LEGATO SYSTEMS INC
LEASE AGREEMENT DATED 7/6/1999 SOBRATO INTERESTS III
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>3
<FILENAME>dex107.txt
<DESCRIPTION>LEASE AGREEMENT DATED 7/6/1999 SOBRATO INTERESTS III
<TEXT>
<PAGE>

                                                                    Exhibit 10.7

                              SOBRATO INTERESTS III

                                                          Landlord

                                     - and -



                              LEGATO SYSTEMS, INC.

                                                          Tenant

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

                                      LEASE

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



                                SPACE LOCATED AT

               2350 West El Camino Real, Mountain View, California


                                    PREMISES
                                    --------

<PAGE>

                                  Lease between
                 Sobrato Interests III and Legato Systems, Inc.

Section ................................................................. Page #
Parties ...................................................................... 1
Premises ..................................................................... 1
Use .......................................................................... 1
  Permitted Uses ............................................................. 1
  Uses Prohibited ............................................................ 1
  Advertisements and Signs ................................................... 2
  Covenants, Conditions and Restrictions ..................................... 2
Term and Rental .............................................................. 2
  Base Monthly Rent .......................................................... 2
  Rental Adjustment .......................................................... 2
  Late Charges ............................................................... 3
  Security Deposit ........................................................... 3
Construction ................................................................. 4
  Building Shell Construction ................................................ 4
  Tenant Improvement Plans ................................................... 4
  Tenant Improvement Costs ................................................... 5
  Construction ............................................................... 5
  Tenant Delays .............................................................. 5
  Insurance .................................................................. 6
  Punch List & Warranty ...................................................... 6
  Other Work by Tenant ....................................................... 6
Acceptance of Possession and Covenants to Surrender .......................... 6
  Delivery and Acceptance .................................................... 6
  Condition Upon Surrender ................................................... 6
  Failure to Surrender ....................................................... 7
Alterations and Additions .................................................... 7
  Tenant's Alterations ....................................................... 7
  Free From Liens ............................................................ 8
  Compliance With Governmental Regulations ................................... 8
Maintenance of Premises ...................................................... 8
  Landlord's Obligations ..................................................... 8
  Tenant's Obligations ....................................................... 9
  Waiver of Liability ........................................................ 9
Hazard Insurance ............................................................. 9
  Tenant's Use ............................................................... 9
  Landlord's Insurance ...................................................... 10
  Tenant's Insurance ........................................................ 10

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  Waiver .................................................................... 10
Taxes ....................................................................... 10
Utilities ................................................................... 11
Toxic Waste and Environmental Damage ........................................ 11
  Tenant's Responsibility ................................................... 11
  Tenant's Indemnity Regarding Hazardous Materials .......................... 12
  Actual Release by Tenant .................................................. 12
  Environmental Monitoring .................................................. 13
Tenant's Default ............................................................ 13
  Remedies .................................................................. 13
  Right to Re-enter ......................................................... 14
  Abandonment ............................................................... 14
  No Termination ............................................................ 14
  Non-Waiver ................................................................ 15
  Performance by Landlord ................................................... 15
  Habitual Default .......................................................... 15
Landlord's Liability ........................................................ 15
  Limitation on Landlord's Liability ........................................ 15
  Limitation on Tenant's Recourse ........................................... 16
  Indemnification of Landlord ............................................... 16
Destruction of Premises ..................................................... 16
  Landlord's Obligation to Restore .......................................... 16
  Limitations on Landlord's Restoration Obligation .......................... 17
Condemnation ................................................................ 17
Assignment or Sublease ...................................................... 17
  Consent by Landlord ....................................................... 18
  Assignment or Subletting Consideration .................................... 18
  No Release ................................................................ 18
  Reorganization of Tenant .................................................. 19
  Permitted Transfers ....................................................... 19
  Effect of Default ......................................................... 19
  Effects of Conveyance ..................................................... 19
  Successors and Assigns .................................................... 20
Option to Extend the Lease Term ............................................. 20
  Grant and Exercise of Option .............................................. 20
  Determination of Fair Market Rental ....................................... 20
  Resolution of a Disagreement over the Fair Market Rental .................. 21
  Personal to Tenant ........................................................ 21
General Provisions .......................................................... 21
  Attorney's Fees ........................................................... 21
  Authority of Parties ...................................................... 22
  Brokers ................................................................... 22
  Choice of Law ............................................................. 22
  Dispute Resolution ........................................................ 22
  Entire Agreement .......................................................... 23
  Entry by Landlord ......................................................... 23
  Estoppel Certificates ..................................................... 24
  Exhibits .................................................................. 24

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<TABLE>
<S>                                                                          <C>

  Interest .................................................................. 24
  Modifications Required by Lender .......................................... 24
  No Presumption Against Drafter ............................................ 24
  Notices ................................................................... 24
  Property Management ....................................................... 25
  Rent ...................................................................... 25
  Representations ........................................................... 25
  Rights and Remedies ....................................................... 25
  Severability .............................................................. 25
  Submission of Lease ....................................................... 25
  Subordination ............................................................. 25
  Survival of Indemnities ................................................... 26
  Time ...................................................................... 26
  Transportation Demand Management Programs ................................. 26
  Waiver of Right to Jury Trial ............................................. 26
</TABLE>

                                    Page iii

<PAGE>

1. PARTIES: THIS LEASE, is entered into on this 6 day of July 1999, ("Effective
Date") between SOBRATO INTERESTS III, a California Limited Partnership, whose
address is 10600 North De Anza Boulevard, Suite 200, Cupertino, CA 95014 and
LEGATO SYSTEMS, INC., a Delaware Corporation, whose address is 3210 Porter
Drive, Palo Alto, CA 94304, hereinafter called respectively Landlord and Tenant.

2. PREMISES:

The 1.4 acre parcel of land ("Lot 1") located at the corner of West El Camino
Real and Ortega Avenue in Mountain View, California (APN 147-83-133) as shown on
the attached Exhibit "A", together with all improvements and appurtenances
             ----------
thereon including a 6-story building of 105,143 square feet ("Building") and a
3-level underground parking garage including storage rooms within the garage
totaling approximately 4,500 square feet ("Office Garage") located beneath the
Building, which is commonly known as 2350 West El Camino Real, Mountain View,
California

Landlord hereby leases the Premises to Tenant, and Tenant hires the Premises
from Landlord. Landlord also hereby assigns to Tenant for the term of this Lease
all of Landlord's rights and obligations as owner of Lot 1, as those rights and
obligations are described in the agreement entitled Amended Declaration of
Covenants and Grant of Easements recorded on January 23, 1992 as amended on June
19, 1992 and on May 30, 1997 ("Amended Declaration"), attached hereto as Exhibit
                                                                         -------
"B"; with the exception of: (i) the insurance obligations described in Sections
---
9.a and 9.b of the Amended Declaration, which obligations shall be performed by
Landlord and the cost of which shall be reimbursed by Tenant pursuant to Lease
Section 9.B.; and (ii) any obligations related to Section 7 of the Amended
Declaration, it being agreed by the parties that Landlord shall be responsible
for and bear all expense associated with any required maintenance and management
of the Pool and Health Club Easement. Unless expressly provided otherwise, the
term Premises as used herein shall include the Tenant Improvements (defined in
Section 5.B) constructed by Tenant pursuant to Section 5.B.

3. USE:

     A. Permitted Uses: Tenant shall use the Premises only for the following
purposes and shall not change the use of the Premises without the prior written
consent of Landlord: Office, research and development, marketing, light
manufacturing, ancillary storage and other incidental uses. Tenant shall use
only the number of parking spaces allocated to Tenant which shall consist of
approximately 210 parking spaces in Lot 1 and 170 spaces in Lot 2 available
exclusively to Tenant from 7:00 a.m. to 7:00 p.m. Monday through Friday and on a
first-come-first-serve basis thereafter; such rights are specifically set forth
in Exhibit "B". All commercial trucks and delivery vehicles shall be parked
   -----------
within the loading area of the Building and permitted to remain on the Premises
only so long as is reasonably necessary to complete the loading and unloading.
Landlord makes no representation or warranty that any specific use of the
Premises desired by Tenant is permitted pursuant to any Laws.

     B. Uses Prohibited: Tenant shall not commit or suffer to be committed on
the Premises any waste, nuisance, or other act or thing which may disturb the
quiet enjoyment of any other tenant in or around the Premises, nor allow any
sale by auction or any other use of the Premises for an unlawful purpose. Tenant
shall not (i) damage or overload the electrical, mechanical or plumbing systems
of the

                                     Page 1

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Premises, (ii) attach, hang or suspend anything from the ceiling, walls or
columns of the building or set any load on the floor in excess of the load
limits for which such items are designed, or (iii) generate dust, fumes or waste
products which create a fire or health hazard or damage the Premises or any
portion of the Project, including without limitation the soils or ground water
in or around the Project. No materials, supplies, equipment, finished products
or semifinished products, raw materials or articles of any nature, or any waste
materials, refuse, scrap or debris, shall be stored upon or permitted to remain
on any portion of the Premises outside of the Building without Landlord's prior
approval, which approval may be withheld in its sole discretion.

     C. Advertisements and Signs: Tenant will not place or permit to be placed,
in, upon or about the Premises any signs not approved by the city and other
governing authority having jurisdiction. Tenant will not place or permit to be
placed upon the Premises any signs, advertisements or notices without the
written consent of Landlord as to type, size, design, lettering, coloring and
location, which consent will not be unreasonably withheld. Any sign placed on
the Premises shall be removed by Tenant, at its sole cost, prior to the
Expiration Date or promptly following the earlier termination of the Lease, and
Tenant shall repair, at its sole cost, any damage or injury to the Premises
caused thereby, and if not so removed, then Landlord may have same so removed at
Tenant's expense.

     D. Covenants, Conditions and Restrictions: This Lease is subject to the
effect of (i) any covenants, conditions, restrictions, easements, mortgages or
deeds of trust, ground leases, rights of way of record and any other matters or
documents of record; and (ii) any zoning laws of the city, county and state
where the Building is situated (collectively referred to herein as
"Restrictions") and Tenant will conform to and will not violate the terms of any
such Restrictions.

4. TERM AND RENTAL:

     A. Base Monthly Rent: The term ("Lease Term") shall be for one hundred
twenty (120) months, commencing on the earlier of either (i) substantial
completion of construction of the Tenant Improvements as determined pursuant to
Section 5.D, or (ii) sixty (60) days following issuance by the City of Mountain
View of a building permit for construction of the Tenant Improvements, subject
to extension pursuant to Section 5.D (the "Commencement Date"), and ending one
hundred twenty (120) months thereafter, ("Expiration Date"). Notwithstanding the
Parties agreement that the Lease Term begins on the Commencement Date, this
Lease and all of the obligations of Landlord and Tenant shall be binding and in
full force and effect from and after the Effective Date. In addition to all
other sums payable by Tenant under this Lease, Tenant shall pay as base monthly
rent ("Base Monthly Rent") for the Premises, starting on the Commencement Date,
the amount of Two Hundred Eighty Nine Thousand One Hundred Forty Three and
25/100 Dollars ($289,143.25). Base Monthly Rent shall be due in advance on or
before the first day of each calendar month during the Lease Term. All sums
payable by Tenant under this Lease shall be paid to Landlord in lawful money of
the United States of America, without offset or deduction and without prior
notice or demand, at the address specified in Section 1 of this Lease or at such
place or places as may be designated in writing by Landlord during the Lease
Term. Base Monthly Rent for any period less than a calendar month shall be a pro
rata portion of the monthly installment.

