10-Q

FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACTS OF 1934

For the Quarter ended SEPTEMBER 30, 2002 Commission file number: 0-16641

RAINBOW TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)

DELAWARE	95-3745398
(State of incorporation)	(I.R.S. Employer Identification No.)

50 TECHNOLOGY DRIVE, IRVINE, CALIFORNIA	92618
(Address of principal executive offices)	(Zip Code)

Indicate by check mark whether the Registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days.

Yes [X]    No [   ]

The number of shares of common stock, $.001 par value, outstanding as of October 31, 2002, was 26,216,249.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	Item 1. Condensed Consolidated Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATIONS
EXHIBIT INDEX
EXHIBIT 10(O)
EXHIBIT 99(A)

RAINBOW TECHNOLOGIES, INC.

TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets at September 30, 2002 (unaudited) and December 31, 2001		4
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2002 and 2001 (unaudited)		5
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2002 and 2001 (unaudited)		6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001 (unaudited)		7
	Notes to Condensed Consolidated Financial Statements (unaudited)		8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3.	Not applicable
Item 4.	Controls and Procedures		18
PART II - OTHER INFORMATION
Item 1 to 5 - Not applicable
Item 6.	Exhibits and reports on Form 8K		19
SIGNATURES			21
CERTIFICATIONS OF FINANCIAL REPORTS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002			22

2

INTRODUCTORY NOTE

     The Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and the Company intends that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements include (i) the existence and development of the Company’s technical and manufacturing capabilities, (ii) anticipated competition, (iii) potential future growth in revenues and income, (iv) potential future decreases in costs, and (v) the need for, and availability of additional financing.

     The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties. These forward-looking statements are based on the assumption that the Company will not lose a significant customer or customers or experience increased fluctuations of demand or rescheduling of purchase orders, that the Company’s markets will continue to grow, that the Company’s products will remain accepted within their respective markets and will not be replaced by new technology, that competitive conditions within the Company’s markets will not change materially or adversely, that the Company will retain key technical and management personnel, that the Company’s forecasts will accurately anticipate market demand, that there will be no material adverse change in the Company’s operations or business and that the Company will not experience significant supply shortages with respect to purchased components, sub-systems or raw materials. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. In addition, the business and operations of the Company are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved.

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

RAINBOW TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)

			September 30, 2002			December 31, 2001
			(unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	42,128		$	28,778
	Marketable available-for-sale and trading securities			160			1,195
	Accounts receivable, net of allowance for doubtful accounts of $988 and $1,858 in 2002 and 2001, respectively			17,045			24,492
	Inventories			10,080			20,711
	Income tax receivable			5,013			1,844
	Deferred income taxes			—			13,901
	Unbilled costs and fees			1,470			2,227
	Prepaid expenses and other current assets			1,558			1,634
		Total current assets		77,454			94,782
Property, plant and equipment, at cost:
	Equipment			22,167			20,838
	Buildings			7,344			6,655
	Furniture			2,937			2,810
	Leasehold improvements			2,941			2,946
				35,389			33,249
	Less accumulated depreciation and amortization			21,013			17,336
		Net property, plant and equipment		14,376			15,913
	Goodwill, net of accumulated amortization of $35,496 and $22,104 in 2002 and 2001, respectively			1,684			15,638
	Software development costs, net of accumulated amortization of $19,050 and $11,218 in 2002 and 2001, respectively			3,945			10,768
	Product licenses, net of accumulated amortization of $5,094 and $3,537 in 2002 and 2001, respectively			4,425			4,030
	Deferred income taxes			—			2,421
	Other assets			1,861			2,413
			$	103,745		$	145,965
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	7,464		$	9,929
	Accrued payroll and related expenses			6,039			5,063
	Accrued restructuring costs			2,326			3,130
	Warranty reserve			2,261			2,417
	Other accrued liabilities			6,024			5,041
	Long-term debt, due within one year			234			211
		Total current liabilities		24,348			25,791
	Long-term debt, net of current portion			351			476
	Other liabilities			2,713			2,959
	Commitments and contingencies
	Shareholders’ equity:
	Common stock, $.001 par value, 55,000,000 shares authorized, 26,713,270 and 26,157,594 shares issued and outstanding in 2002 and 2001, respectively			27			26
	Additional paid-in capital			60,250			56,885
	Accumulated other comprehensive loss			(363	)		(1,539	)
	Retained earnings			18,830			61,367
				78,744			116,739
Less cost of treasury shares (517,000 shares)				(2,411	)		—
		Total shareholders’ equity		76,333			116,739
			$	103,745		$	145,965

See accompanying notes.

4

RAINBOW TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)

				Three Months Ended September 30,						Nine Months Ended September 30,
				2002			2001			2002			2001
				(unaudited)
Revenues:
	eSecurity Products			$	11,417		$	10,305		$	35,750		$	43,958
	Secure Communications Products				18,926			14,855			56,758			50,640
			Total revenues		30,343			25,160			92,508			94,598
Operating expenses:
	Cost of eSecurity Products				3,977			16,092			29,339			30,928
	Cost of Secure Communications Products				13,877			11,892			44,127			40,041
	Selling, general and administrative				7,776			9,786			23,867			32,589
	Research and development				2,365			2,664			7,095			9,076
	Goodwill amortization				—			294			—			799
	Restructuring costs				—			5,830			—			5,830
	Goodwill impairment				—			1,491			—			1,491
			Total operating expenses		27,995			48,049			104,428			120,754
Operating income (loss)					2,348			(22,889	)		(11,920	)		(26,156	)
Loss on marketable trading securities					(18	)		(14	)		(108	)		(3,562	)
Foreign currency loss					(30	)		(2,092	)		(331	)		(2,373	)
Interest income					118			88			325			453
Interest expense					(19	)		(28	)		(98	)		(96	)
Other income (expense), net					56			(179	)		635			(290	)
Income (loss) from continuing operations before income taxes					2,455			(25,114	)		(11,497	)		(32,024	)
Benefit (provision) for income taxes					—			8,277			(13,733	)		10,903
Income (loss) from continuing operations					2,455			(16,837	)		(25,230	)		(21,121	)
Loss from discontinued operations, net of applicable taxes					(639	)		(3,508	)		(17,307	)		(4,050	)
Net income (loss)				$	1,816		$	(20,345	)	$	(42,537	)	$	(25,171	)
Basic income (loss) per share:
		Continuing operations		$	0.09		$	(0.65	)	$	(0.95	)	$	(0.81	)
		Discontinued operations		$	(0.02	)	$	(0.13	)	$	(0.66	)	$	(0.16	)
Net income (loss)				$	0.07		$	(0.78	)	$	(1.61	)	$	(0.97	)
Diluted income (loss) per share:
		Continuing operations		$	0.09		$	(0.65	)	$	(0.95	)	$	(0.81	)
		Discontinued operations		$	(0.02	)	$	(0.13	)	$	(0.66	)	$	(0.16	)
Net income (loss)				$	0.07		$	(0.78	)	$	(1.61	)	$	(0.97	)
Shares used in computing net income (loss) per share:
		Basic			26,326			26,062			26,479			26,046
		Diluted			26,532			26,062			26,479			26,046

See accompanying notes.

5

RAINBOW TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands)

		Three Months Ended September 30,						Nine Months Ended September 30,
		2002			2001			2002			2001
		(unaudited)
Net income (loss)		$	1,816		$	(20,345	)	$	(42,537	)	$	(25,171	)
Other comprehensive income (loss):
	Foreign currency translation adjustment		144			4,196			1,628			1,959
	Unrealized loss on securities		(376	)		(28	)		(452	)		(199	)
	Other comprehensive income (loss), before income taxes		(232	)		4,168			1,176			1,760
	Provision for income taxes related to other comprehensive income (loss)		—			(1,583	)		—			(668	)
	Other comprehensive income (loss), net of taxes		(232	)		2,585			1,176			1,092
Comprehensive income (loss)		$	1,584		$	(17,760	)	$	(41,361	)	$	(24,079	)

See accompanying notes.

6

RAINBOW TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)

				Nine Months Ended September 30,
				2002			2001
				(unaudited)
Cash flows from operating activities:
	Net loss			$	(42,537	)	$	(25,171	)
	Adjustments to reconcile net loss to net cash provided by operating activities:
	Amortization				3,281			6,241
	Depreciation				2,995			2,980
	Change in deferred income taxes				16,322			(10,205	)
	Provision (reduction) of allowance for doubtful accounts				(898	)		1,334
	Minority interest in subsidiary’s earnings				188			196
	Unrealized loss on marketable trading securities				108			3,562
	Provision for excess and obsolete inventory				10,198			7,414
	Warranty provision				901			2,440
	Tax benefit of exercise of common stock options				295			138
	Write-off of long-term investment				260			1,206
	Write-off of capitalized and developed software				5,436			2,392
	Write-off of Spectria goodwill				12,840			—
	Provision for impairment of assets on discontinued operations				2,356			—
	Restructuring costs				—			6,402
	Goodwill impairment				—			4,030
	Foreign currency loss on repayment of loan to foreign subsidiary				—			1,252
Changes in operating assets and liabilities:
		Accounts receivable			8,803			18,086
		Inventories			573			1,651
		Unbilled costs and fees			757			(1,038	)
		Prepaid expenses and other current assets			111			(115	)
		Accounts payable			(2,489	)		(1,325	)
		Accrued liabilities			(2,369	)		(5,236	)
		Billings in excess of costs and fees			305			(935	)
		Income taxes			(3,169	)		2,039
			Net cash provided by operating activities		14,267			17,338
Cash flows from investing activities:
	Purchases of property, plant and equipment				(1,236	)		(3,398	)
	Capitalized software development costs				(656	)		(4,020	)
	Other assets				902			(161	)
	Cash paid for acquisition of Impex Computacion, S.A. de C.V.				(297	)		—
	Additional investment in Rainbow Technologies (Taiwan) Co. Ltd.				(225	)		—
	Cash paid for investment in DataSafe Technologies, China				—			(231	)
	Investment in Rainbow Technologies K.K., Japan				—			(1,357	)
	Additional investment in Rainbow Goldensoft, China				—			(809	)
			Net cash used in investing activities		(1,512	)		(9,976	)
Cash flows from financing activities:
	Exercise of common stock options				3,071			478
	Repayment of long-term debt				(171	)		(126	)
	Purchase of treasury stock				(2,411	)		—
	Cash paid to minority shareholder of Rainbow Technologies K.K., Japan				(292	)		—
	Repayment of line of credit				—			(3,129	)
			Net cash provided by (used in) financing activities		197			(2,777	)
Effect of exchange rate changes on cash					398			945
Net increase in cash and cash equivalents					13,350			5,530
Cash and cash equivalents at beginning of year					28,778			19,458
Cash and cash equivalents at end of year				$	42,128		$	24,988

See accompanying notes.

7

RAINBOW TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Unaudited)

1. Basis of presentation

Rainbow Technologies, Inc. (the Company) develops, manufactures, programs and markets software and internet security products which prevent the unauthorized use of intellectual property, including software programs, provides privacy and security for network communications and develops and manufactures secure communication products for satellite communications. The accompanying financial statements consolidate the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Certain amounts previously reported have been reclassified to conform to the 2002 presentation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements. Actual results could differ from those estimates. Significant estimates made in preparing these financial statements include the allowance for doubtful accounts, the reserve for excess and obsolete inventory, goodwill valuations, accrued warranty costs, restructuring costs, the valuation allowance for deferred tax assets and total estimated contract costs associated with billed and unbilled contract revenue.

Management determines the appropriate classification of its investments in marketable securities at the time of purchase. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and carried at fair value with the unrealized holding gains and losses included in earnings. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of Accumulated Other Comprehensive Loss within Shareholders’ Equity.

In the opinion of the Company’s management, the accompanying condensed consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of the financial position at September 30, 2002 and results of operations for the three and nine months ended September 30, 2002 and 2001. The condensed consolidated financial statements do not include footnotes and certain financial information normally presented annually under accounting principles generally accepted in the United States and, therefore, should be read in conjunction with the Company’s December 31, 2001 Annual Report on Form 10-K. Results of operations for the three and nine months ended September 30, 2002 are not necessarily indicative of results to be expected for the full year.

The Company has subsidiaries in the United Kingdom, Germany, France, Netherlands, India, Australia, China, Taiwan, Japan and Mexico. The Company utilizes the currencies of the countries where its foreign subsidiaries operate as the functional currency. Balance sheet accounts denominated in foreign currency are translated at exchange rates as of the date of the balance sheet and income statement accounts are translated at average exchange rates for the period. Translation gains and losses are accumulated as a separate component of Accumulated Other Comprehensive Loss within Shareholders’ Equity. The Company has adopted local currencies as the functional currencies for its subsidiaries because their principal economic activities are most closely tied to the respective local currencies.

2. Earnings per share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share for the three months ended September 30, 2002 assumes the conversion of 206,000 stock options. The Company incurred losses for the three months ended September 30, 2001 and the nine months ended September 30, 2002 and 2001 and, therefore, all stock options were anti-dilutive and not included in the computation of diluted earnings per share.

3. Government Contracts

The Company is both a prime contractor and subcontractor under fixed-price and cost-reimbursement contracts with the U.S. Government (Government). At the commencement of each contract or contract modification, the Company submits pricing proposals to the Government to establish indirect cost rates applicable to such contracts. These rates, after audit and approval by the Government, are used to settle costs on completed contracts.

To facilitate interim billings during the performance of its contracts, the Company establishes provisional billing rates, which are used in recognizing contract revenue and contract accounts receivable. The provisional billing rates are adjusted to actual at year-end and are subject to adjustment after Government audit.

8

4. Inventories

Inventoried costs relating to long-term contracts are stated at actual production costs, including pro-rata allocations of factory overhead and general and administrative costs incurred-to-date, reduced by amounts identified with revenue recognized on units delivered. The costs attributed to units delivered under such long-term contracts are based on the estimated average cost of all units expected to be produced.

Inventories, other than inventoried costs relating to long-term contracts, are stated at the lower of cost (first-in, first-out basis) or market.

