by hand or sent by United States Registered or Certified Mail, postage
prepaid, to the address below. Such addresses may be changed from time to time
by either party by giving written notice as provided above. Notice shall be
deemed given when delivered (if delivered by Hand) or when postmarked (if sent
by mail).

              LESSOR:      RGK RENTALS, LTD.
                           1301 West 25th Street, Suite 300
                           Austin, Texas 78705
                           Attention: David McNeil

              LESSEE:      APPLIED SCIENCE FICTION, INC.
                           8920 Business Park Drive
                           Austin, Texas 78759
                           Attention: Mark Urdahl

              LESSEE:      FACILITIES SERVICES, INC.
                           P.O. Box 830849
                           Richardson, Texas 75083
                           Attention: Jimmie Mayhew

/s/                                       /s/
----------------------------------        -------------------------------------
Lessor                                                                  Lessee

                                       21
<PAGE>

     (h) Severability. If any clause or provision of this Lease is illegal,
invalid, or unenforceable, under present or future laws effective during the
term hereof, then it is the intention of the parties hereto that the remainder
of this lease shall not be affected thereby, and it is also the intention of
both parties that in lieu of each clause or provision that is illegal, invalid,
or unenforceable, there be added as a party of this Lease a clause or provision
as similar to in terms to such illegal, invalid, or unenforceable clause or
provision as is enforceable.

     (i) Entire Agreement and Binding Effect. This Lease Agreement, including
exhibits A, B, C and D all of which are hereby incorporated herein by reference,
constitute the entire agreement between Lessor and Lessee; no prior written or
prior contemporaneous oral promises or representations shall be binding.
Paragraph captions herein are for convenience only, and neither limit nor
amplify the provisions of this Lease. The provisions of this Lease shall be
binding upon and insure to the benefit of the heirs, executors, administrator,
successors, and assigns of the parties, but this provision shall in no way alter
the restriction herein in connection with assignment and subletting by Lessee.

     (j) Assignment by Lessor. Lessor shall have the right to transfer and
assign, in whole or in part, all of its rights and obligations hereunder and in
the Building and the Leased Premises referred to herein.

     (k) Alterations. This Lease may not be altered, changed, or amended, except
by an instrument in writing signed by both parties herein.

     (l) Gender. When required for clarity, the masculine gender shall also
include the feminine and neuter.

     22. REFURBISHMENT ALLOWANCE. Lessor grants to Lessee a refurbishment
allowance of $269,920.00 (the "Allowance") to be used by Lessee for improvements
to and renovation of the Leased Premises (the "Improvements"). Upon submission
of invoices and releases by Lessee, Lessor shall promptly reimburse Lessee for
actual costs incurred in construction of the Improvements. Lessee is solely
responsible for the cost of any Improvements in excess of the Allowance.

/s/                                       /s/
----------------------------------        -------------------------------------
Lessor                                                                  Lessee

                                       22
<PAGE>

     23. Brokerage. Lessor agrees to pay to KAM Properties, Inc. and the Don Cox
Company of Austin, Texas, for services performed in procurring and negotiating
this agreement, as set out in the Commission Agreement executed February 20,
1998.

     EXECUTED this 20th day of March, 1998

                                    LESSOR:   RKG RENTALS, LTD.
                                              By: KMS Ventures, Inc., Partner
                                              By: /s/ Gregory A. Kozmetsky
                                                 -------------------------------
                                                 Gregory A. Kozmetsky, President

                                    LESSEE:   APPLIED SCIENCE FICTION, INC.

                                              By: /s/ Mark Urdahl
                                                 ------------------------------
                                               Mark Urdahl, President and C.E.O.

/s/                                       /s/
----------------------------------        -------------------------------------
Lessor                                                                  Lessee

                                       23
<PAGE>

                                   EXHIBIT A

                                LEASED PREMISES

BALCONES NORTH
OFFICE BUILDING

                           [FLOOR PLAN APPEARS HERE]

/s/                                                     /s/
------------------                                      ---------------------
  Lessor                                                     Lessee

                                      A-1
<PAGE>

                                   EXHIBIT B

                             RULES AND REGULATIONS

     1. No signs of any kind or nature, symbol, or identifying mark shall be put
on the Building, elevators, staircases, entrances, parking areas or upon the
doors or walls, whether plate glass or otherwise of the Leased Premises nor
within the Leased Premises so as to be visible from the public areas or exterior
of the Building, without prior written approval of Lessor. All signs or
lettering shall conform in all respects to the sign and/or lettering criteria
established by Lessor.

     2. Lessee shall not make or permit any loud or improper noises in the
building or otherwise interfere in any way with other Lessees.

     3. Lessor will not be responsible for any lost or stolen personal property
or equipment from the Leased Premises or public areas, regardless of whether
such loss occurs when the area is locked against entry or not.

     4. Lessee, or the employees, agents, servants, visitors, or licensees of
Lessee shall not, at any time or place, leave or discard rubbish, paper,
articles, or objects of any kind whatsoever outside the doors of the Leased
Premises or in the corridors or passageways of the Building. No animals or
vehicles of any description shall be brought into or kept in or about the
building.