     B. Rental Adjustment: Beginning twelve (12) months after the Commencement
Date, and every twelve (12) months thereafter (an "Adjustment Date"), the
then-payable Base Monthly Rent shall be subject to adjustment based on the
increase, if any, in the Consumer Price Index that has occurred during the
twelve (12) months preceding the then-applicable Adjustment Date. The basis for
computing the adjustment shall be the U.S. Department of Labor, Bureau of Labor
Statistic's Consumer Price Index for All Urban Consumers, All Items,
1982-84=100, for the San Francisco-Oakland-San Jose area ("Index"). The Index

                                     Page 2

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most recently published preceding the Commencement Date for the first Adjustment
(or previous Adjustment Date, as applicable), shall be considered the "Base
Index". If the Index most recently published preceding the Adjustment Date
("Comparison Index") is greater than the Base Index, the then-payable Base
Monthly Rent shall be increased by multiplying the then-payable Base Monthly
Rent by a fraction, the numerator of which is the Comparison Index and the
denominator of which is the Base Index. On adjustment of the Base Monthly Rent,
Landlord shall notify Tenant by letter stating the new Base Monthly Rent.
Landlord's calculation of the Base Monthly Rent escalation shall be conclusive
and binding unless Tenant objects to said calculation within thirty (30) days of
Tenant's receipt from Landlord of such calculation. Landlord's failure to adjust
Base Monthly Rent on an Adjustment Date shall not prevent Landlord from
retroactively adjusting Base Monthly Rent at any subsequent time during the
Lease Term. If the Index base year is changed so that it differs from
1982-84=100, the Index shall be converted in accordance with the conversion
factor published by the United States Department of Labor, Bureau of Labor
Statistics. If the Index is changed, revised or discontinued for any reason,
there shall be substituted in lieu thereof and the term "Consumer Price Index"
shall thereafter refer to the most nearly comparable official price index of the
United States Government in order to obtain substantially the same result as
would have been obtained had the original Consumer Price Index been not been
discontinued, revised or changed, which alternative index shall be selected by
Landlord and shall be subject to Tenant's written approval.

     C. Late Charges: Tenant hereby acknowledges that late payment by Tenant to
Landlord of Base Monthly Rent and other sums due hereunder will cause Landlord
to incur costs not contemplated by this Lease, the exact amount of which is
extremely difficult to ascertain. Such costs include but are not limited to:
administrative, processing, accounting, and late charges which may be imposed on
Landlord by the terms of any contract, revolving credit, mortgage, or trust deed
covering the Premises. Accordingly, if any installment of Base Monthly Rent or
other sum due from Tenant shall not be received by Landlord or its designee
within five (5) days after the rent is due, Tenant shall pay to Landlord a late
charge equal to five (5%) percent of such overdue amount, which late charge
shall be due and payable on the same date that the overdue amount was due. The
parties agree that such late charge represents a fair and reasonable estimate of
the costs Landlord will incur by reason of late payment by Tenant, excluding
interest and attorneys fees and costs. If any rent or other sum due from Tenant
remains delinquent for a period in excess of thirty (30) days then, in addition
to such late charge, Tenant shall pay to Landlord interest on any rent that is
not paid when due at the Agreed Interest Rate specified in Section 19.J
following the date such amount became due until paid. Acceptance by Landlord of
such late charge shall not constitute a waiver of Tenant's default with respect
to such overdue amount nor prevent Landlord from exercising any of the other
rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Monthly Rent, then the Base Monthly Rent shall
automatically become due and payable quarterly in advance, rather than monthly,
notwithstanding any provision of this Lease to the contrary.

     D. Security Deposit: Concurrently with Tenant's execution of this Lease,
Tenant has deposited with Landlord the sum of Three Hundred Thousand and No/100
Dollars ($300,000.00) ("Security "Deposit"). Landlord shall not be deemed a
trustee of the Security Deposit, may use the Security Deposit in business, and
shall not be required to segregate it from its general accounts. Tenant shall
not be entitled to interest on the Security Deposit. The provisions of
California Civil Code Section 1950.7 notwithstanding, if Tenant defaults with
respect to any provisions of the Lease, including but not limited to the
provisions relating to payment of Base Monthly Rent or other charges, Landlord
may, to the extent reasonably necessary to remedy Tenant's

                                     Page 3

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default, use any or all of the Security Deposit towards payment of the
following: (i) Base Monthly Rent or other charges in default; (ii) any other
amount which Landlord may spend or become obligated to spend by reason of
Tenant's default including, but not limited to Tenant's failure to restore or
clean the Premises following vacation thereof. If any portion of the Security
Deposit is so used or applied, Tenant shall, within ten (10) days after written
demand from Landlord, deposit cash with Landlord in an amount sufficient to
restore the Security Deposit to its full original amount, and shall pay to
Landlord such other sums as necessary to reimburse Landlord for any sums paid by
Landlord. If Tenant shall have a monetary default more than three (3) times in
any twelve (12) month period, irrespective of whether or not such default is
cured, then the Security Deposit shall, within ten (10) days after demand by
Landlord, be increased by Tenant to an amount equal to three (3) times the Base
Monthly Rent. Tenant may not assign or encumber the Security Deposit without the
consent of Landlord. Any attempt to do so shall be void and shall not be binding
on Landlord. The Security Deposit shall be returned to Tenant within thirty (30)
days after the Expiration Date and surrender of the Premises to Landlord, less
any amount deducted in accordance with this Section, together with Landlord's
written notice itemizing the amounts and purposes for such deduction. In the
event of termination of Landlord's interest in this Lease, Landlord may deliver
or credit the Security Deposit to Landlord's successor in interest in the
Premises and thereupon be relieved of further responsibility with respect to the
Security Deposit.

5. CONSTRUCTION:

     A. Building Shell Construction: Landlord has completed construction of
shell of the Building and interior core improvements ("Office Building Shell")
the scope of which improvements are outlined in the plans and specifications
attached as Exhibit "C" ("Office Shell Plans and Specifications"). Landlord
            -----------
shall be responsible and pay for all costs and expenses associated with any
"punchlist" items relating to the Office Building Shell.

     B. Tenant Improvement Plans: Tenant, at Tenant's sole cost and expense,
shall retain an interior architect ("Architect") to prepare plans and outline
specifications to be attached as Exhibit "D" ("Tenant Improvement Plans and
                                 -----------
Specifications") with respect to the construction of the balance of the
improvements to the interior premises ("Tenant Improvements") necessary for
Tenant's use and occupancy of the Building. Tenant shall have the right to defer
construction of Tenant Improvements for and initially occupy only a portion of
the Building, provided that it initially constructs Tenant Improvements for and
occupies at least fifty percent (50%) of the Building. The Tenant Improvement
Plans and Specifications for that portion of the Building which Tenant initially
plans to occupy shall be completed for all aspects of the work by August 30,
1999 with all detail necessary for submittal to the city, within three (3) days
thereafter, for issuance of building permits and for construction, and shall
include any information required by the relevant agencies regarding Tenant's use
of Hazardous Materials if applicable. The Tenant Improvements shall consist of
all items not included within the scope of the Office Building Shell. The Tenant
Improvement Plans shall provide for a minimum buildout in all areas of the
Premises occupied by Tenant consisting of: (i) fire sprinklers, (ii) floor
coverings, (iii) t-bar suspended ceiling (iv) distribution of the HVAC system,
(v) 2 x 4 drop-in florescent lighting, and (vi) any other work required by the
City of Mountain View necessary to obtain a Certificate of Occupancy.
Construction of the Tenant Improvements shall be performed by a general
contractor selected by Tenant, subject to Landlord's reasonable approval
("General Contractor"). The Tenant Improvement Plans and Specifications shall be
prepared in sufficient detail to allow General Contractor to construct the
Tenant Improvements. The Tenant shall contract directly with General Contractor
for construction of the Tenant Improvements and shall cause the General
Contractor to construct the Tenant Improvements in accordance with all Tenant

                                     Page 4

<PAGE>

Improvement Plans and Specifications. As an inducement to Tenant to enter into
this Lease, Landlord has agreed to provide Tenant a work allowance to be
utilized by Tenant for the construction of Tenant Improvements ("Work
Allowance") in the amount of Two Million Six Hundred Twenty Eight Thousand Five
Hundred Seventy Five and No/100 Dollars ($2,628,575.00), which equates to Twenty
Five Dollars ($25.00) per Building square foot. The Work Allowance shall be paid
by Landlord to Tenant as payments become due pursuant to Section 5.C below. The
Tenant Improvements shall not be removed or altered by Tenant without the prior
written consent of Landlord as provided in Section 7. Tenant shall have the
right to depreciate and claim and collect any investment tax credits in the
Tenant Improvements during the Lease Term. Upon expiration of the Lease Term or
any earlier termination of the Lease, the Tenant Improvements shall become the
property of Landlord and shall remain upon and be surrendered with the Premises,
and title thereto shall automatically vest in Landlord without any payment
therefore.

     C. Tenant Improvement Costs: Tenant shall pay all costs associated with the
Tenant Improvements less the Work Allowance provided herein. The cost of Tenant
Improvements shall include the following to the extent actually incurred by
General Contractor in connection with the construction of Tenant Improvements:
construction costs, all permit fees, and construction taxes or other costs
imposed by governmental authorities related to the Tenant Improvements. Tenant
shall pay directly to the General Contractor all amounts due pursuant to the
construction of Tenant Improvements. Within fifteen (15) days following
submittal by Tenant to Landlord of Tenant Improvement Costs paid by Tenant,
Landlord shall reimburse Tenant out of the Work Allowance until such time as
Landlord has expended the full amount of the Work Allowance; provided, however,
that should Tenant elect to construct Tenant Improvements for a portion of the
Building at a time, Landlord shall only be required to reimburse Tenant a
corresponding portion equal to the product of $25.00 times (x) that square
footage of the Building improved and occupied by Tenant.

     D. Construction: Tenant shall use its reasonable efforts to obtain a
building permit from the City of Mountain View as soon as possible and
thereafter diligently supervise the construction of Tenant Improvements until
they are substantially complete as hereinafter defined. The Tenant Improvements
shall be deemed substantially complete ("Substantially Complete" or "Substantial
Completion") when the Office Building Shell and Tenant Improvements have been
substantially completed in accordance with the Office Shell Plans and
Specifications and Tenant Improvement Plans and Specifications, as evidenced by
the completion of a final inspection or the issuance of a certificate of
occupancy or its equivalent by the appropriate governmental authority for the
Office Building Shell and Tenant Improvements, and the issuance of a certificate
by the Architect certifying that the Office Building Shell and Tenant
Improvements have been completed in accordance with the plans. Installation of
(i) Tenant's data and phone cabling, (ii) Tenant's furniture, or (iii) the
exterior landscaping shall not be required in order to deem the Premises
Substantially Complete. Any prevention, delay or stoppage due to strikes,
lockouts, inclement weather, labor disputes, inability to obtain labor,
materials, fuel or reasonable substitutes therefor, governmental restrictions,
regulations, controls, civil commotion, fire or other act of God, and another
causes beyond the reasonable control of Tenant (except financial inability)
shall extend the 60-day period specified in Section 4.A. above by a period equal
to the period of any said prevention, delay or stoppage.

     E. Tenant Delays: A "Tenant Delay" shall mean any delay in Substantial
Completion of the Building as a result of either: (i) Tenant's failure to
complete or approve the Tenant Improvement Plans by the dates set forth in
Section 5.B, or (ii) any errors or omissions in the Tenant Improvement Plans
provided by Tenant's architect. Notwithstanding anything to the


                                       Page 5

<PAGE>

contrary set forth in this Lease and regardless of the actual date the Premises
are Substantially Complete, the Commencement Date shall be deemed to be the date
the Commencement Date would have occurred if no Tenant Delay had occurred, as
reasonably determined by Landlord.

     F. Insurance: General Contractor shall procure (as a cost of the Building
Shell) a "Broad Form" liability insurance policy in the amount of Three Million
Dollars ($3,000,000.00). Landlord shall also procure (as a cost of the Office
Building Shell) builder's risk insurance for the full replacement cost of the
Office Building Shell and Tenant Improvements while the Building and Tenant
Improvements are under construction, up until the date that the casualty
insurance policy described in Section 9 is in full force and effect.