Inventories consist of the following:
(dollars in thousands)

	September 30, 2002			December 31, 2001
Raw materials	$	8,883		$	14,016
Work in process		1,590			2,643
Finished goods		4,037			5,883
Inventoried costs relating to long-term contracts, net of amounts attributed to revenues recognized to date		5,646			4,569
Reserve for excess and obsolete inventory		(10,076	)		(6,400	)
	$	10,080		$	20,711

5. Goodwill and other intangible assets

Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” and No. 142, “Goodwill and other Intangible Assets.” SFAS No. 141 addresses financial accounting and reporting for a business combination and requires all business combinations to be accounted for using the purchase method. SFAS No. 141 is effective for any business combinations initiated after June 30, 2001. SFAS No. 142 addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. Goodwill and other intangible assets with indefinite lives are no longer amortized but instead are subject to an impairment test at least annually. The impairment test is comprised of two parts. The first step compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount exceeds the fair value of the reporting unit, the second step of the goodwill impairment test must be performed. The second step compares the implied fair value of the reporting unit’s goodwill with the respective carrying amount in order to determine the amount of impairment loss, if any. In accordance with SFAS No. 142, the Company performed the first part of the two-step goodwill impairment test for its business segments with goodwill, excluding the $12.8 million of goodwill related to the Spectria business segment, which was written-off and included in the loss from discontinued operations in the consolidated statement of operations for the nine months ended September 30, 2002 (see note 12). For each of the Company’s business segments for which goodwill was recorded, the Company determined that the fair value exceeded the carrying amount as of January 1, 2002. As a result, the second step of the impairment test was not required. Additionally, under SFAS No. 142, the Company ceased amortizing its remaining goodwill balance which will result in reduced amortization of approximately $0.6 million, net of tax, in fiscal 2002. Total amortization expense for the three and nine months ended September 30, 2002 for other intangible assets subject to amortization, were $1.0 million and $3.3 million, respectively.

The following table reconciles the Company’s net income (loss) and net income (loss) per share from continuing operations as reported, to the amounts adjusted for the exclusion of goodwill amortization, net of the related income tax effect for the period prior to the adoption of SFAS No. 142.
(dollars in thousands, except per share amounts):

			Three Months Ended September 30,					Nine Months Ended September 30,
			2002		2001			2002			2001
Net income (loss) from continuing operations:
	As reported		$	2,455	$	(16,837	)	$	(25,230	)	$	(21,121	)
	eSecurity Products goodwill amortization, net of tax			—		183			—			495
		As adjusted	$	2,455	$	(16,654	)	$	(25,230	)	$	(20,626	)
Basic & diluted income (loss) per share from continuing operations:
	As reported		$	0.09	$	(0.65	)	$	(0.95	)	$	(0.81	)
	eSecurity Products goodwill amortization, net of tax			—		0.01			—			0.02
		As adjusted	$	0.09	$	(0.64	)	$	(0.95	)	$	(0.79	)

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The following table presents details of the Company’s other intangible assets that are subject to amortization:

(dollars in thousands):

		September 30, 2002							December 31, 2001
				Accumulated							Accumulated
		Gross		Amortization			Net		Gross		Amortization			Net
Software development costs		$	22,995	$	(19,050	)	$	3,945	$	21,986	$	(11,218	)	$	10,768
Product licenses			9,519		(5,094	)		4,425		7,567		(3,537	)		4,030
	Total	$	32,514	$	(24,144	)	$	8,370	$	29,553	$	(14,755	)	$	14,798

At September 30, 2002, the amortization of the remaining balance of other intangible assets of $8.4 million will be $0.9 million for the remainder of 2002. The amortization for each of the fiscal years 2003, 2004 and 2005 will be $3.0 million, $2.8 million and $1.5 million, respectively. At September 30, 2002, the Company had $0.2 million of unamortized software development costs included in the remaining balance of other intangible assets of $8.4 million, which had not begun amortization. Amortization of software development costs commences when the products are available for general release to customers.

6. Software development costs

SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,” requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the Company’s product development process, technological feasibility is established upon completion of a working model. Amortization of capitalized software development costs commences when the products are available for general release to customers and are determined using the straight-line method over the expected useful lives of the respective products. These amounts are written-off if it is determined that the projects cannot be brought to market.

7. Other assets

Other assets primarily represent investments in early stage companies that are accounted for on the cost basis. The Company periodically reviews these investments for other-than-temporary declines in fair value and writes down investments to their fair value when an other-than-temporary decline has occurred based on the specific identification method. The Company generally believes an other-than-temporary decline has occurred when the fair value of the investment is below the carrying value for two consecutive quarters, absent evidence to the contrary.

8. Industry segments

In June 2002, the Company announced that its Spectria segment had experienced rapidly deteriorating business prospects due to a severe decline in IT services infrastructure spending. Consequently, the Company discontinued Spectria and is closing its facility in Long Beach, California. Spectria’s results of operations are included in the loss from discontinued operations in the consolidated statement of operations for the three and nine months ended September 30, 2002 and 2001. The identifiable assets, after applicable eliminations for Spectria as of September 30, 2002 were $0.3 million as compared to $16.5 million as of December 31, 2001 (see note 12).

The Company has two business segments comprising continuing operations. The first segment focuses on commercial security products, including solutions for reliable identity, secure internet and wireless transaction acceleration, licensing solutions for software publishers, easy to deploy Web security solutions and security training and consulting for enterprise IT staff (eSecurity Products). The second segment provides products and services for enterprise, government and defense applications for products providing security for classified information, for products providing personal identity authentication for government and defense applications, and custom design services for enterprises, government and defense applications requiring either extraordinary performance and/or security (Secure Communications Products). These two business segments are increasingly working closely together. The identifiable assets, after applicable eliminations, for each segment from continuing operations as of September 30, 2002, were $81.2 million and $22.2 million, respectively, compared with $101.8 million and $27.7 million as of December 31, 2001.

Intercompany revenues for the three and nine months ended September 30, 2002 were $1,000 and $18,000, respectively, and $14,000 and $280,000, respectively, for the corresponding periods in the prior year. Intercompany revenues are generated by the Secure Communications segment.

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9. Recent accounting pronouncements

In June 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (SFAS 146). This standard addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The principal difference between SFAS No. 146 and EITF 94-3 relates to SFAS 146’s requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit costs as generally defined in EITF 94-3 was recognized at the date of an entity’s commitment to an exit plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not expect SFAS No. 146 to have a material impact on its consolidated results of operations.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 supersedes FASB Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” for the disposal of a segment of a business (as previously defined in that opinion). SFAS No. 144 requires that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and broadens the presentation of discontinued operations to include more disposal transactions than were included under the previous standards. Under SFAS No. 144, a component of a business that either has been disposed of or is classified as held for sale is reported in discontinued operations if (i) the operations and cash flows will be, or have been, eliminated from the on-going operations of the company as a result of the disposal transaction and, (ii) the company will not have any significant continuing involvement in such operations.

In June 2002, the Company announced that its Spectria segment had experienced rapidly deteriorating business prospects due to a severe decline in IT services infrastructure spending. Consequently, the Company discontinued Spectria and is closing its facility in Long Beach, California. During the second quarter of 2002, the Company wrote-off Spectria’s goodwill balance of $12.8 million and recorded a $2.1 million provision based on management’s estimates of the amounts to be realized on the disposal of its assets. During the third quarter of 2002, the Company increased the provision by $0.3 million due to additional severance and lease obligations related to the discontinuation of Spectria. The amount the Company will ultimately realize could differ from the assumptions currently used in arriving at the anticipated loss. Spectria’s results of operations are included in the loss from discontinued operations in the consolidated statement of operations for the three and nine months ended September 30, 2002 (see note 12).

10. Litigation

In September 1998, a patent infringement action was filed against the Company by Globetrotter, Inc., alleging that certain of the Company’s products infringe patents owned by Globetrotter. The complaint seeks unspecified monetary damages and a permanent injunction banning the use of the products alleged to infringe the Globetrotter patents. On September 24, 2001, the District Court granted partial summary judgment in favor of the Company as it relates to allegations by Globetrotter. The Company has filed a counterclaim alleging antitrust and unfair competition and has been vigorously prosecuting their antitrust and other business tort claims. The counterclaims are presently set for trial on December 2, 2002.

In July 1998, a patent infringement claim was filed against the Company by Andrew Pickholtz, alleging that certain of the Company’s products infringe a patent owned by Pickholtz. The complaint seeks unspecified monetary damages. The Company filed a motion for summary judgment of noninfringement that was decided in favor of the Company in December 2000. In January 2001, Mr. Pickholtz filed a notice of appeal. After considering legal briefs filed by the Company and by Mr. Pickholtz, the Court of Appeals for the Federal Circuit heard oral arguments in the case on November 7, 2001. On April 3, 2002, the appellate court issued an opinion which reversed the trial court’s entry of summary judgment in favor of the Company, and remanded the case to the trial court for further proceedings. Mr. Pickholtz filed a petition seeking a rehearing as to certain issues, which the appellate court denied on April 29, 2002. The Company continues to believe the claims are without merit and intends to continue to vigorously defend against any infringement claims made by Mr. Pickholtz.

In June 2002, a breach of contract lawsuit was filed against the Company by a supplier. The complaint seeks damages of $3.9 million. The Company has recorded $2.6 million related to this matter that is included in accounts payable. The Company believes that the additional claim is without merit and intends to vigorously defend this matter.

The Company is also involved in other legal proceedings and claims arising in the ordinary course of business. The Company does not believe that any liabilities related to the legal proceedings to which it is a party are likely to be, individually or in the aggregate, material to the Company’s consolidated financial condition, results of operations or cash flows.

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11. Restructuring charges

In the third quarter of 2001, the Company restructured and consolidated its Digital Rights Management and iVEA operations (eSecurity Products), resulting in a net staff reduction of 97 employees across all employee groups, primarily in the U.S., and recorded restructuring charges of $6.4 million.

The following table summarizes the Company’s restructuring costs and activities from continuing operations in the restructuring reserves:
(dollars in thousands):

	Facilities
	and
	Equipment			Severance			Total
Charged to costs and expenses at September 30, 2001	$	4,699		$	1,131		$	5,830
Cash payments		(538	)		(931	)		(1,469	)
Restructuring balance, December 31, 2001		4,161			200			4,361
Cash payments		(855	)		(200	)		(1,055	)
Restructuring balance, September 30, 2002	$	3,306		$	—		$	3,306

The following table summarizes the Company’s restructuring costs and activities from discontinued operations in the restructuring reserves:

	Facilities
	and
	Equipment
Charged to costs and expenses at September 30, 2001	$	572
Cash payments		(160	)
Restructuring balance, December 31, 2001		412
Cash payments		(209	)
Restructuring balance, September 30, 2002	$	203

The current portion of the restructuring reserve of $2.3 million relating to office space reduction is shown separately under current liabilities while the long-term portion of the reserve of $1.2 million is recorded in other liabilities. Exit activities are anticipated to continue through 2002 with certain lease obligations currently expiring in 2005.

12. Discontinued operations and other charges

In June 2002, the Company announced that its Spectria segment had experienced rapidly deteriorating business prospects due to a severe decline in IT services infrastructure spending. Consequently, the Company discontinued Spectria and is closing its facility in Long Beach, California. During the second quarter of 2002, the Company wrote-off Spectria’s goodwill balance of $12.8 million and recorded a $2.1 million provision based on management’s estimates of the amounts to be realized on the disposal of its assets. During the third quarter of 2002, the Company increased the provision by $0.3 million due to additional severance and lease obligations related to the discontinuation of Spectria. The amount the Company will ultimately realize could differ from the assumptions currently used in arriving at the anticipated loss. Spectria’s results of operations are included in the loss from discontinued operations in the consolidated statement of operations for the three and nine months ended September 30, 2002.

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The revenues and loss from discontinued operations for the three and nine months ended September 30, 2002 and 2001 related to the disposal of Spectria are as follows:

(dollars in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2002			2001			2002			2001
Revenues	$	434		$	2,896		$	3,179		$	11,003
Loss from discontinued operations	$	(639	)	$	(3,508	)	$	(17,307	)	$	(4,050	)

The assets and liabilities of Spectria at September 30, 2002 and December 31, 2001 consisted of the following:

(dollars in thousands)

	September 30, 2002		December 31, 2001
Cash and accounts receivable	$	298	$	2,576
Prepaid expenses and other current assets		33		384
Property, plant and equipment		—		652
Goodwill, net of accumulated amortization		—		12,840
Total assets of discontinued operations	$	331	$	16,452
Accounts payable and other accrued liabilities	$	1,363	$	1,209
Accrued payroll and related expenses		69		598
Accrued restructuring costs		203		412
Long-term debt		—		162
Total liabilities of discontinued operations	$	1,635	$	2,381

13. Income taxes

The Company recorded income tax expense from continuing operations of $13.7 million for the nine months ended September 30, 2002 and income tax benefits of $8.3 million and $10.9 million for the three and nine months ended September 30, 2001, respectively. There was no income tax expense recognized during the three months ended September 30, 2002 since the Company expects a tax net operating loss for the year and any expected tax benefit related to the net operating loss has been previously recorded. In the second quarter of 2002, the Company determined that the realization of its net deferred tax asset is uncertain and, therefore, recorded $11.6 million of valuation allowance in accordance with SFAS No. 109, “Accounting for Income Taxes.”

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is management’s discussion and analysis of certain significant factors which have affected the consolidated results of operations, and the consolidated financial position of the Company during the periods included in the accompanying condensed consolidated financial statements. This discussion should be read in conjunction with the related condensed consolidated financial statements and associated notes.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. The Company believes that the following are some of the more critical judgment areas in the application of its accounting policies that currently affect its consolidated financial condition and results of operations.

Revenue Recognition

eSecurity recognizes revenues from product sales at the time of shipment. Secure Communications recognizes revenue and profit as work progresses on long-term contracts using the percentage-of-completion method, which relies on estimates of total expected contract revenue and costs. Catalog product revenues and revenues under certain fixed-price contracts calling for delivery of a specified number of units are recognized as deliveries are made. Revenues under cost-reimbursement contracts are recognized as costs are incurred and include estimated earned fees in the proportion that costs incurred to date bear to total estimated costs. Certain contracts are awarded on a fixed-price incentive fee basis. Incentive fees on such contracts are considered when estimating revenues and profit rates and are recognized when the amounts can reasonably be determined. The costs attributed to units delivered under fixed-price contracts are based on the estimated average cost per unit at contract completion. Profits expected to be realized on long-term contracts are based on total revenues and estimated costs at completion. Revisions to contract profits are recorded in the accounting period in which the revisions are known. Estimated losses on contracts are recorded when identified. For research and development and other cost-plus-fee type contracts, the Company recognizes contract earnings using the percentage-of-completion method in the proportion that costs incurred to date bear to total estimated costs. Spectria recognizes revenues from eBusiness consulting fees as services are performed on a time and materials basis.