     5. None of the entries, passages, doors, hallways, or stairways in the
building shall be blocked or obstructed.

     6. Lessor shall have the right to determine and prescribe the weight and
proper position of any unusually heavy equipment, including computers, safes,
large files, etc., that are to be placed in the building, and only those which
in the exclusive judgment of the Lessor will not do damage to the floors,
structure, and/or elevators may be moved into the Building. Any damage caused by
installing, moving, or removing such aforementioned articles in the Building
shall be paid by Lessee.

     7. All Christmas and other decorations must be constructed of flame
retardant materials.

     8. All doors leading from public corridors to the Leased Premises are to be
kept closed when not in use.

     9. Canvassing, soliciting, or peddling in the Building is prohibited and
Lessee shall cooperate to prevent the same.

     10. Lessee shall give immediate notice to Lessor in case of accidents in
the Leased Premises or in the Building or of defects therein or in any fixtures
or equipment, or of any known emergency in the Building.

/s/                                       /s/
----------------------------------        -------------------------------------
Lessor                                                                  Lessee

                                       1
<PAGE>

                                   EXHIBIT C

                               TELEPHONE SYSTEM

A complete inventory of the Telephone System will be delivered to Lessee at
Lessee's possession of the Leased Premises

/s/                                       /s/
----------------------------------        -------------------------------------
Lessor                                                                  Lessee

                                       1
<PAGE>

                                   EXHIBIT D

                            FAIR MARKET RENTAL RATE

If Lessee elects to renew this Lease, Base Rental and Forecasted Additional
Rental for each renewal term shall be an amount equal to one hundred percent
(100%) of the Fair Market Rental Rate of the Leased Premises in relation to
market conditions at the time of the extension. The Fair Market Rental Rate of
the Leased Premises shall be determined as follows:

     After timely receipt by Lessor of Lessee's notice of exercise of option to
renew the Lease, Lessor and Lessee shall have a period of thirty (30) days in
which to agree on the Fair Market Rental Rate as the Base Rental for the Leased
Premises. If Lessor and Lessee agree on the Fair Market Rental Rate for the
Leased Premises, then they shall immediately execute a new lease.

     In the event that Lessor and Lessee are unable to agree as to the Fair
Market Rental Rate of the Leased Premises under a renewal of the Lease within
thirty (30) days after such notice of intent to renew was given by Lessee,
Lessor and Lessee shall each promptly appoint an appraiser, and the two
appraisers so appointed shall select a third, or if they cannot agree upon a
third appraiser, either party may petition a court of competent jurisdiction for
the appointment of a third appraiser; provided, however, that each appraiser
must be an "MAI" appraiser with at least five (5) years experience in appraising
real property in Travis County, Texas. Each party shall be responsible for the
compensation, if any, of the third appraiser. Such appraisers shall each make a
separate appraisal of the Fair Market Rental Rate of the Leased Premises under a
renewal of the Lease and shall deliver copies of their appraisals to Lessor and
Lessee, and the average of the three appraisals shall be the figure designated
as the Fair Market Rental Rate for the purposes of this renewal option. Lessor
and Lessee shall, separately and collectively and in good faith, take any
necessary steps to insure that all three appraisals are completed within thirty
(30) days after the appointment of the first appraiser to be appointed. If
Lessee wishes to renew the Lease at the Fair Market Rental Rate determined by
such appraisal, Lessee shall, within ten (10) days after the last appraisal has
been delivered to it, give notice in writing to Lessor of Lessee's agreement to
renew the Lease at a rental rate equal to the average of the three appraisals,
which rental rate shall be specified in such notice. Failure by Lessee to timely
give such notice of agreement shall terminate the right of Lessee to renew the
Lease.

/s/                                       /s/
----------------------------------        -------------------------------------
Lessor                                                                  Lessee

                                       1
<PAGE>

     11. Lessee shall not use the Leased Premises or permit the Leased Premises
to be used for photographic multilith, or multigraph reproductions, except in
connection with its own business without Lessor consent and Lessor will not
unreasonably withhold consent.

     12. Any damages (excepting normal wear and tear) caused to carpet in the
Leased Premises shall be repaired or replaced at the expense of Lessee.

     13. Lessee, or the employees, agents, servants, visitors, or licensees of
Lessee, shall abide by the Rules and Regulations established from time to time
for the parking area.

     14. Lessee shall not allow to pass into any sewer, drain, or toilet serving
the Leased Premises or located in the Building any oil, grease, or any other
deleterious effluent or substance which may cause an obstruction in or damage to
such sewer, drain, or toilet.

     15. All areas within the Building are designated as "no smoking areas".

     16. Lessor reserves the right, after consultation with Lessee, to rescind
any of these Rules and Regulations of the Building, and to make such other and
further Rules and Regulations of the Building as in its judgment shall from time
to time be needful for the safety, protection, care and cleanliness of the
Building, the Leased Premises, and the operation thereof, the preservation of
good order therein, and the protection and comfort of the other Lessees in the
Building and their agents, employees, and invitees. Changes in these Rules and
Regulations, when made and written notice thereof is given to Lessee, shall be
binding upon Lessee in like manner as if originally herein prescribed. Provided,
however, such changes shall not operate so as to change the provisions of the
lease agreement between lessor and lessee and as long as changes do not effect
normal operations of business that are in place at the time on a day-to-day
basis.

/s/                                       /s/
----------------------------------        -------------------------------------
Lessor                                                                  Lessee

                                       2

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