     G. Punch List & Warranty: After the Tenant Improvements are Substantially
Complete, Tenant shall cause the General Contractor to immediately correct any
construction defects or other "punch list" items which require attention.
Landlord shall provide a standard contractor's warranty with respect to the
Office Building Shell for one (1) year from the Commencement Date. The General
Contractor shall provide a standard contractor's warranty with respect to the
Tenant Improvements for one (1) year from the Commencement Date. Such warranty
shall exclude routine maintenance, damage caused by Tenant's negligence or
misuse, and acts of God.

     H. Other Work by Tenant: All work not described in the Office Shell Plans
and Specifications or Tenant Improvement Plans and Specifications, such as
furniture, telephone equipment, telephone wiring and office equipment work,
shall be furnished and installed by Tenant at Tenant' cost. Prior to Substantial
Completion, Tenant shall be obligated to (i) provide active phone lines to any
elevators, and (ii) contract with a firm to monitor the fire system. When the
construction of the Tenant Improvements has proceeded to the point where
Tenant's work of installing its fixtures and equipment in the Premises can be
commenced, Tenant and its authorized representatives and contractors shall have
access to the Premises before the Commencement Date for the purpose of
installing Tenant's trade fixtures and equipment. Any such installation work by
Tenant or its authorized representatives and contractor shall be undertaken upon
the condition that the entry into the Premises by Tenant or its representatives
or contractors shall not interfere with or delay General Contractor's work.

6. ACCEPTANCE OF POSSESSION AND COVENANTS TO SURRENDER:

     A. Delivery and Acceptance: On the Commencement Date, Landlord shall
deliver and Tenant shall accept possession of the Premises and enter into
occupancy of the Premises on the Commencement Date. Tenant acknowledges that it
has had an opportunity to conduct, and has conducted, such inspections of the
Premises as it deems necessary to evaluate its condition. Except as otherwise
specifically provided herein, Tenant agrees to accept possession of the Premises
in its then existing condition, subject to all Restrictions and without
representation or warranty by Landlord. At the time Landlord delivers possession
of the Premises to Tenant, Landlord and Tenant shall together execute an
acceptance agreement. Landlord shall have no obligation to deliver possession,
nor shall Tenant be entitled to take occupancy, of the Premises until such
acceptance agreement has been executed, and Tenant's obligation to pay Base
Monthly Rent and Additional Rent shall not be excused or delayed because of
Tenant's failure to execute such acceptance agreement. Within ninety (90) days
after the Commencement Date, Tenant agrees to be in occupancy of at least fifty
percent (50%) of the rentable square footage of the Premises.

     B. Condition Upon Surrender: Tenant further agrees on the Expiration Date
or on the sooner termination of this Lease, to surrender the Premises to
Landlord in good condition and repair, normal wear and tear excepted. In this
regard, "normal wear and tear" shall be construed to mean wear and tear caused
to the Premises by the natural


                                       Page 6

<PAGE>

aging process which occurs in spite of prudent application of the best standards
for maintenance, repair replacement, and janitorial practices, and does not
include items of neglected or deferred maintenance. In any event, Tenant shall
cause the following to be done prior to the Expiration Date or sooner
termination of this Lease: (i) all interior walls shall be patched and otherwise
made paint-ready, (ii) all tiled floors shall be cleaned, (iii) all carpets
shall be cleaned, (iv) all broken, marred, stained or nonconforming acoustical
ceiling tiles shall be replaced, (v) all windows shall be washed; (vi) the HVAC
system shall be serviced by a reputable and licensed service firm and left in
"good operating condition and repair" as so certified by such firm, (vii) the
plumbing and electrical systems and lighting shall be placed in good order and
repair (including replacement of any burned out, discolored or broken light
bulbs, ballasts, or lenses. On or before the Expiration Date or sooner
termination of this Lease, Tenant shall remove all its personal property and
trade fixtures from the Premises. All property and fixtures not so removed shall
be deemed as abandoned by Tenant. Tenant shall ascertain from Landlord within
ninety (90) days before the Expiration Date whether Landlord desires to have the
Premises or any parts thereof restored to their condition as of the Commencement
Date, or to cause Tenant to surrender all Alterations (as defined in Section 7)
in place to Landlord. If Landlord shall so desire, Tenant shall, at Tenant's
sole cost and expense, remove such Alterations as Landlord requires and shall
repair and restore said Premises or such parts thereof before the Expiration
Date. Such repair and restoration shall include causing the Premises to be
brought into compliance with all applicable building codes and laws in effect at
the time of the removal to the extent such compliance is necessitated by the
repair and restoration work.

     C. Failure to Surrender: If the Premises are not surrendered at the
Expiration Date or sooner termination of this Lease in the condition required by
this Section 6, Tenant shall be deemed in a holdover tenancy pursuant to this
Section 6.C. and Tenant shall indemnify, defend, and hold Landlord harmless
against loss or liability resulting from delay by Tenant in so surrendering the
Premises; provided, however, that Landlord shall be required to give Tenant
thirty (30) days' advance notice of any potential loss or liability resulting
from such delay. Losses and liabilities for which Tenant shall indemnify defend
and hold Landlord harmless include, without limitation, any claims made by any
succeeding tenant founded on such delay and costs incurred by Landlord in
returning the Premises to the required condition, plus interest at the Agreed
Interest Rate. Any holding over after the termination or Expiration Date with
Landlord's express written consent, shall be construed as month-to-month
tenancy, terminable on thirty (30) days written notice from either party, and
Tenant shall pay as Base Monthly Rent to Landlord a rate equal to one hundred
twenty five percent (125%) of the Base Monthly Rent due in the month preceding
the termination or Expiration Date, plus all other amounts payable by Tenant
under this Lease. Any holding over shall otherwise be on the terms and
conditions herein specified, except those provisions relating to the Lease Term
and any options to extend or renew, which provisions shall be of no further
force and effect following the expiration of the applicable exercise period. If
Tenant remains in possession of the Premises after the Expiration Date or sooner
termination of this Lease without Landlord's consent, Tenant's continued
possession shall be on the basis of a tenancy at sufferance and Tenant shall pay
as rent during the holdover period an amount equal to one hundred fifty percent
(150%) of the Base Monthly Rent due in the month preceding the termination or
Expiration Date, plus all other amounts payable by Tenant under this Lease. This
provision shall survive the termination or expiration of the Lease.

7. ALTERATIONS AND ADDITIONS:

Tenant's Alterations: Tenant shall not make, or suffer to be made, any
alteration or addition to the Premises ("Alterations"), or any part thereof,
without obtaining Landlord's prior written consent, which consent shall not be
unreasonably withheld


                                       Page 7

<PAGE>

or delayed, and delivering to Landlord the proposed architectural and structural
plans for all such Alterations at least fifteen (15) days prior to the start of
construction. If such Alterations affect the structure of the Building, Tenant
additionally agrees to reimburse Landlord its reasonable out-of-pocket costs
incurred in reviewing Tenant's plans. After obtaining Landlord's consent, Tenant
shall not proceed to make such Alterations until Tenant has obtained all
required governmental approvals and permits. Tenant agrees to provide Landlord
(i) written notice of the anticipated and actual start-date of the work, (ii) a
complete set of half-size (15" X 21") vellum as-built drawings, and (iii) a
certificate of occupancy, if applicable, for the work upon completion of the
Alterations. All Alterations shall be constructed in compliance with all
applicable building codes and laws including, without limitation, the Americans
with Disabilities Act of 1990 as amended from time to time. Upon the Expiration
Date, all Alterations, except movable furniture and trade fixtures, shall become
a part of the realty and belong to Landlord but shall nevertheless be subject to
removal by Tenant as provided in Section 6 above. Alterations which are not
deemed as trade fixtures include heating, lighting, electrical systems, air
conditioning, walls, carpeting, or any other installation which has become an
integral part of the Premises. All Alterations shall be maintained, replaced or
repaired by Tenant at its sole cost and A. expense. Notwithstanding the
foregoing, Tenant shall be entitled without obtaining Landlord's consent, to
make Alterations which do not affect the structure of the Building or which do
not cost more than Twenty Five Thousand Dollars ($25,000.00) per Alteration nor
an aggregate of Fifty Thousand Dollars ($50,000.00) in any twelve (12) month
period; provided, however, that Tenant shall still be required to comply with
all other provisions of this paragraph.

     B. Free From Liens: Tenant shall keep the Premises free from all liens
arising out of work performed, materials furnished, or obligations incurred by
Tenant or claimed to have been performed for Tenant. In the event Tenant fails
to discharge any such lien within thirty (30) days after receiving notice of the
filing, Landlord shall be entitled to discharge the lien at Tenant's expense and
all resulting costs incurred by Landlord, including attorney's fees shall be due
from Tenant as additional rent.

     C. Compliance With Governmental Regulations: The term Laws or Governmental
Regulations shall include all federal, state, county, city or governmental
agency laws, statutes, ordinances, standards, rules, requirements, or orders now
in force or hereafter enacted, promulgated, or issued. The term also includes
government measures regulating or enforcing public access, traffic mitigation,
occupational, health, or safety standards for employers, employees, landlords,
or tenants. Tenant shall make all repairs, replacements, alterations, or
improvements needed to comply with all Governmental Regulations. All costs
associated with the compliance shall be borne by Tenant if the requirement for
compliance is triggered by (i) Tenant's particular use or change of use of the
Premises, (ii) Tenant's application for any permit or governmental approval, or
(iii) Tenant's construction or installation of any Alterations or Trade
Fixtures. If the repairs, replacements, alterations, or improvements to the
Premises required for compliance with Governmental Regulations are required for
any other reason, the cost of such improvements shall be allocated between
Landlord and Tenant such that Tenant shall pay only that portion of the cost
thereof equal to the remaining number of years in the lease term divided by the
anticipated useful life of such improvement. The judgment of any court of
competent jurisdiction or the admission of Tenant in any action or proceeding
against Tenant (whether Landlord be a party thereto or not) that Tenant has
violated any such law, regulation or other requirement in its use of the
Premises shall be conclusive of that fact as between Landlord and Tenant.

8. MAINTENANCE OF PREMISES:

     A. Landlord's Obligations: Landlord at its sole cost and expense, shall
maintain in good condition, order, and repair, and replace as and when
necessary, the


                                       Page 8

<PAGE>

foundation, exterior load bearing walls and roof structure of the Building
Shell.

     B. Tenant's Obligations: Tenant shall clean, maintain, repair and replace
when necessary the Premises and every part thereof through regular inspections
and servicing, including but not limited to: (i) all plumbing and sewage
facilities, (ii) all heating ventilating and air conditioning facilities and
equipment, (iii) all fixtures, interior walls, floors, carpets and ceilings,
(iv) all windows, door entrances, plate glass and glazing systems including
caulking, (v) all electrical facilities and equipment, (vi) all automatic fire
extinguisher equipment, (vii) the parking lot and all underground utility
facilities servicing the Premises, (viii) the Garage, including the garage
servicing the adjacent property as required under the Amended Declaration, (ix)
all elevator equipment, (x) the roof membrane system, and (xi) all landscaping
and shrubbery. All wall surfaces and floor tile are to be maintained in an as
good a condition as when Tenant took possession free of holes, gouges, or
defacements. With respect to items (ii), (viii) and (ix) above, Tenant shall
provide Landlord a copy of a service contract between Tenant and a licensed
service contractor providing for periodic maintenance of all such systems or
equipment in conformance with the manufacturer's recommendations. Tenant shall
provide Landlord a copy of such preventive maintenance contracts and paid
invoices for the recommended work if requested by Landlord. This is a "Net"
Lease, meaning that Base Monthly Rent is paid to Landlord absolutely net of all
costs and expenses; provided, however, that if as a part of Tenant's fulfillment
of its maintenance obligations under this Section 8.B. a capital improvement or
replacement to the Premises (not required by new laws rules or regulations) is
paid for by Tenant which costs in excess of Five Thousand Dollars ($5,000.00),
Landlord shall reimburse Tenant for the cost of the replacement less the sum of
(i) Five Thousand Dollars ($5,000.00) plus (ii) that portion of the cost equal
to the product of such total cost multiplied by a fraction, the numerator of
which is the number of years remaining in the Lease Term, the denominator of
which is the useful life (in years) of the replacement.