Accounts Receivable

The Company is required to estimate the collectibility of its trade receivables and unbilled costs and fees. A considerable amount of judgment is required in assessing the ultimate realization of these receivables including the current credit-worthiness of each customer. Significant changes in required reserves may occur in the future depending on future market conditions.

Inventory

The Company is required to state its inventories at the lower of cost or market. In assessing the ultimate realization of inventories, the Company is required to exercise judgment in its assessment of future demand requirements and compare that with the current or committed inventory levels. It is possible that changes in required inventory reserves may continue to occur in the future due to market conditions.

Income Taxes

The Company had significant deferred tax assets, which were subject to periodic recoverability assessments. A valuation allowance against the deferred tax assets is recorded if the Company determines that it is not more likely than not that these assets will be realized. This is based upon the expectation of future taxable income and tax planning strategies. The Company’s judgment regarding future taxable income may change due to future market conditions and its ability to continue to successfully execute its restructuring program and other factors. These changes, if any, may require possible material adjustments to these deferred tax asset balances.

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Impairment of Goodwill

The Company performs an annual impairment test of its goodwill, or more frequently, if certain impairment indicators exist. The Company’s judgment regarding the existence of impairment indicators is based on legal factors, market conditions and operational performance of acquired businesses. Future events could cause the Company to conclude that impairment indicators exist and that goodwill associated with acquired businesses is impaired. Any resulting impairment loss could have a material adverse impact on the Company’s consolidated financial condition and results of operations.

Capitalized Software Development Costs

The Company’s policy on capitalized software costs determines the timing of recognition of certain development costs. In addition, this policy determines whether the cost is classified as development expense or cost of license fees. Management is required to use professional judgment in determining whether development costs meet the criteria for immediate expense or capitalization.

Statement of Financial Accounting Standards No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,” requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based upon the Company’s product development process, technological feasibility is established upon completion of a working model. Amortization of capitalized software development costs commences when the products are available for general release to customers and is determined using the straight-line method over the expected useful lives of the respective products.

RESULTS OF OPERATIONS
(dollars in thousands)

			Three Months Ended September 30,						Nine Months Ended September 30,
			2002			2001			2002			2001
Revenues from continuing operations:
	eSecurity Products		$	11,417		$	10,305		$	35,750		$	43,958
	Secure Communications Products			18,926			14,855			56,758			50,640
		Total revenues from continuing operations	$	30,343		$	25,160		$	92,508		$	94,598
Operating income (loss) from continuing operations:
	eSecurity Products		$	(1,882	)	$	(25,659	)	$	(22,620	)	$	(35,452	)
	Secure Communications Products			4,230			2,770			10,700			9,296
		Total operating income (loss) from continuing operations	$	2,348		$	(22,889	)	$	(11,920	)	$	(26,156	)

REVENUES FROM CONTINUING OPERATIONS

On a consolidated basis, revenues from continuing operations for the three and nine months ended September 30, 2002 increased 21% to $30.3 million and decreased by 2% to $92.5 million, respectively, from the same periods in the prior year. Revenues from international markets for the three months ended September 30, 2002 increased 57% to $5.9 million as compared to the same period in the prior year. The increase in revenues was primarily due to continued growth in Asia Pacific primarily due to revenues generated by the Company’s office in Japan, which was opened in the fourth quarter of 2001. Although revenues from international markets remained the same for the nine months ended September 30, 2002 as compared to the same period in the prior year, the decrease in revenues in Europe was offset by the increase in revenues in Asia Pacific. Revenues from domestic markets for the three and nine months ended September 30, 2002 increased by 14% to $24.5 million and decreased 3% to $74.7 million, respectively, from the same periods in the prior year. These were primarily due to decrease in revenues from the eSecurity segment, which was partially offset by the continued growth in revenues from Secure Communications segment.

eSecurity revenues for the three and nine months ended September 30, 2002 increased 11% to $11.4 million and decreased 19% to $35.8 million, respectively, when compared to the same periods in 2001. The increase in revenues for the three months ended September 30, 2002 was primarily due to strong growth in software security and authentication product sales in Asia Pacific. Additionally, declines in the CryptoSwift eCommerce accelerator OEM business in the quarter were offset by increases in sales of Sentinel software security products and NetSwift iGate Web security appliances. The Company expects to see revenue growth from new products and new channel programs for eSecurity solutions. The decrease in revenues for the nine months ended September 30, 2002 was primarily attributable to the decline in OEM markets for Cryptoswift SSL acceleration devices.

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Secure Communications revenues for the three and nine months ended September 30, 2002 increased 27% to $18.9 million and 12% to $56.8 million when compared to the same periods in 2001. The increase in revenues was primarily attributable to continued growth demand from the government for network link encryptors, voice and data security solutions and high assurance commercial security products. The Secure Communications segment ended the quarter with record backlog. The Company expects to see increases in government spending on security.

GROSS PROFIT FROM CONTINUING OPERATIONS

Gross profit from eSecurity products for the three months ended September 30, 2002 increased to 65% of revenues compared to a negative 56% of revenues for the corresponding period in 2001. The increase was primarily due to higher cost of revenues in the prior year quarter which included charges of $7.4 million in inventory reserves, $1.8 million in warranty reserves and $2.4 million write-off of capitalized and developed software. Gross profit for the nine months ended September 30, 2002 decreased to 18% of revenues compared to 30% of revenues for the corresponding period in 2001. The decrease was primarily due to the other charges recorded in the second quarter of 2002 which included $8.4 million in inventory reserves, $5.0 million of write-off of capitalized and developed software, $0.5 million in warranty reserves and $0.4 million in severance and other accruals. Excluding other charges recorded in the current and prior year, gross profit as a percentage of revenues increased which was primarily attributable to increased efficiencies in manufacturing operations and lower overhead costs.

Gross profit from Secure Communications for the three months ended September 30, 2002 increased to 27% of revenues as compared to 20% of revenues for the corresponding period in 2001. Gross profit for the nine months ended September 30, 2002 increased to 22% of revenues compared to 21% of revenues for the corresponding period in 2001. The increases in gross profit were primarily due to a change in mix to more profitable product sales.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses consist primarily of personnel-related expenses, sales commission, promotional activities, and professional fees. Selling, general and administrative expenses from continuing operations for the three months ended September 30, 2002 were $7.8 million or 26% of revenues as compared to $9.8 million or 39% of revenues for the corresponding period in 2001. The decrease was primarily due to reduced expenses in the eSecurity segment, as a result of a decrease in staff and a charge of $1.6 million in provision for bad debts recorded in the prior year. Selling, general and administrative expenses from continuing operations for the nine months ended September 30, 2002 were $23.9 million or 26% of revenues as compared to $32.6 million or 34% of revenues for the corresponding period in 2001. The decrease reflected the overall reduction in expenses primarily in the eSecurity segment, as a result of a decrease in staff and lower marketing expenses.

RESEARCH AND DEVELOPMENT

Research and development expenses consist primarily of salaries and other personnel-related expenses, costs related to engineering development tools, and subcontracting costs. Research and development expenses from continuing operations for the three months ended September 30, 2002 was $2.4 million or 8% of revenues, as compared to research and development expenses of $2.7 million or 11% of revenues for the corresponding period in 2001. Research and development expenses from continuing operations for the nine months ended September 30, 2002 were $7.1 million or 8% of revenues, as compared to research and development expenses of $9.1 million or 10% of revenues for the corresponding period in 2001. The decreases in research and development expenses were primarily due to a decrease in compensation from the Company’s eSecurity segment, as a result of the decrease in staff in the United States and greater use of research and development resources in India and China. This decrease was partially offset by higher research and development costs capitalized in 2001 by eSecurity and higher unfunded research and development expenses in 2002 from the Company’s Secure Communications segment.

MARKETABLE TRADING SECURITIES

At September 30, 2001, the difference between the estimated fair value and the cost of the trading securities resulted in an unrealized loss of $3.6 million, which was recognized in earnings for the nine months ended September 30, 2001. Unrealized losses on the trading securities recognized in earnings during the nine months ended September 30, 2002 was $108,000.

PROVISION FOR INCOME TAXES

The Company recorded income tax expense from continuing operations of $13.7 million for the nine months ended September 30, 2002 and income tax benefits of $8.3 million and $10.9 million for the three and nine months ended September 30, 2001, respectively. There was no income tax expense recognized during the three months ended September 30, 2002 since the Company expects a tax net

16

operating loss for the year and any expected tax benefit related to the net operating loss has been previously recorded. In the second quarter of 2002, the Company determined that the realization of its net deferred tax assets is uncertain and, therefore, recorded $11.6 million of valuation allowance in accordance with SFAS No. 109, “Accounting for Income Taxes.” The effective tax rates for the three and nine months ended September 30, 2001 were 33% and 34%, respectively.

RESULTS OF DISCONTINUED OPERATIONS

Discontinued operations for the three and nine months ended September 30, 2002 reported operating results and net losses of $0.6 million and $17.3 million, respectively, as compared with losses of $3.5 million and $4.1 million for the corresponding periods in 2001. Spectria’s losses in 2002 included $12.8 million of write-off of goodwill and a $2.4 million provision based on management’s current estimates of the amounts to be realized on the disposal of its assets. The amount the Company will ultimately realize could differ from the assumptions currently used in arriving at the anticipated loss. Spectria’s losses in 2001 included $2.5 million of goodwill impairment, $1.2 million write-off of long-term investment and $0.6 million of restructuring costs.

INVENTORIES

Raw materials decreased approximately $5.1 million to $8.9 million at September 30, 2002 as compared with $14.0 million at December 31, 2001. The decrease was primarily due to write-off of obsolete inventory and reduced purchases.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s principal sources of operating funds have been from operations and proceeds from exercises of the Company’s common stock options. Net cash provided by operating activities for the nine months ended September 30, 2002 and 2001 were $14.3 million and $17.3 million, respectively. Operating activities in 2002 included a decrease in accounts receivable of $8.8 million primarily due to increased collection activities with improvement in days sales outstanding and non-cash charges of $10.2 million of provision for excess and obsolete inventory, $5.4 million of write-off of capitalized and developed software, $15.2 million of write-off of goodwill and provisions for impairment of assets relating to discontinued operations and $16.3 million in deferred income taxes primarily due to the Company’s valuation allowance for deferred tax assets. Operating activities in 2001 included a decrease in accounts receivable of $18.1 million primarily due to the decrease in revenues relating to the Company’s CryptoSwift product line and non-cash charges of $3.6 million for unrealized loss on marketable trading securities, $7.4 million of provision for excess and obsolete inventory, $6.4 million in restructuring costs and $4.0 million goodwill impairment.

Net cash used in investing activities for the nine months ended September 30, 2002 and 2001 were $1.5 million and $10.0 million, respectively. Investing activities in 2002 included $1.2 million on capital expenditures, $0.7 million in capitalized software development costs primarily related to the Company’s NetSwift iGate product and $0.5 million of net cash paid for acquisition of Impex Computacion S.A. de C.V. in Mexico and purchase of remaining shares in the Company’s subsidiary in Taiwan. Investing activities in 2001 included $3.4 million on capital expenditures, $4.0 million on development of new products and $2.4 million of payments for investment in the Company’s joint venture in Japan and purchase of additional shares in the Company’s subsidiary in China. The decrease in capital expenditures in 2002 as compared to the corresponding period in 2001 was in line with the Company’s overall reduction in expenses.

Net cash provided by financing activities for the nine months ended September 30, 2002 was $0.2 million while net cash used in financing activities for the nine months ended September 30, 2001 was $2.8 million. Financing activities included in 2002 were $2.4 million in repurchase of the Company’s common stock and $3.1 million received from common stock options exercised while financing activities in 2001 included a $3.1 million repayment of the line of credit.

The Company intends to use its capital resources to expand its product lines and for possible acquisitions of additional products and technologies. The Company has no significant capital commitments or requirements at this time.

At September 30, 2002, the Company’s subsidiaries in the United Kingdom, Germany, France, Netherlands and Japan carried approximately $1.6 million, $1.0 million, $1.4 million, $2.0 million and $1.4 million, respectively, in interest earning deposits which may result in foreign exchange gains or losses due to the fact that the functional currency in those subsidiaries is not the U.S. dollar.

The Company believes that its current working capital of $53.1 million and anticipated working capital to be generated by future operations will be sufficient to support the Company’s working capital requirements for at least the next twelve months.

17

Item 4. Controls and Procedures

As of September 30, 2002, an evaluation was performed by the Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion. There have been no significant changes in internal controls, or in factors that could significantly affect internal controls subsequent to the date the Chief Executive Officer and Chief Financial Officer completed their evaluation.

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PART II. OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits

EXHIBIT
NUMBER	DESCRIPTION
2(i)	Agreement and Plan of Reorganization, dated as of January 26, 1995 among the Company, Rainbow Acquisition Inc., a California corporation and a wholly owned subsidiary of Rainbow, and Mykotronx, Inc., a California corporation (“Mykotronx”) (incorporated by reference to the Company’s Registration Statement on Form S-4 under the Securities Act of 1933, as amended, effective on April 20, 1995, Registration No. 33-89918).
2(ii)	Agreement and Plan of Merger, dated September 30, 1996, by and among the Company, RNBO Acquisition Corporation, a Nevada corporation and a wholly-owned subsidiary of the Company, and Software Security, Inc., a Connecticut corporation (incorporated by reference to Exhibit 2(ii) of the Company’s 1996 Annual Report on Form 10-K under the Securities Exchange Act of 1934 filed in March 1997 (the “1996 10-K”)).
2(iii)	Agreement and Plan of Merger, dated March 6, 1998, by and among the Company, WRS Acquisition Corp., a California corporation and wholly owned subsidiary of the Company, and Wyatt River Software, Inc. (incorporated by reference to Exhibit 2(iii) of the Company’s 1997 Annual Report on Form 10-K under the Securities Exchange Act of 1934 filed in March 1998 (the “1997 10-K”)).
3(i)	Articles of Incorporation of Rainbow, as amended (incorporated by reference to Exhibit 3(a) to Rainbow’s Registration Statement on Form S-18 under the Securities Act of 1933, as amended, filed on July 20, 1987 - - File No. 33-15956-LA (the “S-18 Registration Statement”)).
3(ii)	By-Laws of Rainbow (incorporated by reference to Exhibit 3(b) to the S-18 Registration Statement).
4(a)	See Exhibit 3(i).
4(b)	See Exhibit 3(ii).
10(a)	Agreement, dated October 1996, between the Company and National Semiconductor Corporation (incorporated by reference to Exhibit 10(b) of the Company’s 1998 Annual Report on Form 10-K under the Securities Exchange Act of 1934 filed in March, 1999 (the “1998 10-K”)).
10(b)	Agreement, dated December 1998, between the Company and EM Microelectronic — Marin S.A. (incorporated by reference to Exhibit 10(c) of the 1998 10-K).
10(c)	1990 Incentive Stock Option Plan as amended (incorporated by reference to Exhibit 10(j) of the 1991 10-K).
10(d)	Employment Agreement, dated February 16, 1990, between the Company and Walter W. Straub (incorporated by reference to Exhibit 10(j) of the 1989 10-K).
10(e)	Change of Control Agreement, dated February 16, 1990, between the Company and Walter W. Straub (incorporated by reference to Exhibit 10(k) of the 1989 10-K).
10(f)	Employment Agreement, dated January 5, 1995, between the Company and Patrick E. Fevery (incorporated by reference to Exhibit 10(l) of the 1994 10-K).
10(g)	Change of Control Agreement, dated January 5, 1995, between the Company and Patrick E. Fevery (incorporated by reference to Exhibit 10(m) of the 1994 10-K).
10(h)	Employment Agreement, dated January 1, 1998, between the Company and Laurie Casey (incorporated by reference to Exhibit 10(q) of the 1997 10-K).
10(i)	Change of Control Agreement, dated January 1, 1998, between the Company and Laurie Casey (incorporated by reference to Exhibit 10(r) of the 1997 10-K).
10(j)	Agreement for Design and Product Purchase, dated September 4, 1997, between IBM Microelectronics and Rainbow Technologies, Inc. and Mykotronx, Inc. (incorporated by reference to Exhibit 10(w) of the 1998 10-K).

