Document:

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                                                                    Exhibit 10.8

                                      LEASE

         THIS MONTH-TO-MONTH LEASE ("LEASE"), DATED FOR REFERENCE PURPOSES ONLY
AS OF JUNE 14, 1994, IS BY AND BETWEEN THE CITY AND COUNTY OF SAN FRANCISCO, A
MUNICIPAL CORPORATION ("CITY"), OPERATING BY AND THROUGH THE SAN FRANCISCO PORT
COMMISSION ("PORT"), AS LANDLORD, AND SOUTHWEST MARINE, INC., A CALIFORNIA
CORPORATION ("TENANT").

         PORT AND TENANT HEREBY AGREE AS FOLLOWS:

1. BASIC LEASE INFORMATION

         The following terms are a summary of basic lease information (the
"Basic Lease Information"). Each item below shall be deemed to incorporate all
of the terms set forth in this Lease pertaining to such item. In the event of
any conflict between the information in this Section, and any more specific
provision of this Lease, the more specific provision shall control.

         1.1 PREMISES: The property leased to Tenant is located at Pier 70/SWL
349 in the City and County of San Francisco, and is described as follows: (1)
approximately 114,957 square feet of industrial warehouse space and land (Parcel
A) shown on Exhibit A-1 attached hereto; (2) approximately 51,747 square feet of
industrial warehouse space and land (Parcel B) as shown on Exhibit A-2 attached
hereto; and (3) approximately 77,180 square feet of unpaved land (Parcel C) as
shown on Exhibit A-3 for a total of 243,884 square feet, together with any
Improvements and Alterations thereto, together with a nonexclusive easement for
the purpose of ingress and egress to Parcel A, as shown on Exhibit A-1, and to
Parcel C, as shown on Exhibit A-3. (SECTION 3)

         1.2 TERM: The Term of this Lease shall be from month to month and shall
commence on the thirtieth (30th) day after the Amendment to Lease No. L-11320
has been duly executed by Port and Tenant and has been finally approved by the
City and County of San Francisco, which date is September 3, 1994.
("Commencement Date"). Either party may terminate this Lease by giving thirty
(30) days' prior written notice to the other party. (SECTION 4)

         1.3 BASE RENT: $1.00 per calendar month, payable annually on the Rent
Commencement Date and each Anniversary Date thereafter. (SECTION 5.1)

         1.4 RENT COMMENCEMENT DATE:

         The thirtieth (30th) day after the Amendment to Lease No. L-11320 has
been duly executed by Port and Tenant and has been finally approved by the City
and County of San Francisco, which date is September 3, 1994.

         1.5 BASE INDEX:         N/A (SECTION 5.2)
                                Month/Year - Index

         1.6 PERCENTAGE RENT:           (SECTION 5.3)
                                 Applicable XXX (See Addendum)

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         1.7 SECURITY DEPOSIT: $10,000.00 (SECTION 7)

         1.8 PERMITTED USE: (SECTION 8.1)

         Ship building and ship repair facility, functions ancillary thereto,
blast grit remediation, and automobile parking.

         1.9 MAINTENANCE AND REPAIRS: No exceptions. (SECTION 11.1)

         In addition, Tenant shall be responsible for clearing weeds and
maintaining the Premises in a clean, litter-free and safe manner.

         1.10 UTILITIES AND SERVICES: As set forth in Section 12. (SECTION 12)

         During the Term Tenant shall be entitled to access to the powerhouse,
Bldg. No. 102 on 20th Street, for the purpose of maintaining and repairing
electrical service to the Premises. However, no electrical work, installation or
improvements at the powerhouse shall be performed without the prior knowledge
and consent of Port's electrical engineering staff.

         1.11 MINERAL RESERVATION: Zone 3, beginning at a point where X equals
1,451,000 and Y equals 466,000, extending 500 feet south, thence 500 feet east,
thence 500 feet north, and thence 500 feet west, ending at said point of
beginning. (Section 26)

         1.12 NOTICES: (SECTION 28)

         ADDRESS FOR PORT:          COMMERCIAL PROPERTY MANAGER
                                    PORT OF SAN FRANCISCO
                                    ROOM 3100, FERRY BUILDING
                                    SAN FRANCISCO, CA 94111
                FAX NO:             (415) 274-0578
          TELEPHONE NO:             (415) 274-0510

        ADDRESS FOR TENANT:         SOUTHWEST MARINE, INC.
                                    ATTENTION:  LEGAL DEPARTMENT
                                    P.O. BOX 13308
                                    SAN DIEGO, CA 92170-3308
                FAX NO:             (619) 239-1751
          TELEPHONE NO:             (619) 238-1000

         1.13 ADDENDUM: The following section(s) set forth in the Addendum,
attached hereto, are incorporated herein by reference:

         Section 5.2 (Base Rent Adjustment) - deleted
         Section 5.3 (Percentage Rent) - amended
         Section 13.7 (Fencing) - added
         Section 16.1 (Requirements for Handling) - amended
         Section 16.2 (Tenant Responsibility) - amended

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         Section 16.3 (Requirement to Remove) - amended
         Section 17.1(a) (General Liability Insurance) - amended
         Section 17.1(d) (Personal Property Insurance) - deleted
         Section 17.1(e) (Business Interruption Insurance) - deleted
         Section 17.1(i) (Ship Repairers Legal Liability Insurance) - added
         Section 20.3 (Hazardous Materials Indemnification) - amended
         Section 21.8 (Assignment of Sublease Rents) - amended
         Section 34 (Waiver of Relocation Assistance Rights) - added
         Section 35 (Security Protection) - added

         In the event of any conflict between the provisions of the Addendum and
provisions of this Lease, the provisions of the Addendum shall control.

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2. DEFINITIONS

         For purposes of this Lease, the following initially capitalized terms
shall have the meanings ascribed to there in this Section:

         2.1 "ADDITIONAL RENT" means all taxes, assessments, insurance premiums,
operating and maintenance charges, fees, costs, expenses, liabilities and
obligations of every description which Tenant assumes or is obligated to pay or
discharge pursuant to this Lease, together with every fine, penalty, interest or
other charge which may be added for non-payment or late payment, whether payable
to Port or to other persons, parties or entities designated herein.

         2.2 "AGENTS" means, when used with reference to either party hereto,
the officers, directors, employees, agents and contractors of such party, and
their respective heirs, legal representatives, successors, and assigns.

         2.3 "ALTERATIONS" means any alterations, installations or additions to
any Improvements or to the Premises.

         2.4 "ANNIVERSARY DATE" means the first anniversary of the Commencement
Date and each anniversary of such date thereafter; provided, however, that if
the Commencement Date is other than the first day of a month, then the first
Anniversary Date shall be the first day of the thirteenth (13th) month
thereafter.

         2.5 "BASE RENT" means the monthly Base Rent specified in Section 1.3
hereof and described in Section 5.1 hereof.

         2.6 "BASE INDEX" means the Cost of Living Index for the calendar month
set forth in Section 1.5 hereof.

         2.7 "BASIC LEASE INFORMATION" means the information with respect to
this Lease summarized in Section 1 hereof.

         2.8 "CITY" means the City and County of San Francisco, a municipal
corporation.

         2.9 "COMMENCEMENT DATE" means the date on which the Term of this Lease
commences as specified in Section 1.2 hereof.

         2.10 "COMMISSION" means the San Francisco Port Commission.

         2.11 "COST OF LIVING INDEX" means the United States Department of
Labor's Bureau of Labor Statistics Consumer Price Index for All Urban Consumers
(All Items: 1982-84 = 100), San Francisco-Oakland-San Jose, California. If the
aforesaid Cost of Living Index ceases to be published, any similar index
published by any other branch or department of the U.S. Government shall be used
as the index herein, and if none is published, another index generally
recognized as authoritative shall be substituted therefor by Port. The base
period used by any new index shall be reconciled to the 1982-84 = 100 Base
Index. If the Cost of Living Index is not published for the particular calendar
month in question, the immediately preceding last calendar month for which the
index is published shall be used.

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         2.12 "CURRENT INDEX" means the Cost of Living Index for the calendar
month immediately preceding the Anniversary Date upon which the Base Rent is
adjusted.

         2.13 "ENVIRONMENTAL LAWS" means any present or future federal, state or
local laws, ordinances, regulations or policies relating to Hazardous Material
(including, without limitation, their use, handling, transportation, production,
disposal, discharge or storage) or to health and safety, industrial hygiene or
environmental conditions in, on, under or about the Premises, including, without
limitation, soil, air, bay water and groundwater conditions.

         2.14 "FACILITY" means the pier, building or other structure in or on
which the Premises are located.

         2.15 "HANDLE" or "HANDLING" means to use, generate, process, produce,
package, treat, store, emit, discharge or dispose.

         2.16 "HAZARDOUS MATERIAL" means any substance, waste or material which
now or in the future is determined by any state, federal, or local governmental
authority to be capable of posing a present or potential risk of injury to
health, safety, the environment or property, including, but not limited to, all
of those materials, wastes and substances designated as hazardous or toxic by
the United States Environmental Protection Agency, the City and County of San
Francisco, the United States Department of Labor, the United States Department
of Transportation, the California Department of Environmental Protection or any
other governmental agency now or hereafter authorized to regulate materials and
substances in the environment.

         2.17 "IMPROVEMENTS" means any and all buildings, structures, fixtures
or other improvements constructed or installed on the Premises, including those
constructed by or on behalf of Tenant pursuant to this Lease (including, without
limitation, any trailers, signs, roads, trails, driveways, parking areas, curbs,
walks, fences, walls, stairs, poles, plantings and landscaping).

         2.18 "INC" means Intrabuilding Network Cable and is defined as the
telephone wiring which begins at the terminal block nearest the point where the
telephone company wiring enters the Facility and ends at the terminal nearest
the Premises.

         2.19 "INVITEES" when used with respect to Tenant means the clients,
customers, invitees, guests, members, licensees, assignees and subtenants of
Tenant.

         2.20 "LATE CHARGE" means a fee equivalent to one and one-half percent
(1-1/2%) of all Rent, or any portion thereof, which is due and unpaid for more
than thirty (30) days.

         2.21 "LAWS" means all laws, statutes, ordinances, resolutions,
regulations, judicial decisions, proclamations, orders or decrees of any
municipal, county, state or federal government or the departments, courts,
commissions, boards and officers thereof, or other governmental or regulatory
authority with jurisdiction over the Premises or any portion thereof.

         2.22 "OFFICIAL RECORDS" means the official records of the City and
County of San Francisco.

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         2.23 "PERCENTAGE RENT" means a sum equal to a percentage of Tenant's
Gross Receipts made from or upon the Premises during each calendar month of the
Term in the percentage amounts and for the items set forth in Section 1.6, if
applicable.

         2.24 "PORT" means the San Francisco Port Commission.

         2.25 "PREMISES" means the real property described in Section 1.1
hereof.

         2.26 "REGULATORY APPROVAL" means any authorization, approval or a
permit required by any governmental agency having jurisdiction over the
Premises, including but not limited to the Bay Conservation and Development
Commission ("BCDC").

         2.27 "RENT" means the Base Rent, as adjusted pursuant to the provisions
of Section 5.2 hereof, together with Percentage Rent, if applicable, and any and
all Additional Rent.

         2.28 "SECURITY INSTRUMENT" means a certificate of deposit; surety bond;
undertaking; unconditional, irrevocable letter of credit or other similar
instrument or security.

         2.29 "TENANT" means the party identified as Tenant at the beginning of
this Lease.

3. PREMISES. Port hereby leases to Tenant, and Tenant hereby hires from Port,
the Premises described in Section 1.1 hereof on the terms and conditions of this
Lease.

4. TERM OF LEASE. The Premises are leased by Tenant from Port on a
month-to-month basis as specified in Section 1.2 hereof.

5. RENT. Tenant shall pay to Port, in the manner herein described, the following
Rent:

         5.1 BASE RENT. Tenant shall pay to Port Base Rent, as set forth in
Section 1.3 hereof, subject to adjustment in accordance with Section 5.2. Except
as otherwise provided in Section 1.3, Tenant shall make the first payment of
Base Rent on or before the Commencement Date and thereafter shall pay the Base
Rent, in advance, on or before the first day of each calendar month. If the
Commencement Date is other than the first day of the month, the Base Rent for
that month shall be apportioned as the number of days of occupancy bears to that
month.

         5.2 BASE RENT ADJUSTMENT. Port shall have the right to adjust the Base
Rent to the current market rate, as reasonably determined by Port, at any time
upon thirty (30) days' prior written notice to Tenant. If, however, the Base
Rent has not been adjusted on or before the first Anniversary Date and on each
Anniversary Date thereafter, and this Lease is in effect on the first
Anniversary Date and any Anniversary Date thereafter, the Base Rent shall be
adjusted for the succeeding year in direct proportion to the percentage increase
in the Current Index over the Base Index. In no case shall the Base Rent, as
adjusted, be less than the Base Rent in effect immediately prior to the
Anniversary Date. If the Current Index has increased over the Base Index, the
adjusted Base Rent shall be determined by multiplying the Base Rent set forth in
Section 1.3 by a fraction, the numerator of which is the Current Index and the
denominator of which is the Base Index, as follows:

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           Current Index
           Base Index        X     Base Rent      =      Adjusted Base Rent

         5.3 PERCENTAGE RENT. If applicable, as set forth in Section 1.6 hereof,
Tenant agrees to pay Percentage Rent to Port on the terms and conditions set
forth in the Addendum attached hereto.

         5.4 LATE CHARGES. Tenant acknowledges that late payment by Tenant to
Port of Rent will cause Port increased costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges. Accordingly,
a Late Charge will be paid by Tenant for each month that such Rent, or any
portion thereof, remains due and unpaid, plus reasonable attorneys' fees
incurred by Port by reason of Tenant's failure to pay Rent when due under this
Lease. Late Charges shall be computed from the date on which such Rent first
became due. The parties agree that such Late Charges represent a fair and
reasonable estimate of the cost which Port will incur by reason of any late
payment by Tenant.

         5.5 ADDITIONAL RENT. Tenant shall pay or cause to be paid, and
discharge or cause to be discharged, when the same shall become due, any and all
amounts of Additional Rent, as defined in Section 2.1. If Tenant fails to pay or
discharge any amount, liability or obligation of Additional Rent Port shall have
all rights, powers and remedies provided herein or by Law in the case of
non-payment of the Base Rent.

         5.6 MANNER OF PAYMENT. All payments due from Tenant to Port under this
Lease shall be made to Port without any abatement, deduction, set-off, prior
notice or demand, except as otherwise expressly provided in this Lease, in
lawful money of the United States of America at Port's address set forth in
Section 1.12 or to such other person or at such other place as Port may from
time to time designate by written notice to Tenant.

6. TAXES AND ASSESSMENTS.

         6.1 PAYMENT OF TAXES. During the Term of this Lease, Tenant agrees to
pay, when due, to the proper authority any and all real property and personal
taxes, general and special assessments, license fees, permit fees and all other
governmental charges of any kind or nature whatsoever, including without
limitation all penalties and interest thereon, levied or assessed on the
Premises, on Tenant's personal property, the leasehold or subleasehold estate or
Tenant's use of the Premises, whether in effect at the time this Lease is
entered into or which become effective thereafter, and all taxes levied or
assessed on the possession, use or occupancy, as distinguished from the
ownership, of the Premises. Tenant shall not permit any such taxes, assessments
or other charges to become a defaulted lien on the Premises or the Improvements
thereon; provided, however, that in the event any such tax, assessment or
similar charge is payable in installments, Tenant may make, or cause to be made,
payment in installments; and provided, further, that Tenant may, through such
proceeding as Tenant considers necessary or appropriate, contest the legal
validity or the amount of any tax, assessment or similar charge so long as such
assessment or charge does not become a defaulted lien. In the event of any such
dispute, Tenant shall indemnify and hold Port, City, and their Agents harmless
from and against all losses, damages, costs, or expenses, including attorneys'
fees, resulting therefrom.

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         6.2 POSSESSORY INTEREST TAX. Tenant acknowledges and understands that a
possessory interest subject to property taxation may be created by this Lease
and that Tenant may be subject to the payment of property taxes levied on such
possessory interest. Tenant further acknowledges that Tenant is familiar with
San Francisco Administrative Code Sections 23.6-1 and 23.6-2, which require that
Port submit a report, which includes specified information relating to the
creation, renewal, sublease, or assignment of any such possessory interest, to
the County Assessor within 60 days after any such transaction. Tenant agrees to
provide to Port the information required by Section 23.6-2 within 30 days of a
request in writing by Port to do so.

7. SECURITY DEPOSIT.

         7.1 AMOUNT OF DEPOSIT. Tenant shall pay to Port on or before the
Commencement Date, in addition to the advance payment of the first month's Base
Rent, a security deposit, either in cash or by Security Instrument, in the sum
specified as the Initial Deposit in Section 1.7, as security for the faithful
performance by Tenant of all terms, covenants and conditions of this Lease. If
the Base Rent is increased pursuant to any of the provisions of this Lease,
Tenant shall increase the amount of the security deposit to maintain the same
ratio of security deposit to Base Rent as existed at the Commencement Date. Any
increase in the security deposit shall be delivered to Port on the same date
that such increase in the Base Rent is first due. Tenant agrees that Port may
(but shall not be required to) apply the security deposit in whole or in part to
(a) pay any sum due to Port under this Lease; (b) compensate Port for any damage
to the Premises caused by Tenant; or (c) cure any default by Tenant. If Port
uses any portion of the security deposit to cure any default by Tenant
hereunder, Tenant shall immediately replenish the security deposit to the
original amount. Port's obligation with respect to the security deposit is
solely that of debtor and not trustee. Except as provided in Section 7.2, Tenant
shall not be entitled to any interest on such deposit. If Tenant is not in
default at the termination of this Lease, Port shall return the unused balance
of the security deposit to Tenant after Tenant vacates the Premises. The amount
of the security deposit shall in no way limit Tenant's obligations under this
Lease, and nothing contained in this Section 7 shall in any way diminish or be
construed as waiving any of Port's other remedies set forth in this Lease or
provided by Law or equity.