     C. Waiver of Liability: Failure by Landlord to perform any defined
services, or any cessation thereof, when such failure is caused by accident,
breakage, repairs, strikes, lockout or other labor disturbances or labor
disputes of any character or by any other cause, similar or dissimilar, except
for the active negligence or willful misconduct of Landlord, shall not render
Landlord liable to Tenant in any respect, including damages to either person or
property, nor be construed as an eviction of Tenant, nor cause an abatement of
rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof.
Should any equipment or machinery utilized in supplying the services listed
herein break down or for any cause cease to function properly, upon receipt of
written notice from Tenant of any deficiency or failure of any services,
Landlord shall use reasonable diligence to repair the same promptly, but Tenant
shall have no right to terminate this Lease and shall have no claim for rebate
of rent or damages on account of any interruptions in service occasioned thereby
or resulting therefrom. Tenant waives the provisions of California Civil Code
Sections 1941 and 1942 concerning the Landlord's obligation of tenantability and
Tenant's right to make repairs and deduct the cost of such repairs from the
rent. Landlord shall not be liable for a loss of or injury to person or
property, however occurring, through or in connection with or incidental to
furnishing, or its failure to furnish, any of the foregoing, unless caused by
Landlord's active negligence or willful misconduct.

9. HAZARD INSURANCE:

     A. Tenant's Use: Tenant shall not use or permit the Premises, or any part
thereof, to be used for any purpose other than that for which the Premises are
hereby leased; and no use of the Premises shall be made or permitted, nor acts
done, which will cause an increase in premiums or a cancellation of any
insurance policy covering the Premises or any part thereof, nor shall Tenant
sell or permit to be sold, kept, or used in or about the Premises, any article
prohibited by the


                                       Page 9

<PAGE>

standard form of fire insurance policies. Tenant shall, at its sole cost, comply
with all requirements of any insurance company or organization necessary for the
maintenance of reasonable fire and public liability insurance covering the
Premises and appurtenances.

     B. Landlord's Insurance: Landlord agrees to purchase and keep in force
fire, extended coverage insurance in an amount equal to the replacement cost of
the Building (not including any Tenant Improvements or Alterations paid for by
Tenant from sources other than the Work Allowance) as determined by Landlord's
insurance company's appraisers. If available at commercially reasonable rates
and carried by other owners of commercial properties in the area, such fire and
property damage insurance may be endorsed to cover loss caused by such
additional perils against which Landlord may elect to insure, including
earthquake and/or flood, and shall contain reasonable deductibles which, in the
case of earthquake and flood insurance may be up to fifteen percent (15%) of the
replacement value of the property. Additionally Landlord may maintain a policy
of (i) commercial general liability insurance insuring Landlord (and such others
designated by Landlord) against liability for personal injury, bodily injury,
death and damage to property occurring or resulting from an occurrence in, on or
about the Premises in an amount as Landlord determines is reasonably necessary
for its protection, and (ii) rental lost insurance covering a twelve (12) month
period. Tenant agrees to pay Landlord as additional rent, on demand, the full
cost of said insurance as evidenced by insurance billings to Landlord, and in
the event of damage covered by said insurance, the amount of any deductible
under such policy. Payment shall be due to Landlord within thirty (30) days
after written invoice to Tenant. It is understood and agreed that Tenant's
obligation under this Section will be prorated to reflect the Lease Commencement
and Expiration Dates.

     C. Tenant's Insurance: Tenant agrees, at its sole cost, to insure its
personal property, Tenant Improvements (for which it has paid from sources other
than the Work Allowance), and Alterations for their full replacement value
(without depreciation) and to obtain worker's compensation; and to obtain public
liability and property damage insurance for occurrences within the Premises with
a combined single limit of not less than Five Million Dollars ($5,000,000.00.
Tenant's liability insurance shall be primary insurance containing a
cross-liability endorsement, and shall provide coverage on an "occurrence"
rather than on a "claims made" basis. Tenant shall name Landlord and Landlord's
lender as an additional insured and shall deliver a copy of the policies and
renewal certificates to Landlord. All such policies shall provide for thirty
(30) days' prior written notice to Landlord of any cancellation, termination, or
reduction in coverage. Notwithstanding the above, Landlord retains the right to
have Tenant provide other forms of insurance which may be reasonably required to
cover future risks.

     D. Waiver: Landlord and Tenant hereby waive all rights each may have
against the other on account of any loss or damage sustained by Landlord or
Tenant, as the case may be, or to the Premises or its contents, which may arise
from any risk covered by their respective insurance policies (or which would
have been covered had such insurance policies been maintained in accordance with
this Lease) as set forth above. The Parties shall use their reasonable efforts
to obtain from their respective insurance companies a waiver of any right of
subrogation which said insurance company may have against Landlord or Tenant, as
the case may be.

10. TAXES: Tenant shall be liable for and shall pay as additional rental, prior
to delinquency, the following: (i) all taxes and assessments levied against
Tenant's personal property and trade or business fixtures; (ii) all real estate
taxes and assessment installments or other impositions or charges which may be
levied on the Premises or upon the occupancy of the Premises, including any
substitute or additional charges which may be imposed applicable to the Lease
Term; and (iii) real estate tax increases due to an increase in


                                       Page 10

<PAGE>

assessed value resulting from a sale, transfer or other change of ownership of
the Premises as it appears on the City and County tax bills during the Lease
Term. Tenant's obligation under this Section shall be prorated to reflect the
Lease Commencement and Expiration Dates. If, at any time during the Lease Term a
tax, excise on rents, business license tax or any other tax, however described,
is levied or assessed against Landlord as a substitute or addition, in whole or
in part, for taxes assessed or imposed on land or Buildings, Tenant shall pay
and discharge its pro rata share of such tax or excise on rents or other tax
before it becomes delinquent; except that this provision is not intended to
cover net income taxes, City or County transfer taxes, inheritance, gift or
estate tax imposed upon Landlord. In the event that a tax is placed, levied, or
assessed against Landlord and the taxing authority takes the position that
Tenant cannot pay and discharge its pro rata share of such tax on behalf of
Landlord, then at Landlord's sole election, Landlord may increase the Base
Monthly Rent by the exact amount of such tax and Tenant shall pay such increase.
If by virtue of any application or proceeding brought by Landlord, there
results a reduction in the assessed value of the Premises during the Lease Term,
Tenant agrees to pay Landlord a fee consistent with the fees charged by a third
party appeal firm for such services. Tenant at its cost shall have the right, at
any time, to seek a reduction in the assessed valuation of the Premises or to
contest any real property taxes that are to be paid by Tenant. Landlord shall
not be required to join in any such proceeding or contest unless the provisions
of any law require that the proceeding or contest be brought by or in the name
of the owner of the Premises. In such event, Landlord shall join in the
proceeding or contest or permit it to be brought in Landlord's name, provided
that Landlord is not required to bear any cost in connection therewith.

11. UTILITIES: Tenant shall pay directly to the providing utility all water,
gas, electric, telephone, and other utilities supplied to the Premises. Landlord
shall not be liable for loss of or injury to person or property, however
occurring, through or in connection with or incidental to furnishing or the
utility company's failure to furnish utilities to the Premises, and in such
event Tenant shall not be entitled to abatement or reduction of any portion of
Base Monthly Rent or any other amount payable under this Lease.

12. TOXIC WASTE AND ENVIRONMENTAL DAMAGE:

     A. Tenant's Responsibility: Without the prior written consent of Landlord,
Tenant or Tenant's agents, employees, contractors and invitees ("Tenant's
Agents") shall not bring, use, or permit upon the Premises, or generate, create,
release, emit, or dispose (nor permit any of the same) from the Premises any
chemicals, toxic or hazardous gaseous, liquid or solid materials or waste,
including without limitation, material or substance having characteristics of
ignitability, corrosivity, reactivity, or toxicity or substances or materials
which are listed on any of the Environmental Protection Agency's lists of
hazardous wastes or which are identified in Division 22 Title 26 of the
California Code of Regulations as the same may be amended from time to time or
any wastes, materials or substances which are or may become regulated by or
under the authority of any applicable local, state or federal laws, judgments,
ordinances, orders, rules, regulations, codes or other governmental
restrictions, guidelines or requirements. ("Hazardous Materials") except for
those substances customary in typical office uses for which no consent shall be
required. In order to obtain consent, Tenant shall deliver to Landlord its
written proposal describing the toxic material to be brought onto the Premises,
measures to be taken for storage and disposal thereof, safety measures to be
employed to prevent pollution of the air, ground, surface and ground water.
Landlord's approval may be withheld in its reasonable judgment. In the event
Landlord consents to Tenant's use of Hazardous Materials on the Premises or such
consent is not required, Tenant represents and warrants that it shall comply
with all Governmental Regulations applicable to Hazardous Materials including
doing the following: (i) adhere to all reporting and


                                       Page 11

<PAGE>

inspection requirements imposed by Federal, State, County or Municipal laws,
ordinances or regulations and will provide Landlord a copy of any such reports
or agency inspections; (ii) obtain and provide Landlord copies of all necessary
permits required for the use and handling of Hazardous Materials on the
Premises; (iii) enforce Hazardous Materials handling and disposal practices
consistent with industry standards; (iv) surrender the Premises free from any
Hazardous Materials arising from Tenant's bringing, using, permitting,
generating, creating, releasing, emitting or disposing of Hazardous Materials;
and (v) properly close the facility with regard to Hazardous Materials including
the removal or decontamination of any process piping, mechanical ducting,
storage tanks, containers, or trenches which have come into contact with
Hazardous Materials and obtain a closure certificate from the local
administering agency prior to the Expiration Date.

     B. Tenant's Indemnity Regarding Hazardous Materials: Tenant shall, at its
sole cost and expense, comply with all laws pertaining to, and shall with
counsel reasonably acceptable to Landlord, indemnify, defend and hold harmless
Landlord and Landlord's trustees, shareholders, directors, officers, employees,
partners, affiliates, and agents from, any claims, liabilities, costs or
expenses incurred or suffered arising from the bringing, using, permitting,
generating, emitting or disposing of Hazardous Materials by Tenant or Tenant's
Agents through the surface soils of the Premises during the Lease Term or the
violation of any Governmental Regulation or environmental law, by Tenant or
Tenant's Agents. Tenant's indemnification, defense, and hold harmless
obligations include, without limitation, the following: (i) claims, liability,
costs or expenses resulting from or based upon administrative, judicial (civil
or criminal) or other action, legal or equitable, brought by any private or
public person under common law or under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 as amended ("CERCLA"), the
Resource Conservation and Recovery Act of 1980 ("RCRA") or any other Federal,
State, County or Municipal law, ordinance or regulation now or hereafter in
effect; (ii) claims, liabilities, costs or expenses pertaining to the
identification, monitoring, cleanup, containment, or removal of Hazardous
Materials from soils, riverbeds or aquifers including the provision of an
alternative public drinking water source; (iii) all costs of defending such
claims; (iv) losses attributable to diminution in the value of the Premises or
the Building; (v) loss or restriction of use of rentable space in the Building;
(vi) Adverse effect on the marketing of any space in the Building; and (vi) all
other liabilities, obligations, penalties, fines, claims, actions (including
remedial or enforcement actions of any kind and administrative or judicial
proceedings, orders or judgments), damages (including consequential and punitive
damages), and costs (including attorney, consultant, and expert fees and
expenses) resulting from the release or violation. This Section 12.B shall
survive the expiration or termination o this Lease.

     C. Actual Release by Tenant: Tenant agrees to notify Landlord of any
lawsuits or orders which relate to the remedying of or actual release of
Hazardous Materials on or into the soils or ground water at or under the
Premises. Tenant shall also provide Landlord all notices required by Section
25359.7(b) of the Health and Safety Code and all other notices required by law
to be given to Landlord in connection with Hazardous Materials. Without limiting
the foregoing, Tenant shall also deliver to Landlord, within twenty (20) days
after receipt thereof, any written notices from any governmental agency alleging
a material violation of, or material failure to comply with, any federal, state
or local laws, regulations, ordinances or orders, the violation of which or
failure to comply with poses a foreseeable and material risk of contamination of
the ground water or injury to humans (other than injury solely to Tenant or
Tenant's Agents.