19

EXHIBIT
NUMBER	DESCRIPTION
10(k)	Leases for premises at 357, 359, and 371 Van Ness Way, Torrance, California, dated September 8, 1993, September 25, 1996 and October 2, 1997, respectively, between Surf Management Associates, a California limited partnership, and Mykotronx, Inc., a California Corporation (incorporated by reference to Exhibit 10(x) of the 1999 Form 10-K).
10(l)	Lease for premises at 111 West Ocean Boulevard, Long Beach, California, between Stevens Creek Associates, a California general partnership, and the Company (incorporated by reference to Exhibit 10(y) of the 1999 Form 10-K).
10(m)	Lease for premises at 8 Hughes, Irvine, California, between Alton Irvine Partners, LLC, a California limited liability company, and the Company (incorporated by reference to Exhibit 10(z) of the 2000 Form 10-K).
10(n)	2000 Incentive Stock Option Plan (incorporated by reference to Rainbow’s Registration Statement on Form S-8 filed under the Securities Act of 1933).
10(o)	Lease for premises at 50 Technology Drive, Irvine, California, dated April 14, 2000, between The Irvine Company, a California corporation, and the Company.
99(a)	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 — Walter W. Straub, President and Chief Executive Officer and Patrick E. Fevery, Vice President and Chief Financial Officer

(b)	Reports on Form 8-K
	None

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.

Dated: November 12, 2002

RAINBOW TECHNOLOGIES, INC.
By:	/s/ Patrick E. Fevery
	Vice President and Chief Financial Officer

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CERTIFICATIONS

I, Walter W. Straub, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Rainbow Technologies, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a—14 and 15d—14) for the registrant and we have:

a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: November 12, 2002

RAINBOW TECHNOLOGIES, INC.
By:	/s/ Walter W. Straub
	President and Chief Executive Officer

22

CERTIFICATIONS

I, Patrick E. Fevery, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Rainbow Technologies, Inc.;
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a—14 and 15d—14) for the registrant and we have:

a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: November 12, 2002

RAINBOW TECHNOLOGIES, INC.
By:	/s/ Patrick E. Fevery
	Vice President and Chief Financial Officer

23

EXHIBIT INDEX

EXHIBIT
NUMBER	DESCRIPTION
2(i)	Agreement and Plan of Reorganization, dated as of January 26, 1995 among the Company, Rainbow Acquisition Inc., a California corporation and a wholly owned subsidiary of Rainbow, and Mykotronx, Inc., a California corporation (“Mykotronx”) (incorporated by reference to the Company’s Registration Statement on Form S-4 under the Securities Act of 1933, as amended, effective on April 20, 1995, Registration No. 33-89918).
2(ii)	Agreement and Plan of Merger, dated September 30, 1996, by and among the Company, RNBO Acquisition Corporation, a Nevada corporation and a wholly-owned subsidiary of the Company, and Software Security, Inc., a Connecticut corporation (incorporated by reference to Exhibit 2(ii) of the Company’s 1996 Annual Report on Form 10-K under the Securities Exchange Act of 1934 filed in March 1997 (the “1996 10-K”)).
2(iii)	Agreement and Plan of Merger, dated March 6, 1998, by and among the Company, WRS Acquisition Corp., a California corporation and wholly owned subsidiary of the Company, and Wyatt River Software, Inc. (incorporated by reference to Exhibit 2(iii) of the Company’s 1997 Annual Report on Form 10-K under the Securities Exchange Act of 1934 filed in March 1998 (the “1997 10-K”)).
3(i)	Articles of Incorporation of Rainbow, as amended (incorporated by reference to Exhibit 3(a) to Rainbow’s Registration Statement on Form S-18 under the Securities Act of 1933, as amended, filed on July 20, 1987 - - File No. 33-15956-LA (the “S-18 Registration Statement”)).
3(ii)	By-Laws of Rainbow (incorporated by reference to Exhibit 3(b) to the S-18 Registration Statement).
4(a)	See Exhibit 3(i).
4(b)	See Exhibit 3(ii).
10(a)	Agreement, dated October 1996, between the Company and National Semiconductor Corporation (incorporated by reference to Exhibit 10(b) of the Company’s 1998 Annual Report on Form 10-K under the Securities Exchange Act of 1934 filed in March, 1999 (the “1998 10-K”)).
10(b)	Agreement, dated December 1998, between the Company and EM Microelectronic — Marin S.A. (incorporated by reference to Exhibit 10(c) of the 1998 10-K).
10(c)	1990 Incentive Stock Option Plan as amended (incorporated by reference to Exhibit 10(j) of the 1991 10-K).
10(d)	Employment Agreement, dated February 16, 1990, between the Company and Walter W. Straub (incorporated by reference to Exhibit 10(j) of the 1989 10-K).
10(e)	Change of Control Agreement, dated February 16, 1990, between the Company and Walter W. Straub (incorporated by reference to Exhibit 10(k) of the 1989 10-K).
10(f)	Employment Agreement, dated January 5, 1995, between the Company and Patrick E. Fevery (incorporated by reference to Exhibit 10(l) of the 1994 10-K).
10(g)	Change of Control Agreement, dated January 5, 1995, between the Company and Patrick E. Fevery (incorporated by reference to Exhibit 10(m) of the 1994 10-K).
10(h)	Employment Agreement, dated January 1, 1998, between the Company and Laurie Casey (incorporated by reference to Exhibit 10(q) of the 1997 10-K).
10(i)	Change of Control Agreement, dated January 1, 1998, between the Company and Laurie Casey (incorporated by reference to Exhibit 10(r) of the 1997 10-K).
10(j)	Agreement for Design and Product Purchase, dated September 4, 1997, between IBM Microelectronics and Rainbow Technologies, Inc. and Mykotronx, Inc. (incorporated by reference to Exhibit 10(w) of the 1998 10-K).

EXHIBIT
NUMBER	DESCRIPTION
10(k)	Leases for premises at 357, 359, and 371 Van Ness Way, Torrance, California, dated September 8, 1993, September 25, 1996 and October 2, 1997, respectively, between Surf Management Associates, a California limited partnership, and Mykotronx, Inc., a California Corporation (incorporated by reference to Exhibit 10(x) of the 1999 Form 10-K).
10(l)	Lease for premises at 111 West Ocean Boulevard, Long Beach, California, between Stevens Creek Associates, a California general partnership, and the Company (incorporated by reference to Exhibit 10(y) of the 1999 Form 10-K).
10(m)	Lease for premises at 8 Hughes, Irvine, California, between Alton Irvine Partners, LLC, a California limited liability company, and the Company (incorporated by reference to Exhibit 10(z) of the 2000 Form 10-K).
10(n)	2000 Incentive Stock Option Plan (incorporated by reference to Rainbow’s Registration Statement on Form S-8 filed under the Securities Act of 1933).
10(o)	Lease for premises at 50 Technology Drive, Irvine, California, dated April 14, 2000, between The Irvine Company, a California corporation, and the Company.
99(a)	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 — Walter W. Straub, President and Chief Executive Officer and Patrick E. Fevery, Vice President and Chief Financial Officer