         7.2 SECURITY INSTRUMENT. In lieu of depositing the security deposit to
Port in cash as provided in Section 7.1 above, Tenant may deliver to Port a
Security Instrument; provided however, that said Security Instrument shall be
(a) in a form and issued by a surety company or financial institution acceptable
to Port in Port's sole discretion, (b) made payable only to Port and able to be
liquidated without any action required by Tenant, and (c) in a sum equal to the
amount specified in Section 7.1 plus ten percent or such additional amount (as
Port shall determine in its sole discretion) which will adequately cover penalty
charges and/or administrative fees imposed for early liquidation of the Security
Instrument. The form of Security Instrument may be changed from time to time by
mutual consent of Port and Tenant. If Tenant elects to deposit certificates of
deposit or other interest-bearing instruments as a security deposit, Tenant
shall be entitled to all interest payable on such certificates or instruments as
the same becomes due if Tenant has made arrangements for such interest payments
to be made directly to Tenant by the financial institution issuing such
certificates or instruments. Port shall have no responsibility to pay, nor to
make arrangements for payment, to Tenant of interest accruing on such
certificates or instruments. If Tenant deposits certificates of deposit or other
interest-bearing instruments as a security deposit, Tenant shall renew or
replace such instrument

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no later than ten days prior to expiration thereof, and, if Tenant fails to do
so, Port shall be entitled to cash such instrument and to hold the funds so
obtained as the security deposit required pursuant to this Section 7.

         If Tenant elects to use a bond or letter of credit as a security
deposit, Tenant shall keep the same, at its expense, in full force and effect
throughout the Term and until the sixtieth (60th) day after the Termination Date
or other termination hereof. Such bond or letter of credit shall provide for
sixty (60) days' prior written notice to Port by the issuing institution in the
event of non-extension, cancellation or material change thereof. In such event,
Tenant shall replace the bond or letter of credit at least ten days prior to
expiration thereof, and, if Tenant fails to do so, Port shall be entitled to
present its written demand for payment of the entire face amount of said bond or
letter of credit and to hold the funds so obtained as the security deposit
required pursuant to this Section 7.

8. USE OF THE PREMISES.

         8.1 PERMITTED USE. The Premises shall be used and occupied only for the
Permitted Use specified in Section 1.8 hereof and for no other purpose.

         8.2 PROHIBITED ACTIVITIES. Tenant agrees that the following activities,
by way of example only and without limitation, are inconsistent with this Lease
and are strictly prohibited: (a) any activity, or the maintaining of any object,
which is not within the Permitted Use; (b) any activity, or the maintaining of
any object, which will in any way increase the existing rate of, affect or cause
a cancellation of, any fire or other insurance policy covering the Premises, any
part thereof or any of its contents; (c) any activity or object which will
overload or cause damage to the Premises; (d) any activity which constitutes
waste or nuisance to owners or occupants of adjacent properties, including, but
not limited to, the preparation, manufacture or mixing of anything that might
emit any objectionable odors, noises or lights onto adjacent properties, or the
use of loudspeakers or sound or light apparatus which can be heard or seen
outside the Premises; (e) any activity which will in any way injure, obstruct or
interfere with the rights of other tenants or of owners or occupants of adjacent
properties, including rights of ingress and egress; (f) use of the Premises for
sleeping or personal living quarters; (g) any auction, distress, fire,
bankruptcy or going out-of-business sale on the Premises without the prior
written consent of Port.

         8.3 PREMISES MUST BE USED. Tenant shall use the Premises continuously
for the Permitted Use specified in Section 1.8 and shall not allow the Premises
to remain unoccupied or unused without the prior written consent of Port, which
consent may be withheld in Port's sole discretion.

9. COMPLIANCE WITH LAWS AND REGULATIONS. Tenant, at Tenant's sole cost and
expense, promptly shall comply with all Laws relating to or affecting the
condition, use or occupancy of the Premises in effect either at the time of
execution of this Lease or which may hereafter be in effect at any time during
the Term, whether or not the same are now contemplated by the parties. Tenant
further understands and agrees that it is Tenant's obligation, at Tenant's sole
cost and expense, to cause the Premises and Tenant's activities and operations
conducted thereon, to be in compliance with the Americans with Disabilities Act,
42 USCS sections 12101, et seq.

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         Tenant understands and agrees that Port is entering into this Lease in
its capacity as a landowner with a proprietary interest in the Premises and not
as a regulatory agency of the City with certain police powers. Port's legal
status as an agency of City shall in no way limit the obligation of Tenant to
obtain any required approvals from City departments, boards or commissions which
have jurisdiction over the Premises, including Port. By entering into this
Lease, Port is in no way modifying or limiting the obligation of Tenant to cause
the Premises to be used and occupied in accordance with all Laws.

10. REGULATORY APPROVALS. Tenant shall faithfully observe and comply with all
rules and regulations which may be adopted BY Port from time to time, and with
all modifications thereof and additions thereto, provided Port has given prior
written notice thereof to Tenant. All such rules and regulations shall be deemed
to be additional terms and conditions of this Lease. Port shall not be
responsible to Tenant for the nonperformance by any other tenant or person of
any such rules and regulations. Tenant understands that Tenant's operations on
the Premises, changes in use, or Improvements or Alterations to the Premises may
require a Regulatory Approval. Tenant shall be solely responsible for obtaining
any such Regulatory Approval, and Tenant shall not seek any Regulatory Approval
without first obtaining the approval of Port. All costs associated with applying
for and obtaining any necessary Regulatory Approval shall be borne by Tenant.
Tenant shall be solely responsible for complying with any and all conditions
imposed by regulatory agencies as part of a Regulatory Approval. Any fines or
penalties imposed as a result of the failure of Tenant to comply with the terms
and conditions of any Regulatory Approval shall be paid and discharged by
Tenant, and Port shall have no liability, monetary or otherwise, for said fines
and penalties. To the fullest extent permitted by Law, Tenant agrees to
indemnify and hold City, Port and their Agents harmless from and against any
loss, expense, cost, damage, attorneys' fees, penalties, claims or liabilities
which City or Port may incur as a result of Tenant's failure to obtain or comply
with the terms and conditions of any Regulatory Approval.

11. MAINTENANCE AND REPAIRS.

         11.1 MAINTENANCE AND REPAIR OBLIGATIONS. Except as otherwise provided
in Section 1.9, Tenant shall at all times during the Term of this Lease, and at
its sole cost and expense, maintain and repair in good and working order,
condition and repair the Premises and all Improvements and Alterations thereon.
Except as otherwise provided in Section 1.9, Port shall not be obligated to make
any repairs, replacement or renewals of any kind, nature or description
whatsoever to the Premises nor to any Improvements or Alterations now or
hereafter located thereon.

         Notwithstanding any maintenance obligations of Port set forth in
Section 1.8, in the event that Tenant, its Agents or Invitees cause any damage
(excepting ordinary wear and tear) to the Premises, Port may repair the same at
Tenant's expense and Tenant shall immediately reimburse Port therefor.

         11.2 PORT'S RIGHT TO INSPECT. In the event that damage or deterioration
to the Premises or any portion thereof which is Tenant's obligation to maintain
results in the same not meeting the standard of maintenance required by Port for
such uses as Tenant is making of the Premises, then Tenant shall have the
independent responsibility for, and shall promptly undertake, maintenance or
repair of the Premises and complete the same with due diligence.

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Without limiting Section 24 hereof, Port may make periodic inspections of the
Premises and may advise Tenant when maintenance or repair of the Premises is
required, but such right of inspection shall not relieve Tenant of its
independent responsibility to maintain such Premises and Improvements in a
condition as good as, or better than, their condition at the Commencement Date,
excepting ordinary wear and tear. If, after reasonable notice in writing from
Port, Tenant fails to undertake such maintenance or repairs and complete the
same with due diligence, then in addition to any other remedy available to Port,
Port may make such maintenance or repairs at Tenant's expense and Tenant shall
immediately upon invoice reimburse Port therefor.

         11.3 ACTS OF GOD. Nothing contained herein shall require either Tenant
or Port to repair or replace the Premises or the Improvements thereon as a
result of damage caused by acts of war, earthquake, tidal wave or other acts of
God, except that this provision shall not affect any obligation to make repairs
to the Premises pursuant to Section 18 in the event of any damage or destruction
of the Premises.

12. UTILITIES AND SERVICES.

         12.1 UTILITIES. Tenant shall make arrangements and shall pay all
charges for all utilities to be furnished on, in or to the Premises or to be
used by Tenant, including, without limitation, gas, electrical, water, sewer and
telecommunications services. Except as otherwise provided in Section 1.10,
Tenant shall pay all charges for said utilities, including charges for the
connection and installation of the utilities specified in Section 1.10 from the
location points specified therein.

         Tenant shall be obligated, at its sole cost and expense, to repair and
maintain in good operating condition all utilities located within the Premises
and all utilities installed by Tenant (whether within or outside the Premises).
If Tenant requests Port to perform such maintenance or repair, whether emergency
or routine, Port shall charge Tenant for the cost of the work performed at the
then prevailing standard rates, and Tenant agrees to pay said charges to Port
promptly upon billing. Tenant shall pay for repair of utilities located outside
the Premises (regardless of who installed the same) which are damaged by or
adversely affected by Tenant's use of such utility and shall be responsible for
all damages, liabilities and claims arising therefrom.

         The parties agree that any and all utility improvements shall become
part of the realty and are not trade fixtures. Port makes no representation or
warranty that utility services, including telecommunications services, will not
be interrupted. Port shall not be liable in damages or otherwise for any failure
or interruption of any utility services, including telecommunications services,
furnished to the Premises. No such failure or interruption shall constitute a
basis for constructive eviction, nor entitle Tenant to terminate this Lease or
abate the Rent.

         12.2 SERVICES. Tenant shall make arrangements and shall pay all charges
for all services to be furnished on, in or to the Premises or to be used by
Tenant, including, without limitation, garbage and trash collection, janitorial
service and extermination service.

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<PAGE>
13. IMPROVEMENTS AND ALTERATIONS.

         13.1 CONSENT REQUIRED. Tenant shall not make, nor cause or suffer to be
made, any Alterations or Improvements to the Premises until Tenant shall have
procured and paid for all Regulatory Approvals required to be obtained for such
Alterations and Improvements, including, but not limited to, any building or
similar permits required by Port or its Chief Harbor Engineer in the exercise of
its jurisdiction with respect to the Premises.

         13.2 CONSTRUCTION REQUIREMENTS. All Alterations or Improvements to the
Premises made by or on behalf of Tenant shall be subject to the following
conditions, which Tenant covenants faithfully to perform:

                  (a) All Alterations and Improvements shall be constructed in a
good and workmanlike manner and in compliance with all applicable building,
zoning and other applicable Laws, and compliance with the terms of and the
conditions imposed in any Regulatory Approval.

                  (b) All Alterations and Improvements shall be performed with
reasonable dispatch, delays beyond the reasonable control of Tenant excepted;
and

                  (c) At the completion of the construction of the Alterations
or Improvements, Tenant shall furnish one (1) set of "as-built" drawings of the
same made on or to the Premises. Unless otherwise stated as a condition of the
Regulatory Approval, this requirement may be fulfilled by the submittal after
completion of the Alterations or Improvements of a hand-corrected copy of the
approved permit drawing(s).

         13.3 IMPROVEMENTS PART OF REALTY. All Alterations or Improvements to
the Premises made by or on behalf of Tenant which may not be removed without
substantial injury to the Premises shall become part of the realty, shall be
owned by Port and shall, at the end of the Term hereof, remain on the Premises
without compensation to Tenant, unless Port first waives its right to the
Alterations or Improvements in writing.

         13.4 REMOVAL OF IMPROVEMENTS. At Port's election made in accordance
with Section 13.5 hereof, Tenant shall be obligated at its own expense to remove
and relocate or demolish and remove (as Tenant may choose) any or all
Alterations or Improvements which Tenant has made to the Premises, including
without limitation all telephone wiring and equipment installed by Tenant.
Tenant shall repair, at its own expense, in good workmanlike fashion any damage
occasioned thereby.

         13.5 NOTICE OF REMOVAL. Prior to the effective termination date of this
Lease, Port shall give written notice to Tenant (herein "Notice of Removal")
specifying the Alterations or Improvements or portions thereof which Tenant
shall be required to remove and relocate or demolish and remove from the
Premises, in accordance with Section 13.4. If termination is the result of loss
or destruction of the Premises or any Improvements thereon, Port shall deliver
said Notice of Removal to Tenant within a reasonable time after the loss or
destruction. If Tenant fails to complete such demolition or removal on or before
the termination of this Lease, Port may perform such removal or demolition at
Tenant's expense, and Tenant shall reimburse Port upon demand therefor.

                                       12
<PAGE>
         13.6 REMOVAL OF NON-PERMITTED IMPROVEMENTS. If Tenant constructs any
Alterations or Improvements to the Premises without Port's prior written consent
or without complying with Section 13.2 hereof, then, in addition to any other
remedy available to Port, Port may require Tenant to remove, at Tenant's
expense, any or all such Alterations or Improvements and to repair, at Tenant's
expense and in good workmanlike fashion, any damage occasioned thereby. Tenant
shall pay to Port all special inspection fees as set forth in the San Francisco
Building Code for inspection of work performed without required permits.

14. SUITABILITY ACCEPTANCE. Tenant acknowledges that Port has made no
representations or warranties concerning the Premises, including without
limitation, the seismological condition thereof. By taking possession of the
Premises, Tenant shall be deemed to have inspected the Premises and accepted the
Premises in an "As-Is" condition and as being suitable for the conduct of
Tenant's business.

15. LIENS. Tenant shall keep the Premises free from any liens arising out of any
work performed, materials furnished or obligations incurred by Tenant or its
Agents. In the event that Tenant shall not, within twenty (20) days following
the imposition of any such lien, cause the same to be released of record, Port
shall have, in addition to all other remedies provided by this Lease or by Law,
the right but not the obligation to cause the same to be released by such means
as it shall deem proper, including without limitation, payment of the claim
giving rise to such lien. All sums paid by Port for such purpose and all
reasonable expenses incurred by Port in connection therewith shall be payable to
Port by Tenant within thirty (30) days following written demand by Port.

16. HAZARDOUS MATERIALS.

         16.1 REQUIREMENTS FOR HANDLING. Neither Tenant nor its Agents or
Invitees, shall Handle in, on or about the Premises any Hazardous Material
without the prior written consent of Port, which consent shall not be
unreasonably withheld so long as Tenant demonstrates to Port's reasonable
satisfaction that such Hazardous Material is necessary to Tenant's business,
WILL be Handled in a manner which strictly complies with all Environmental Laws
and will not materially increase the risk of fire or other casualty to the
Premises. Notwithstanding the foregoing, Tenant may Handle on the Premises
janitorial or office supplies or materials in such limited amounts as are
customarily used for general office purposes so long as such Handling is at all
times in full compliance with all Environmental Laws.

         16.2 TENANT RESPONSIBILITY. Subject to the restrictions set forth in
Section 16.1 hereof, Tenant shall Handle all Hazardous Materials discovered on
the Premises during the Term of this Lease or introduced on the Premises by
Tenant, its Agents or Invitees, in compliance with all Environmental Laws.
Tenant shall not be responsible for the safe Handling of Hazardous Materials
introduced on the Premises during the Term of this Lease by City, Port or their
Agents. Tenant shall protect its employees and the general public in accordance
with all Environmental Laws. Port may from time to time request, and Tenant
shall be obligated to provide, information reasonably adequate for Port to
determine that any and all Hazardous Materials are being Handled in a manner
which complies with all Environmental Laws. Port shall have the right to inspect
the Premises for Hazardous Materials at reasonable times, pursuant to Section
24.1 hereof.

                                       13
<PAGE>
         16.3 REQUIREMENT TO REMOVE. Prior to termination of this Lease, Tenant,
at its sole cost and expense, shall remove any and all Hazardous Materials
introduced in, on, under or about the Premises by Tenant, its Agents or
Invitees. Further, Tenant, at its sole cost and expense, shall remove any
Hazardous Material discovered on the Premises during the Term of this Lease
which is required to be removed by any governmental agency, including Port;
provided however, that Tenant shall not be obligated to remove any Hazardous
Material introduced onto the Premises during the Term of this Lease by the City,
Port or their Agents. Prior to the termination of this Lease, Port and Tenant
shall conduct a joint inspection of the Premises for the purpose of identifying
Hazardous Materials existing on the Premises which Tenant is required to remove.

17. INSURANCE.

         17.1 REQUIRED INSURANCE COVERAGE. Tenant, at its sole cost and expense,
shall maintain, or cause to be maintained, throughout the Term of this Lease,
the following insurance:

                  (a) General Liability Insurance. Comprehensive or commercial
general liability insurance, with limits not less than One Million Dollars
($1,000,000.00) each occurrence combined single limit for bodily injury and
property damage, including coverages for contractual liability, independent
contractors, broadform property damage, personal injury, products and completed
operations, and fire damage and legal liability with limits not less than Two
Hundred Fifty Thousand Dollars ($250,000.00).

                  (b) Automobile Liability Insurance. Comprehensive or business
automobile liability insurance with limits not less than One Million Dollars
($1,000,000.00) each occurrence combined single limit for bodily injury and
property damage, including coverages for owned and hired vehicles and for
employer's non-ownership liability, which insurance shall be required if any
automobiles are operated on the Premises.

                  (c) Worker's Compensation; Jones Act; U.S. Longshore and
Harborworker's Act Insurance. Worker's Compensation Insurance, U.S. Longshore
and Harborworker's Act Insurance and Jones Act Insurance with employer's
liability limit not less than One Million Dollars ($1,000,000.00) for each
accident, on employees eligible for each. In the event Tenant is self-insured
for the insurance required pursuant to this Section 17.1(c), it shall furnish to
Port a current Certificate of Permission to Self-Insure signed by the Department
of Industrial Relations, Administration of Self-Insurance, Sacramento,
California.

                  (d) Personal Property Insurance. Tenant, at its sole cost and
expense, shall procure and maintain on all of its personal property and
Alterations, in, on, or about the Premises, property insurance on an all-risk
form, excluding earthquake and flood, to the extent of full replacement value.
The proceeds from any such policy shall be used by Tenant for the replacement of
Tenant's personal property.