     In the event of any release on or into the Premises or into the soil or
ground water under the Premises, the Building or the Project of any Hazardous
Materials used, treated, stored or disposed of by Tenant or


                                       Page 12

<PAGE>

Tenant's Agents, Tenant agrees to comply, at its sole cost, with all laws,
regulations, ordinances and orders of any federal, state or local agency
relating to the monitoring or remediation of such Hazardous Materials. In the
event of any such release of Hazardous Materials Tenant shall immediately give
verbal and follow-up written notice of the release to Landlord, and Tenant
agrees to meet and confer with Landlord and its Lender to attempt to eliminate
and mitigate any financial exposure to such Lender and resultant exposure to
Landlord under California Code of Civil Procedure Section 736(b) as a result of
such release, and promptly to take reasonable monitoring, cleanup and remedial
steps given, inter alia, the historical uses to which the Property has and
continues to be used, the risks to public health posed by the release, the then
available technology and the costs of remediation, cleanup and monitoring,
consistent with acceptable customary practices for the type and severity of such
contamination and all applicable laws. Nothing in the preceding sentence shall
eliminate, modify or reduce the obligation of Tenant under 12.B of this Lease to
indemnify, defend and hold Landlord harmless from any claims liabilities, costs
or expenses incurred or suffered by Landlord. Tenant shall provide Landlord
prompt written notice of Tenant's monitoring, cleanup and remedial steps.

     In the absence of an order of any federal, state or local governmental or
quasi-governmental agency relating to the cleanup, remediation or other response
action required by applicable law, any dispute arising between Landlord and
Tenant concerning Tenant's obligation to Landlord under this Section 12.C
concerning the level, method, and manner of cleanup, remediation or response
action required in connection with such a release of Hazardous Materials shall
be resolved by mediation and/or arbitration pursuant to this Lease.

     D. Environmental Monitoring: Landlord and its agents shall have the right
to inspect, investigate, sample and monitor the Premises including any air,
soil, water, ground water or other sampling or any other testing, digging,
drilling or analysis to determine whether Tenant is complying with the terms of
this Section 12. If Landlord discovers that Tenant is not in compliance with the
terms of this Section 12, any such costs incurred by Landlord, including
attorneys' and consultants' fees, shall be due and payable by Tenant to Landlord
within five (5) days following Landlord's written demand therefore.

13. TENANT'S DEFAULT: The occurrence of any of the following shall constitute a
material default and breach of this Lease by Tenant: (i) Tenant's failure to pay
the Base Monthly Rent including additional rent or any other payment due under
this Lease by the date such amount is due, and such failure continues after
three (3) days' written notice from Landlord, (ii) the abandonment of the
Premises by Tenant; (iii) Tenant's failure to observe and perform any other
required provision of this Lease, where such failure continues for thirty (30)
days after written notice from Landlord; (iv) Tenant's making of any general
assignment for the benefit of creditors; (v) the filing by or against Tenant of
a petition to have Tenant adjudged a bankrupt or of a petition for
reorganization or arrangement under any law relating to bankruptcy (unless, in
the case of a petition filed against Tenant, the same is dismissed after the
filing); (vi) the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within thirty
(30) days; or (vii) the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged within thirty (30)
days.

     A. Remedies: In the event of any such default by Tenant, then in addition
to other remedies available to Landlord at law or in equity, Landlord shall have
the immediate option to terminate this Lease and all rights of Tenant hereunder
by giving written notice of such intention to terminate. In the event Landlord
elects to so terminate this Lease, Landlord may recover from Tenant all the
following: (i) the worth at


                                       Page 13

<PAGE>

time of award of any unpaid rent which had been earned at the time of such
termination; (ii) the worth at 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 for the same period that Tenant proves
could have been reasonably avoided; (iii) the worth at time of award of the
amount by which the unpaid rent for the balance of the Lease Term after the time
of award exceeds the amount of such rental loss that Tenant proves could be
reasonably avoided; (iv) any other amount necessary to compensate Landlord for
all detriment proximately caused by Tenant's failure to perform its obligations
under this Lease, or which in the ordinary course of things would be likely to
result therefrom; including the following: (x) expenses for repairing, altering
or remodeling the Premises for purposes of reletting, (y) broker's fees,
advertising costs or other expenses of reletting the Premises, and (z) costs of
carrying the Premises such as taxes, insurance premiums, utilities and security
precautions; and (v) at Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted by applicable California law.
The term "rent", as used herein, is defined as the minimum monthly installments
of Base Monthly Rent and all other sums required to be paid by Tenant pursuant
to this Lease, all such other sums being deemed as additional rent due
hereunder. As used in (i) and (ii) above, "worth at the time of award" shall be
computed by allowing interest at a rate equal to the discount rate of the
Federal Reserve Bank of San Francisco plus five (5%) percent per annum. As used
in (iii) above, "worth at the time of award" shall be computed by discounting
such amount at the discount rate of the Federal Reserve Bank of San Francisco at
the time of award plus one (1%) percent.

     B. Right to Re-enter: In the event of any such default by Tenant, Landlord
shall have the right, after terminating this Lease, to re-enter the Premises
and remove all persons and property. Such property may be removed and stored in
a public warehouse or elsewhere at the cost of and for the account of Tenant,
and disposed of by Landlord in any manner permitted by law.

     C. Abandonment: If Landlord does not elect to terminate this Lease as
provided in Section 13.A or 13.B above, then the provisions of California Civil
Code Section 1951.4, (Landlord may continue the lease in effect after Tenant's
breach and abandonment and recover rent as it becomes due if Tenant has a right
to sublet and assign, subject only to reasonable limitations) as amended from
time to time, shall apply and Landlord may from time to time, without
terminating this Lease, either recover all rental as it becomes due or relet the
Premises or any part thereof for such term or terms and at such rental or
rentals and upon such other terms and conditions as Landlord in its sole
discretion may deem advisable, with the right to make alterations and repairs to
the Premises. In the event that Landlord elects to so relet, rentals received by
Landlord from such reletting shall be applied in the following order to: (i) the
payment of any indebtedness other than Base Monthly Rent due hereunder from
Tenant to Landlord; (ii) the payment of any cost of such reletting (iii) the
payment of the cost of any alterations and repairs to the Premises; and (iv) the
payment of Base Monthly Rent due and unpaid hereunder. The residual rentals, if
any, shall be held by Landlord and applied in payment of future Base Monthly
Rent as the same may become due and payable hereunder. Landlord shall the
obligation to market the space but shall have no obligation to relet the
Premises following a default if Landlord has other comparable available space
within the Building or Project. In the event the portion of rentals received
from such reletting which is applied to the payment of rent hereunder during any
month be less than the rent payable during that month by Tenant hereunder, then
Tenant shall pay such deficiency to Landlord immediately upon demand. Such
deficiency shall be calculated and paid monthly. Tenant shall also pay to
Landlord, as soon as ascertained, any costs and expenses incurred by Landlord in
such reletting or in making such alterations and repairs not covered by the
rentals received from such reletting.

     D. No Termination: Landlord's re-

                                       Page 14

<PAGE>

entry or taking possession of the Premises pursuant to 13.B or 13.C shall not be
construed as an election to terminate this Lease unless written notice of such
intention is given to Tenant or unless the termination is decreed by a court of
competent jurisdiction. Notwithstanding any reletting without termination by
Landlord because of any default by Tenant, Landlord may at any time after such
reletting elect to terminate this Lease for any such default.

     E. Non-Waiver: Landlord may accept Tenant's payments without waiving any
rights under this Lease, including rights under a previously served notice of
default. No payment by Tenant or receipt by Landlord of a lesser amount than any
installment of rent due shall be deemed as other than payment on account of the
amount due. If Landlord accepts payments after serving a notice of default,
Landlord may nevertheless commence and pursue an action to enforce rights and
remedies under the previously served notice of default without giving Tenant any
further notice or demand. Furthermore, the Landlord's acceptance of rent from
the Tenant when the Tenant is holding over without express written consent does
not convert Tenant's Tenancy from a tenancy at sufferance to a month to month
tenancy. No waiver of any provision of this Lease shall be implied by any
failure of Landlord to enforce any remedy for the violation of that provision,
even if that violation continues or is repeated. Any waiver by Landlord of any
provision of this Lease must be in writing. Such waiver shall affect only the
provision specified and only for the time and in the manner stated in the
writing. No delay or omission in the exercise of any right or remedy by Landlord
shall impair such right or remedy or be construed as a waiver thereof by
Landlord. No act or conduct of Landlord, including, without limitation, the
acceptance of keys to the Premises, shall constitute acceptance of the surrender
of the Premises by Tenant before the Expiration Date. Only written notice from
Landlord to Tenant of acceptance shall constitute such acceptance of surrender
of the Premises. Landlord's consent to or approval of any act by Tenant which
requires Landlord's consent or approvals shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by Tenant.

     F. Performance by Landlord: If Tenant fails to perform any obligation
required under this Lease or by law or governmental regulation, Landlord in its
sole discretion may, after thirty (30) days' written notice, without waiving any
rights or remedies and without releasing Tenant from its obligations hereunder,
perform such obligation, in which event Tenant shall pay Landlord as additional
rent all sums paid by Landlord in connection with such substitute performance,
including interest at the Agreed Interest Rate (as defined in Section 19.J)
within ten (10) days of Landlord's written notice for such payment.

     G. Habitual Default: The provisions of Section 13 notwithstanding, the
Parties agree that if Tenant shall have defaulted in the performance of any (but
not necessarily the same) monetary term or condition of this Lease for four (4)
or more times during any twelve (12) month period during the Lease Term, then
such conduct shall, at the election of the Landlord, represent a separate event
of default which cannot be cured by Tenant. Tenant acknowledges that the purpose
of this provision is to prevent repetitive defaults by Tenant, which work a
hardship upon Landlord and deprive Landlord of Tenant's timely performance under
this Lease.

14. LANDLORD'S LIABILITY:

     A.  Limitation on Landlord's Liability:
In the event of Landlord's failure to perform any of its covenants or agreements
under this Lease, Tenant shall give Landlord written notice of such failure and
shall give Landlord thirty (30) days to cure or commence to cure such failure
prior to any claim for breach or resultant damages, provided, however, that if
the nature of the default is such that it cannot reasonably be cured within the
30-day period, Landlord shall not be deemed in default if it commences within
such period to cure, and thereafter diligently prosecutes the same to
completion. In addition, upon any such failure by Landlord, Tenant shall give
notice

                                    Page 15

<PAGE>

by registered or certified mail to any person or entity with a security interest
in the Premises ("Mortgagee") that has provided Tenant with notice of its
interest in the Premises, and shall provide Mortgagee a reasonable opportunity
to cure such failure, including such time to obtain possession of the Premises
by power of sale or judicial foreclosure, if such should prove necessary to
effectuate a cure. Tenant agrees that each of the Mortgagees to whom this Lease
has been assigned is an expressed third-party beneficiary hereof. Tenant waives
any present or future law to the extent it pertains to collection of any payment
or deposit from Mortgagee or any purchaser at a foreclosure sale of Mortgagee's
interest unless Mortgagee or such purchaser shall have actually received and not
refunded the applicable payment or deposit. Tenant Further waives any right to
terminate this Lease and to vacate the Premises on Landlord's default under this
Lease. Tenant's sole remedy on Landlord's default is an action for damages or
injunctive or declaratory relief.

     B.  Limitation on Tenant's Recourse: If Landlord is a corporation, trust,
partnership, joint venture, unincorporated association or other form of business
entity, then (i) the obligations of Landlord shall not constitute personal
obligations of the officers, directors, trustees, partners, joint venturers,
members, owners, stockholders, or other principals or representatives except to
the extent of their interest in the Premises. Tenant shall have recourse only to
the interest of Landlord in the Premises or for the satisfaction of the
obligations of Landlord and shall not have recourse to any other assets of
Landlord for the satisfaction of such obligations.