EX-10.(O) 3 a85794exv10wxoy.txt EXHIBIT 10(O) EXHIBIT 10(o) INDUSTRIAL LEASE (SINGLE TENANT; NET) BETWEEN THE IRVINE COMPANY AND RAINBOW TECHNOLOGIES, INC. INDEX TO INDUSTRIAL LEASE (Single Tenant; Net) ARTICLE I. BASIC LEASE PROVISIONS ARTICLE II. PREMISES Section 2.1 Leased Premises Section 2.2 Acceptance of Premises Section 2.3 Building Name and Address ARTICLE III. TERM Section 3.1 General Section 3.2 Right to Extend this Lease ARTICLE IV. RENT AND OPERATING EXPENSES Section 4.1 Basic Rent Section 4.2 Operating Expenses Section 4.3 Security Deposit ARTICLE V. USES Section 5.1 Use Section 5.2 Signs Section 5.3 Hazardous Materials ARTICLE VI. COMMON AREAS; SERVICES Section 6.1 Utilities and Services Section 6.2 Operation and Maintenance of Common Areas Section 6.3 Use of Common Areas Section 6.4 Parking Section 6.5 Changes and Additions by Landlord ARTICLE VII. MAINTAINING THE PREMISES Section 7.1 Tenant's Maintenance and Repair Section 7.2 Landlord's Maintenance and Repair Section 7.3 Alterations Section 7.4 Mechanic's Liens Section 7.5 Entry and Inspection ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY ARTICLE IX. ASSIGNMENT AND SUBLETTING Section 9.1 Rights of Parties Section 9.2 Effect of Transfer Section 9.3 Sublease Requirements Section 9.4 Certain Transfers ARTICLE X. INSURANCE AND INDEMNITY Section 10.1 Tenant's Insurance Section 10.2 Landlord's Insurance Section 10.3 Tenant's Indemnity Section 10.4 Landlord's Nonliability Section 10.5 Waiver of Subrogation ARTICLE XI. DAMAGE OR DESTRUCTION Section 11.1 Restoration Section 11.2 Lease Governs ARTICLE XII. EMINENT DOMAIN Section 12.1 Total or Partial Taking Section 12.2 Temporary Taking Section 12.3 Taking of Parking Area ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIAL Section 13.1 Subordination Section 13.2 Estoppel Certificate Section 13.3 Financials (i) ARTICLE XIV. DEFAULTS AND REMEDIES Section 14.1 Tenant's Defaults Section 14.2 Landlord's Remedies Section 14.3 Late Payments Section 14.4 Right of Landlord to Perform Section 14.5 Default by Landlord Section 14.6 Expenses and Legal Fees Section 14.7 Waiver of Jury Trial Section 14.8 Satisfaction of Judgment Section 14.9 Limitation of Actions Against Landlord ARTICLE XV. END OF TERM Section 15.1 Holding Over Section 15.2 Merger on Termination Section 15.3 Surrender of Premises; Removal of Property ARTICLE XVI. PAYMENTS AND NOTICES ARTICLE XVII. RULES AND REGULATIONS ARTICLE XVIII. BROKER'S COMMISSION ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST ARTICLE XX. INTERPRETATION Section 20.1 Gender and Number Section 20.2 Headings Section 20.3 Joint and Several Liability Section 20.4 Successors Section 20.5 Time of Essence Section 20.6 Controlling Law Section 20.7 Severability Section 20.8 Waiver and Cumulative Remedies Section 20.9 Inability to Perform Section 20.10 Entire Agreement Section 20.11 Quiet Enjoyment Section 20.12 Survival ARTICLE XXI. EXECUTION AND RECORDING Section 21.1 Counterparts Section 21.2 Corporate and Partnership Authority Section 21.3 Execution of Lease; No Option or Offer Section 21.4 Recording Section 21.5 Amendments Section 21.6 Executed Copy Section 21.7 Attachments ARTICLE XXII. MISCELLANEOUS Section 22.1 Nondisclosure of Lease Terms Section 22.2 Guaranty Section 22.3 Changes Requested by Lender Section 22.4 Mortgagee Protection Section 22.5 Covenants and Conditions Section 22.6 Security Measures Section 22.7 JAMS EXHIBITS Exhibit A Description of the Premises Exhibit B Environmental Questionnaire Exhibit C Landlord's Disclosures Exhibit D Insurance Requirements Exhibit E Rules and Regulations Exhibit F "As Built" Drawings Exhibit X Work Letter Exhibit Y Project Site Plan (ii) INDUSTRIAL LEASE ---------------- (Single Tenant; Net) THIS LEASE is made as of the 14th day of April, 2000, by and between THE IRVINE COMPANY, hereafter called "Landlord," and RAINBOW TECHNOLOGIES, INC., a Delaware corporation, hereinafter called "Tenant." ARTICLE I. BASIC LEASE PROVISIONS Each reference in this Lease to the "Basic Lease Provisions" shall mean and refer to the following collective terms, the application of which shall be governed by the provisions in the remaining Articles of this Lease. 1. Premises: The Premises are more particularly described in Section 2.1. Address of Building: 50 Technology Drive, Irvine, CA 92718 2. Project Description: Lakeview Business Center I 3. Use of Premises: corporate headquarters, general office, research & development, storage and any other uses which are permitted by law and/or applicable zoning ordinances but not detrimental to the Premises or Project, provided that in no event shall any retail uses be permitted. 4. Commencement Date: August 1, 2000 5. Lease Term: The Term of this Lease shall expire at midnight on July 31, 2005. 6. Basic Rent: Seventy Five Thousand Six Hundred Eighty-Four Dollars ($75,684.00) per month, based on $1.25 per rentable square foot. Basic Rent is subject to adjustment as follows: Commencing August 1, 2001, the Basic Rent shall be Seventy Eight Thousand One Hundred Six Dollars ($78,106.00) per month, based on $1.29 per rentable square foot. Commencing August 1, 2002, the Basic Rent shall be Eighty One Thousand One Hundred Thirty-Three Dollars ($81,133.00) per month, based on $1.34 per rentable square foot. Commencing August 1, 2003, the Basic Rent shall be Eighty One Thousand Five Hundred Fifty-Five Dollars ($81,555.00) per month, based on $1.38 per rentable square foot. Commencing August 1, 2004, the Basic Rent shall be Eighty Six Thousand Five Hundred Eighty-Two Dollars ($86,582.00) per month, based on $1.43 per rentable square foot. 7. Guarantor(s): None 8. Floor Area of Premises: approximately 60,547 rentable square feet 9. Security Deposit: $60,547.00 10. Broker(s): CB Richard Ellis 11. Additional Insureds: Insignia/ESG of California, Inc. 1 10/31/96 12. Address for Payments and Notices: LANDLORD TENANT INSIGNIA/ESG OF CALIFORNIA, INC. RAINBOW TECHNOLOGIES, INC. 1 Ada, Suite 270 50 Technology Drive Irvine, CA 92618 Irvine, CA 92718 Attn: Director Human Resources with a copy of notices to: IRVINE INDUSTRIAL COMPANY P.O. Box 6370 Newport Beach, CA 92658-6370 Attn: Vice President, Industrial Operations 13. Tenant's Liability Insurance Requirement: $2,000,000.00 14. Vehicle Parking Spaces: One Hundred Sixty-Five (165) 2 10/31/96 ARTICLE II. PREMISES SECTION 2.1. LEASED PREMISES. Landlord leases to Tenant and Tenant leases from Landlord the premises shown in Exhibit A, including the building identified in Item 1 of the Basic Lease Provisions (which together with the underlying real property, is called the "Building"), containing approximately the floor area set forth in Item 8 of the Basic Lease Provisions (the "Premises"). The Premises is a portion of the project shown in Exhibit Y and described in Item 2 of the Basic Lease Provisions (the "Project"). SECTION 2.2. ACCEPTANCE OF PREMISES. Except as expressly provided in the last sentence of this Section 2.2, Tenant acknowledges that neither Landlord nor any representative of Landlord has made any representation or warranty with respect to the Premises or the Building or the suitability or fitness of either for any purpose, including without limitation any representations or warranties regarding zoning or other land use matters, and that neither Landlord nor any representative of Landlord has made any representations or warranties regarding (i) what other tenants or uses may be permitted or intended in the Building and the Project, or (ii) any exclusivity of use by Tenant with respect to its permitted use of the Premises as set forth in Item 3 of the Basic Lease Provisions. Tenant further acknowledges that neither Landlord nor any representative of Landlord has agreed to undertake any alterations or additions or construct any improvements to the Premises except as expressly provided in this Lease. It is understood that Tenant having been in possession of the Premises as a subtenant prior to the Commencement Date of this Lease, the Premises shall be leased to Tenant in an "as-is" condition without further obligation on Landlord's part as to improvements whatsoever, except as expressly provided in the Work Letter attached as EXHIBIT X hereto. Landlord warrants to Tenant that, as of the date of Landlord's execution of this Lease, Landlord has received no notice of any claim having been made by any governmental agency that a violation or violations of applicable building codes, regulations or ordinances exist with regard to the Premises. SECTION 2.3. BUILDING NAME AND ADDRESS. Tenant shall not utilize any name selected by Landlord from time to time for the Building and/or the Project as any part of Tenant's corporate or trade name. Landlord shall have the right to change the name, address, number or designation of the Building or Project without liability to Tenant, provided, however, that Landlord shall provide written notice of any such change initiated by Landlord at least thirty (30) days before such change is to take effect. ARTICLE III. TERM SECTION 3.1. GENERAL. The Term shall be for the period shown in Item 5 of the Basic Lease Provisions. The Term shall commence on the date set forth in Item 4 of the Basic Lease Provisions (the "Commencement Date") and shall expire on the date set forth in Item 5 of the Basic Lease Provisions (the "Expiration Date"). SECTION 3.2. RIGHT TO EXTEND THIS LEASE. Provided that Tenant is not in default (will all applicable notices of default having been given, and applicable cure periods having expired without Tenant having cured such default) under any provision of this Lease, either at the time of exercise of the extension right granted herein or at the time of the commencement of such extension, and provided further that either Tenant or Tenant's "Affiliate" (as defined in Section 9.4) is occupying the Premises and Tenant has not assigned its interest in this Lease or sublet more than twenty-five percent (25%) of the Floor Area of the Premises to other than a Tenant's "Affiliate", Tenant may extend the Term of this Lease for one (1) period of sixty (60) months (the "Renewal Term"). Tenant shall exercise its right to extend the Term by and only by delivering to Landlord, not less than nine (9) months or more than twelve (12) months prior to the expiration date of the Term, Tenant's irrevocable written notice of its commitment to extend (the "Commitment Notice"). The Basic Rent payable under the Lease during the Renewal Term shall be determined as provided in the following provisions. If Landlord and Tenant have not by then been able to agree upon the Basic Rent for the Renewal Term, then within one hundred twenty (120) and ninety (90) days prior to the expiration date of the Term, Landlord shall notify Tenant in writing of the Basic Rent that would reflect the fair market rental rate for a 60-month renewal of comparable space in the Project (together with any increases thereof during the Renewal Term, if applicable) as of the commencement of the Renewal Term ("Landlord's Determination"). Should Tenant disagree with the Landlord's Determination, then Tenant shall, not later than twenty (20) days thereafter, notify Landlord in writing of Tenant's determination of those fair market rental rates ("Tenant's Determination"). Within ten (10) days following delivery of the Tenant's Determination, the parties shall attempt to agree on an appraiser to determine the fair market rental. If the parties are unable to agree in that time, then each party shall designate an appraiser within ten (10) days thereafter. Should either party fail to so designate an appraiser within that time, then the appraiser designated by the other party shall determine the fair market rental. Should each of the parties timely designate an appraiser, then the two appraisers so designated shall appoint a third appraiser who shall, acting alone, determine the fair market rental for the Premises. Any appraiser designated hereunder shall have an MAI certification with not less than five (5) years experience in the valuation of commercial industrial buildings in the vicinity of the Project. Within thirty (30) days following the selection of the appraiser and such appraiser's receipt of the Landlord's Determination and the Tenant's Determination, the appraiser shall determine whether the Landlord's Determination or the Tenant's Determination more accurately reflects the fair market rental rate for the Renewal Term, as reasonably extrapolated to the commencement of the Renewal Term. Accordingly, either the Landlord's Determination or the Tenant's Determination shall be selected by the appraiser as the fair market rental rate for the Renewal Term. In making 3 10/31/96 such determination, the appraiser shall consider rental comparables for the Project (provided that if there are an insufficient number of comparables within the Project, the appraiser shall consider rental comparables for similarly improved space within the vicinity of the Project with appropriate adjustment for location and quality of project), but the appraiser shall not attribute any factor for market tenant improvement allowances or brokerage commissions in making its determination of the fair market rental rate. At any time before the decision of the appraiser is rendered, either party may, by written notice to the other party, accept the determination of the fair market rental rate submitted by the other party, in which event such rental rate shall be deemed adopted as the agreed fair market rental rate for the Renewal Term. The fees of the appraiser(s) shall be borne entirely by the party whose determination of the fair market rental rate was not selected by the appraiser. Within twenty (20) days after the determination of the fair market rental rate, Landlord shall prepare an appropriate amendment to this Lease for the Renewal Term, and Tenant shall execute and return such amendment to Landlord within twenty (20) days after the receipt of same. Should the fair market rental rate not be established by the commencement of the Renewal Term, then Tenant shall continue paying rent at the rate in effect during the last month of the initial Term, and a lump sum adjustment shall be made promptly upon the determination of the fair market rental rate for the Renewal Term. If Tenant fails to timely comply with any of the provisions of this paragraph, Tenant's right to extend the Term shall be extinguished and the Lease shall automatically terminate as of the expiration date of the Term, without any extension and without liability to Landlord. Any attempt to assign or transfer any right or interest created by this paragraph shall be void from its inception. Tenant shall have no other right to extend the Term beyond the single sixty (60) month extension period created by this paragraph. ARTICLE IV. RENT AND OPERATING EXPENSES SECTION 4.1. BASIC RENT. From and after the Commencement Date, Tenant shall pay to Landlord without deduction or offset (except as otherwise expressly permitted by the terms of this Lease), Basic Rent for the Premises in the total amount shown in Item 6 of the Basic Lease Provisions. Any rental adjustment shown in Item 6 shall be deemed to occur on the specified monthly anniversary of the Commencement Date, whether or not that date occurs at the end of a calendar month. The rent shall be due and payable in advance commencing on the Commencement Date (as prorated for any partial month) and continuing thereafter on the first day of each successive calendar month of the Term. No demand, notice or invoice shall be required for the payment of Basic Rent. SECTION 4.2. OPERATING EXPENSES. (a) Tenant shall pay to Landlord, as additional rent, "Building Costs" and "Property Taxes," as those terms are defined below, incurred by Landlord in the operation of the Building and Project. For convenience of reference, Property Taxes and Building Costs shall be referred to collectively as "Operating Expenses". (b) Prior to the Commencement Date and prior to the start of each full or partial "Expense Recovery Period" (as defined below) thereafter, Landlord shall give Tenant a written estimate of the amount of Operating Expenses for the Expense Recovery Period. Tenant shall pay the estimated amounts to Landlord in equal monthly installments, in advance, with Basic Rent. If Landlord has not furnished its written estimate for any Expense Recovery Period by the time set forth above, Tenant shall continue to pay cost reimbursements at the rates established for the prior Expense Recovery Period, if any; provided that when the new estimate is delivered to Tenant, Tenant shall, at the later to occur of the next monthly payment date or fifteen (15) days after receipt of the new estimate, pay any accrued cost reimbursements based upon the new estimate. For purposes hereof, "Expense Recovery Period" shall mean every twelve month period during the Term (or portion thereof for the first and last lease years) commencing July 1 and ending June 30. (c) Within one hundred twenty (120) days after the end of each Expense Recovery Period, Landlord shall furnish to Tenant a statement showing in reasonable detail the actual or prorated Operating Expenses incurred by Landlord during the period (the "Annual Statement"), and the parties shall within thirty (30) days thereafter make any payment or allowance necessary to adjust Tenant's estimated payments, if any, to Tenant's actual owed amounts as shown by the Annual Statement. Any delay or failure by Landlord in delivering any Annual Statement hereunder shall not constitute a waiver of Landlord's right to require Tenant to pay Operating Expenses pursuant hereto. Any amount due Tenant shall be credited against installments next coming due under this Section 4.2, and any deficiency shall be paid by Tenant together with the next installment. Should Tenant fail to object in writing to Landlord's determination of actual Operating Expenses, or fail to give written notice of its intent to audit Landlord's Operating Expenses pursuant to the provisions of the next succeeding paragraph, within one hundred eighty (180) days following delivery of Landlord's Annual Statement, Landlord's determination of actual Operating Expenses for the applicable Expense Recovery Period shall be conclusive and binding on the parties and any future claims to the contrary shall be barred. Provided Tenant is not then in default under this Lease (with all applicable notices having been given, and all applicable cure periods having expired without Tenant having cured such default), then Tenant shall have the right to have Tenant's financial officer or a certified public accountant audit Landlord's determination of actual Operating Expenses, subject to the terms and conditions hereof. In no event, however, shall such auditor be compensated by Tenant on a "contingency" basis, or on any other basis tied to the results of said audit. Tenant shall give written notice to Landlord of Tenant's intent to audit, if at all, within one hundred eighty (180) days following delivery of Landlord's 4 Annual Statement for each of the Expense Recovery Periods. Following at least ten (10) business days notice to Landlord, such audit shall be conducted at a mutually agreeable time during normal business hours at the office of Landlord or its management agent where the records are maintained in Orange County, California. Landlord agrees to make such personnel available to Tenant as is reasonably necessary for Tenant's employees and agents, to conduct such audit. Landlord shall make such records available to Tenant's employees and agents, for inspection during normal business hours. Tenant's employees and agents shall be entitled to make photostatic copies of such records, provided Tenant bears