                  (e) Business Interruption Insurance. Tenant, at its sole cost
and expense, shall maintain business interruption insurance insuring that the
Base Rent shall be paid to Port for a period of up to one year if Tenant is
unable to operate its business at the Premises due to a risk insured against by
the personal property insurance referred to in Section 17.1 (d) above. Said
insurance also shall cover business interruptions due to riots or civil
commotion.

                                       14
<PAGE>
                  (f) Required by Law. Such other insurance as required by Law.

                  (g) See Addendum. Such other insurance as specified in the
Addendum attached to this Lease, if any.

         17.2 CLAIMS-MADE POLICIES. If any of the insurance required in Section
17.1 is provided under a claims-made form of policy, Tenant shall maintain such
coverage continuously throughout the Term and without lapse for a period of
three years beyond the termination of this Lease, to the effect that should
occurrences during the Term give rise to claims made after termination of this
Lease, such claims shall be covered by such claims-made policies.

         17.3 ANNUAL AGGREGATE LIMITS. If any of the insurance required in
Section 17.1 is provided under a form of coverage which includes an annual
aggregate limit or provides that claims investigation or legal defense costs be
included in such annual aggregate limit, such annual aggregate limit shall be
double the occurrence limits specified herein.

         17.4 PAYMENT OF PREMIUMS. Tenant shall pay the premiums for maintaining
all required insurance.

         17.5 WAIVER OF SUBROGATION RIGHTS. The parties release each other, and
their respective authorized representatives, from any claims for damage to the
Premises or to the fixtures, personal property, Improvements or Alterations of
either Port or Tenant in or on the Premises which are caused by or result from
risks insured against under any property insurance policies carried by the
parties and in force at the time of any such damage, to the extent such claims
for damage are paid by such policies. Each party shall cause each property
insurance. policy obtained by it to provide that the insurance company waives
all right of recovery by way of subrogation against the other party in
connection with any damage covered by any policy.

         17.6 GENERAL INSURANCE MATTERS.

                  (a) All liability insurance policies required to be maintained
by Tenant hereunder shall contain a cross-liability clause, shall name as
additional insureds "the City and County of San Francisco and the San Francisco
Port Commission and their officers, directors, employees and agents," shall be
primary to any other insurance available to the additional insureds with respect
to claims arising under this Lease, and shall provide that such insurance
applies separately to each insured against whom complaint is made or suit is
brought except with respect to the limits of the company's liability.

                  (b) All insurance policies required to be maintained by Tenant
hereunder shall be issued by an insurance company or companies reasonably
acceptable to Port. Tenant's compliance with this Section shall in no way
relieve or decrease Tenant's liability under this Lease.

                  (c) All insurance policies required to be maintained by Tenant
hereunder shall provide for thirty (30) days prior written notice of
cancellation or intended non-renewal or reduction in coverage to Tenant and
Port. Such notice shall be given in accordance with the notice provisions of
Section 28 of this Lease.

                                       15
<PAGE>
                  (d) Tenant shall deliver to Port certificates of insurance in
a form satisfactory to Port evidencing the coverages required herein, together
with evidence of payment of premiums, on or before the Commencement Date, and
upon renewal of each policy not less than thirty (30) days before expiration of
the term of the policy. Tenant shall, upon Port's request, promptly furnish Port
with a complete copy of any insurance policy required hereunder.

                  (e) Not more often than every year and upon not less than
sixty (60) days prior written notice, Port may require Tenant to increase the
insurance limits set forth in Section 17.1 above if Port finds in its reasonable
judgment that it is the general commercial practice in San Francisco to carry
insurance in amounts substantially greater than those amounts carried by Tenant
with respect to risks comparable to those associated with the use of the
Premises.

18. DAMAGE AND DESTRUCTION.

         18.1 DAMAGE AND DESTRUCTION. If the Premises or the Facility are
damaged or destroyed by fire or other casualty, then either party may terminate
this Lease by giving thirty days' written notice thereof. If both parties elect
to keep the lease in force, and funds for such repairs are appropriated by Port,
in its sole discretion, and such repairs can be made within ninety (90) days
after the date of such damage (the "Repair Period"), then Port shall repair the
Premises. In the event such conditions are satisfied, this Lease shall remain in
full force and effect except that Tenant shall be entitled to a proportionate
reduction of Base Rent during the Repair Period based upon the extent to which
such damage and the making of such repairs materially interferes with Tenant's
use or occupancy of the Premises. In no event shall Port be required to repair
any damage to Tenant's personal property or any paneling, decorations, railings,
floor coverings, or any Improvements or Alterations installed or made on the
Premises by or at the expense of Tenant.

         18.2 WAIVER. Port and Tenant intend that the provisions of this Section
govern fully in the event of any damage or destruction and accordingly, Port and
Tenant each hereby waives the provisions or Section 1932, subdivision 2, and
Section 1933, subdivision 4, of the Civil Code of California or under any
similar Law now or hereafter in effect.

19. EMINENT DOMAIN.

         19.1 TAKINGS. If all or any part of the Premises are taken under the
power of eminent domain or any transfer in lieu thereof, this Lease shall
terminate as to the part so taken as of the date of taking. In the case of a
total taking of the Premises, this Lease shall terminate as of the effective
date of such taking. In the case of a partial taking, either Port or Tenant may
terminate this Lease as to the whole or the balance of the Premises by written
notice within thirty (30) days after such date. In the event of a partial taking
of the Premises which does not result in a termination of this Lease, the
monthly Rent to be paid thereafter shall be equitably reduced. In the event of
any taking, Port shall be entitled to any amount awarded in connection
therewith.

         19.2 AWARD; WAIVER. Port shall be entitled to any and all payment,
income, rent, award or any interest therein whatsoever which may be paid or made
in connection with any taking or conveyance hereunder, and Tenant shall have no
claim against Port or otherwise for the value of any unexpired term of this
Lease. Notwithstanding the foregoing, to the extent that the

                                       16
<PAGE>
same shall not diminish Port's recovery for such taking, Tenant shall have the
right to make a claim, and to receive any award specifically made to Tenant, for
moving expenses and for loss or damage to Tenant's trade fixtures, equipment and
movable furniture. Port and Tenant intend that the provisions of this Section
19.2 govern fully in the event of condemnation, and accordingly, Port and Tenant
each hereby waive any right to terminate this Lease in whole or in part under
Sections 1265.120 and 1265.130 of the California Code of Civil Procedure or
under any similar law now or hereafter in effect.

20. INDEMNITY AND EXCULPATION.

         20.1 INDEMNITY. Tenant shall indemnify and hold Port, City and their
Agents harmless from, and, if requested, shall defend them against any and all
claims, direct or vicarious liability, damage or loss arising out of: (a) any
injury to or death of any person or damage to or destruction of any property
occurring in, on or about the Premises, or any part thereof, from any cause
whatsoever, or (b) any default by Tenant in the observance or performance of any
of the terms, covenants or conditions of this Lease, or (c) the use, occupancy
or condition of the Premises or Tenant's, its Agents' or Invitees', activities
therein. The foregoing indemnity obligation of Tenant shall include, but not be
limited to, claims, liability, damage or loss predicated, in whole or in part,
upon active or passive negligence of Port, City or their Agents and shall
exclude only claims, liability, damage or loss resulting solely and exclusively
from the willful misconduct of Port or City. The foregoing indemnity obligation
of Tenant shall include without limitation reasonable attorneys' fees,
investigation costs and all other reasonable costs and expenses incurred by Port
or City from the first notice that any claim or demand is or may be made. The
provisions of this Section shall survive the termination of this Lease with
respect to any damage, destruction, injury or death occurring prior to such
termination.

         20.2 EXCULPATION. Tenant, as a material part of the consideration to be
rendered to Port, hereby waives any and all claims against Port, City and their
Agents, and agrees to hold Port, City and their Agents harmless from any claims
or damages to goods, wares, goodwill, merchandise, equipment or business
opportunities and by persons in, upon or about said Premises for any cause
arising at any time, including without limitation all claims arising from the
joint or concurrent negligence of Port or City or their Agents, but excluding
any intentionally harmful acts committed solely by Port or City.

         20.3 HAZARDOUS MATERIALS INDEMNIFICATION. Tenant shall indemnify,
defend and hold Port, City and their Agents harmless from any and all claims,
judgments, damages, penalties, fines, costs, liabilities or losses which arise
during or after the Term of this Lease as a result of the Handling of Hazardous
Materials on the Premises by Tenant, its Agents or Invitees, including without
limitation, all costs of investigating and remediating the same, damages for
diminution in the value of the Premises, damages for the loss or restriction on
use of rentable or usable space or of any amenity of the Premises, damages
arising from any adverse impact on marketing of any such space and sums paid in
settlement of claims, attorneys' fees, consultant fees and expert fees.

         This indemnification of Port and City by Tenant includes, but is not
limited to, costs incurred in connection with any investigation of site
conditions or any clean-up, remediation, removal or restoration work requested
by Port or required by any federal, state or local

                                       17
<PAGE>
governmental agency or political subdivision because of Hazardous Material
present in the soil or groundwater in, on or under the Premises or in any
Improvements. Without limiting the foregoing, if the presence of any Hazardous
Material in, on, under or about the Premises caused or permitted by Tenant
results in any contamination of the Premises, Tenant, at its sole expense,
promptly shall take all action that is necessary to return the Premises to the
condition existing prior to the introduction of such Hazardous Material in, on,
under or about the Premises; provided that Port approval of such actions shall
first be obtained, which approval shall not be unreasonably withheld so long as
such actions could not potentially have any material adverse effect upon the
Premises. Tenant's obligations hereunder shall survive the termination of this
Lease.

21. ASSIGNMENT AND SUBLETTING.

         21.1 ASSIGNMENT PROHIBITED. Tenant shall not make or permit any
Assignment of this Lease. An Assignment of this Lease shall constitute an
incurable breach by Tenant and shall be voidable at the option of Port. In the
event Tenant requests an Assignment of this Lease, such request, at Port's
option, shall be deemed to be a request for termination of this Lease, and this
Lease shall terminate automatically thirty (30) days after the date of request.

         As used herein, "Assignment" shall include the following (whether
occurring voluntarily, involuntarily or by operation of Law):

                  (a) any direct or indirect assignment, conveyance, alienation
or transfer of Tenant's entire interest in this Lease or the Premises;

                  (b) if Tenant is a privately-held corporation, the
dissolution, merger, consolidation or other reorganization of Tenant, or any
cumulative or aggregate sale, transfer, assignment or hypothecation of fifty
percent (50%) or more of the total capital stock of Tenant or any sale or
cumulative sales of fifty percent (50%) or more of the value of the assets of
Tenant; or

                  (c) if Tenant is a partnership or an unincorporated
association, (i) the withdrawal or substitution (whether voluntarily,
involuntarily or by operation of Law and whether occurring at one time or over a
period of time) of any partner(s) owning fifty percent (50%) or more of said
partnership or association, or (ii) the cumulative or aggregate sale, transfer,
assignment or hypothecation of fifty percent (50%) or more of any interest in
the capital or profits of such partnership or association, or (iii) the
dissolution of the partnership or association.

         21.2 CONDITIONS OF SUBLETTING. Tenant shall not Sublet the Premises,
nor any part thereof, nor allow any person or entity other than Tenant or
Tenant's authorized Agents or Invitees to occupy or use any portion of the
Premises, without the prior written consent of Port in each instance, which
consent may be withheld by Port in Port's sole discretion. Subletting of the
Premises without Port's prior written consent shall constitute an incurable
breach by Tenant and shall be voidable at the option of Port.

         As used herein, "Sublet" or "Subletting" shall mean any direct or
indirect conveyance, alienation, sublease or other transfer of any portion of
Tenant's interest in this Lease or in the

                                       18
<PAGE>
Premises, or the use of all or any portion of the Premises by any person or
entity other than Tenant or Tenant's authorized Agents and Invitees. For
purposes of this section, the definition of "Invitees" set forth in Section 2.19
hereof shall not include Tenant's sublessees.

         21.3 REQUEST TO SUBLET. Tenant shall give Port at least thirty (30)
days prior written notice of its desire to Sublet (herein "Notice of Request to
Sublet") and shall provide Port with the following information in writing: (1)
the name, address, legal composition and ownership of the proposed sublessee,
(2) a full description of the terms and conditions of the proposed Subletting,
including copies of any and all proposed sublease agreements or other documents
and instruments concerning the proposed Subletting, (3) a description of the
proposed use of the Premises by the proposed sublessee, including any required
or desired Alterations or Improvements to the Premises that may be undertaken by
such sublessee in order to facilitate its proposed use, (4) complete information
regarding all payments to be made or other consideration to be given in
connection with the Subletting, and (5) any other information, documentation or
evidence as may be requested by Port, all in sufficient detail to enable Port to
evaluate the proposed Subletting and the prospective sublessee. Tenant's Notice
of Request to Sublet shall not be deemed to have been served or given until such
time as Tenant has provided Port with all information set forth hereinabove.
Tenant shall immediately notify Port of any modifications to the proposed terms
of the Subletting.

         21.4 PORT'S CONSENT/REFUSAL TO CONSENT.

                  (a) Upon receiving a Notice of Request to Sublet, Port may
consent to the proposed Subletting, subject to any conditions upon such
Subletting, which conditions may include, without limitation: (i) that in the
event this Lease is terminated prior to the expiration of any Subletting, at the
election of Port, such termination shall operate to terminate all existing
subleases entered into by Tenant without further notice from Port; and (ii) that
the sublease or other transfer agreement contain: (A) an indemnification clause
and waiver of claims provisions in favor of Port and City identical to those
contained in Section 20 of this Lease; (B) a clause requiring the proposed
sublessee to name City, Port and their Agents as additional insureds under all
liability and other insurance policies; and (C) a clause requiring the proposed
sublessee to acknowledge Port's right to demand increased insurance coverage to
normal amounts consistent with the proposed sublessee's business activities on
the Premises.

                  (b) One hundred percent (100%) of all sums paid or payable to
Tenant by the sublessee in excess of the then-existing Rent payable by Tenant
attributable to the portion of the Premises being Sublet, including without
limitation, any rent and all other sums or other consideration received by
Tenant as a result of the Subletting in whatever form (less expenses for
verifiable, reasonable and customary brokerage commissions, Tenant Improvements,
lease concessions, value of Tenant's trade fixtures conveyed and other expenses
actually paid or obligations incurred by Tenant in connection with the
Subletting and/or expenses of operating the Premises paid or incurred by Tenant)
shall be paid by Tenant to Port immediately upon receipt thereof by Tenant as
Additional Rent hereunder.

                  (c) Tenant acknowledges and agrees that each of the rights of
Port set forth in this Section 21 is a reasonable limitation on Tenant's right
to assign or sublet for purposes of California Civil Code Section 1951.4.

                                       19
<PAGE>
                  (d) No consent to any proposed Subletting, whether conditional
or unconditional, shall be deemed to be a consent to any other or further
Subletting of the Premises, or to any other transfer of this Lease on the same
or other conditions. No interest of Tenant in this Lease shall be assignable by
operation of Law.

         21.5 FEES FOR REVIEW. Tenant shall reimburse Port for all costs,
including without limitation attorney's fees, which are incurred by Port in
connection with the review, investigation, processing, documentation and/or
approval of any proposed Subletting.

         21.6 NO RELEASE OF TENANT. The acceptance by Port of Rent or other
payment from any other person shall not be deemed to be a waiver by Port of any
provision of this Lease nor to be a consent to any subsequent Subletting or to
be a release of Tenant from any obligation under this Lease. No Subletting of
the Premises shall in any way diminish, impair or release any of the liabilities
and obligations of Tenant, any guarantor or any other person liable for all or
any portion of Tenant's obligations under this Lease. The joint and several
liability of Tenant and Tenant's successors or transferees and the obligations
of Tenant under this Lease shall not be discharged, released or impaired by any
agreement by Port modifying any provision of this Lease or extending time for
performance hereunder or by any waiver or failure of Port to enforce any
obligations hereunder.

         21.7 ASSIGNMENT OF SUBLEASE RENTS. Tenant immediately and irrevocably
assigns to Port, as security for Tenant's obligations under this Lease, all of
Tenant's interest in any rent from any Subletting of all or any part of the
Premises; except that, until the occurrence of an act of default by Tenant,
Tenant shall have the right to receive, collect and enjoy such rents.

22. DEFAULT BY TENANT.

         22.1 EVENT OF DEFAULT. The occurrence of any one or more of the
following events shall constitute a default by Tenant:

                  (a) Failure by Tenant to pay when due any Rent;

                  (b) Abandonment or vacation of the Premises by Tenant;

                  (c) Failure to perform any other provision of this Lease if
the failure to perform is not cured within thirty (30) days after notice has
been given by Port to Tenant. If the default cannot reasonably be cured within
30 days, Tenant shall not be in default of this Lease if Tenant commences to
cure the default within such thirty (30) day period and diligently and in good
faith continues to cure the default;

                  (d) Either (i) the failure of Tenant to pay its debts as they
become due, the written admission of Tenant of its inability to pay its debts,
or a general assignment by Tenant for the benefit of creditors; or (ii) the
filing by or against Tenant of any action seeking reorganization, arrangement,
liquidation, or other relief under any Law relating to bankruptcy, insolvency,
or reorganization (unless such action is involuntary and is discharged within
sixty (60) days) or seeking the appointment of a trustee, receiver or liquidator
of Tenant's or any substantial part of Tenant's assets; or (iii) the attachment,
execution or other judicial seizure of

                                       20
<PAGE>
substantially all of Tenant's interest in this Lease, unless such seizure is
discharged within ten (10) days.

         Notices given under this section shall demand that Tenant perform the
provisions of this Lease or pay the Rent that is in arrears, as the case may be,
within the applicable period of time, or quit the Premises. No such notice shall
be deemed a forfeiture or a termination of this Lease unless Port so elects in
the notice.