     C. Indemnification of Landlord: As a material part of the consideration
rendered to Landlord, Tenant hereby waives all claims against Landlord for
damages to goods, wares and merchandise, and all other personal property in,
upon or about said Premises and for injuries to persons in or about said
Premises, from any cause arising at any time to the fullest extent permitted by
law, and Tenant shall indemnify, defend with counsel reasonably acceptable to
Landlord and hold Landlord, and their shareholders, directors, officers,
trustees, employees, partners, affiliates and agents from any claims,
liabilities, costs or expenses incurred or suffered arising from the use of
occupancy of the Premises or any part of the Project by Tenant or Tenant's
Agents, the acts or omissions of Tenant or Tenant's Agents, Tenant's breach of
this Lease, or any damage or injury to person or property from any cause, except
to the extent caused by the willful misconduct or active negligence of Landlord
or from the failure of Tenant to keep the Premises in good condition and repair
as herein provided, except to the extent due to the gross negligence or willful
misconduct of Landlord. Further, in the event Landlord is made party to any
litigation due to the acts or omission of Tenant and Tenant's Agents, Tenant
will indemnify, defend (with counsel reasonably acceptable to Landlord) and hold
Landlord harmless from any such claim or liability including Landlord's costs
and expenses and reasonable attorney's fees incurred in defending such claims.

The foregoing notwithstanding, Landlord shall indemnify Tenant against any and
all claims for any injury or damage resulting from the use and occupancy of the
Pool and Health Club Easement area, and further agrees to defend, indemnify and
hold Tenant harmless from any claims from injury or damages arising out of the
use or occupancy of the Pool and Health Club Easement area, except for claims,
injuries or damages arising out of Tenant's unauthorized use or acts on the Pool
and Health Club Easement area.

15. DESTRUCTION OF PREMISES:

     A.  Landlord's Obligation to Restore: In the event of a destruction of the
Premises during the Lease Term Landlord shall repair the same to a similar
condition to that which existed prior to such destruction. Such destruction
shall not annul or void this Lease; however, Tenant shall be entitled to a
proportionate reduction of Base Monthly Rent while repairs are being made, such
proportionate reduction to be based upon the extent to which the repairs
interfere with

                                    Page 16

<PAGE>

Tenant's business in the Premises, as reasonably determined by Landlord. In no
event shall Landlord be required to replace or restore Alterations, Tenant
Improvements paid for by Tenant from sources other than the Work Allowance or
Tenant's fixtures or personal property. With respect to a destruction which
Landlord is obligated to repair or may elect to repair under the terms of this
Section, Tenant waives the provisions of Section 1932, and Section 1933,
Subdivision 4, of the Civil Code of the State of California, and any other
similarly enacted statute, and the provisions of this Section 15 shall govern in
the case of such destruction. The foregoing notwithstanding, in the event of a
destruction of the Premises that cannot be repaired by Landlord within two
hundred fifty (250) days from the date of destruction, Tenant may terminate the
Lease.

     B. Limitations on Landlord's Restoration Obligation: Notwithstanding the
provisions of Section 15.A, Landlord shall have no obligation to repair, or
restore the Premises if any of the following occur: (i) if the repairs cannot be
made in one hundred eighty (180) days from the date of receipt of all
governmental approvals necessary under the laws and regulations of State,
Federal, County or Municipal authorities, as reasonably determined by Landlord,
(ii) if the holder of the first deed of trust or mortgage encumbering the
Building elects not to permit the insurance proceeds payable upon damage or
destruction to be used for such repair or restoration, (iii) the damage or
destruction is not fully covered (excluding Landlord's deductible) by the
insurance maintained by Landlord, (iv) the damage or destruction occurs in the
last eighteen (18) months of the Lease Term (unless Tenant agrees to immediately
exercise its Option to extend the Lease Term pursuant to Section 18 below), (v)
Tenant is in default pursuant to the provisions of Section 13, or (vi) Tenant
has vacated the Premises for more than ninety (90) days prior to the date of
destruction. In any such event Landlord may elect either to (i) complete the
repair or restoration, or (ii) terminate this Lease by providing Tenant written
notice of its election within sixty (60) days following the damage or
destruction.

If Landlord so elects to terminate this Lease, Tenant, within fifteen (15) days
after receiving Landlord's notice to terminate, can elect to pay to Landlord at
the time Tenant notifies Landlord of its election, the actual cost of
restoration, in which case Landlord shall restore the Premises and this Lease
shall not terminate. The only exception to the foregoing is a termination based
on Tenant's default as described in (v) above.

16. CONDEMNATION: If any part of the Premises shall be taken for any public or
quasi-public use, under any statute or by right of eminent domain or private
purchase in lieu thereof, and only a part thereof remains which is susceptible
of occupation hereunder, this Lease shall, as to the part so taken, terminate as
of the day before title vests in the condemnor or purchaser ("Vesting Date") and
Base Monthly Rent payable hereunder shall be adjusted so that Tenant is required
to pay for the remainder of the Lease Term only such portion of Base Monthly
Rent as the value of the part remaining after such taking bears to the value of
the entire Premises prior to such taking. In the event of such partial taking,
Landlord or Tenant shall have the option to terminate this Lease as of the
Vesting Date. If all of the Premises or such part thereof be taken so that there
does not remain a portion susceptible for occupation hereunder, this Lease shall
terminate on the Vesting Date. If part or all of the Premises be taken, all
compensation awarded upon such taking shall go to Landlord, and Tenant shall
have no claim thereto; except Landlord shall cooperate with Tenant, without cost
to Landlord, to recover compensation for damage to or taking of any Alterations,
Tenant Improvements paid for by Tenant from sources other than the Work
Allowance, or for Tenant's moving costs. Tenant hereby waives the provisions of
California Code of Civil Procedures Section 1265.130 and any other similarly
enacted statue, and the provisions of this Section 16 shall govern in the case
of a taking.

17.  ASSIGNMENT OR SUBLEASE:

                                    Page 17

<PAGE>

     A. Consent by Landlord: Except as specifically provided in this Section
17.E, Tenant may not assign, sublet, hypothecate, or allow a third party to use
the Premises without the express written consent of Landlord, which shall not be
unreasonably withheld or delayed, subject to the provisions of this Section 17.
In the event Tenant desires to assign this Lease or any interest herein or
sublet the Premises or any part thereof, Tenant shall deliver to Landlord (i)
executed counterparts of any agreement and of all ancillary agreements with the
proposed assignee/subtenant, (ii) current financial statements of the transferee
covering the preceding three years, (iii) the nature of the proposed
transferee's business to be carried on in the Premises, (iv) a statement
outlining all consideration to be given on account of the Transfer, and (v) a
current financial statement of Tenant. Landlord may condition its approval of
any Transfer on receipt of a certification from both Tenant and the proposed
transferee of all consideration to be paid to Tenant in connection with such
Transfer. At Landlord's request, Tenant shall also provide additional
information reasonably required by Landlord to determine whether it will consent
to the proposed assignment or sublease. Landlord shall have a fifteen (15) day
period following receipt of all the foregoing within which to notify Tenant in
writing that Landlord elects to: (i) permit Tenant to assign or sublet such
space to the named assignee/subtenant on the terms and conditions set forth in
the notice; or (ii) refuse consent. If Landlord should fail to notify Tenant in
writing of such election within the 30-day period, Landlord shall be deemed to
have elected option (ii) above. In the event Landlord elects option (i) above,
Landlord's written consent to the proposed assignment or sublease shall not be
unreasonably withheld, provided and upon the condition that: (i) the proposed
assignee or subtenant is engaged in a business that is limited to the use
expressly permitted under this Lease; (ii) the proposed assignment or sublease
is in form reasonably satisfactory to Landlord; (iii) Tenant reimburses Landlord
on demand for any reasonable costs that may be incurred by Landlord in
connection with said assignment or sublease, including the costs of making
investigations as to the acceptability of the proposed assignee or subtenant and
reasonable legal costs incurred in connection with the granting of any requested
consent; and (iv) Tenant shall not have advertised or publicized in any way the
availability of the Premises without prior notice to Landlord. In the event all
or any one of the foregoing conditions are not satisfied, Landlord shall be
considered to have acted reasonably if it withholds its consent.

     B. Assignment or Subletting Consideration:  Any rent or other economic
consideration realized by Tenant under any sublease and assignment in excess of
the Base Monthly Rent payable hereunder, and after amortization for reasonable
subletting and assignment costs incurred by Tenant, shall be divided and paid
fifty percent (50%) to Landlord and fifty percent (50%) to Tenant. Tenant's
obligation to pay over Landlord's portion of the consideration constitutes an
obligation for additional rent hereunder. The above provisions relating to the
allocation of excess rent are independently negotiated terms of the Lease which
constitute a material inducement for the Landlord to enter into the Lease, and
are agreed by the Parties to be commercially reasonable. No assignment or
subletting by Tenant shall relieve it of any obligation under this Lease. Any
assignment or subletting which conflicts with the provisions hereof shall be
void.

     C. No Release:  Any assignment or sublease shall be made only if and shall
not be effective until the assignee or subtenant shall execute, acknowledge, and
deliver to Landlord an agreement, in form and substance satisfactory to
Landlord, whereby the assignee or subtenant shall assume all the obligations of
this Lease on the part of Tenant to be performed or observed and shall be
subject to all the covenants, agreements, terms, provisions and conditions in
this Lease. Notwithstanding any such sublease or assignment and the acceptance
of rent by Landlord from any subtenant or assignee, Tenant and any guarantor
shall remain fully liable for the payment of Base Monthly Rent and additional
rent due, and to become due

                                    Page 18

<PAGE>

hereunder, for the performance of all the covenants, agreements, terms,
provisions and conditions contained in this Lease on the part of Tenant to be
performed and for all acts and omissions of any licensee, subtenant, assignee or
any other person claiming under or through any subtenant or assignee that shall
be in violation of any of the terms and conditions of this Lease, and any such
violation shall be deemed a violation by Tenant. Tenant shall indemnify, defend
and hold Landlord harmless from and against all losses, liabilities, damages,
costs and expenses (including reasonable attorney fees) resulting from any
claims that may be made against Landlord by the proposed assignee or subtenant
or by any real estate brokers or other persons claiming compensation in
connection with the proposed assignment or sublease.

     D. Reorganization of Tenant: The provisions of this Section 17.D shall
apply if Tenant is a corporation and: (i) there is a dissolution, merger,
consolidation, or other reorganization of or affecting Tenant, where Tenant is
not the surviving corporation, or (ii) there is a sale or transfer to one person
or entity (or to any group of related persons or entities) of stock possessing
more than 50% of the total combined voting power of all classes of Tenant's
capital stock issued, outstanding and entitled to vote for the election of
directors, and after such sale or transfer of stock Tenant's stock is no longer
publicly traded. In a transaction under clause (i) the surviving corporation
shall promptly execute and deliver to Landlord an agreement in form reasonably
satisfactory to Landlord under which such surviving corporation assumes the
obligations of Tenant hereunder, and in a transaction under clause (ii) the
transferee or buyer shall promptly execute and deliver to Landlord an agreement
in form reasonably satisfactory to Landlord under which such transferee or buyer
assumes the obligations of Tenant under the Lease.

     E. Permitted Transfers: Notwithstanding anything contained in this Section
17, so long as Tenant otherwise complies with the provisions of this Article,
Tenant may enter into any of the following transfers (a "Permitted Transfer")
without Landlord's prior consent, and Landlord shall not be entitled to
terminate the Lease or to receive any part of any subrent resulting therefrom
that would otherwise be due pursuant to Sections 17.A and 17.B. Tenant may
sublease all or part of the Premises or assign its interest in this Lease to (i)
any corporation which controls, is controlled by, or is under common control
with the original Tenant to this Lease by means of an ownership interest of more
than 50%; (ii) a corporation which results from a merger, consolidation or other
reorganization in which Tenant is not the surviving corporation, so long as the
surviving corporation has a net worth at the time of such assignment that is
equal to or greater than the net worth of Tenant immediately prior to such
transaction; and (iii) a corporation which purchases or otherwise acquires all
or substantially all of the assets of Tenant so long as such acquiring
corporation has a net worth at the time of such assignment that is equal to or
greater than the net worth of Tenant immediately prior to such transaction.