the expense of such copying, and further provided that Tenant keeps such copies in a confidential manner and does not discuss, display or distribute such copies to any other third party. If Tenant's audit determines that actual Operating Expenses have been overstated by more than five percent (5%), then subject to Landlord's right to review and/or contest the audit results, Landlord shall reimburse Tenant for the reasonable out-of-pocket costs of such audit. Tenant's Basic Rent shall be appropriately adjusted to reflect any overstatement in Operating Expenses. In the event of a dispute between Landlord and Tenant regarding the results of such audit, such dispute shall be submitted to and resolved by JAMS as provided in Section 22.7 of this Lease. All of the information obtained by Tenant and/or its auditor in connection with such audit, as well as any compromise, settlement, or adjustment reached between Landlord and Tenant as a result thereof, shall be held in strict confidence and, except as may be required pursuant to litigation, shall not be disclosed to any third party, directly or indirectly, by Tenant or its auditor or any of their officers, agents or employees. Landlord may require Tenant and its auditor to execute a separate confidentiality agreement as a condition precedent to any audit. (d) Even though the Lease has terminated and the Tenant has vacated the Premises, when the final determination is made of Operating Expenses for the Expense Recovery Period in which the Lease terminates, Tenant shall within fifteen (15) days following notice from Landlord pay the entire increase due over the estimated expenses paid. Any overpayment made in the event expenses decrease shall be rebated by Landlord to Tenant within fifteen (15) days following the final determination of Operating Expenses for the Expense Recovery Period in which the Lease terminates. (e) If, at any time during any Expense Recovery Period, any one or more of the Operating Expenses are increased to a rate(s) or amount(s) in excess of the rate(s) or amount(s) used in calculating the estimated expenses for the year, then the estimate of Operating Expenses may in Landlord's discretion be increased for the month in which such rate(s) or amount(s) becomes effective and for all succeeding months by an amount equal to the increase. If Landlord decides to exercise such discretion, Landlord shall give Tenant written notice of the amount or estimated amount of the increase, the month in which the increase will become effective, and the month for which the payments are due. Tenant shall pay the increase to Landlord as a part of Tenant's monthly payments of estimated expenses as provided in paragraph (b) above, commencing with the month in which effective. (f) The term "Building Costs" shall include all expenses of operation and maintenance of the Building and Tenant's proportionate share of the expenses of the operation and maintenance of the Project, if applicable (determined as the rentable square footage of the Building divided by the rentable square footage of all space in the Project, regardless of whether or not such space is actually leased or occupied), to the extent such expenses are not billed to and paid directly by Tenant or any other tenant, and shall include the following costs by way of illustration but not limitation: water and sewer charges; insurance premiums or reasonable premium equivalents should Landlord elect to self-insure any risk that Landlord is authorized to insure hereunder; license, permit, and inspection fees; heat; light; power; air conditioning; supplies; materials; equipment; tools; the cost of any environmental, insurance, tax or other consultant utilized by Landlord in connection with the Building and/or Project; establishment of reasonable reserves for replacements and/or repair of Common Area improvements (if applicable), equipment and supplies; costs incurred in connection with compliance of any laws or changes in laws applicable to the Building or the Project; the cost of any capital investments (other than tenant improvements for specific tenants) to the extent of the amortized amount thereof over the useful life of such capital investments calculated at a market cost of funds, all as determined by Landlord, for each such year of useful life during the Term; costs associated with the procurement and maintenance of an intrabuilding network cable service agreement for any intrabuilding network cable telecommunications lines within the Project, and any other installation, maintenance, repair and replacement costs associated with such lines; labor; reasonably allocated wages and salaries, fringe benefits, and payroll taxes for administrative and other personnel directly applicable to the Building and/or Project, including both Landlord's personnel and outside personnel excluding, however, any leasing personnel); any expense incurred pursuant to Sections 6.1, 6.2, 6.4, 7.2, and 10.2; and a reasonable overhead/management fee for the professional operation of the Building and Project not to exceed the amount of fees charged by landlords of comparable projects in the Irvine Spectrum. Notwithstanding anything to the contrary contained herein, the amount of such overhead/management fee to be charged to Tenant shall be determined by multiplying the actual fee charged (which from time to time may be with respect to the entire Project, a portion of the Project only, the Building only, or the Project together with other properties owned by Landlord and/or its affiliates) by a fraction, the numerator of which is the floor area of the Premises (as set forth in Item No. 8 of the Basic Lease Provisions) and the denominator of which is the total square footage of space charged with such fee actually leased to tenants (including Tenant). It is understood that Building Costs shall include competitive charges for direct services provided by any subsidiary or division of Landlord. (g) The term "Property Taxes" shall be defined as the following taxes and expenses attributable to the Building or Tenant's proportionate share of the following taxes and expenses for the Project (determined as the rentable square footage of the Building divided by the rentable square footage of all space in the Project regardless of whether or not such space is actually leased or occupied), as applicable: (i) all real estate taxes or personal property taxes, as such property taxes may be reassessed from time to time; and (ii) other taxes, charges and assessments which are levied with respect to this Lease or to the Building and/or the Project, and any improvements, fixtures and equipment 5 10/31/96 and other property of Landlord located in the Building and/or the Project, except that general net income and franchise taxes imposed against Landlord shall be excluded; and (iii) all assessments and fees for public improvements, services, and facilities and impacts thereon, including without limitation arising out of any Community Facilities Districts, "Mello Roos" districts, similar assessment districts, and any traffic impact mitigation assessments or fees; (iv) any tax, surcharge or assessment which shall be levied in addition to or in lieu of real estate or personal property taxes, other than taxes covered by Article VIII; and (v) reasonable costs and expenses incurred in contesting the amount or validity of any Property Tax by appropriate proceedings. SECTION 4.3. SECURITY DEPOSIT. Concurrently with Tenant's delivery of this Lease, Tenant shall deposit with Landlord the sum, if any, stated in Item 9 of the Basic Lease Provisions, to be held by Landlord as security for the full and faithful performance of Tenant's obligations under this Lease (the "Security Deposit"). Subject to the last sentence of this Section, the Security Deposit shall be understood and agreed to be the property of Landlord upon Landlord's receipt thereof, and may be utilized by Landlord in its discretion towards the payment of all prepaid expenses by Landlord for which Tenant would be required to reimburse Landlord under this Lease, including without limitation brokerage commissions and Tenant Improvement costs. Upon any default by Tenant (with all applicable notices of default having been given, and applicable cure periods having expired without Tenant having cured such default), including specifically Tenant's failure to pay rent or to abide by its obligations under Sections 7.1 and 15.3 below, whether or not Landlord is informed of or has knowledge of the default, the Security Deposit shall be deemed to be automatically and immediately applied, without waiver of any rights Landlord may have under this Lease or at law or in equity as a result of the default, as a setoff for full or partial compensation for that default. If any portion of the Security Deposit is applied after a default by Tenant, Tenant shall within five (5) days after written demand by Landlord deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount. Landlord shall not be required to keep this Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on the Security Deposit. If Tenant fully performs its obligations under this Lease, the Security Deposit or any balance thereof shall be returned to Tenant (or, at Landlord's option, to the last assignee of Tenant's interest in this Lease) after the expiration of the Term, provided that Landlord may retain the Security Deposit to the extent and until such time as all amounts due from Tenant in accordance with this Lease have been determined and paid in full. ARTICLE V. USES SECTION 5.1. USE. Tenant shall use the Premises only for the purposes stated in Item 3 of the Basic Lease Provisions, all in accordance with applicable laws and restrictions and pursuant to approvals to be obtained by Tenant from all relevant and required governmental agencies and authorities. The parties agree that any contrary use shall be deemed to cause material and irreparable harm to Landlord and shall entitle Landlord to injunctive relief in addition to any other available remedy. Upon at least 24 hours prior written notice, Tenant, at its expense, shall procure, maintain and make available for Landlord's inspection throughout the Term, all governmental approvals, licenses and permits required for the proper and lawful conduct of Tenant's permitted use of the Premises. Tenant shall not do or permit anything to be done in or about the Premises which will in any way interfere with the rights of other occupants of the Building or the Project, or use or allow the Premises to be used for any unlawful purpose, nor shall Tenant permit any nuisance or commit any waste in the Premises or the Project. Tenant shall not do or permit to be done anything which will invalidate or increase the cost of any insurance policy(ies) covering the Building, the Project and/or their contents, and shall comply with all applicable insurance underwriters rules and the requirements of the Pacific Fire Rating Bureau or any other organization performing a similar function. Tenant shall comply at its expense with all present and future laws, ordinances, restrictions, regulations, orders, rules and requirements of all governmental authorities that pertain to Tenant or its use of the Premises, including without limitation all federal and state occupational health and safety requirements, whether or not Tenant's compliance will necessitate expenditures or interfere with its use and enjoyment of the Premises. Tenant shall comply at its expense with all present and future covenants, conditions, easements or restrictions now or hereafter affecting or encumbering the Building and/or the Project, and any amendments or modifications thereto, including without limitation the payment by Tenant of any periodic or special dues or assessments charged against the Premises or Tenant which may be allocated to the Premises or Tenant in accordance with the provisions thereof. Tenant shall promptly upon demand reimburse Landlord for any additional insurance premium charged by reason of Tenant's failure to comply with the provisions of this Section, and shall indemnify Landlord from any liability and/or expense resulting from Tenant's noncompliance. SECTION 5.2. SIGNS. Provided Tenant continues to occupy the entire Premises, Tenant shall have the non-exclusive right to one (1) exterior building-top sign on the Building, subject to Landlord's right of prior approval that such exterior signage is in compliance with the Signage Criteria (defined below). Landlord confirms and agrees that Tenant's building-top sign on the Building existing as of the execution of this Lease is approved by Landlord. Except as provided in the foregoing or as otherwise approved in writing by Landlord, in its sole discretion, Tenant shall have no right to maintain identification signs in any location in, on or about the Premises, the Building or the Project and shall not place or erect any signs, displays or other advertising materials that are visible from the exterior of the Building. The size, design, graphics, material, style, color and other physical aspects of any permitted sign shall be subject to Landlord's written approval prior to installation (which approval may be withheld in Landlord's discretion), any covenants, conditions or restrictions encumbering the Premises, Landlord's signage program for the Project, as in effect from time to time and approved by the City in which the Premises are located ("Signage Criteria"), and any applicable municipal or other governmental permits and approvals. Tenant acknowledges having received and reviewed a copy of the current Signage Criteria for the Project. Tenant shall be responsible for the cost of any permitted sign, including the fabrication, installation, maintenance and removal thereof. If Tenant fails to maintain its sign, or if Tenant fails to remove same upon termination of this Lease and repair any damage caused by such removal, Landlord may do so at Tenant's expense. 6 10/31/96 SECTION 5.3 HAZARDOUS MATERIALS. (a) For purposes of this Lease, the term "Hazardous Materials" includes (i) any "hazardous materials" as defined in Section 25501(n) of the California Health and Safety Code, (ii) any other substance or matter which results in liability to any person or entity from exposure to such substance or matter under any statutory or common law theory, and (iii) any substance or matter which is in excess of permitted levels set forth in any federal, California or local law or regulation pertaining to any hazardous or toxic substance, material or waste. (b) Tenant shall not cause or permit any Hazardous Materials to be brought upon, stored, used, generated, released or disposed of on, under, from or about the Premises (including without limitation the soil and groundwater thereunder) without the prior written consent of Landlord. Notwithstanding the foregoing, Tenant shall have the right, without obtaining prior written consent of Landlord, to utilize within the Premises standard office products that may contain Hazardous Materials (such as photocopy toner, "White Out", and the like), provided however, that (i) Tenant shall maintain such products in their original retail packaging, shall follow all instructions on such packaging with respect to the storage, use and disposal of such products, and shall otherwise comply with all applicable laws with respect to such products, and (ii) all of the other terms and provisions of this Section 5.3 shall apply with respect to Tenant's storage, use and disposal of all such products. Landlord may, in its sole discretion, place such conditions as Landlord deems appropriate with respect to any such Hazardous Materials, and may further require that Tenant demonstrate that any such Hazardous Materials are necessary or useful to Tenant's business and will be generated, stored, used and disposed of in a manner that complies with all applicable laws and regulations pertaining thereto and with good business practices. Tenant understands that Landlord may utilize an environmental consultant to assist in determining conditions of approval in connection with the storage, generation, release, disposal or use of Hazardous Materials by Tenant on or about the Premises, and/or to conduct periodic inspections of the storage, generation, use, release and/or disposal of such Hazardous Materials by Tenant on and from the Premises, and Tenant agrees that any costs incurred by Landlord in connection therewith shall be reimbursed by Tenant to Landlord as additional rent hereunder upon demand. (c) Prior to the execution of this Lease, Tenant shall complete, execute and deliver to Landlord an Environmental Questionnaire and Disclosure Statement (the "Environmental Questionnaire") in the form of Exhibit B attached hereto. The completed Environmental Questionnaire shall be deemed incorporated into this Lease for all purposes, and Landlord shall be entitled to rely fully on the information contained therein. On each anniversary of the Commencement Date until the expiration or sooner termination of this Lease, Tenant shall disclose to Landlord in writing the names and amounts of all Hazardous Materials which were stored, generated, used, released and/or disposed of on, under or about the Premises for the twelve-month period prior thereto, and which Tenant desires to store, generate, use, release and/or dispose of on, under or about the Premises for the succeeding twelve-month period. In addition, to the extent Tenant is permitted to utilize Hazardous Materials upon the Premises, Tenant shall promptly provide Landlord with complete and legible copies of all the following environmental documents relating thereto: reports filed pursuant to any self-reporting requirements; permit applications, permits, monitoring reports, workplace exposure and community exposure warnings or notices and all other reports, disclosures, plans or documents (even those which may be characterized as confidential) relating to water discharges, air pollution, waste generation or disposal, and underground storage tanks for Hazardous Materials; orders, reports, notices, listing and correspondence (even those which may be considered confidential) of or concerning the release, investigation of, compliance, cleanup, remedial and corrective actions, and abatement of Hazardous Materials; and all complaints, pleadings and other legal documents filed by or against Tenant related to Tenant's use, handling, storage, release and/or disposal of Hazardous Materials. (d) Landlord and its agents shall have the right, but not the obligation, to inspect, sample and/or monitor the Premises and/or the soil or groundwater thereunder at any time to determine whether Tenant is complying with the terms of this Section 5.3, and in connection therewith Tenant shall provide Landlord with full access to all relevant facilities, records and personnel. If Tenant is not in compliance with any of the provisions of this Section 5.3, or in the event of a release of any Hazardous Materials on, under or about the Premises caused or permitted by Tenant, its agents, employees, contractors, licensees or invitees, Landlord and its agents shall have the right, but not the obligation, without limitation upon any of Landlord's other rights and remedies under this Lease, to immediately enter upon the Premises without notice and to discharge Tenant's obligations under this Section 5.3 at Tenant's expense, including without limitation the taking of emergency or long-term remedial action. Landlord and its agents shall endeavor to minimize interference with Tenant's business in connection therewith, but shall not be liable for any such interference. In addition, Landlord, at Tenant's expense, shall have the right, but not the obligation, to