         22.2 PORT'S REMEDIES. Upon default by Tenant, Port shall, without
further notice or demand of any kind to Tenant or to any other person, have the
following remedies:

                  (a) Termination of Tenant's Right to Possession. Port may
terminate Tenant's right to possession of the Premises at any time. No act by
Port other than giving notice of termination to Tenant shall terminate this
Lease. Acts of maintenance, efforts to relet the Premises, or the appointment of
a receiver on Port's initiative to protect Port's interest under this Lease
shall not constitute a termination of Tenant's right to possession.

                  (b) Port's Right to Cure Tenant's Default. Port, at any time
after Tenant commits a default, may, at Port's sole option, cure the default at
Tenant's cost. If Port at any time, by reason of Tenant's default, undertakes
any act to cure or attempt to cure such default that requires the payment of any
sums, or otherwise incurs any costs, damages, or liabilities, (including without
limitation, attorneys' fees), all such sums, costs, damages or liabilities paid
by Port shall be due immediately from Tenant to Port at the time the sum is
paid, and if paid by Tenant at a later date shall bear interest at the lesser of
ten percent (10%) or the maximum non-usurious rate Port is permitted by Law to
charge from the date such sum is paid by Port until Port is reimbursed by
Tenant.

         The remedies set forth in this Section 22.2 are not exclusive; they are
cumulative and in addition to any and all their rights or remedies of Port now
or later allowed by Laws. Tenant's obligations hereunder shall survive any
termination of this Lease.

         22.3 DAMAGES. If Port elects to terminate this Lease under Section
22.2, Port has the rights and remedies provided by California Civil Code Section
1951.2, including the right to recover from Tenant the following:

                  (a) The worth at the time of award of the unpaid Rent which
had been earned at the date of termination of this Lease;

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

                  (c) Any other amounts necessary to compensate Port for the
detriment proximately caused by Tenant's default, or which, in the ordinary
course of events, would likely result, including, but not limited to, attorneys'
fees and court costs, the costs of carrying the Premises such as repairs,
maintenance, taxes and insurance premiums, utilities, security precautions and
the reasonable costs and expenses incurred by Port in (i) retaking possession of
the Premises; (ii) cleaning and making repairs and alterations necessary to
return the Premises to

                                       21
<PAGE>
good condition and preparing the Premises for reletting; (iii) removing,
transporting and storing any of Tenant's property left at the Premises (although
Port shall have no obligation so to do); and (iv) reletting the Premises,
including, without limitation, brokerage commissions, advertising costs and
attorneys' fees. Efforts by Port to mitigate the damages caused by Tenant's
breach of the Lease do not waive Port's rights to recover damages upon
termination.

         The "worth at the time of award" of the amounts referred to in Sections
22.3(a) and (b) shall be computed by allowing interest at an annual rate equal
to the lesser of ten percent or the maximum non-usurious rate Port is permitted
by Law to charge.

         22.4 NO ACCORD AND SATISFACTION. No payment by Tenant or receipt by
Port of an amount less than the Rent due under this Lease shall be deemed to be
other than "on account" of the earliest Rent due; nor shall any endorsement or
statement on any check or payment, or letter accompanying such check or payment,
be deemed an accord and satisfaction. Port may accept any such partial payment
or tender without prejudice to its right to recover the balance of any amount
due and to pursue any other remedy herein provided at Law or in equity.

23. LITIGATION EXPENSES; ATTORNEYS' FEES.

         23.1 LITIGATION EXPENSES. If either party hereto brings an action or
proceeding (including any cross-complaint or counterclaim) against the other
party by reason of a default, or otherwise arising out of this Lease, the
prevailing party in such action or proceeding shall be entitled to recover from
the other party its costs and expenses of suit, including but not limited to
reasonable attorneys' fees, which shall be payable whether or not such action is
prosecuted to judgment. "Prevailing party" within the meaning of this Section 23
shall include, without limitation, a party who substantially obtains or defeats,
as the case may be, the relief sought in the action, whether by compromise,
settlement, judgment or the abandonment by the other party of its claim or
defense.

         23.2 APPEALS. Attorneys' fees under this Section 23 shall include
attorneys' fees and all other reasonable costs and expenses incurred in
connection with any appeal.

         23.3 CITY ATTORNEY. For purposes of this Lease, reasonable fees of
attorneys of the City's Office of the City Attorney shall be based on the fees
regularly charged by private attorneys with an equivalent number of years of
professional experience (calculated by reference to earliest year of admission
to the Bar of any State) who practice in San Francisco in law firms with
approximately the same number of attorneys as employed by the Office of the City
Attorney.

24. PORT'S ENTRY ON PREMISES.

         24.1 ENTRY FOR INSPECTION. Port and its authorized Agents shall have
the right to enter the Premises without notice at any time during normal
business hours of generally recognized business days, provided that Tenant or
Tenant's Agents are present on the Premises, for the purpose of inspecting the
Premises to determine whether the Premises are in good condition and whether
Tenant is complying with its obligations under this Lease.

                                       22
<PAGE>
         24.2 GENERAL ENTRY. In addition to its rights pursuant to Section 24.1,
Port and its authorized Agents shall have the right to enter the Premises at all
reasonable times and upon reasonable notice for any of the following purposes:

                  (a) To perform any necessary maintenance, repairs or
restoration to the Premises, or to perform any services which Port has the right
or obligation to perform;

                  (b) To serve, post, or keep posted any notices required or
allowed under the provisions of this Lease;

                  (c) To post "For Sale" or "For Lease" signs at any time during
the Term;

                  (d) To show the Premises to prospective real estate brokers,
agents, buyers, or persons interested in an exchange, at any time during the
Term; to show the Premises to prospective tenants at any time during the Term;

                  (e) If any excavation or other construction is undertaken or
is about to be undertaken on any property or street adjacent to the Premises, to
shore the foundations, footings or walls of the Premises and to erect
scaffolding and protective barricades around and about the Premises as
reasonably necessary in connection with such activities (but not so as to
prevent or unreasonably restrict entry to the Premises), and to do any other act
or thing necessary for the safety or preservation of the Premises during such
excavation or other construction.

         24.3 EMERGENCY ENTRY. Port may enter the Premises at any time, without
notice, in the event of an emergency. Port shall have the right to use any and
all means which Port may deem proper in such an emergency in order to obtain
entry to the Premises. Entry to the Premises by any of said means, or otherwise,
shall not under any circumstances be construed or deemed to be a forcible or
unlawful entry into, or a detainer of the Premises, or an eviction of Tenant
from the Premises or any portion of them.

         24.4 NO LIABILITY. Port shall not be liable in any manner, and Tenant
hereby waives any claim for damages, for any inconvenience, disturbance, loss of
business, nuisance, or other damage, including without limitation any abatement
or reduction in Rent, arising out of Port's entry onto the Premises as provided
in this Section 24, except damage resulting solely from the active negligence or
willful misconduct of Port or its authorized representatives.

         24.5 NON-DISTURBANCE. Port shall use its best efforts to conduct its
activities on the Premises as allowed in this Section 24 in a manner which, to
the extent reasonably practicable, will cause the least possible inconvenience,
annoyance or disturbance to Tenant.

25. SURRENDER AND QUITCLAIM.

         25.1 SURRENDER. Upon termination of this Lease Tenant shall surrender
to Port the Premises and all Improvements thereon in good condition (except for
ordinary wear and tear occurring after the last necessary maintenance made by
Tenant and except for destruction or condemnation as described in Sections 18
and 19 hereof), except for Improvements and Alterations which Tenant has the
right to remove or is obligated to remove under the provisions of Section 13.
Tenant shall repair any damage to the Premises for which Tenant is liable under

                                       23
<PAGE>
this Lease. Tenant shall remove all of its personal property and shall perform
all restoration made necessary by the removal of any Improvements, Alterations
or Tenant's personal property within the time periods stated in this Lease.

         Port may elect to retain or dispose of any Improvements or Tenant's
personal property which Tenant does not remove from the Premises as allowed or
required by this Lease by giving at least ten (10) days' prior written notice of
such election to Tenant. Except with respect to (i) Tenant's personal property
as to which Port has waived in writing any right it may have or may have
acquired, (ii) Tenant's property which is covered by any filed financing
statement, and (iii) any Hazardous Material left in or on the Premises, title to
any Improvements, Alterations or to Tenant's personal property which Port elects
to retain or dispose of upon expiration of the ten-day period shall vest in
Port. Tenant waives all claims against Port for any damage to Tenant resulting
from Port's retention or disposition of any Improvements, Alterations or
Tenant's personal property. Tenant shall be liable to Port for all costs
incurred by Port for storing, removing or disposing of any Improvements,
Alterations or Tenant's personal property.

         If Tenant fails to surrender the Premises as required by this Section
25.1, Tenant shall hold Port harmless from all damages resulting from Tenant's
failure to surrender the Premises, including, but not limited to, claims made by
a succeeding tenant resulting from Tenant's failure to surrender the Premises.
No act or conduct of Port, including, but not limited to, the acceptance of the
keys to the Premises, shall constitute an acceptance of the surrender of the
Premises by Tenant before the expiration of the Term. Only a notice from Port to
Tenant shall constitute acceptance of the surrender of the Premises and
accomplish a termination of this Lease.

         25.2 QUITCLAIM. Upon termination of this Lease, the Premises shall
automatically, and without further act or conveyance on the part of Tenant or
Port, become the property of Port, free and clear of all liens and Leasehold
Mortgages and without payment therefor by Port and shall be surrendered to Port
upon such date. Upon or at any time after the date of termination of this Lease,
if requested by Port, Tenant shall promptly deliver to Port, without charge, a
quitclaim deed to the Premises and any other instrument reasonably requested by
Port to evidence or otherwise effect the termination of Tenant's leasehold
estate hereunder and to effect such transfer or vesting of title to the Premises
or any Improvements or Alterations that Port agrees are to remain part of the
Premises pursuant to the provisions of Section 13.3 above.

26. MINERAL RESERVATION. The State of California, pursuant to Section 2 of
Chapter 1333 of the Statutes of 1968, as amended, has reserved all subsurface
mineral deposits, including oil and gas deposits, on or underlying the Premises.
In accordance with the provisions of said Statutes, Port and Tenant shall and
hereby do grant to the State of California the right to explore, drill for and
extract said subsurface minerals, including oil and gas deposits, from the
Mineral Reservation area located by the California Grid System as more
particularly described in Section 1.10 hereof.

27. CITY REQUIREMENTS.

         27.1 NON-DISCRIMINATION. Tenant shall not, in the operation and use of
the Premises, discriminate against any person or group of persons solely because
of race, color, creed, national origin, ancestry, age, sex, sexual orientation,
disability or acquired immune deficiency syndrome

                                       24
<PAGE>
(AIDS) or AIDS related condition (ARC). The provisions of Chapters 12B and 12C
of the San Francisco Administrative Code, relating to nondiscrimination by
parties contracting with the City and County of San Francisco, are incorporated
herein by this reference and made a part hereof as though fully set forth
herein. Tenant agrees to comply with all provisions of such Chapters 12B and 12C
that apply to tenants of the City and County of San Francisco.

         27.2 MACBRIDE PRINCIPLES-NORTHERN IRELAND. City urges companies doing
business in Northern Ireland to move towards resolving employment inequities and
encourages such companies to abide by the MacBride Principles. City urges San
Francisco companies to do business with corporations that abide by the MacBride
Principles.

         27.3 TROPICAL HARDWOOD BAN. City urges Tenant not to import, purchase,
obtain, or use for any purpose, any tropical hardwood or tropical hardwood
product.

28. NOTICES. Except as otherwise expressly provided in this Lease or by Law, any
and all notices or communications required or permitted by this Lease or by Law
to be served on, given to or delivered to either party by the other party shall
be in writing and shall be given by one of the following methods: (a) delivering
the notice in person, (b) sending the notice by United States Mail, first class,
postage prepaid, or (c) sending the notice by overnight courier or mail, with
postage prepaid, to the mailing address set forth in Section 1.12. Subject to
the restrictions set forth below and only for the convenience of the parties,
copies of notices also may be given by telefacsimile to the telephone number set
forth in Section 1.12. Either party may change such party's mailing address or
telefacsimile number at any time by giving written notice of such change to the
other party in the manner provided above at least ten (10) days prior to the
effective date of the change. All notices under this Lease shall be deemed to be
duly served, given, delivered, made or communicated on the date personal
delivery actually occurs or, if mailed, on the date of deposit in the United
States Mail. A person or party may not give official or binding notice by
telefacsimile. Service of process at Tenant's address set forth in Section 1.12
or other address, notice of which is given in accordance with the terms of this
Section 28, shall be valid and binding upon such party.

29. TIME IS OF THE ESSENCE. Time is of the essence as to each and every
provision of this Lease.

30. SIGNS. Tenant shall not have the right to place, construct or maintain any
sign, advertisement, awning, banner or other exterior decoration on the Premises
without Port's prior written consent. Any sign that Tenant is permitted to
place, construct or maintain on the Premises shall comply with all Laws relating
thereto, including but not limited to Port's Tenant Sign Guidelines and building
permit requirements, and Tenant shall obtain all Regulatory Approvals required
by such Laws. Port makes no representation with respect to Tenant's ability to
obtain such Regulatory Approval. Tenant, at its sole cost and expense, shall
remove all signs placed by it on the Premises at the expiration or earlier
termination of this Lease.

31. MISCELLANEOUS PROVISIONS.

         31.1 CALIFORNIA LAW. This Lease shall be construed and interpreted in
accordance with the Laws of the State of California and City's Charter.

                                       25
<PAGE>
         31.2 ENTIRE AGREEMENT. This Lease contains all of the representations
and the entire agreement between the parties with respect to the subject matter
of this agreement. Any prior correspondence, memoranda, agreements, warranties,
or written or oral representations relating to such subject matter are
superseded in total by this Lease. No prior drafts of this Lease or changes from
those drafts to the executed version of this Lease shall be introduced as
evidence in any litigation or other dispute resolution proceeding by any party
or other person, and no court or other body should consider those drafts in
interpreting this Lease.

         31.3 AMENDMENTS. No amendment of this Lease or any part thereof shall
be valid unless it is in writing and signed by all of the parties hereto.

         31.4 SEVERABILITY. Except as is otherwise specifically provided for in
this Lease, invalidation of any provision of this Lease, or of its application
to any person, by judgment or court order, shall not affect any other provision
of this Lease or its application to any other person or circumstance, and the
remaining portions of this Lease shall continue in full force and effect, unless
enforcement of this Lease as invalidated would be unreasonable or grossly
inequitable under all of the circumstances or would frustrate the purposes of
this Lease.

         31.5 NO PARTY DRAFTER; CAPTIONS. The provisions of this Lease shall be
construed as a whole according to their common meaning and not strictly for or
against any party in order to achieve the objectives and purposes of the
parties. Any caption preceding the text of any section, paragraph or subsection
or in the table of contents is included only for convenience of reference and
shall be disregarded in the construction and interpretation of this Lease.

         31.6 SINGULAR, PLURAL, GENDER. Whenever required by the context, the
singular shall include the plural and vice versa, and the masculine gender shall
include the feminine or neuter genders, and vice versa.

         31.7 SUCCESSORS. The terms, covenants, agreements and conditions set
forth in this Lease shall bind and inure to the benefit of Port and Tenant and,
except as otherwise provided herein, their personal representatives and
successors and assigns.

         31.8 REAL ESTATE BROKER'S FEES. Each party shall be responsible for the
payment of all fees and commissions to any real estate broker with whom such
party has contracted. Each party shall hold the other party harmless from any
and all damage resulting from any claim which may be asserted against the other
party by any broker, finder or other person with whom the other party has or
purportedly has dealt with respect to this Lease.

         31.9 COUNTERPARTS. For convenience, the signatures of the parties to
this Lease may be executed and acknowledged on separate pages which, when
attached to this Lease, shall constitute this as one complete Lease. This Lease
may be executed in any number of counterparts each of which shall be deemed to
be an original and all of which shall constitute one and the same Lease.

         31.10 AUTHORITY. If Tenant signs as a corporation or a partnership,
each of the persons executing this Lease on behalf of Tenant does hereby
covenant and warrant that Tenant is a duly authorized and existing entity, that
Tenant has and is qualified to do business in California, that Tenant has full
right and authority to enter into this Lease, and that each and all of the
persons

                                       26
<PAGE>
signing on behalf of Tenant are authorized to do so. Upon Port's request, Tenant
shall provide Port with evidence reasonably satisfactory to Port confirming the
foregoing representations and warranties.

         31.11 WAIVER. No failure by Port to insist upon the strict performance
of any obligation of Tenant under this Lease or to exercise any right, power or
remedy arising out of a breach thereof, irrespective of the length of time for
which such failure continues, and no acceptance of full or partial Rent during
the continuance of any such breach shall constitute a waiver of such breach or
of Port's rights to demand strict compliance with such term, covenant or
condition. Port's consent to or approval of any act by Tenant requiring Port's
consent or approval shall not be deemed to waive or render unnecessary Port's
consent to or approval of any subsequent act by Tenant. Any waiver by Port of
any default must be in writing and shall not be a waiver of any other default
concerning the same or any other provision of this Lease.

///
///

                                       27
<PAGE>
         IN WITNESS WHEREOF, PORT AND TENANT EXECUTE THIS LEASE AT SAN
FRANCISCO, CALIFORNIA, AS OF THE LAST DATE SET FORTH BELOW.