     F. Effect of Default: In the event of Tenant's default, Tenant hereby
assigns all rents due from any assignment or subletting to Landlord as security
for performance of its obligations under this Lease, and Landlord may collect
such rents as Tenant's Attorney-in-Fact, except that Tenant may collect such
rents unless a default occurs as described in Section 13 above. A termination of
the Lease due to Tenant's default shall not automatically terminate an
assignment or sublease then in existence; rather at Landlord's election, such
assignment or sublease shall survive the Lease termination, the assignee or
subtenant shall attorn to Landlord, and Landlord shall undertake the obligations
of Tenant under the sublease or assignment; except that Landlord shall not be
liable for prepaid rent, security deposits or other defaults of Tenant to the
subtenant or assignee, or for any acts or omissions of Tenant and Tenant's
Agents.

     G. Conveyance by Landlord:  As used in this Lease, the term "Landlord" is
defined only as the owner for the time being of the Premises, so that in the
event of any

                                    Page 19

<PAGE>

sale or other conveyance of the Premises or in the event of a master lease of
the Premises, Landlord shall be entirely freed and relieved of all its covenants
and obligations hereunder, and it shall be deemed and construed, without further
agreement between the Parties and the purchaser at any such sale or the master
tenant of the Premises, that the purchaser or master tenant of the Premises has
assumed and agreed to carry out any and all covenants and obligations of
Landlord hereunder. Such transferor shall transfer and deliver Tenant's security
deposit to the purchaser at any such sale or the master tenant of the Premises,
and thereupon the transferor shall be discharged from any further liability in
reference thereto.

     F. Successors and Assigns: Subject to the provisions this Section 17, the
covenants and conditions of this Lease shall apply to and bind the heirs,
successors, executors, administrators and assigns of all Parties hereto; and all
Parties hereto comprising Tenant shall be jointly and severally liable
hereunder.

18. OPTION TO EXTEND THE LEASE
TERM:

     A. Grant and Exercise of Option:  Landlord grants to Tenant, subject to the
terms and conditions set forth in this Section 18.A, one (1) option (the
"Option") to extend the Lease Term for an additional term (the "Option Term") of
sixty (60) months and shall be exercised, if at all, by written notice to
Landlord no earlier than eighteen (18) months prior to the date the Lease Term
would expire but for such exercise but no later than twelve (12) months prior to
the date the Lease Term would expire but for such exercise, time being of the
essence for the giving of such notice. If Tenant exercises the Option, all of
the terms, covenants and conditions of this Lease except for the grant of
additional Options pursuant to this Section, provided that Base Monthly Rent for
the Premises payable by Tenant during the Option Term shall be the greater of
(i) the average amount of Base Monthly Rent paid during the initial ten year
term, and (ii) ninety five percent (95%) of the Fair Market Rental as
hereinafter defined.

Notwithstanding anything herein to the contrary, if Tenant is in monetary
default under any of the terms, covenants or conditions of this Lease either at
the time Tenant exercises the Option or at any time thereafter prior to the
commencement date of the Option Term, Landlord shall have, in addition to all of
Landlord's other rights and remedies provided in this Lease, the right to
terminate the Option upon notice to Tenant, in which event the Lease Term shall
not be extended pursuant to this Section 18.A. As used herein, the term "Fair
Market Rental" is defined as the rental and all other monetary payments,
including any escalations and adjustments thereto (including without limitation
Consumer Price Indexing) that Landlord could obtain during the Option Term from
a third party desiring to lease the Premises, based upon the current use and
other potential uses of the Premises, as determined by the rents then being
obtained for new leases of space comparable in age and quality to the Premises
in the same real estate submarket as the Building. Fair Market Rental shall
further take into account that Tenant is in occupancy and making functional use
of the Premises in its then existing condition and no additional work allowance
or tenant improvements shall be required of Landlord. The appraisers shall be
instructed that the foregoing five percent (5%) discount is intended to reduce
comparable rents which include (i) brokerage commissions, (ii) tenant
improvement allowances, and (iii) vacancy costs, to account for the fact that
Landlord will not suffer such costs in the event Tenant exercises its Option.

     B. Determination of Fair Market Rental: If Tenant exercises the Option,
Landlord shall send Tenant a notice setting forth the Fair Market Rental for the
Option Term within thirty (30) days following the Exercise Date. If Tenant
disputes Landlord's determination of Fair Market Rental for the Option Term,
Tenant shall, within thirty (30) days after the date of Landlord's notice
setting forth Fair Market Rental for the Option Term, send to Landlord a notice
stating that Tenant either elects to terminate its exercise of the Option, in
which event the Option shall lapse and this Lease shall terminate on the
Expiration

                                    Page 20

<PAGE>

Date, or that Tenant disagrees with Landlord's determination of Fair Market
Rental for the Option Term and elects to resolve the disagreement as provided in
Section 18.C below. If Tenant does not send Landlord a notice as provided in the
previous sentence, Landlord's determination of Fair Market Rental shall be the
Base Monthly Rent payable by Tenant during the Option Term. If Tenant elects to
resolve the disagreement as provided in Section 18.C and such procedures are not
concluded prior to the commencement date of the Option Term, Tenant shall pay to
Landlord as Base Monthly Rent the Fair Market Rental as determined by Landlord
in the manner provided above. If the Fair Market Rental as finally determined
pursuant to Section 18.C is greater than Landlord's determination, Tenant shall
pay Landlord the difference between the amount paid by Tenant and the Fair
Market Rental as so determined in Section 18.C within thirty (30) days after
such determination. If the Fair Market Rental as finally determined in Section
18.C is less than Landlord's determination, the difference between the amount
paid by Tenant and the Fair Market Rental as so determined in Section 18.C shall
be credited against the next installments of Base Monthly Rent due from Tenant
to Landlord hereunder.

     C. Resolution of a Disagreement over the Fair Market Rental: Any
disagreement regarding Fair Market Rental shall be resolved as follows:

         1. Within thirty (30) days after Tenant's response to Landlord's notice
setting forth the Fair Market Rental, Landlord and Tenant shall meet at a
mutually agreeable time and place, in an attempt to resolve the disagreement.

         2. If within the 30-day period referred to above, Landlord and Tenant
cannot reach agreement as to Fair Market Rental, each party shall select one
appraiser to determine Fair Market Rental. Each such appraiser shall arrive at a
determination of Fair Market Rental and submit their conclusions to Landlord and
Tenant within thirty (30) days after the expiration of the 30-day consultation
period described above.

         3. If only one appraisal is submitted within the requisite time period,
it shall be deemed as Fair Market Rental. If both appraisals are submitted
within such time period and the two appraisals so submitted differ by less than
ten percent (10%), the average of the two shall be deemed as Fair Market Rental.
If the two appraisals differ by more than 10%, the appraisers shall immediately
select a third appraiser who shall, within thirty (30) days after his selection,
make and submit to Landlord and Tenant a determination of Fair Market Rental.
This third appraisal will then be averaged with the closer of the two previous
appraisals and the result shall be Fair Market Rental.

         4. All appraisers specified pursuant to this Section shall be members
of the American Institute of Real Estate Appraisers with not less than ten (10)
years experience appraising office and industrial properties in the Santa Clara
Valley. Each party shall pay the cost of the appraiser selected by such party
and one-half of the cost of the third appraiser.

     D. Personal to Tenant: All Options provided to Tenant in this Lease are
personal and granted to Legato Systems, Inc. or a permitted transferee pursuant
to Section 17.E. above, and are not exercisable by any third party should Tenant
assign or sublet all or a portion of its rights under this Lease, unless
Landlord consents to permit exercise of any option by any assignee or subtenant,
in Landlord's sole and absolute discretion. In the event Tenant has multiple
options to extend this Lease, a later option to extend the Lease cannot be
exercised unless the prior option has been properly exercised.

19. GENERAL PROVISIONS:

     A. Attorney's Fees:  In the event a suit or alternative form of dispute
resolution is brought for the possession of the Premises, for the recovery of
any sum due hereunder, to interpret the Lease, or because of the breach of any
other covenant herein; then the losing party shall pay to the prevailing party
reasonable attorney's fees including

                                    Page 21

<PAGE>

the expense of expert witnesses, depositions and court testimony as part of its
costs which shall be deemed to have accrued on the commencement of such action.
The prevailing party shall also be entitled to recover all costs and expenses
including reasonable attorney's fees incurred in enforcing any judgment or award
against the other party. The foregoing provision relating to post-judgment costs
is severable from all other provisions of this Lease.

     B. Authority of Parties: Tenant represents and warrants that it is duly
formed and in good standing, and is duly authorized to execute and deliver this
Lease on behalf of said corporation, in accordance with a duly adopted
resolution of the Board of Directors of said corporation or in accordance with
the by-laws of said corporation, and that this Lease is binding upon said
corporation in accordance with its terms. At Landlord's request, Tenant shall
provide Landlord with corporate resolutions or other proof in a form acceptable
to Landlord, authorizing the execution of the Lease.

     C. Brokers:  Tenant represents it has not utilized or contacted a real
estate broker or finder with respect to this Lease other than BT Commercial/New
America Network and Tenant agrees to indemnify, defend and hold Landlord
harmless against any claim, cost, liability or cause of action asserted by any
other broker or finder claiming through Tenant.

     D. Choice of Law: This Lease shall be governed by and construed in
accordance with California law. Except as provided in Section 19.E, venue shall
be Santa Clara County.

     E. Dispute Resolution: Landlord and Tenant and any other party that may
become a party to this Lease or be deemed a party to this Lease including any
subtenants agree that, except for any claim by Landlord for unlawful detainer or
any claim within the jurisdiction of the small claims court (which small claims
court shall be the sole court of competent jurisdiction), any controversy,
dispute, or claim of whatever nature arising out of, in connection with or in
relation to the interpretation, performance or breach of this Lease, including
any claim based on contract, tort, or statute, shall be resolved at the request
of any party to this agreement through a two-step dispute resolution process
administered by J.A.M.S. or another judicial mediation service mutually
acceptable to the parties located in Santa Clara County, California. The dispute
resolution process shall involve first, mediation, followed, if necessary, by
final and binding arbitration administered by and in accordance with the then
existing rules and practices of J.A.M.S. or other judicial mediation service
selected. In the event of any dispute subject to this provision, either party
may initiate a request for mediation and the parties shall use reasonable
efforts to promptly select a J.A.M.S. mediator and commence the mediation. In
the event the parties are not able to agree on a mediator within thirty (30)
days, J. A. M. S. or another judicial mediation service mutually acceptable to
the parties shall appoint a mediator. The mediation shall be confidential and in
accordance with California Evidence Code (S) 1119 et. seq. The mediation shall
be held in Santa Clara County, California and in accordance with the existing
rules and practice of J. A. M. S. (or other judicial and mediation service
selected). The parties shall use reasonable efforts to conclude the mediation
within sixty (60) days of the date of either party's request for mediation. The
mediation shall be held prior to any arbitration or court action (other than a
claim by Landlord for unlawful detainer or any claim within the jurisdiction of
the small claims court which are not subject to this mediation/arbitration
provision and may be filed directly with a court of competent jurisdiction).
Should the prevailing party in any dispute subject to this Section 19.E attempt
an arbitration or a court action before attempting to mediate, the prevailing
party shall not be entitled to attorney's fees that might otherwise be available
to them in a court action or arbitration and in addition thereto, the party who
is determined by the arbitrator to have resisted mediation, shall be sanctioned
by the arbitrator or judge.