join and participate in any legal proceedings or actions initiated in connection with any claims arising out of the storage, generation, use, release and/or disposal by Tenant or its agents, employees, contractors, licensees or invitees of Hazardous Materials on, under, from or about the Premises. (e) If the presence of any Hazardous Materials on, under, from or about the Premises or the Project caused or permitted by Tenant or its agents, employees, contractors, licensees or invitees results in (i) injury to any person, (ii) injury to or any contamination of the Premises or the Project, or (iii) injury to or contamination of any real or personal property wherever situated, Tenant, at its expense, shall promptly take all actions necessary to return the Premises and the Project and any other affected real or personal property owned by Landlord to the condition existing prior to the introduction of such Hazardous Materials and to remedy or repair any such injury or contamination, including without limitation, any cleanup, remediation, removal, disposal, neutralization or other treatment of any such Hazardous Materials. Notwithstanding the foregoing, Tenant shall not, without Landlord's prior written consent, take any remedial action in response to the presence of any Hazardous Materials on, under or about the Premises or the Project or any other affected real or personal property owned by Landlord or enter into any similar agreement, consent, decree or other compromise with any governmental agency with respect to any Hazardous Materials claims; provided however, Landlord's prior written consent shall not be necessary in the event that the presence of Hazardous Materials on, under 7 10/31/96 or about the Premises or the Project or any other affected real or personal property owned by Landlord (i) imposes an immediate threat to the health, safety or welfare of any individual or (ii) is of such a nature that an immediate remedial response is necessary and it is not possible to obtain Landlord's consent before taking such action. To the fullest extent permitted by law, Tenant shall indemnify, hold harmless, protect and defend (with attorneys acceptable to Landlord) Landlord and any successors to all or any portion of Landlord's interest in the Premises and the Project and any other real or personal property owned by Landlord from and against any and all liabilities, losses, damages, diminution in value, judgments, fines, demands, claims, recoveries, deficiencies, costs and expenses (including without limitation attorneys' fees, court costs and other professional expenses), whether foreseeable or unforeseeable, arising directly or indirectly out of the use, generation, storage, treatment, release, on- or off-site disposal or transportation of Hazardous Materials on, into, from, under or about the Premises, the Building and the Project and any other real or personal property owned by Landlord caused or permitted by Tenant, its agents, employees, contractors, licensees or invitees, specifically including without limitation the cost of any required or necessary repair, restoration, cleanup or detoxification of the Premises, the Building and the Project and any other real or personal property owned by Landlord, and the preparation of any closure or other required plans, whether or not such action is required or necessary during the Term or after the expiration of this Lease. If Landlord at any time discovers that Tenant or its agents, employees, contractors, licensees or invitees may have caused or permitted the release of a Hazardous Material on, under, from or about the Premises or the Project or any other real or personal property owned by Landlord, Tenant shall, at Landlord's request, immediately prepare and submit to Landlord a comprehensive plan, subject to Landlord's approval, specifying the actions to be taken by Tenant to return the Premises or the Project or any other real or personal property owned by Landlord to the condition existing prior to the introduction of such Hazardous Materials. Upon Landlord's approval of such cleanup plan, Tenant shall, at its expense, and without limitation of any rights and remedies of Landlord under this Lease or at law or in equity, immediately implement such plan and proceed to cleanup such Hazardous Materials in accordance with all applicable laws and as required by such plan and this Lease. The provisions of this subsection (e) shall expressly survive the expiration or sooner termination of this Lease. (f) Landlord hereby discloses to Tenant, and Tenant hereby acknowledges, certain facts relating to Hazardous Materials at the Project known by Landlord to exist as of the date of this Lease, as more particularly described in Exhibit C attached hereto. Tenant shall have no liability or responsibility with respect to the Hazardous Materials facts described in Exhibit C, nor with respect to any Hazardous Materials which were not caused or permitted by Tenant, its agents, employees, contractors, licensees or invitees. Notwithstanding the preceding two sentences, Tenant agrees to notify its agents, employees, contractors, licensees, and invitees of any exposure or potential exposure to Hazardous Materials at the Premises that Landlord brings to Tenant's attention. Landlord shall take responsibility, at its sole cost and expense, for any governmentally-ordered clean-up, remediation, removal, disposal, neutralization or other treatment of Hazardous Materials conditions described in this Section 5.3(f). The foregoing obligation on the part of Landlord shall include the reasonable costs (including, without limitation, reasonable attorney's fees) of defending Tenant (with attorneys reasonably acceptable to Tenant) from and against any legal action or proceeding instituted by any governmental agency in connection with such clean-up, remediation, removal, disposal, neutralization or other treatment of such conditions, provided that Tenant promptly tenders such defense to Landlord. (g) In the event of any foreclosure of a mortgage or deed of trust encumbering the Building and/or the Project, the obligations on the part of Landlord contained in Section 5.3(f) above shall be personal to Landlord and shall not be binding on nor inure against any lender acquiring the Building and/or the Project by foreclosure of its mortgage or deed of trust or deed in lieu of foreclosure, or any successor in interest to such lender. ARTICLE VI. COMMON AREAS; SERVICES SECTION 6.1. UTILITIES AND SERVICES. Tenant shall be responsible for and shall pay promptly, directly to the appropriate supplier, all charges for water, gas, electricity, sewer, heat, light, power, telephone, refuse pickup, janitorial service, interior landscape maintenance and all other utilities, materials and services furnished directly to Tenant or the Premises or used by Tenant in, on or about the Premises during the Term, together with any taxes thereon. Landlord shall not be liable for damages or otherwise for any failure or interruption of any utility or other service furnished to the Premises, and no such failure or interruption shall be deemed an eviction or entitle Tenant to terminate this Lease or withhold or abate any rent due hereunder. Landlord shall at all reasonable times have free access to all electrical and mechanical installations of Landlord. Notwithstanding the foregoing, if as a result of the direct actions of Landlord, its authorized agents or employees, for more than three (3) consecutive business days following written notice to Landlord there is no HVAC or electricity services to all or a portion of the Premises, or such an interruption of other essential utilities and building services, such as fire protection or water, so that all or a portion of the Premises cannot be used by Tenant, then Tenant's Basic Rent (or an equitable portion of such Basic Rent to the extent that less than all of the Premises are affected) shall thereafter be abated until the Premises are again usable by Tenant; provided, however, that if Landlord is diligently pursuing the repair of such utilities or services and Landlord provides substitute services reasonably suitable for Tenant's purposes, as for example, bringing in portable air-conditioning equipment, then there shall not be an abatement of Basic Rent. The foregoing provisions shall not apply in case of the actions of parties other than Landlord, its contractors, authorized agents or employees, or in the case of damage to, or destruction of, the Premises (which shall be governed by the provisions of Article XI of the Lease). Any disputes concerning the foregoing provisions shall be submitted to and resolved by JAMS arbitration pursuant to Section 22.7 of this Lease. 8 10/31/96 SECTION 6.2. OPERATION AND MAINTENANCE OF COMMON AREAS. During the Term, Landlord shall operate all Common Areas within the Project. The term "Common Areas" shall mean all areas which are not held for exclusive use by persons entitled to occupy space, and all other appurtenant areas and improvements provided by Landlord for the common use of Landlord and tenants and their respective employees and invitees, including without limitation parking areas and structures, driveways, sidewalks, landscaped and planted areas, hallways and interior stairwells not located within the premises of any tenant, common electrical rooms and roof access entries, common entrances and lobbies, elevators, and restrooms not located within the premises of any tenant. SECTION 6.3 USE OF COMMON AREAS. The occupancy by Tenant of the Premises shall include the use of the Common Areas in common with Landlord and with all others for whose convenience and use the Common Areas may be provided by Landlord, subject, however, to compliance with all rules and regulations as are prescribed from time to time by Landlord. Landlord shall operate and maintain the Common Areas as a first-class business park in the manner Landlord may determine to be appropriate. All costs incurred by Landlord for the maintenance and operation of the Common Areas shall be included in Building Costs unless any particular cost incurred can be charged to a specific tenant of the Project. Landlord shall at all times during the Term have exclusive control of the Common Areas, and may restrain any use or occupancy, except as authorized by Landlord's rules and regulations. Tenant shall keep the Common Areas clear of any obstruction or unauthorized use related to Tenant's operations. Landlord may temporarily close any portion of the Common Areas for repairs, remodeling and/or alterations, to prevent a public dedication or the accrual of prescriptive rights, or for any other reason deemed sufficient by Landlord, without liability to Landlord. SECTION 6.4 PARKING. Tenant shall be entitled to the number of vehicle parking spaces set forth in Item 14 of the Basic Lease Provisions, which spaces shall be unreserved and unassigned, on those portions of the Common Areas designated by Landlord for parking. Tenant shall not use more parking spaces than such number. All parking spaces shall be used only for parking vehicles no larger than full size passenger automobiles or pickup trucks. Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant's employees, suppliers, shippers, customers or invitees to be loaded, unloaded or parked in areas other than those designated by Landlord for such activities. If Tenant permits or allows any of the prohibited activities described above, then Landlord shall have the right, without notice, in addition to such other rights and remedies that Landlord may have, to remove or tow away the vehicle involved and charge the costs to Tenant. Parking within the Common Areas shall be limited to striped parking stalls, and no parking shall be permitted in any driveways, access ways or in any area which would prohibit or impede the free flow of traffic within the Common Areas. There shall be no parking of any vehicles for longer than a forty-eight (48) hour period unless otherwise authorized by Landlord, and vehicles which have been abandoned or parked in violation of the terms hereof may be towed away at the owner's expense. Nothing contained in this Lease shall be deemed to create liability upon Landlord for any damage to motor vehicles of visitors or employees, for any loss of property from within these motor vehicles, or for any injury to Tenant, its visitors or employees, unless ultimately determined to be caused by the sole active negligence or willful misconduct of Landlord, its agents, servants and employees. Landlord shall have the right to establish, and from time to time amend, and to enforce against all users all reasonable rules and regulations (including the designation of areas for employee parking) that Landlord may deem necessary and advisable for the proper and efficient operation and maintenance of parking within the Common Areas. Landlord shall have the right to construct, maintain and operate lighting facilities within the parking areas; to change the area, level, location and arrangement of the parking areas and improvements therein (provided, however, that (i) no such change shall deprive Tenant of that number of vehicle parking spaces set forth in Item 14 of the Basic Lease Provisions, and (ii) no such change shall result in Tenant's vehicle parking spaces being moved across any street dedicated to the City of Irvine); to restrict parking by tenants, their officers, agents and employees to employee parking areas; after the expiration of the initial 60-month Term of this Lease, to enforce parking charges by operation of meters or otherwise (provided that any appraiser selected pursuant to the provisions of Section 3.2 of this Lease may consider such factor in determining the fair market rental for the Premises pursuant to the applicable provisions of said Section 3.2); and to do and perform such other acts in and to the parking areas and improvements therein as, in the use of good business judgment, Landlord shall determine to be advisable. Any person using the parking area shall observe all directional signs and arrows and any posted limits. In no event shall Tenant interfere with the use and enjoyment of the parking area by other tenants of the Project or their employees or invitees. Parking areas shall be used only for parking vehicles. Washing, waxing, cleaning or servicing of vehicles, or the storage of vehicles for 24-hour periods, is prohibited unless otherwise authorized by Landlord. Tenant shall be liable for any damage to the parking areas caused by Tenant or Tenant's employees, suppliers, shippers, customers or invitees, including without limitation damage from excess oil leakage. Tenant shall have no right to install any fixtures, equipment or personal property in the parking areas. SECTION 6.5. CHANGES AND ADDITIONS BY LANDLORD. Landlord reserves the right to make alterations or additions to the Project, or to the attendant fixtures, equipment and Common Areas. Landlord may at any time relocate or remove any of the various buildings (other than the Building), parking areas, and other Common Areas, and may add buildings and areas to the Project from time to time. No change shall entitle Tenant to any abatement of rent or other claim against Landlord, provided that the change does not deprive Tenant of reasonable access to or use of the Premises. ARTICLE VII. MAINTAINING THE PREMISES SECTION 7.1. TENANT'S MAINTENANCE AND REPAIR. Tenant at its sole expense shall comply with all applicable laws and governmental regulations governing the Premises and make all repairs necessary to keep the Premises in the condition as existed on the Commencement Date (or on any later date that the improvements may have 9 10/31/96 been installed), excepting ordinary wear and tear, including without limitation the electrical and mechanical systems, any air conditioning, ventilating or heating equipment which serves the Premises, all walls, glass, windows, doors, door closures, hardware, fixtures, electrical, plumbing, fire extinguisher equipment and other equipment. Any damage or deterioration of the Premises shall not be deemed ordinary wear and tear if the same could have been prevented by good maintenance practices by Tenant. As part of its maintenance obligations hereunder, Tenant shall, at Landlord's request, provide Landlord with copies of all maintenance schedules, reports and notices prepared by, for or on behalf of Tenant. Tenant shall obtain preventive maintenance contracts from a licensed heating and air conditioning contractor to provide for regular inspection and maintenance of the heating, ventilating and air conditioning systems servicing the Premises, all subject to Landlord's approval. All repairs shall be at least equal in quality to the original work, shall be made only by a licensed contractor approved in writing in advance by Landlord and shall be made only at the time or times approved by Landlord. Any contractor utilized by Tenant shall be subject to Landlord's standard requirements for contractors, as modified from time to time. Landlord shall have the right at all times to inspect Tenant's maintenance of all equipment (including without limitation air conditioning, ventilating and heating equipment), and may impose reasonable restrictions and requirements with respect to repairs, as provided in Section 7.3, and the provisions of Section 7.4 shall apply to all repairs. If Tenant fails to properly maintain and/or repair the Premises as herein provided (including, without limitation, failure to properly maintain and repair the electrical and mechanical systems and air conditioning, ventilating or heating equipment serving the Premises) then, following Landlord's notice and the expiration of the applicable cure period, Landlord may elect to make any repair or maintenance required hereunder on behalf of Tenant and at Tenant's expense, and Tenant shall promptly reimburse Landlord for all costs incurred upon submission of an invoice. SECTION 7.2. LANDLORD'S MAINTENANCE AND REPAIR. Subject to Section 7.1 and Article XI, Landlord shall provide service, maintenance and repair with respect to the roof, foundations, and footings of the Building, all landscaping, walkways, parking areas, Common Areas, exterior lighting, and the exterior surfaces of the exterior walls of the Building, except that Tenant at its expense shall make all repairs which Landlord deems reasonably necessary as a result of the act or negligence of Tenant, its agents, employees, invitees, subtenants or contractors. Landlord shall have the right to employ or designate any reputable person or firm, including any employee or agent of Landlord or any of Landlord's affiliates or divisions, to perform any service, repair or maintenance function. Landlord need not make any other improvements or repairs except as specifically required under this Lease, and nothing contained in this Section shall limit Landlord's right to reimbursement from Tenant for maintenance, repair costs and replacement costs as provided elsewhere in this Lease. Tenant understands that it shall not make repairs at Landlord's expense or by rental offset. Tenant further understands that Landlord shall not be required to make any repairs to the roof, foundations or footings unless and until Tenant has notified Landlord in writing of the need for such repair and Landlord shall have a reasonable period of time thereafter to commence and complete said repair, if warranted. All costs of any maintenance and repairs on the part of Landlord provided hereunder shall be considered part of Building Costs. SECTION 7.3. ALTERATIONS. Tenant shall make no alterations, additions or improvements to the Premises without the prior written consent of Landlord, which consent may be given or