PORT:                                                  TENANT:
CITY AND COUNTY OF SAN FRANCISCO,                      SOUTHWEST MARINE, INC.,
a municipal corporation, operating                     a California Corporation
by and through the SAN FRANCISCO
PORT COMMISSION

By: /s/ DOROTHY SCHIMKE                                By: /s/ HERBERT ENGEL
        ---------------------------------                  ---------------------
        DOROTHY SCHIMKE                                        HERBERT ENGEL
        Manager, Leasing & Commercial                          President
        Property Management
                                                       By: /s/ LLOYD A. SCHWARTZ
                                                               -----------------
                                                               LLOYD A. SCHWARTZ
Dated:                                                         Secretary
      -----------------------------------

                                                       Dated: July 12, 1994
                                                              ------------------

APPROVED AS TO FORM:
LOUISE H. RENNE, City Attorney

By: /s/ LOUISE H. RENNE
        --------------------
        Deputy City Attorney

Lease Prepared By: JENNIFER SOBOL, Property Manager        J S
                                                    ------------------
                                                        (Initials)

                                       28
<PAGE>
                      ADDENDUM TO LEASE NO. L-11968 BETWEEN
                THE CITY AND COUNTY OF SAN FRANCISCO, THROUGH THE
                    SAN FRANCISCO PORT COMMISSION, LANDLORD,

                                       AND

                         SOUTHWEST MARINE, INC., TENANT
                            A CALIFORNIA CORPORATION

         IN THE EVENT OF ANY CONFLICT BETWEEN THE PROVISIONS OF THIS ADDENDUM
AND PROVISIONS OF THE LEASE, THE PROVISIONS OF THIS ADDENDUM SHALL CONTROL.

         PORT AND TENANT HEREBY AGREE AS FOLLOWS:

1. SECTION 5.2 (BASE RENT ADJUSTMENT) IS DELETED IN ITS ENTIRETY.

2. SECTION 5.3 (PERCENTAGE RENT) IS AMENDED TO ADD THE FOLLOWING SENTENCE
THERETO:

         "Tenant shall pay Percentage Rent on the Premises in accordance with
         Paragraph 4.E. of that certain Lease between Port and Tenant dated
         December 2, 1987, as amended May 24, 1994, Lease No. L-11320. The
         provisions of Lease No. L-11320, as amended, are incorporated herein by
         reference."

3. A NEW SECTION 13.7 (FENCING) IS ADDED TO THE LEASE AS FOLLOWS:

         "13.7 FENCING. Tenant agrees to install and maintain, at its sole cost
         and expense, within thirty days after the Commencement Date, a fence
         and gate along the southern boundary of Parcel A where indicated on
         Exhibit A-1 and a fence along the southern boundary of Parcel C, where
         indicated on Exhibit A-3."

4. SECTION 16.1 (REQUIREMENTS FOR HANDLING) IS AMENDED TO READ IN ITS ENTIRETY
AS FOLLOWS:

         "16.1 REQUIREMENTS FOR HANDLING. Neither Tenant nor its Agents or
         Invitees, shall Handle in, on or about the Premises any Hazardous
         Material without the prior written consent of Port, which consent shall
         not be unreasonably withheld so long as Tenant demonstrates to Port's
         reasonable satisfaction that such Hazardous Material is necessary to
         Tenant's business, will be Handled in a manner which strictly complies
         with all Environmental Laws and will not materially increase the risk
         of fire or other casualty to the Premises. Notwithstanding the
         foregoing, Tenant may Handle on the Premises janitorial or office
         supplies or other materials in such limited amounts as are customarily
         used for general office and other business purposes so long as such
         Handling is at all times in full compliance with all Environmental
         Laws."

                                       29
<PAGE>
5. SECTION 16.2. (TENANT RESPONSIBILITY) IS AMENDED TO READ IN ITS ENTIRETY AS
FOLLOWS:

         "16.2 TENANT RESPONSIBILITY. Subject to the restrictions set forth in
         Section 16.1 hereof, Tenant shall Handle all Hazardous Materials
         Released (as defined below) on the Premises during the Term of this
         Lease or during any prior period of Tenant's occupancy of the Premises
         in compliance with all Environmental Laws. The term "Released" shall
         mean any spilling, leaking, pumping, pouring, emitting, emptying,
         discharging, injecting, escaping, leaching, dumping or disposing into
         the environment of any Hazardous Material (including the abandonment or
         discarding of barrels, containers, and other closed receptacles
         containing any Hazardous Material or pollutant or contaminant).
         Notwithstanding the foregoing, Tenant shall not be responsible for the
         safe Handling of Hazardous Materials introduced on the Premises by
         City, Port or their Agents during the Term of this Lease or by any
         others during any prior period of Tenant's occupancy of the Premises.
         Tenant shall protect its employees and the general public in accordance
         with all Environmental Laws. Port may from time to time request, and
         Tenant shall be obligated to provide, information reasonably adequate
         for Port to determine that any and all Hazardous Materials are being
         Handled in a manner which complies with all Environmental Laws. Port
         shall have the right to inspect the Premises for Hazardous Materials at
         reasonable times, pursuant to Section 24.1 hereof."

6. SECTION 16.3 (REQUIREMENT TO REMOVE) IS AMENDED TO READ IN ITS ENTIRETY AS
FOLLOWS:

         "16.3 REQUIREMENT TO REMOVE. Prior to termination of this Lease,
         Tenant, at its sole cost and expense, shall remove any and all
         Hazardous Materials Released on, under or about the Premises by Tenant,
         its Agents or Invitees. Further, Tenant, at its sole cost and expense,
         shall remove any Hazardous Material Released on the Premises during the
         Term of this Lease or during any prior period of Tenant's occupancy of
         the Premises of which is required to be removed by any governmental
         agency, including Port; provided, however, that Tenant shall not be
         obligated to remove any Hazardous Material introduced onto the Premises
         during the Term of this Lease or during any prior period of Tenant's
         occupancy of the Premises by the City, Port or their Agents. Prior to
         the termination of this Lease, Port and Tenant shall conduct a joint
         inspection of the Premises for the purpose of identifying Hazardous
         Materials existing on the Premises which Tenant is required to remove.
         This paragraph shall also apply to any Hazardous Materials Released as
         a result of Tenant's removal of the Alterations and Improvements at the
         end of the Lease Term in accordance with Section 13 hereof."

7. SECTION 17.1 (a) (GENERAL LIABILITY INSURANCE) IS AMENDED AS FOLLOWS:

         "(a) General Liability Insurance. Comprehensive or commercial general
         liability insurance, with limits not less than Five Million Dollars
         ($5,000,000.00) each occurrence combined single limit for bodily injury
         and property damage, with any deductible not to exceed $250,000 each
         occurrence; including coverages for contractual liability, independent
         contractors, explosion, collapse and

                                       30
<PAGE>
         underground. (XCU), broadform property damage, personal injury,
         products and completed operations, and fire damage and legal liability
         with limits not less than Two Hundred Fifty Thousand Dollars
         ($250,000.00)."

8. SECTION 17.1(d) (PERSONAL PROPERTY INSURANCE) IS DELETED IN ITS ENTIRETY.

9. SECTION 17.1(e) (BUSINESS INTERRUPTION INSURANCE) IS DELETED IN ITS ENTIRETY.

10. A NEW SUBSECTION 17.1(i) (SHIP REPAIRERS LEGAL LIABILITY INSURANCE) IS ADDED
TO THE LEASE AS FOLLOWS:

         "(i) Ship Repairers Legal Liability Insurance. Ship repairers legal
         liability insurance with limits not less than Ten Million Dollars
         ($10,000,000.00) each occurrence and any deductible not to exceed Two
         Hundred Fifty Thousand Dollars ($250,000.00) each occurrence."

11. SECTION 20.3 (HAZARDOUS MATERIALS INDEMNIFICATION) IS AMENDED TO READ IN ITS
ENTIRETY AS FOLLOWS:

                  "20.3 HAZARDOUS MATERIALS INDEMNIFICATION. Tenant shall
         indemnify, defend and hold Port, City and their Agents harmless from
         any and all claims, judgments, damages, penalties, fines, costs,
         liabilities or losses which arise during or after the Term of this
         Lease or during or after Tenant's prior occupancy of the Premises as a
         result of the Handling of Hazardous Materials on the Premises by
         Tenant, its Agents or Invitees, including without limitation, all costs
         of investigating and remediating the same, damages for diminution in
         the value of the Premises, damages for the loss or restriction on use
         of rentable or usable space or of any amenity of the Premises, damages
         arising from any adverse impact on marketing of any such space and sums
         paid in settlement of claims, attorneys' fees, consultant fees and
         expert fees.
                  This indemnification of Port and City by Tenant includes, but
         is not limited to, costs incurred in connection with any investigation
         of site conditions or any clean-up, remediation, removal or restoration
         work requested by Port or required by any federal, state or local
         governmental agency or political subdivision because of Hazardous
         Material present in the soil or groundwater in, on or under the
         Premises or in any Improvements as a result of the Release of Hazardous
         Materials on the Premises occuring during the Term of this Lease or
         during Tenant's prior occupancy of the Premises. Without limiting the
         foregoing, if the presence of any Hazardous Material in, on, under or
         about the Premises caused or permitted by Tenant results in any
         contamination of the Premises, Tenant, at its sole expense, promptly
         shall take all action that is necessary to return the Premises to the
         condition existing prior to the introduction of such Hazardous Material
         in, on, under or about the Premises; provided that Port approval of
         such actions shall first be obtained, which approval shall not be
         unreasonably withheld so long as such actions could not potentially
         have any material adverse effect upon the Premises. Tenant's
         obligations hereunder shall survive the termination of this Lease."

                                       31
<PAGE>
12. SECTION 21.8 (ASSIGNMENT OF SUBLEASE RENTS) IS AMENDED BY ADDING THE
FOLLOWING SENTENCE THERETO:

                  "In no event shall Tenant be entitled to a rent credit against
the Interim Base Rent due and payable under Lease No. L-11320 for any rents
Tenant receives pursuant to any sublease of the Premises hereunder."

13. A NEW SECTION 34 (WAIVER OF RELOCATION ASSISTANCE RIGHTS) IS ADDED TO THE
LEASE AS FOLLOWS:

         "34. Waiver of Relocation Assistance Rights. Tenant hereby waives any
         and all rights, benefits or privileges of the California Relocation
         Assistance Law, California Government Code SectionS 7260 et seq.,
         and the Uniform Relocation Assistance and Real Property Acquisition
         Policies Act, 42 U.S.C.Sections 4601 et seq., or under any similar
         law, statute or ordinance now or hereafter in effect, except as
         provided in Section 19 hereof."

14. A NEW SECTION 35 (SECURITY PROTECTION) IS ADDED TO THE LEASE AS FOLLOWS:

         "35. SECURITY PROTECTION. Tenant, at its sole cost and expense, shall
         provide continuous and adequate security protection for the entire
         Premises during the Term in compliance with Port's reasonable
         requirements."

                                       32
<PAGE>
19. Lease and Long-term Service Commitments

         d. San Francisco Shipyard Lease

The Port of San Francisco and San Francisco Drydock, Inc. are in negotiations to
amend SFD's 20th and Illinois Streets, San Francisco, California shipyard lease
so as to substitute the AFDM-14 Steadfast dry dock for a presently leased 22,000
ton lifting capacity dry dock. The Steadfast is being acquired by the Port from
the U.S. Government which has determined the Steadfast to be excess property. A
copy of a draft lease amendment still under negotiation is attached.

8/6/99
<PAGE>
                                LEASE ASSIGNMENT
                            AND ASSUMPTION AGREEMENT

         THIS AGREEMENT is made and entered into on September 29, 1994, by and
between SOUTHWEST MARINE, INC., a California corporation ("Assignor") and SAN
FRANCISCO DRYDOCK, INC., a California corporation ("Assignee").

                                    RECITALS:

         WHEREAS, Assignor, as tenant, and the CITY AND COUNTY OF SAN FRANCISCO,
a municipal corporation, acting by and through the San Francisco Port Commission
("Port"), as landlord, are parties to a certain written agreement dated June 14,
1994, being Port official document No. 11968, (the "Month-to-Month Lease"),
covering certain real property generally located at 20th and Illinois Streets,
San Francisco, California, described and depicted in Exhibits A-1 through A-3
attached hereto; and

         WHEREAS, Assignor desires to assign its interest in the Month-to-Month
Lease and Assignee is agreeable to accepting such assignment.

         NOW, THEREFORE, in consideration of the premises, covenants herein
contained and other good and valuable consideration receipt of which is hereby
acknowledged by Assignor, the parties hereto agree as follows:

         1. Assignor hereby grants, transfers and assigns to Assignee, its
successors and assigns, all of Assignor's right, title and interest in the
Month-to-Month Lease, and Assignee agrees to and does accept said assignment.

         2. Assignee expressly assumes and agrees to keep, perform and fulfill
all the terms, covenants, conditions and obligations required to be kept,
performed, and fulfilled by Assignor as tenant under the Month-to-Month Lease,
including the payment of all rent and other charges payable by the tenant under
the Month-to-Month Lease when the same are properly due and payable.

         3. This Agreement and the parties rights, duties and obligations
hereunder shall be effective on October 1, 1994; provided, however, that this
Agreement shall be of no force or effect until consented to by the Port in
writing.
<PAGE>
         IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.

ASSIGNEE:                                             ASSIGNOR:

SAN FRANCISCO DRYDOCK, INC.                      SOUTHWEST MARINE, INC.,
a California corporation                         a California corporation

By: /s/ ARTHUR E. ENGEL                          By: /s/ HERBERT G. ENGEL
        -----------------------                          -----------------------
        ARTHUR E. ENGEL                                  HERBERT G. ENGEL
        Chief Executive Officer                          President

By: /s/ LLOYD A. SCHWARTZ                        By: /s/ ROBERT A. WHITE
        -----------------------                          -----------------------
        LLOYD A. SCHWARTZ                                ROBERT A. WHITE
        Secretary                                        Assistant Secretary

                                      * * *

                         CONSENT TO ASSIGNMENT OF LEASE

          The undersigned hereby consents to the foregoing assignment.

  APPROVED AS TO FORM:                               PORT:

  Louise H. Renne, City Attorney                     CITY AND COUNTY OF SAN
                                                     FRANCISCO, a municipal cor-
                                                     poration, operating by and
                                                     through the SAN FRANCISCO
  By: /s/ Louise H. Renne                            PORT COMMISSION
      --------------------
      Deputy City Attorney

                                                     By: /s/ Dennis P. Bouey
                                                         -----------------------
                                                             Dennis P. Bouey
                                                     Title:  Executive Director<PAGE>
                                                                    Exhibit 10.9

                                      LEASE

         This Lease Agreement (the "LEASE") is made and entered into by and
between BRASWELL SERVICES GROUP, INC., a South Carolina corporation, referred to
in this LEASE as LANDLORD and SOUTHWEST MARINE, INC., a California corporation,
referred to in this LEASE as TENANT.

         In consideration of the mutual covenants and agreements set forth in
this LEASE, and other good and valuable consideration, LANDLORD does hereby
demise and lease to TENANT, and TENANT does hereby lease from LANDLORD a portion
of certain real property and the Improvements thereon located at North Shore
Docks, South Highway 1069, Ingleside, Texas, being generally described in
Exhibit "AA" attached to this LEASE. These premises are referred to in this
LEASE as "the LEASED PREMISES."

                                 ARTICLE 1. TERM

                                  TERM OF LEASE

         Section 1.01. The term of this LEASE and TENANT'S right to possession
of the LEASED PREMISES shall commence on a date thirty (30) days following the
date of the award to TENANT of U.S. Government Solicitation No. N00024-94-8508,
as amended (the MCM-PMP Contract), but in no event later than November 1, 1995
and shall continue through October 31, 2002, unless sooner terminated as herein
provided. The award of the MCM-PMP Contract to TENANT shall be evidenced by an
authorized representative of the U.S. Government executing and delivery to
TENANT of a Form SF-33 for the MCM-PMP Contract. LANDLORD and TENANT shall
execute an addendum to this LEASE confirming the term commencement date when the
same has been established.

                                    HOLDOVER

         Section 1.02. If TENANT holds over and continues in possession of any
portion the LEASED PREMISES after expiration of the term of this LEASE, or any
extension of that term, TENANT will be deemed to be occupying the LEASED
PREMISES on the basis of a month-to-month tenancy, subject to all of the terms
and conditions of this LEASE. Such month-to-month tenancy shall be charged
rental at 150% of the Base Rent, as hereinafter defined.

                          TENANT'S OPTION TO TERMINATE

         Section 1.03. In the event, and for any reason whatsoever, the U.S.
Government cancels or terminates the MCM-PMP Contract during the term of this
LEASE, then TENANT shall have the option to terminate this LEASE effective upon
TENANT giving LANDLORD thirty (30) days' written notice of TENANT'S election to
exercise such option.
<PAGE>
                                 ARTICLE 2. RENT

                                    BASE RENT

         Section 2.01. During the TERM of this Lease, TENANT will pay to
LANDLORD the sum of $25,000.00 (the "Base Rent") plus 1.5% of all Gross Revenue
(the "Gross Revenues Rent") generated by TENANT by and through TENANT'S
operations on the LEASED PREMISES, payable in consecutive monthly installments
from the commencement of the term of this LEASE and continuing throughout the
lease term. The Base Rent shall be due and payable in advance on the first of
each month. The Gross Revenues Rent shall be paid quarterly, with such payment
due and payable within thirty (30) days following the end of each quarter.
"Gross Revenue" as such term is used herein, shall mean cash proceeds received
by TENANT from the MCM-PMP contract (as defined herein) and from other work
performed by TENANT at the LEASED PREMISES, specifically including any fees and
commissions made or earned by TENANT from its assignees, sublessees, licensees,
and permittees for work they perform at the LEASED PREMISES, but excluding (i)
retail sales taxes, (ii) the amount resulting from any sale of trade fixtures or
operating equipment after use thereof in the conduct of TENANT'S business at the
LEASED PREMISES, (iii) refunds to TENANT'S customers, (iv) all sums and credits
received in settlement of claims for loss or damage to merchandise, (v) the
proceeds of casualty insurance and (vi) contingent revenues from contract or
other claims until actually received by TENANT.