IF A MEDIATION IS CONDUCTED BUT IS UNSUCCESSFUL, IT SHALL BE

                                    Page 22

<PAGE>

FOLLOWED BY FINAL AND BINDING ARBITRATION ADMINISTERED BY AND IN ACCORDANCE WITH
THE THEN EXISTING RULES AND PRACTICES OF J.A.M.S. OR THE OTHER JUDICIAL AND
MEDIATION SERVICE SELECTED, AND JUDGMENT UPON ANY AWARD RENDERED BY THE
ARBITRATOR(S) MAY BE ENTERED BY ANY STATE OR FEDERAL COURT HAVING JURISDICTION
THEREOF AS PROVIDED BY CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 1280 ET. SEQ,
AS SAID STATUTES THEN APPEAR, INCLUDING ANY AMENDMENTS TO SAID STATUTES OR
SUCCESSORS TO SAID STATUTES OR AMENDED STATUTES, EXCEPT THAT IN NO EVENT SHALL
THE PARTIES BE ENTITLED TO PROPOUND INTERROGATORIES OR REQUEST FOR ADMISSIONS
DURING THE ARBITRATION PROCESS. THE ARBITRATOR SHALL BE A RETIRED JUDGE OR A
LICENSED CALIFORNIA ATTORNEY. THE VENUE FOR ANY SUCH ARBITRATION OR MEDIATION
SHALL BE IN SANTA CLARA COUNTY, CALIFORNIA.

NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND ARBITRATION OF
DISPUTES" PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW
AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED
IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP
YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE
SPECIFICALLY INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES" PROVISION.
IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY
BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL
PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.

WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE "MEDIATION AND ARBITRATION OF DISPUTES"
PROVISION TO NEUTRAL ARBITRATION.

LANDLORD: [INITIALS]                   TENANT:  [INITIALS]


     F. Entire Agreement: This Lease and the exhibits attached hereto contains
all of the agreements and conditions made between the Parties hereto and may not
be modified orally or in any other manner other than by written agreement signed
by all parties hereto or their respective successors in interest. This Lease
supersedes and revokes all previous negotiations, letters of intent, lease
proposals, brochures, agreements, representations, promises, warranties, and
understandings, whether oral or in writing, between the parties or their
respective representatives or any other person purporting to represent Landlord
or Tenant.

     G. Entry by Landlord: Upon prior notice to Tenant and subject to Tenant's
reasonable security regulations, Tenant shall permit Landlord and his agents to
enter into and upon the Premises at all reasonable times, and without any rent
abatement or reduction or any liability to Tenant for any loss of occupation or
quiet enjoyment of the Premises thereby occasioned, for the following purposes:
(i) inspecting and maintaining the Premises; (ii) making repairs, alterations or
additions to the Premises; (iii) performing any obligations of Landlord under
the Lease including remediation of Hazardous Materials if determined to be the
responsibility of Landlord, (iv) posting and keeping posted thereon notices of
non-responsibility for any construction, alteration or repair thereof, as
required or permitted by any law, and (v) showing the Premises to Landlord's or
the Master Landlord's existing or potential successors, purchaser, tenants and
lenders. Tenant shall permit Landlord and his agents, at any time within one
hundred eighty (180) days prior to the Expiration

                                    Page 23

<PAGE>

Date (or at any time during the Lease if Tenant is in default hereunder), to
place upon the Premises "For Lease" signs (provided such signs are reasonably
placed so as to minimize disruption to Tenant) and exhibit the Premises to real
estate brokers and prospective tenants at reasonable hours.

     H. Estoppel Certificates: At any time during the Lease Term, Tenant shall,
within ten business (10) days following written notice from Landlord, execute
and deliver to Landlord a written statement certifying, if true, the following:
(i) that this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modification); (ii) the date to which rent and other
charges are paid in advance, if any; (iii) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on Landlord's part hereunder (or
specifying such defaults if they are claimed); and (iv) such other information
as Landlord may reasonably request. Any such statement may be conclusively
relied upon by any prospective purchaser or encumbrancer of Landlord's interest
in the Premises. Tenant's failure to deliver such statement within such time
shall be conclusive upon the Tenant that this Lease is in full force and effect
without modification, except as may be represented by Landlord, and that there
are no uncured defaults in Landlord's performance. Tenant agrees to provide,
within five (5) days of Landlord's request, Tenant's most recent three (3) years
of audited financial statements for Landlord's use in financing or sale of the
Premises or Landlord's interest therein.

     I. Exhibits: All exhibits referred to are attached to this Lease and
incorporated by reference.

     J. Interest: All rent due hereunder, if not paid when due, shall bear
interest at the rate of the Reference Rate published by Bank of America, San
Francisco Branch, plus two percent (2%) per annum from that date until paid in
full ("Agreed Interest Rate"). This provision shall survive the expiration or
sooner termination of the Lease. Despite any other provision of this Lease, the
total liability for interest payments shall not exceed the limits, if any,
imposed by the usury laws of the State of California. Any interest paid in
excess of those limits shall be refunded to Tenant by application of the amount
of excess interest paid against any sums outstanding in any order that Landlord
requires. If the amount of excess interest paid exceeds the sums outstanding,
the portion exceeding those sums shall be refunded in cash to Tenant by
Landlord. To ascertain whether any interest payable exceeds the limits imposed,
any non-principal payment (including late charges) shall be considered to the
extent permitted by law to be an expense or a fee, premium, or penalty rather
than interest.

     K. Modifications Required by Lender: If any lender of Landlord or ground
lessor of the Premises requires a modification of this Lease that will not
increase Tenant's cost or expense or materially or adversely change Tenant's
rights and obligations, this Lease shall be so modified and Tenant shall execute
whatever documents are required and deliver them to Landlord within ten (10)
days after the request.

     L. No Presumption Against Drafter: Landlord and Tenant understand, agree
and acknowledge that this Lease has been freely negotiated by both Parties; and
that in any controversy, dispute, or contest over the meaning, interpretation,
validity, or enforceability of this Lease or any of its terms or conditions,
there shall be no inference, presumption, or conclusion drawn whatsoever against
either party by virtue of that party having drafted this Lease or any portion
thereof.

     M. Notices: All notices, demands, requests, or consents required to be
given under this Lease shall be sent in writing by U.S. certified mail, return
receipt requested, overnight commercial courier, or by personal delivery
addressed to the party to be notified at the address for such party specified in
Section 1 of this Lease, or to such other place as the party to be notified may
from time to time designate by at least fifteen (15) days prior notice to the
notifying party. When this Lease requires service of a notice, that notice shall
replace rather than supplement any equivalent or similar statutory notice,
including any notices

                                    Page 24

<PAGE>

required by Code of Civil Procedure Section 1161 or any similar or successor
statute. When a statute requires service of a notice in a particular manner,
service of that notice (or a similar notice required by this Lease) shall
replace and satisfy the statutory service-of-notice procedures, including those
required by Code of Civil Procedure Section 1162 or any similar or successor
statute.

     N. Property Management: In addition, Tenant agrees to pay Landlord along
with the expenses to be reimbursed by Tenant a monthly fee for management
services rendered by either Landlord or a third party manager engaged by
Landlord (which may be a party affiliated with Landlord), in the amount of one
percent (1%) of the Base Monthly Rent.

     0. Rent: All monetary sums due from Tenant to Landlord under this Lease,
including, without limitation those referred to as "additional rent", shall be
deemed as rent.

     P. Representations: Tenant acknowledges that neither Landlord nor any of
its employees or agents have made any agreements, representations, warranties or
promises with respect to the Premises or with respect to present or future
rents, expenses, operations, tenancies or any other matter. Except as herein
expressly set forth herein, Tenant relied on no statement of Landlord or its
employees or agents for that purpose.

     Q. Rights and Remedies: Subject to Section 14 above, All rights and
remedies hereunder are cumulative and not alternative to the extent permitted by
law, and are in addition to all other rights and remedies in law and in equity.

     R. Severability: If any term or provision of this Lease is held
unenforceable or invalid by a court of competent jurisdiction, the remainder of
the Lease shall not be invalidated thereby but shall be enforceable in
accordance with its terms, omitting the invalid or unenforceable term.

     S. Submission of Lease: Submission of this document for examination or
signature by the parties does not constitute an option or offer to lease the
Premises on the terms in this document or a reservation of the Premises in favor
of Tenant. This document is not effective as a lease or otherwise until executed
and delivered by both Landlord and Tenant.

     T. Subordination: This Lease is subject and subordinate to ground and
underlying leases, mortgages and deeds of trust (collectively "Encumbrances")
which may now affect the Premises, to any covenants, conditions or restrictions
of record, and to all renewals, modifications, consolidations, replacements and
extensions thereof; provided, however, if the holder or holders of any such
Encumbrance ("Holder") require that this Lease be prior and superior thereto,
within ten (10) business days after written request of Landlord to Tenant,
Tenant shall execute, have acknowledged and deliver all documents or
instruments, in the form presented to Tenant, which Landlord or Holder deems
necessary or desirable for such purposes. Landlord shall have the right to cause
this Lease to be and become and remain subject and subordinate to any and all
Encumbrances which are now or may hereafter be executed covering the Premises or
any renewals, modifications, consolidations, replacements or extensions thereof,
for the full amount of all advances made or to be made thereunder and without
regard to the time or character of such advances, together with interest thereon
and subject to all the terms and provisions thereof; provided only, that in the
event of termination of any such lease or upon the foreclosure of any such
mortgage or deed of trust, Holder agrees to recognize Tenant's rights under this
Lease as long as Tenant is not then in default and continues to pay Base Monthly
Rent and additional rent and observes and performs all required provisions of
this Lease. Within ten (10) business days after Landlord's written request,
Tenant shall execute any documents required by Landlord or the Holder to make
this Lease subordinate to any lien of the Encumbrance. If Tenant fails to do so,
then in addition to such failure constituting a default by Tenant, it shall be
deemed that

                                    Page 25

<PAGE>

this Lease is so subordinated to such Encumbrance. Notwithstanding anything to
the contrary in this Section, Tenant hereby attorns and agrees to attorn to any
entity purchasing or otherwise acquiring the Premises at any sale or other
proceeding or pursuant to the exercise of any other rights, powers or remedies
under such encumbrance.

     U. Survival of Indemnities: All indemnification, defense, and hold harmless
obligations of Landlord and Tenant under this Lease shall survive the expiration
or sooner termination of the Lease.

     V. Time: Time is of the essence hereunder.

     W. Transportation Demand Management Programs: Should a government agency or
municipality require Landlord to institute TDM (Transportation Demand
Management) facilities and/or programs, Tenant agrees that the cost of TDM
imposed facilities and programs required on the Premises, including but not
limited to employee showers, lockers, cafeteria, or lunchroom facilities, shall
be paid by Tenant. Further, any ongoing costs or expenses associated with a TDM
program which are required for the Premises and not provided by Tenant, such as
an on-site TDM coordinator, shall be provided by Landlord with such costs being
included as additional rent and reimbursed to Landlord by Tenant within thirty
(30) days after demand. If TDM facilities and programs are instituted on a
Project wide basis, Tenant shall pay its proportionate share of such costs in
accordance with Section 8 above.

     X. Waiver of Right to Jury Trial: Landlord and Tenant waive their
respective rights to trial by jury of any contract or tort claim, counterclaim,
cross-complaint, or cause of action in any action, proceeding, or hearing
brought by either party against the other on any matter arising out of or in
any way connected with this Lease, the relationship of Landlord and Tenant, or
Tenant's use or occupancy of the Premises, including any claim of injury or
damage or the enforcement of any remedy under any current or future law,
statute, regulation, code, or ordinance.

                                    Page 26

<PAGE>

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

Landlord: SOBRATO INTERESTS III              Tenant: LEGATO SYSTEMS, INC.
a California Limited Partnership             a Delaware Corporation


 By: /s/ [Illegible Signature]               By: /s/ Stephen C. Wise
     ------------------------------              ----------------------------
 Its: General Partner                        Its: Chief Financial Officer
     ------------------------------              ----------------------------







                                    Page 27

</TEXT>
</DOCUMENT>