                         ANNUAL ADJUSTMENT OF BASE RENT

         Section 2.02. a. TENANT agrees to pay LANDLORD, as additional rental,
but prorated for any fractional portion of any calendar year during the term
hereof, 30% of the total increase in real property taxes and assessments due and
assessed against the following described property owned by LANDLORD:

                  BEING Tracts 2 through 9 and a portion of Tract 10, Block A,
                  Caruthers Cove at Old Ingleside, as shown by map recorded in
                  Volume 4, Page 31, Map Records, San Patricio County, Texas,
                  also including a portion of a tract consisting of submerged
                  and formerly submerged, now filled or otherwise built-up land
                  situated in San Patricio County and Nueces County, Texas, in
                  the waters of Kinney Bayou and Caruther's Cove off Corpus
                  Christi Bay, created by certain mutual agreement conveyances
                  recorded in Volume 205, Pages 99-112, inclusive, Volume 206,
                  Pages 133-145, inclusive, Volume 204, Pages 530-542,
                  inclusive, San Patricio County, Texas and Volume 776, Pages
                  102-114, inclusive, Volume 707, Pages 487-499, inclusive and
                  Volume 707, Pages 474-487, inclusive, Volume 1456, Pages
                  859-870, inclusive, Nueces County, Texas and also being a
                  portion of the State of Texas Submerged Tract No. 5 adjoining
                  said Tracts 2 through 10, patented to the Nueces County
                  Navigation District No. 1 recorded in Volume 522, Page 201,
                  Deed Records, Nueces County, Texas.

                  Beginning at the common southeast corner of said Tract 2 and
                  the northeast corner of Tract 1, a 5/8" iron rod found, said
                  point being on the west right-of-way line of Farm to Market
                  Road No. 1069, for the southeast corner and POINT OF BEGINNING
                  of this tract;

                                       2
<PAGE>
                  THENCE, along the south line of said Tract 2 and the
                  projection thereof, S 87 degrees 30' 27" W, 1,909.19 feet to
                  the southeast bulkhead line of Jewell Fulton Canal, as
                  established by said mutual conveyance agreements to a point
                  for the southwest corner of this tract;

                  THENCE, along said bulkhead line, N 50 degrees 41' 10" E,
                  1,441.28 feet to a point for the northwest corner of this
                  tract;

                  THENCE, S 58 degrees 34' 56" E, 320.97 feet to a drill hole
                  found, for a corner of this tract;

                  THENCE, N 87 degrees 30' 27" E, 711.92 feet to a 5/8" iron rod
                  found, said point being on said West right-of-way line of Farm
                  to Market Road No. 1069, for the northeast corner of this
                  tract;

                  THENCE, along said right-of-way line, S 15 degrees 30' 27" W,
                  720.20 feet to the POINT OF BEGINNING; containing 25.621
                  acres, more or less;

using 1994 as a base year. LANDLORD shall, within sixty (60) days following the
close of any calendar year for which additional rental is due hereunder, give
written notice thereof to the TENANT. The notice shall include a computation of
the additional rent, in reasonable detail. TENANT shall have the right to
receive copies of relevant tax bills from LANDLORD concerning additional rentals
due under this paragraph.

         b. TENANT agrees to pay such additional rental within thirty (30) days
after notice from LANDLORD that such additional rental is due, together with
one-twelfth (1/12) of such amount for each month of the then current year which
has passed prior to the date of such payment. TENANT also agrees that the
monthly Base Rent provided for herein shall thereafter be increased by
one-twelfth (1/12) of such additional rental for the remainder of the then
current calendar year, and thereafter until the next annual adjustment of Base
Rent. Credit shall be given for such monthly increases, which are paid during a
current year, in computing the amount to be paid by TENANT following the close
of such year.

         c. Notwithstanding anything hereinabove to the contrary, the Base Rent
shall not be increased by the amount of any increase in real property taxes and
assessments caused solely by the sale by LANDLORD or any successor of all or a
portion of the above-described property.

                                    PAYMENTS

         Section 2.03. All amounts due from TENANT to LANDLORD under this LEASE
shall be due and payable without notice or demand, including, but not limited
to, the total amount of Base Rent due for the full term of the LEASE. Payment
shall be made to the address designated by LANDLORD at the time the Lease is
executed, or to such other address as designated in writing by LANDLORD to
TENANT.

                                    NET LEASE

         Section 2.04. TENANT shall pay all utility and service charges related
to the LEASED PREMISES and TENANT'S business operations on the LEASED PREMISES.
SWM shall

                                       3
<PAGE>
add at its sole expense such separate meters as may be required to determine the
utility and service charges related to its use of the LEASED PREMISES.

                        ARTICLE 3. USE OF LEASED PREMISES

                                  PERMITTED USE

         Section 3.01. TENANT will use the LEASED PREMISES only for marine and
industrial construction and repair purposes, unless LANDLORD shall give TENANT
prior written consent for a different use. All restrictions upon use are made
and intended solely for the benefit of LANDLORD, and LANDLORD shall be the only
party entitled to enforce same.

                                INSURANCE HAZARDS

         Section 3.02. TENANT shall not use, or permit the use of, the LEASED
PREMISES in any manner that will cause a cancellation of, or an increase in the
existing rates for, fire, liability, or other insurance policies insuring the
LEASED PREMISES or any improvements on the LEASED PREMISES, or insuring, the
LANDLORD for any liability in connection with ownership of the LEASED PREMISES.

                        WASTE, NUISANCE, OR ILLEGAL USES

         Section 3.03. TENANT shall not use, or permit the use of, the LEASED
PREMISES in any manner that results in waste of the LEASED PREMISES or
constitutes a nuisance. Nor shall TENANT use, or permit the use of, the LEASED
PREMISES for any illegal purpose. TENANT at its own expense will comply, and
will cause its officers, employees, agents, and invitees to comply, with all
applicable laws and ordinances, and with all applicable rules and regulations of
governmental agencies concerning the use of the LEASED PREMISES.

                      ARTICLE 4. MAINTENANCE AND SURRENDER

                       MAINTENANCE AND SURRENDER BY TENANT

         Section 4.01. Except as otherwise provided in Section 16.17, TENANT
shall maintain the LEASED PREMISES throughout the lease term, and keep them free
from waste or nuisance. At the termination of the LEASE, TENANT shall deliver
the LEASED PREMISES in as good a state of repair and condition as they were in
at the time LANDLORD delivered possession to TENANT, reasonable wear and tear
and damage by fire, tornado, hurricane, or other casualty excepted. In the event
TENANT should neglect to reasonably maintain the LEASED PREMISES, LANDLORD shall
have the right, but not the obligation, to cause repairs or corrections to be
made, and any costs incurred for such repairs or corrections for which TENANT is
responsible under this section shall be payable by TENANT to LANDLORD as
additional rental on the next rental installment date.

                      ARTICLE 5. TAXES ON TENANT'S PROPERTY

         TENANT shall be liable for all taxes levied or assessed against
personal property, furniture, or fixtures placed by TENANT in or on the LEASED
PREMISES. If any such taxes

                                       4
<PAGE>
for which TENANT is liable are levied or assessed against LANDLORD or LANDLORD'S
property, and if LANDLORD elects to pay the same, or if the assessed value of
LANDLORD'S property is increased by inclusion of personal property, furniture,
or fixtures placed by TENANT in the LEASED PREMISES, TENANT shall pay to
LANDLORD upon demand that part of such taxes for which TENANT is primarily
liable under this article.

          ARTICLE 6. ALTERATIONS, ADDITIONS, IMPROVEMENTS AND FIXTURES

                               CONSENT OF LANDLORD

         Section 6.01. TENANT shall not make any alterations, additions, or
improvements to the LEASED PREMISES without the prior written consent of
LANDLORD, which consent will not be unreasonably withheld. All plans and
specifications must be submitted to LANDLORD not less than 30 days prior to the
desired date of beginning of construction for LANDLORD'S approval.

                              PROPERTY OF LANDLORD

         Section 6.02. All alterations, additions, or improvements made by
TENANT and not removed prior to the end of the lease term shall become the
property of LANDLORD at the termination of this LEASE. Alterations, additions,
or improvements, as used herein shall mean any changES TO the real property made
by TENANT including buildings, fixtures, utilities, or any modification thereto,
but specifically excludes personal property. However, TENANT shall promptly
remove, at the end of the lease term and if LANDLORD so elects, all alterations,
additions, and improvements, and any other property placed in or on the LEASED
PREMISES by TENANT, and TENANT shall repair any damage caused by such removal.

                              COMPLIANCE WITH LAWS

         Section 6.03. TENANT is responsible, at TENANT'S sole cost and expense,
to assure that the LEASED PREMISES and all improvements constructed therein
comply at any and all times with all applicable laws, rules, regulations and
ordinances, including, but not limited to the American With Disabilities Act of
1990, 42 U.S.C.Section 12101 et seq. (and the Final Rule thereunder, 28 C.F.R.
Part 36), and Texas State Architectural Barriers Statute, Tex. Civ. Stat.
Article 9102 (1992).

                             ACCEPTANCE OF PREMISES

         Section 6.04. By taking possession of the LEASED PREMISES, TENANT
acknowledges and affirms that same are acceptable to TENANT, and are in
conformity with TENANT'S requirements and suitable for TENANT'S intended use,
without reservation or limitation.

                        ARTICLE 7. DAMAGE OR DESTRUCTION

                            TOTAL/PARTIAL DESTRUCTION

         Section 7.01. TENANT shall promptly repair any damage to the
Improvements which damage is caused by TENANT, its employees or business
invitees and shall return the LEASED

                                       5
<PAGE>
PREMISES and the Improvements to the LANDLORD at the end of the term of the
LEASE in the same condition as when originally leased, reasonable wear and tear
and damage caused by any uninsured casualty excepted. In the event the
Improvements are damaged by any casualty insured against under any policy of
insurance required to be provided by TENANT hereunder, then the proceeds of such
insurance shall, upon receipt of same, be promptly expended to repair such
damage. In the event 50% or more of the Improvements are damaged by any
uninsured casualty, then TENANT shall have the option to terminate this LEASE
effective upon TENANT giving LANDLORD thirty (30) days' written notice of
TENANT'S election to exercise such option. Should the Improvements be so damaged
and TENANT elects to remain in possession, there shall be no abatement of the
rent or other charges required to be paid hereunder by TENANT, it being
specifically understood and agreed that LANDLORD shall have no responsibility to
repair, replace or maintain any portion of the Improvements, other than to
participate in the distribution and application of any insurance proceeds as may
be required by any insurer.

                             ARTICLE 8. CONDEMNATION

                               TOTAL CONDEMNATION

         Section 8.01. If during the term of this LEASE, or any extension or
renewal of the LEASE, all of the LEASED PREMISES should be taken for any public
or quasi-public use under any governmental law, ordinance, or regulation, or by
right of eminent domain, or should be sold tO THE condemning authority under
threat of condemnation, this LEASE shall terminate, and the rent shall be abated
during the unexpired portion of this LEASE, effective as of the date of the
taking of the LEASED PREMISES by the condemning authority.

                              PARTIAL CONDEMNATION

         Section 8.02. If less than all, but more than 25 percent, of the LEASED
PREMISES is taken for any public or quasi-public use under any governmental law,
ordinance, or regulation, or by right of eminent domain, or is sold to the
condemning authority under threat of condemnation, either party may terminate
the LEASE by giving written notice to the other party within 30 days after
possession of the condemned portion is taken by the entity exercising the power
of condemnation.

         If the LEASED PREMISES are partially condemned and neither party elects
to terminate the LEASE or, if less than 25 percent of the LEASED PREMISES is
condemned, this LEASE shall not terminate, but the rent shall be adjusted
pro-rata, based on the ratio to the amount taken to the total LEASED PREMISES,
during the unexpired portion of this LEASE.

                               CONDEMNATION AWARD

         Section 8.03. LANDLORD shall receive the entire award from any
condemnation, and TENANT shall have no claim to that award or for the value of
any unexpired term of this LEASE.

                                       6
<PAGE>
                        ARTICLE 9. RULES AND REGULATIONS

         TENANT and TENANT'S officers, employees, agents, and invitees will
comply fully with all of the rules and regulations attached to this LEASE as
Exhibit B, and are made a part of the LEASE as though fully set out in this
LEASE. LANDLORD shall at all times have the right to make reasonable changes,
additions, or deletions to these rules and regulations for the purpose of
ensuring or enhancing the safety, care, cleanliness, maintenance, or
preservation of the LEASED PREMISES. TENANT and its officers, employees, agents,
and invitees will be bound by any such changes, additions, or deletions to the
rules and regulations upon receipt by TENANT of written notice from LANDLORD
setting forth the change, addition, or deletion except that such rules and
regulations can not materially change this LEASE. TENANT shall be responsible
for the compliance of its officers, employees, agents, and invitees with all
such rules and regulations.

                       ARTICLE 10. INSPECTION BY LANDLORD

         LANDLORD and its officers, agents, employees, and representatives shall
have the right to enter into and upon any and all parts of the LEASED PREMISES
at all reasonable hours for purposes of inspection, cleaning, maintenance,
repairs, alterations, or additions as LANDLORD may deem necessary (but without
any obligation to perform any of these functions except as expressly provided in
this LEASE), or to show the LEASED PREMISES to prospective tenants, purchasers,
or lenders. TENANT shall not be entitled to any abatement or reduction of rent
by reason of the entry of LANDLORD or any of its officers, agents,
representatives, or employees pursuant to this article, nor shall such entry be
deemed an actual or constructive eviction.

                           ARTICLE 11. MECHANIC'S LIEN

         TENANT will not permit any mechanic's lien or liens to be placed upon
the LEASED PREMISES or the Improvements on the LEASED PREMISES. If a mechanic's
lien is filed on the LEASED PREMISES or on Improvements on the LEASED PREMISES,
TENANT will promptly pay the lien or file suit in a court of competent
jurisdiction to compel the removal of such lien. Such suit shall be diligently
prosecuted. If default in payment of the lien continues for 10 days after same
is filed with the County Clerk of Nueces County, Texas, and TENANT does not file
suit within the ten (10) day period in a Court of proper jurisdiction to contest
same, LANDLORD may, at its option, pay the lien or any portion of it without
inquiry as to its validity. Any amounts paid by LANDLORD to remove a mechanic's
lien caused to be filed against the LEASED PREMISES or against Improvements on
the LEASED PREMISES by TENANT, including expenses and interest, shall be due
from TENANT to LANDLORD and shall be repaid to LANDLORD immediately on rendition
of notice, together with interest at the highest rate permitted by law until
repaid.

                              ARTICLE 12. INDEMNITY

                                    INDEMNITY

         Section 12.01. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
TENANT AGREES TO INDEMNIFY, PROTECT, DEFEND AND HOLD HARMLESS

                                       7
<PAGE>
LANDLORD, AND ANY SUCCESSORS, ASSIGNS, HEIRS, PERSONAL REPRESENTATIVES,
DEVISEES, AGENTS, STOCKHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AND AFFILIATES
OF LANDLORD (COLLECTIVELY "INDEMNITEES") FOR, FROM AND AGAINST ANY AND ALL
LIABILITIES, DAMAGES, CLAIMS, SUITS, LOSSES, CAUSES OF ACTION, LIENS, JUDGMENTS
AND EXPENSES (INCLUDING COURT COSTS, ATTORNEYS' FEES, AND COSTS OF
INVESTIGATION), OF ANY NATURE, KIND OR DESCRIPTION ARISING OR ALLEGED TO ARISE
BY REASON OF INJURY TO OR DEATH OF ANY PERSON OR DAMAGE TO OR LOSS OF PROPERTY
(1) OCCURRING ON, IN, OR ABOUT THE LEASED PREMISES OR (2) BY REASON OF ANY OTHER
CLAIM WHATSOEVER OF ANY PERSON OR PARTY OCCASIONED OR ALLEGED TO BE OCCASIONED
IN WHOLE OR IN PART BY ANY ACT OR OMISSION ON THE PART OF TENANT OR ANY INVITEE,
LICENSEE, EMPLOYEE, DIRECTOR, OFFICER, SERVANT, CONTRACTOR, SUBCONTRACTOR OR
TENANT OF TENANT, OR (3) BY ANY BREACH, VIOLATION, OR NONPERFORMANCE OF ANY
COVENANT OF TENANT UNDER THIS LEASE (COLLECTIVELY "LIABILITIES"), PROVIDED SUCH
LIABILITIES ARE NOT ATTRIBUTABLE IN WHOLE OR IN PART TO THE NEGLIGENCE OF ANY
INDEMNITEE. THE PROVISIONS OF THIS PARAGRAPH SHALL APPLY TO ALL ACTIVITIES OF
TENANT WITH RESPECT TO THE LEASED PREMISES OR IMPROVEMENTS, WHETHER OCCURRING
BEFORE OR AFTER THE COMMENCEMENT DATE OF THE TERM AND BEFORE OR AFTER THE
EXPIRATION OR TERMINATION OF THIS LEASE. TENANT'S OBLIGATIONS UNDER THIS
PARAGRAPH SHALL NOT BE LIMITED TO DAMAGES, COMPENSATION OR BENEFITS PAYABLE
UNDER INSURANCE POLICIES, WORKERS' COMPENSATION ACTS, DISABILITY BENEFIT ACTS OR
OTHER EMPLOYEES' BENEFIT ACTS. THIS INDEMNITY SHALL SURVIVE TERMINATION OR
EXPIRATION OF THE LEASE.

                       ARTICLE 13. ASSIGNMENT AND SUBLEASE

                       ASSIGNMENT AND SUBLETTING BY TENANT

         Section 13.01. TENANT shall not have the right to assign the LEASE, or
any interest in the LEASE, or to sublet the LEASED PREMISES, or any part of
them, or any right or privilege pertinent to the LEASE or the LEASED PREMISES
without the prior, written consent of LANDLORD which approval shall not be
unreasonably withheld.

                             ASSIGNMENT BY LANDLORD

         Section 13.02. LANDLORD shall have the right to transfer and assign, in
whole or in part, LANDLORD'S rights and obligations hereunder, as well as in the
PREMISES or any portion thereof, and the land on which it is located, and in
such event the transferor or assignor SHAlL have no further liability or
obligation hereunder.

                               ARTICLE 14. DEFAULT

                                TENANT'S DEFAULT

         Section 14.01. The following events shall be deemed to be events of
default by TENANT under the LEASE:

                                       8
<PAGE>
         a. TENANT fails to pay any funds due under this LEASE on the due date
thereof.

         b. TENANT fails to comply with any term, provision, or covenant of this
LEASE, other than the payment of funds or fails to correct and comply with such
term, provision, or covenant within thirty (30) days of written notice from the
LANDLORD thereof.

         c. TENANT makes an assignment for the benefit of creditors.

         d. TENANT deserts or vacates any substantial portion of the LEASED
PREMISES for a period of five (5) or more consecutive days.

                               LANDLORD'S REMEDIES

         Section 14.02. Upon the occurrence of any event of default specified in
Section 14.01, LANDLORD shall have the option to pursue any one or more of the
following remedies:

         a. LANDLORD may terminate this LEASE, in which event TENANT shall
immediately surrender the LEASED PREMISES to LANDLORD, and if TENANT fails to do
so, LANDLORD may, without prejudice to any other remedy that it may have for
possession or arrearages in rent, enter upon and take possession and expel or
remove TENANT and any other person who may be occupying the LEASED PREMISES or
any part of them, by force if necessary, without being liable for prosecution or
any claim of damages for such entrance and expulsion or removal. TENANT agrees
to pay LANDLORD on demand the amount of all loss and damage that LANDLORD
suffers by reason of such termination, whether through inability to relet the
LEASED PREMISES on satisfactory terms or otherwise.

         b. LANDLORD may enter upon and take possession of the LEASED PREMISES
and expel or remove TENANT and any other person who may be occupying the LEASED
PREMISES or any part of them, by force if necessary, without being liable for
prosecution or any claim for damages for such entrance and expulsion or removal,
relet the LEASED PREMISES on such terms as LANDLORD deems advisable, and receive
the rent for the reletting. TENANT agrees to pay LANDLORD on demand any
deficiency that may arise by reason of such reletting.

         c. LANDLORD may enter upon the LEASED PREMISES, by force if necessary,
without being liable for prosecution or any claim for damages for such entry,
and do whatever TENANT is obligated to do under the terms of this LEASE to
correct the default. TENANT agrees to reimburse LANDLORD on demand for any
expenses that LANDLORD may incur in effecting compliance with TENANT'S
obligations under this LEASE in this manner, and TENANT further agrees that
LANDLORD shall not be liable for any damages resulting to TENANT from such
action.

         No reentry or taking possession of the LEASED PREMISES by LANDLORD
shall be construed as an election on its part to terminate this LEASE, unless a
written notice of such intention be given to TENANT. Notwithstanding any such
reletting or reentry or taking possession, LANDLORD may at any time thereafter
elect to terminate this LEASE for a previous default. The loss or damage that
LANDLORD may suffer by reason of termination of

                                       9
<PAGE>
this LEASE, or the deficiency from any reletting as provided for above, shall
include the expense of repossession.

                      LANDLORD'S LIEN - SECURITY AGREEMENT

         Section 14.03. LANDLORD shall have, at all times, a valid security
interest to secure payment of all rentals and other sums of money becoming due
under this LEASE from TENANT, and to secure payment of any damages or loss that
LANDLORD may suffer by reason of the breach by TENANT of any covenant,
agreement, or condition contained in this LEASE, upon all goods, inventory,
accounts, chattel paper, bills of lading, warehouse receipts, equipment,
fixtures, furniture, and other personal property of TENANT which is now on the
LEASED PREMISES or which is placed on the LEASED PREMISES at some later date,
and all proceeds from such personal property. This property shall not be removed
from the LEASED PREMISES unless in the ordinary course of business without the
consent of LANDLORD until all arrearages in rent and all other sums of money
then due to LANDLORD under this LEASE have been paid and discharged, and all the
covenants, agreements, and conditions of this LEASE have been fully complied
with and performed by TENANT. Upon the occurrences of an event of default by
TENANT, LANDLORD may, in addition to any other remedies provided in this LEASE
or by law, after giving reasonable notice of the intent to take possession and
giving an opportunity for a hearing on the issue, enter upon the LEASED PREMISES
and take possession of any and all goods, wares, equipment, fixtures, furniture,
and other personal property of TENANT situated on the LEASED PREMISES, without
liability for trespass or conversion, and sell the same at public or private
sale, with or without having such property at sale, after giving TENANT
reasonable notice of the time and place of any public sale or of the time after
which any private sale is to be made. LANDLORD or its assigns may purchase any
items to be sold at such a sale unless they are prohibited from doing so by law.
Unless otherwise provided by law, and without intending to exclude any other
manner of giving TENANT reasonable notice, the requirement of reasonable notice
shall be met if such notice is given at least five (5) days before the time of
sale. The proceeds from any such disposition, less any and all expenses
connected with the taking of possession, holding, and selling of the property
(including reasonable attorney's fees and other expenses), shall be applied as a
credit against the indebtedness secured by the security interest granted in this
section. Any surplus shall be paid to TENANT or as otherwise required by law;
and TENANT shall pay any deficiencies immediately. Upon request by LANDLORD,
TENANT agrees to execute and deliver to LANDLORD a financing statement in form
sufficient to perfect the security interest of LANDLORD in the aforementioned
property and proceeds under the provisions of the Uniform Commercial Code in
force in the State of Texas. The statutory lien for rent is not waived, the
security interest granted in this article being in addition, and supplementary,
to that lien.

                               LANDLORD'S DEFAULT

         Section 14.04. a. TENANT'S RIGHTS. In the event of any default by
LANDLORD, TENANT must give written notice of same to LANDLORD. LANDLORD shall
have 30 days from LANDLORD'S receipt of such notice to either (i) cure such
default, or (ii) undertake a course of conduct thaT will reasonably be expected
to cure such default in the ordinary course of business. LANDLORD shall not be
deemed in default on this LEASE unless LANDLORD shall fail to act in accordance
with this Subsection a.

                                       10
<PAGE>
         b. LIMITATIONS ON LANDLORD'S LIABILITY. Notwithstanding anything to the
contrary contained in this LEASE, in the event of any default or breach by
LANDLORD with respect to any of the terms, covenants and conditions of this
LEASE to be observed, honored or performed by LANDLORD, TENANT shall look solely
to the estate and interest of LANDLORD in the PREMISES for the collection of any
judgment (or any other judicial procedures requiring the payment of money by
LANDLORD) and no other property or assets of LANDLORD shall be subject to levy,
execution, or other procedures for satisfaction of TENANT'S remedies. Under no
circumstances shall LANDLORD or LANDLORD'S officers, agents, shareholders,
directors and employees ever be liable hereunder for consequential or special
damages. This subsection shall not limit any right of TENANT to obtain specific
performance by LANDLORD of LANDLORD'S obligations hereunder.

         c. INDEPENDENT COVENANTS. The respective covenants and agreements of
LANDLORD and TENANT are independent, and TENANT shall not be allowed to setoff
or recoup any amounts due LANDLORD in the event of LANDLORD'S default.

                               CUMULATIVE REMEDIES

         Section 14.05. Pursuit of any of the remedies provided in this LEASE by
either LANDLORD or TENANT shall not preclude pursuit of any of the other
remedies provided in this LEASE. Pursuit of any remedy provided in this LEASE or
by law by either party shall not constitute a forfeiture or waiver of any
damages accruing to either party by reason of the violation of any of the terms,
provisions, and covenants contained in this LEASE. Nor shall pursuit of any
remedies provided in this LEASE by LANDLORD constitute a waiver or forfeiture of
any rent due to LANDLORD under this LEASE.

                                WAIVER OF DEFAULT

         Section 14.06. No waiver by either party of any default or violation or
breach of any of the terms, provisions, and covenants contained in this LEASE
shall be deemed or construed to constitute a waiver of any other violation or
breach of any of the terms, provisions, and covenants of the LEASE. Forbearance
by either party to enforce one or more of the remedies provided in this LEASE or
by law upon an event of default shall not be deemed or construed to constitute a
waiver of such default. LANDLORD'S acceptance of rent following an event of
default under this LEASE shall not be construed as LANDLORD'S waiver of the
default.

                          SURRENDER OF LEASED PREMISES

         Section 14.07. No act or thing done by LANDLORD or its agents during
the lease term shall be deemed an acceptance of a surrender of the LEASED
PREMISES, and no agreement to accept a surrender of the LEASED PREMISES shall be
valid unless the same is in writing and subscribED BY LANDLORD.

                         ARTICLE 15. BINDING ARBITRATION

         Any controversy or claim arising out of, or related to, this LEASE, any
act or omission of LANDLORD with respect to TENANT, and any act or omission of
TENANT with respect to LANDLORD, shall be decided and determined by binding
arbitration in accordance with the

                                       11
<PAGE>
Commercial Arbitration Rules of the American Arbitration Association. The
location of any arbitration proceeding hereunder shall be in Nueces County,
Texas. The arbitration proceeding shall be commenced at any time after either
party files a demand for arbitration upon the other party or parties, with a
copy being furnished to the American Arbitration Association. The arbitrator
shall be a person who is qualified to make decisions in commercial lease matters
and shall be an attorney. The award of the arbitrator shall be final and binding
on all parties. Any and all proceedings hereunder shall be subject to the terms
and provisions of the Texas General Arbitration Act, Tex. Rev. Civ. Stat. Ann.
Art. 224, et seq.

                            ARTICLE 16. MISCELLANEOUS

                                    MORTGAGES

         Section 16.01. TENANT accepts this LEASE subject to any deeds of trust,
security interests, or mortgages that might now or later constitute a lien upon
the LEASED PREMISES or on LANDLORD'S interest in Improvements on the LEASED
PREMISES. TENANT must, on demand, execute any instruments, releases, or other
documents that are reasonably required by any mortgagee for the purpose of
subjecting and subordinating this LEASE to the lien of any such deed of trust,
security interest, or mortgage. LANDLORD agrees to cooperate with TENANT in
obtaining an agreement from any such mortgagee recognizing TENANT'S occupancy of
the LEASED PREMISES under this LEASE and agreeing that TENANT'S occupancy of the
LEASED PREMISES will not be disturbed in the event LANDLORD defaults under any
such deed of trust, security interest or mortgage.

                              NOTICES AND ADDRESSES

         Section 16.02. Any such notice to be given by either party to the other
shall be in writing and may be transmitted either by personal delivery, by
facsimile or by mail, registered or certified, postage prepaid with return
receipt requested. Mailed notices shall be sent to the respective parties at the
below listed addresses, or such other address as a party may designate by
written notice made pursuant to this Article. Notices delivered personally shall
be deemed communicated as of the date of actual receipt; mailed notices shall be
deemed communicated three (3) business days after the date of mailing; notices
transmitted by facsimile shall be deemed communicated upon dispatch provided
that it is during regular business hours, if not, receipt shall be deemed to be
on the next business day.

          LANDLORD:                 Braswell Services Group, Inc.
                                    60 Braswell Street
                                    Charleston, South Carolina 29405
                                    Facsimile: (803) 720-8223

          With Copy to:             Braswell Services Group, Inc.
                                    Attention: Mr. Edward V. Hood
                                    P.O. Box 507
                                    Ingleside, Texas 78362
                                    Facsimile: (512) 776-0740

                                       12
<PAGE>
          TENANT:                   South West Marine, Inc.
                                    Attention: Legal Department
                                    P.O. Box 13308
                                    San Diego, California 92170-3308
                                    Facsimile: (619) 239-1751

         Either party may change the address to which notices are to be sent it
by giving the other party written notice of the new address.

                                  PARTIES BOUND

         Section 16.03. This agreement shall be binding upon, and inure to the
benefit of, the parties to the agreement and their respective heirs, executors,
administrators, legal representatives, successors, and assigns when permitted by
this agreement.

                               TEXAS LAW TO APPLY

         Section 16.04. This agreement shall be construed under, and in
accordance with, the laws of the State of Texas, and all obligations of the
parties created by this agreement are performable in Nueces County, Texas.

                               LEGAL CONSTRUCTION

         Section 16.05. In case any one or more of the provisions contained in
this agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision of the agreement, and this agreement shall
be construed as if such invalid, illegal, or unenforceable provision had never
been included in the agreement.

                           PRIOR AGREEMENTS SUPERSEDED

         Section 16.06. This agreement constitutes the sole and only agreement
of the parties to the agreement and supersedes any prior understandings or
written or oral agreements between the parties respecting the subject matter of
this agreement.

                                    AMENDMENT

         Section 16.07. No amendment, modification, or alteration of the terms
of this agreement shall be binding unless the same is in writing, dated
subsequent to the date of this agreement, and duly executed by the parties to
this agreement.

                           JOINT AND SEVERAL LIABILITY

         Section 16.08. If there is more than one TENANT, the obligations
imposed upon TENANTS by virtue of this LEASE shall be joint and several. If
there is a guarantor of TENANT'S obligations under this LEASE, the obligations
imposed upon TENANT shall be the joint and several obligations of TENANT and the
guarantor. LANDLORD need not first proceed against

                                       13
<PAGE>
TENANT before proceeding against the guarantor, nor shall any such guarantor be
released from its guaranty except by an expressed written Release of Liability
signed by LANDLORD.

                            ATTORNEY'S FEES AND COSTS

         Section 16.09. If, as a result of a breach of this agreement by either
party, the other party employs an attorney or attorneys to enforce its right
under this LEASE, then the breaching or defaulting party agrees to pay the other
party the reasonable attorney's fees and costs incurred to enforce this LEASE.

                                  FORCE MAJEURE

         Section 16.10. Neither LANDLORD nor TENANT shall be required to perform
any term, condition, or covenant in this LEASE so long as such performance is
delayed or prevented by force majeure, which shall mean acts of God, strikes,
lockouts, material or labor restrictions by ANY governmental authority, civil
riot, floods, and any other cause not reasonably within the control of LANDLORD
or TENANT and which by the exercise of due diligence LANDLORD or TENANT is
unable, wholly or in part, to prevent or overcome.

                                 TIME OF ESSENCE

         Section 16.1 1. Time is of the essence of this agreement.

                                      SIGNS

         Section 16.12. TENANT may not install or erect any sign on or about the
LEASED PREMISES without first obtaining the written approval of LANDLORD with
regard to the size, type, shape, design, color, material, content, and method of
attachment of the sign. Such approval will not be unreasonably withheld.
LANDLORD may not dictate or object to the content of any sign to be installed or
erected by TENANT, except that LANDLORD may object to and prevent the
installation or erection of any sign the content of which is obscene or
otherwise offensive.

                                REMOVAL OF SIGNS

         Section 16.13. TENANT must, at its sole expense, remove any signs
installed or erected on or about the LEASED PREMISES by TENANT and repair any
damage done to the LEASED PREMISES, the Improvements or the land surrounding the
LEASED PREMISES by the installation, erection, or removal of the signs. This
removal and repair must be completed no later than the termination of this
LEASE.

                                SECURITY DEPOSIT

         Section 16.14. Concurrently with the execution of this LEASE, TENANT
shall deposit with LANDLORD in cash the sum of $ 20,000.00 to be held as
Security Deposit. LANDLORD shall not be obligated to deposit such sum in any
separate account, nor shall TENANT be entitled to any interest earned on such
deposit, if any, in the event such Security Deposit is held in an interest
bearing account. Such Security Deposit shall constitute a security fund insuring

                                       14
<PAGE>
TENANT'S faithful performance of TENANT'S obligations hereunder. If TENANT fails
to pay Rent or other charges due hereunder, or otherwise defaults with respect
to any provision of this LEASE, LANDLORD may use, apply and retain all or any
portion of such deposit for the payment of any rent or other charge resulting
from the default or for the payment of any other sum to which LANDLORD may
become entitled by reason of TENANT'S default, or to compensate LANDLORD for any
loss or damage which LANDLORD may suffer thereby. If LANDLORD so uses or applies
all or any portion of such deposit, TENANT shall, within fifteen (15) days after
written demand therefor, deposit cash with LANDLORD in an amount sufficient to
restore such deposit to the full amount hereinabove stated and TENANT'S failure
to do so shall be a material breach of the LEASE. If TENANT performs all of
TENANT'S obligations hereunder, such deposit, or so much hereof as has not
theretofore been applied by LANDLORD, shall be returned to TENANT at the
expiration of the LEASE. LANDLORD and their authorized agents, shall be entitled
to enter the LEASED PREMISES at all reasonable times for the purpose of (i)
serving and posting thereon such notices as LANDLORD may deem necessary or
appropriate for protection of LANDLORD, including, without limitation, notice of
non-responsibility; (ii) inspecting the LEASED PREMISES or any portion thereof;
and (iii) making necessary repairs to the LEASED PREMISES and performing any
work therein which LANDLORD may elect, or be required, to make hereunder, or
which may be necessary to comply with any laws, ordinances, rules, regulations
or requirements of any public authority, or which LANDLORD may deem necessary or
appropriate to prevent waste, loss, damage or deterioration to the LEASED
PREMISES.

                                    INSURANCE

         Section 16.15. (a) PUBLIC LIABILITY INSURANCE. TENANT shall, at
TENANT'S own cost and expense, secure and maintain during the entire term of
this LEASE (and immediately furnish proof of coverage to LANDLORD) a broad form
comprehensive coverage policy of public liability insurance issued by an
insurance company authorized to issue liability insurance in the State of Texas,
and reasonably satisfactory to LANDLORD, insuring TENANT and LANDLORD against
loss or liability caused by or connected with TENANT'S occupation and use of the
LEASED PREMISES under this LEASE in amounts not less than $1,000,000.00 combined
single limit of liability per occurrence, bodily injury and property damage
liability.

         (b) CASUALTY INSURANCE. TENANT shall carry at its own expense (and
immediately furnish proof of coverage to the LANDLORD) fire and extended
coverage insurance, and other casualty insurance available to fully protect the
building identified in Exhibit "AA" which constitutes a portion of the
Improvements located on the LEASED PREMISES, including Plate Glass, from any
loss due to casualty or damage, and shall exercise diligence and good faith to
review annually such coverage so as to cause said insurance to be maintained at
a rate of ninety percent (90%) of the full current fair market replacement value
of said building. LANDLORD and any beneficiary under any trust deed or mortgage
encumbering TENANT'S leasehold estate shall be named as loss payee and an
additional insureds as their interests may appear.

         (c) PAYMENT OF PREMIUMS AND DELIVERY OF CERTIFICATE. TENANT shall pay
all premiums and charges on all of the insurance required to be carried by it
under this LEASE promptly when such premiums become due and furnish LANDLORD
with satisfactory evidence of the payment of the premiums as they become due and
payable. All original policies of

                                       15
<PAGE>
insurance herein provided to be held by TENANT, and certificates thereof shall
be delivered to LANDLORD. TENANT shall, at its sole cost and expense, comply
with any and all requirements pertaining to the LEASED PREMISES of any insurance
company necessary for the maintenance of insurance required to be provided
hereunder.

         (d) CANCELLATION NOTICE. Each insurance policy which TENANT is required
to obtain pursuant to this LEASE shall contain a provision that such insurance
carrier may not be canceled or subject such policy to reduction of coverage,
modification or nonrenewal for any reason unless fifteen (15) days prior written
notice thereof has been delivered to LANDLORD and to the holders of any mortgage
or deed of trust to whom loss thereunder may be payable and authorized by this
LEASE.

         (e) WAIVER OF RIGHT OF SUBROGATION. Anything in this LEASE to the
contrary notwithstanding, LANDLORD and TENANT each hereby waive any and all
rights of recovery, claims, actions, or causes of action against the other, its
agents, officers and employees for any loss or damage that may occur to the
LEASED PREMISES or any part thereof, or any of the personal property of such
parties therein by reason of fire, the elements, or any other cause which is
insured against under the terms of the policies of fire and extended coverage
insurance carried by either LANDLORD or TENANT in respect thereof, to the
extent, and only to the extent, of any proceeds actually received by LANDLORD
and TENANT respectively, with respect thereto, regardless of its cause or
origin, including negligence of either party hereto, its agents, officers, or
employees, and each party covenants that no insurer shall hold any right of
subrogation against the other. TENANT agrees to furnish LANDLORD with written
waivers of subrogation, in form satisfactory to LANDLORD, with respect to
TENANT'S fire and extended coverage insurance policies.

                WAIVER OF WARRANTIES AND ACCEPTANCE OF CONDITION

         Section 16.16. Except as otherwise provided in Section 16.17, TENANT
acknowledges and agrees that neither LANDLORD nor any employee, agent, officer,
director or shareholder of LANDLORD has made any representation or warranty,
either expressed or implied, as to the habitability, merchantability,
suitability, quality, condition or fitness for particular purpose with regard to
the LEASED PREMISES. TENANT hereby waives, to the extent permitted by law, any
defects in the LEASED PREMISES and any claim or cause of action based upon any
warranties, either expressed or implied as to habitability, merchantability,
suitability, quality, condition or fitness for any particular purpose with
regard to the LEASED PREMISES. TENANT'S possession of the LEASED PREMISES shall
be conclusive evidence that (a) TENANT has inspected (or caused to be inspected)
the LEASED PREMISES, (b) TENANT accepts the LEASED PREMISES and the Improvements
as being in good and satisfactory condition and suitable for TENANT'S use and
(c) the LEASED PREMISES fully comply with LANDLORD'S covenants and obligations
hereunder.

                             ENVIRONMENTAL COVENANTS

         Section 16.17. TENANT will not commit any act or omission, and will not
permit any activity or omission which will cause the Improvements or the LEASED
PREMISES to violate, or bring LEASED PREMISES within the ambit of any
environmental law, including, but not

                                       16
<PAGE>
limited to, the Resource Conservation and Recovery Act of 1976 ("RCRA", 42
U.S.C. Section 6901, et seq., as amended, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986 ("SARA") 42 U.S.C. Section 9601, et
seq., as amended, the Federal Water Pollution Control Act, 33 U.S.C. Section
1251, et seq., the Clean Air Act, 42 U.S.C. Section 7401, et seq., and/or the
Texas Solid Waste Disposal Act, and Chapter 361 of the Texas Health and Safety
Code, or any similar state law or local ordinance or any other environmental
law. TENANT will immediately give LANDLORD written notice of any violation, or
suspected violation, by TENANT or TENANT'S agents, employees, officers and
contractors of such environmental laws, and shall immediately take action (as
approved by LANDLORD) to remediate any problems and/or comply with any
applicable financial responsibility requirements of such laws. Article 12,
INDEMNITY, shall apply to this Section 16.17. TENANT'S remediation and indemnity
obligations as required herein shall be limited to those violations caused by
TENANT and its invitees, licensees, employees, directors, officers, servants,
contractors and subcontractors and shall specifically exclude those items of
potential contamination identified in the environmental reports referred to in
Section 16.19(b).

                                    CAPTIONS

         Section 16.18. The captions appearing at the beginning of paragraphs
and subparagraphs are for convenience only, and to not in any way limit or
amplify the terms and provisions of this instrument.

                              LANDLORD'S DISCLOSURE

         Section 16.19. a. LANDLORD hereby discloses to TENANT that certain
other landowners appurtenant to, or in the area of, the LEASED PREMISES have
sued the City of Ingleside and other parties regarding the zoning of the LEASED
PREMISES. This lawsuit has been filed in the 36th Judicial District Court of San
Patricio County, Texas, as Cause No. 24,102. TENANT is hereby advised to consult
with TENANT'S own legal advisors regarding the impact and effect of such lawsuit
inasmuch as LANDLORD makes no warranty or representation regarding the outcome
of same, or the future joinder of any additional parties in such lawsuit.

         b. LANDLORD has delivered copies of the following environmental reports
to TENANT, and has advised TENANT to consult with TENANT'S own advisors and
experts regarding same:

                  (1)      Phase I and Partial Phase II Environmental Site
                           Assessment Lots 2 through 10, Block A, Caruthers
                           Cove, Old Ingleside, San Patricio County, Texas
                           performed by Everest Environmental Services
                           Corporation, for Peterson Builders, Inc., dated
                           November 1992, No. 921001.

                  (2)      Phase II Environmental Site Assessment Report for the
                           Ingleside Offshore Services Facility located on Hwy.
                           1069, Ingleside, Texas, prepared for Braswell
                           Services Group, Inc. by Everest Environmental
                           Services Corporation, dated March 24, 1994, No.
                           940201.

                                       17
<PAGE>
                         EXCEPTIONS TO LANDLORD'S TITLE

         Section 16.20. Landlord hereby advises Tenant that the following
exceptions were taken to Landlord's title insurance coverage in the Owner's
Title Policy issued to Landlord on the date Landlord acquired fee simple title
to the property of which the LEASED PREMISES form a PART:

         (1) Any titles or rights asserted by anyone, including, but not limited
to, persons, the public, corporations, governments or other entities,

                  a.       to tidelands, or lands comprising the shores or beds
                           of navigable or perennial rivers and streams, lakes,
                           bays, gulfs or oceans, or

                  b.       to lands beyond the line of the harbor or bulkhead
                           lines as established or changes by any government, or

                  c.       to filled-in lands, or artificial islands, or

                  d.       to statutory water rights, including riparian rights,
                           or

                  e.       to the area extending from the line of mean low tide
                           to the line of vegetation, or the right of access to
                           that area or easement along and across that area.

         (2) Standby fees and taxes for the year 1994 and subsequent years, and
subsequent assessments for prior years due to change in land usage or ownership.

         (3) Reservation of all oil, gas and other minerals contained in Deed
dated June 9, 1952, from Jewell Fulton to Dr. Walter M. Lemke et ux recorded in
Volume 176, Page 533, Deed Records, San Patricio County, Texas. Together with
all rights incident to the owners and lessees of the minerals. Title to said
interest not checked subsequent to date of aforesaid instrument.

         (4) Easement and Right-of-Way dated April 26, 1979 from S. W. Dunnam
and wife, Pauline Dunnam, to Central Power and Light Company, recorded in Volume
608, Page 746, Deed Records, San Patricio County, Texas, covers Lot 5.

         (5) Easement and Right-of-Way dated May 18, 1984, executed by Ingleside
Offshore Services' Partnership to Central Power and Light Company, a Texas
Corporation, File No. 328937, Official Public Records of Real Property of San
Patricio County, Texas.

         (6) Easement and Right-of-Way dated April 30, 1979, executed by
Ingleside Marine, Inc. to Central Power and Light Company, a Texas Corporation,
filed for record under Clerk's File No. 280815, Official Public Records of Real
Property, San Patricio County, Texas. Covering Tracts 6, 7 and 8, Caruthers
Cove, Ingleside.

         (7) Rights of reverter, tariffs, littoral and riparian rights and
restrictions as contained in Mutual Conveyance Agreements between Nueces County
Navigation District No. 1 and

                                       18
<PAGE>
various parties, said instruments recorded in the following volumes and pages of
the Deed Records in the respective counties in the State of Texas, as follows:

<TABLE>
<CAPTION>
                                      VOLUME                    PAGE                     COUNTY
<S>                                   <C>                     <C>                     <C>
               1.                        205                   99-112                 San Patricio
               2.                        206                  133-145                 San Patricio
               3.                       1456                  859-870                       Nueces
               4.                        707                  487-499                       Nueces
               5.                        204                  530-542                 San Patricio
               6.                        707                  474-487                       Nueces
               7.                        204                  569-582                 San Patricio
               8.                        776                  102-114                       Nueces
</TABLE>

         (8) Oil, gas, and mineral lease from State of Texas to Jake L. Hamon
dated October 3, 1972, recorded in File No. 897274, Volume 298, Page 299, Oil
and Gas Records of Nueces County, Texas, (Covers Tract 5, Corpus Christi Bay)
together with all rights incident to the owners and lessees of the minerals;
Title to said interest not checked subsequent to date of aforesaid instrument.

         (9) Declaration of Unit, The State of Texas and Lessees, Jake L. Hamon
and W. L. Sinclair Development Company, dated December 20, 1973, File No.
960338, Volume 303, Page 787, Oil and Gas Records, Nueces County, Texas.
(Covering Tract 5, Corpus Christi Bay).

         (10) Exception and Reservation by Grantors of all minerals and the
entire mineral interest and estate as set forth in Warranty Deed from Mae Fulton
Hoopes, a widow and Elinor Fulton Conger to Harry Allan Stahistrom and Laura
Gathright Stahlstrom, dated June 15, 1955, filed for record under Clerk's File
No. 103787, and recorded in the Official Public Records of Real Property of San
Patricio County, Texas. Together with all rights incident to the owners and
lessees of the minerals. Title to said interest not checked subsequent to date
of aforesaid instrument. (Covering Tract 9, Block A, Caruthers Cove at Old
Ingleside).

         (11) Oil, gas, and mineral lease from State of Texas to MWJ Corporation
dated February 7, 1978, recorded in File No. 87790, Volume 321, Page 96, Oil and
Gas Records of Nueces County, Texas, together with all rights incident to the
owners and lessee of the minerals; Title to said interest not checked subsequent
to date of aforesaid instrument.

         (12) Terms set forth in Ordinance No. 444 establishing Industrial
Development areas and Ingleside Industrial Development District by the City of
Ingleside, Texas, dated December 10, 1985, filed for record under Clerk's File
No. 344829, Official Public Records of Real Property, San Patricio County,
Texas.

         (13) The location of other's concrete bulkhead onto subject property
along South property line and the location of other's chain link fence and water
tank onto subject property along North property line; all as shown by survey
dated February 20, 1994, prepared by Maverick Engineering, Job No. C 34687.

                                       19
<PAGE>
         (14) Reservation by State of Texas of all oil, gas and other minerals
in Patent # 106, dated 07-31-51, to Nueces County Navigation District, recorded
in Volume 18-B, and Volume 522, Pages 201-203, Deed Records, Nueces County,
Texas, together with all rights incident to owners and lessees of said minerals.
Title to said interest not checked subsequent to date of aforesaid instrument.

         (15) Easement and Right-of-Way dated 09-22-82, from Ingleside Offshore
Services, Partnership to Central Power and Light Company, recorded in Volume
1845, Page 843, Deed Records, Nueces County, Texas.

         The undersigned LANDLORD and TENANT execute this agreement as of
October 24, 1995, at Corpus Christi, Nueces County, Texas.

<TABLE>
<S>                                      <C>
TENANT:                                  LANDLORD:

SOUTHWEST MARINE, INC.                   BRASWELL SERVICES GROUP, INC.

By: /s/ Herbert G. Engel                 By: /s/ E.S. Braswell
    ---------------------------------        ------------------------------------------
     Herbert G. Engel, President              E.S. Braswell, President

By: /s/ Lloyd A. Schwartz                By: /s/ Jacqueline A. Echols
    ---------------------------------        ------------------------------------------
     Lloyd A. Schwartz, Secretary             Jacqueline A. Echols, Assistant Secretary
</TABLE>

                                       20
<PAGE>
                            FIRST AMENDMENT TO LEASE

         THIS AGREEMENT is made and entered into as of this 12th day of
December, 1995, by and between BRASWELL SERVICES GROUP, INC., a South Carolina
corporation ("LANDLORD") and SOUTHWEST MARINE, INC., a California corporation
("TENANT").

                                    RECITALS:

         WHEREAS, by agreement dated as of October 24, 1995 (the "Lease")
LANDLORD leased to TENANT a portion of certain real property and the
improvements located thereon in Ingleside, Texas, North Shore Docks, 1555 Main
Street, South Highway 1069; and

         WHEREAS, LANDLORD and TENANT desire to modify and amend the Lease, all
upon certain specified terms and conditions.

         NOW, THEREFORE, in consideration of the premises and covenants herein
contained, the parties hereto agree, effective as of the date hereof, as
follows:

         1. The last sentence of Paragraph 3 of Exhibit "B", Rules and
Regulations of the Lease is deleted in its entirety and the following
substituted therefor:

                  "TENANT shall not manufacture on the LEASED PREMISES any
                  materials or substances which are hazardous to human health or
                  the environment. In addition, TENANT shall not use or store on
                  the LEASED PREMISES any materials or substances which are
                  hazardous to human health or the environment except in the
                  ordinary course of the operation of TENANT'S business on the
                  LEASED PREMISES and provided that at all times such use or
                  storage is accomplished by TENANT in compliance with all
                  applicable federal, state and local laws and regulations
                  including the securing by TENANT of the necessary permits
                  required thereunder."

                                       21
<PAGE>
                            SECOND AMENDMENT TO LEASE

         THIS AGREEMENT is made and entered into as of this _27_ day of
__October__, 1997, by and between Braswell Services Group, Inc., a South
Carolina corporation ("LANDLORD"), and Southwest Marine, Inc., a California
corporation ("TENANT").

                                    RECITALS:

         WHEREAS, by agreement dated as of October 24, 1995, as amended by
agreement dated as of December 12, 1995 (collectively the "LEASE"); LANDLORD
leased to TENANT a portion of certain real property and the improvements located
thereon in Ingleside, Texas, North Shore Docks, 1555 Main Street, South Highway
1069; and

         WHEREAS, LANDLORD and TENANT desire to document certain oral agreements
and changes to the LEASE made as of March 1, 1996, including, but not limited
to, the construction by LANDLORD of a one story metal building for TENANT'S use
in lieu of the two story metal building occupied by TENANT previously.

         NOW, THEREFORE, in consideration of the premises and covenants herein
contained, the parties hereto agree, effective as of March 1, 1996, as follows:

         1.       The following is added immediately after Article 1. TERM,
Section 1.03:

                         "Option to Extend Term of Lease

                  Section 1.04. Provided TENANT is not then in default under the
                  terms of this LEASE, TENANT shall have the right and option to
                  extend the Term of the LEASE for an additional period of two
                  years and two months commencing November 1, 2002 and ending
                  December 31, 2004 (the "Extended Term"), such option to be
                  exercised, if at all, by TENANT giving LANDLORD not less than
                  ninety (90) days' written notice of such election. All of the
                  terms and conditions of this LEASE shall be applicable during
                  the Extended Lease, except for those dealing with Term and
                  Rent, the latter to be negotiated and documented in a separate
                  writing to be executed by LANDLORD and TENANT within sixty
                  (60) days following LANDLORD'S receipt of TENANT'S notice
                  exercising its option as provided herein. Should LANDLORD and
                  TENANT fail within said period to negotiate and document a
                  Rent satisfactory to both parties, then, and in such event,
                  TENANT'S exercise of its option shall be null and void and the
                  Term of this LEASE shall expire on October 31, 2002."

         2.       The singular paragraph of Exhibit AA "LEASED PREMISES" is
deleted in its entirety and the following substituted therefore:

                            "See Exhibit AA-2 "SWM" identified portions and
                  existing and newly constructed buildings, utility systems,
                  fencing, 562 lineal feet of sheet pile bulkhead and all other
                  improvements located thereon, together with a non-exclusive
                  right of ingress and egress to all areas identified on Exhibit
                  AA-2 as being leased to SWM, along and across the real
                  property identified as

                                       22
<PAGE>
                  "Common Access Road" and including a non-exclusive right of
                  ingress and egress over Braswell's real property for access to
                  the separate area identified on Exhibit AA-2 as SWM's
                  Government Furnished Material (GFM) warehouse."

         Except as hereinabove and as previously modified and amended, the LEASE
shall remain unchanged and in full force and effect.

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

BRASWELL SERVICES GROUP, INC.,            SOUTHWEST MARINE, INC.,
A SOUTH CAROLINA CORPORATION              A CALIFORNIA CORPORATION

By: /s/ Elliott S. Braswell Jr.          By: /s/ B. Edward Ewing
    ----------------------------------       ----------------------------------
    Elliott S. Braswell Jr., President       B. Edward Ewing, President

By: /s/ Jacquelyn A. Echols              By: /s/ Lloyd A. Schwartz
    ----------------------------------       ----------------------------------
    Assistant Secretary                      Lloyd A. Schwartz, Secretary

                                       23
<PAGE>
         Except as hereinabove modified and amended, the Lease shall remain
unchanged and in full force and effect.

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

BRASWELL SERVICES GROUP, INC.,           SOUTHWEST MARINE, INC.,
A CALIFORNIA CORPORATION                 A SOUTH CAROLINA CORPORATION

By: /s/ Elliott S. Braswell                  By: /s/ Herbert G. Engel
    ----------------------------------           -------------------------------
    Elliott S. Braswell, President               Herbert G. Engel, President

By: /s/ Jacquelyn A. Echols                  By: /s/ Lloyd A. Schwartz
    ----------------------------------           -------------------------------
    Jacquelyn A. Echols, Assistant Secretary     Lloyd A. Schwartz, Secretary

                                       24

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