withheld in Landlord's sole discretion. Notwithstanding the foregoing: (A) Landlord's consent shall not be required for any "Qualified Alterations" (as hereinafter defined) costing less than Twenty-Five Thousand Dollars ($25,000.00) in the aggregate during any Expense Recovery Period of the Term, and (B) Landlord shall not unreasonably withhold its consent to any Qualified Alterations project which costs less than Two Dollars ($2.00) per square foot of the improved portion of the Premises (excluding warehouse square footage). As used herein, "Qualified Alterations" shall mean those alterations, additions or improvements to the Premises which do not (i) affect the exterior of the Building or outside areas (or be visible from adjoining sites), or (ii) affect or penetrate any of the structural portions of the Building, including but not limited to the roof, or (iii) require any change to the basic floor plan of the Premises, any change to any structural or mechanical systems of the Premises, or any governmental permit as a prerequisite to the construction thereof, or (iv) interfere in any manner with the proper functioning of or Landlord's access to any mechanical, electrical, plumbing or HVAC systems, facilities or equipment located in or serving the Building, or (v) diminish the value of the Premises. Landlord may impose, as a condition to its consent, any requirements that Landlord in its discretion may deem reasonable or desirable, including but not limited to a requirement that all work be covered by a lien and completion bond satisfactory to Landlord and requirements as to the manner, time, and contractor for performance of the work. Tenant shall obtain all required permits for the work and shall perform the work in compliance with all applicable laws, regulations and ordinances, all covenants, conditions and restrictions affecting the Project, and the Rules and Regulations (hereafter defined). Tenant understands and agrees that Landlord shall be entitled to a supervision fee in the amount of five percent (5%) of the cost of the work of any alterations, additions or improvements requiring Landlord's consent. If any governmental entity requires, as a condition to any proposed alterations, additions or improvements to the Premises by Tenant, that improvements be made to the Common Areas, then Tenant shall, at Tenant's sole expense, but subject to Landlord's right to consent to such proposed alterations, additions or improvements to the Premises, make such required improvements to the Common Areas in such manner, utilizing such materials, and with such contractors (including, if required by Landlord, Landlord's contractors) as Landlord may require in its sole discretion. Under no circumstances shall Tenant make any improvement which incorporates any Hazardous Materials, including without limitation asbestos-containing construction materials into the Premises. Any request for Landlord's consent shall be made in writing and shall contain architectural plans describing the work in detail reasonably satisfactory to Landlord. Unless Landlord otherwise agrees in writing, all alterations, additions or improvements affixed to the Premises (excluding moveable trade fixtures and furniture) shall become the property of Landlord and shall be surrendered with the Premises at the end of the Term, except that Landlord may, as provided in the next succeeding paragraph of this Section 7.3, require Tenant to remove by the Expiration Date, or sooner termination date of this Lease, all or any alterations, decorations, fixtures, additions, improvements and the like installed either by Tenant or by Landlord at Tenant's request and to repair any damage to the Premises arising from that removal. Except as otherwise provided in this Lease or in any Exhibit to this Lease, should Landlord make any alteration or improvement to the Premises for Tenant, Landlord shall be entitled to prompt reimbursement from Tenant for all costs incurred. 10 10/31/96 As of the Expiration Date or earlier termination of this Lease and subject to the provisions of Section 15.3 of the Lease for removal and repair, Landlord shall have the right to require Tenant to remove any alterations, additions or improvements made by Tenant to the Premises, whether or not Landlord's consent was required. Notwithstanding the foregoing, if at the time of requesting Landlord's consent to any such alterations, improvements or additions, Tenant shall request in writing whether or not Landlord shall require such improvements, alterations or additions to be removed as of the Expiration Date or earlier termination of this Lease, then Landlord's right to require Tenant to remove such improvements, alterations or additions, shall be exercised, if at all, at the time of Landlord's consent thereto. Notwithstanding the provisions of the preceding paragraph of this Section 7.3, Tenant shall have no obligation to remove those alterations, additions and improvements to the Premises shown in the "as built" floor plan drawings copies of which are attached as Exhibit F hereto. SECTION 7.4. MECHANIC'S LIENS. Tenant shall keep the Premises free from any liens arising out of any work performed, materials furnished, or obligations incurred by or for Tenant. Upon request by Landlord, Tenant shall promptly cause any such lien to be released by posting a bond in accordance with California Civil Code Section 3143 or any successor statute. In the event that Tenant shall not, within thirty (30) days following the imposition of any lien, cause the lien to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other available remedies, the right to cause the lien to be released by any means it deems proper, including payment of or defense against the claim giving rise to the lien. All expenses so incurred by Landlord, including Landlord's attorneys' fees, and any consequential or other damages incurred by Landlord arising out of such lien, shall be reimbursed by Tenant promptly following Landlord's demand, together with interest from the date of payment by Landlord at the maximum rate permitted by law until paid. Tenant shall give Landlord no less than twenty (20) days' prior notice in writing before commencing construction of any kind on the Premises so that Landlord may post and maintain notices of nonresponsibility on the Premises. SECTION 7.5. ENTRY AND INSPECTION. Landlord shall at all reasonable times, upon at least 24 hours prior written or oral notice (except in emergencies, when no notice shall be required) have the right to enter the Premises to inspect them, to supply services in accordance with this Lease, to protect the interests of Landlord in the Premises, and to submit the Premises to prospective or actual purchasers or encumbrance holders (or, during the last one hundred and eighty (180) days of the Term or when an uncured Tenant default exists, to prospective tenants), all without being deemed to have caused an eviction of Tenant and without abatement of rent except as provided elsewhere in this Lease. Landlord shall have the right, if desired, to retain a key which unlocks all of the doors in the Premises, excluding Tenant's vaults and safes, and Landlord shall have the right to use any and all means which Landlord may deem proper to open the doors in an emergency in order to obtain entry to the Premises, and any such emergency entry to the Premises obtained by Landlord shall not under any circumstances be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or any eviction of Tenant from the Premises. ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY Tenant shall be liable for and shall pay before delinquency, all taxes and assessments levied against all personal property of Tenant located in the Premises, against all improvements to the Premises made by Landlord or Tenant which are above Landlord's Project standard in quality and/or quantity for comparable space within the Project ("Above Standard Improvements"), and against any alterations, additions or like improvements made to the Premises by or on behalf of Tenant. When possible Tenant shall cause its personal property, Above Standard Improvements and alterations to be assessed and billed separately from the real property of which the Premises form a part. If any taxes on Tenant's personal property, Above Standard Improvements and/or alterations are levied against Landlord or Landlord's property and if Landlord pays the same, or if the assessed value of Landlord's property is increased by the inclusion of a value placed upon the personal property, Above Standard Improvements and/or alterations of Tenant and if Landlord pays the taxes based upon the increased assessment, Tenant shall pay to Landlord the taxes so levied against Landlord or the proportion of the taxes resulting from the increase in the assessment. In calculating what portion of any tax bill which is assessed against Landlord separately, or Landlord and Tenant jointly, is attributable to Tenant's Above Standard Improvements, alterations and personal property, Landlord's reasonable determination shall be conclusive. ARTICLE IX. ASSIGNMENT AND SUBLETTING SECTION 9.1. RIGHTS OF PARTIES. (a) Notwithstanding any provision of this Lease to the contrary, Tenant will not, either voluntarily or by operation of law, assign, sublet, encumber, or otherwise transfer all or any part of Tenant's interest in this Lease ("Transfer"), or permit the Premises to be occupied by anyone other than Tenant, without Landlord's prior written consent, which consent shall not unreasonably be withheld or conditioned in accordance with the provisions of Section 9.1.(b). No assignment (whether voluntary, involuntary or by operation of law) and no subletting shall be valid or effective without Landlord's prior written consent and, at Landlord's election, any such assignment or subletting or attempted assignment or subletting shall constitute a material default of this Lease. Landlord shall not be deemed to have given its consent to any assignment or subletting by any other course of action, including its acceptance of any name for listing in the Building directory. To the extent not prohibited by provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"), including Section 365(f)(1), Tenant on behalf of itself and its creditors, 11 10/31/96 administrators and assigns waives the applicability of Section 365(e) of the Bankruptcy Code unless the proposed assignee of the Trustee for the estate of the bankrupt meets Landlord's standard for consent as set forth in Section 9.1(b) of this Lease. If this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, any and all monies or other considerations to be delivered in connection with the assignment shall be delivered to Landlord, shall be and remain the exclusive property of Landlord and shall not constitute property of Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed to have assumed all of the obligations arising under this Lease on and after the date of the assignment, and shall upon demand execute and deliver to Landlord an instrument confirming that assumption. (b) If Tenant desires to transfer an interest in this Lease, it shall first notify Landlord of its desire and shall submit in writing to Landlord: (i) the name and address of the proposed transferee; (ii) the nature of any proposed subtenant's or assignee's business to be carried on in the Premises; (iii) the terms and provisions of any proposed sublease or assignment, including a copy of the proposed assignment or sublease form; (iv) evidence of insurance of the proposed assignee or subtenant complying with the requirements of Exhibit D hereto; (v) a completed Environmental Questionnaire from the proposed assignee or subtenant; and (vi) any other information requested by Landlord and reasonably related to the transfer. Except as provided in Subsection (e) of this Section, Landlord shall not unreasonably withhold or condition its consent, provided: (1) the use of the Premises will be consistent with the provisions of this Lease and with Landlord's commitment to other tenants of the Project; (2) the proposed assignee or subtenant has not been required by any prior landlord, lender or governmental authority to take remedial action in connection with Hazardous Materials contaminating a property arising out of the proposed assignee's or subtenant's actions or use of the property in question and is not subject to any enforcement order issued by any governmental authority in connection with the use, disposal or storage of a Hazardous Material; (3) at Landlord's election, insurance requirements shall be brought into conformity with Landlord's then current leasing practice; (4) any proposed subtenant or assignee demonstrates that it is financially responsible by submission to Landlord of all reasonable information as Landlord may request concerning the proposed subtenant or assignee, including, but not limited to, a balance sheet of the proposed subtenant or assignee as of a date within ninety (90) days of the request for Landlord's consent and statements of income or profit and loss of the proposed subtenant or assignee for the two-year period preceding the request for Landlord's consent, and/or a certification signed by the proposed subtenant or assignee that it has not been evicted or been in arrears in rent at any other leased premises for the 3-year period preceding the request for Landlord's consent; (5) any proposed subtenant or assignee demonstrates to Landlord's reasonable satisfaction a record of successful experience in business; and (6) the proposed assignee or subtenant is not an existing tenant of the Project or a prospect with whom Landlord is actively negotiating to become a tenant at the Project. If Tenant has any exterior sign rights under this Lease, such rights are personal to Tenant and may not be assigned or transferred to any assignee of this Lease or subtenant of the Premises without Landlord's prior written consent, which may be withheld in Landlord's sole and absolute discretion. If Landlord consents to the proposed transfer, Tenant may within ninety (90) days after the date of the consent effect the transfer upon the terms described in the information furnished to Landlord; provided that any material change in the terms shall be subject to Landlord's consent as set forth in this Section. Landlord shall approve or disapprove any requested transfer within fifteen (15) business days following receipt of Tenant's written request, the information set forth above, and the fee set forth below. (c) Notwithstanding the provisions of Subsection (b) above, in lieu of consenting to a proposed assignment or subletting, Landlord may elect to (i) sublease the Premises (or the portion proposed to be subleased), or take an assignment of Tenant's interest in this Lease, upon the same terms as offered to the proposed subtenant or assignee (excluding terms relating to the purchase of personal property, the use of Tenant's name or the continuation of Tenant's business), or (ii) terminate this Lease as to the portion of the Premises proposed to be subleased or assigned with a proportionate abatement in the rent payable under this Lease, effective on the date that the proposed sublease or assignment would have become effective. Landlord may thereafter, at its option, assign or re-let any space so recaptured to any third party, including without limitation the proposed transferee of Tenant. (d) Tenant agrees that fifty percent (50%) of any amounts paid by the assignee or subtenant, however described, in excess of (i) the Basic Rent payable by Tenant hereunder, or in the case of a sublease of a portion of the Premises, in excess of the Basic Rent reasonably allocable to such portion, plus (ii) Tenant's direct out-of-pocket costs which Tenant certifies to Landlord have been paid to provide occupancy related services to such assignee or subtenant of a nature commonly provided by landlords of similar space, shall be the property of Landlord and such amounts shall be payable directly to Landlord by the assignee or subtenant or, at Landlord's option, by Tenant. At Landlord's request, a written agreement shall be entered into by and among Tenant, Landlord and the proposed assignee or subtenant confirming the requirements of this subsection. (e) Tenant shall pay to Landlord a fee of Five Hundred Dollars ($500.00) if and when any transfer hereunder is requested by Tenant. Such fee is hereby acknowledged as a reasonable amount to reimburse Landlord for its costs of review and evaluation of a proposed assignee/sublessee, and Landlord shall not be obligated to commence such review and evaluation unless and until such fee is paid. SECTION 9.2. EFFECT OF TRANSFER. No subletting or assignment, even with the consent of Landlord, shall relieve Tenant of its obligation to pay rent and to perform all its other obligations under this Lease. Moreover, Tenant shall indemnify and hold Landlord harmless, as provided in Section 10.3, for any act or omission by an assignee or subtenant. Each assignee, other than Landlord, shall be deemed to assume all obligations of Tenant under this Lease and shall be liable jointly and severally with Tenant for the payment of all rent, and for the due performance of all of Tenant's obligations, under this Lease. No transfer shall be binding on Landlord unless any document memorializing 12 10/31/96 the transfer is delivered to Landlord and both the assignee/subtenant and Tenant deliver to Landlord an executed consent to transfer instrument prepared by Landlord and consistent with the requirements of this Article. The acceptance by Landlord of any payment due under this Lease from any other person shall not be deemed to be a waiver by Landlord of any provision of this Lease or to be a consent to any transfer. Consent by Landlord to one or more transfers shall not operate as a waiver or estoppel to the future enforcement by Landlord of its rights under this Lease. SECTION 9.3. SUBLEASE REQUIREMENTS. The following terms and conditions shall apply to any subletting by Tenant of all or any part of the Premises and shall be deemed included in each sublease: (a) Each and every provision contained in this Lease (other than with respect to the payment of rent hereunder) is incorporated by reference into and made a part of such sublease, with "Landlord" hereunder meaning the sublandlord therein and "Tenant" hereunder meaning the subtenant therein. (b) Tenant hereby irrevocably assigns to Landlord all of Tenant's interest in all rentals and income arising from any sublease of the Premises, and Landlord may collect such rent and income and apply same toward Tenant's obligations under this Lease; provided, however, that until a default occurs in the performance of Tenant's obligations under this Lease, Tenant shall have the right to receive and collect the sublease rentals. Landlord shall not, by reason of this assignment or the collection of sublease rentals, be deemed liable to the subtenant for the performance of any of Tenant's obligations under the sublease. Tenant hereby irrevocably authorizes and directs any subtenant, upon receipt of a written notice from Landlord stating that an uncured default exists in the performance of Tenant's obligations under this Lease, to pay to Landlord all sums then and hereafter due under the sublease. Tenant agrees that the subtenant may rely on that notice without any duty of further inquiry and notwithstanding any notice or claim by Tenant to the contrary. Tenant shall have no right or claim against the subtenant or Landlord for any rentals so paid to Landlord. (c) In the event of the termination of this Lease, Landlord may, at its sole option, take over Tenant's entire interest in any sublease and, upon notice from Landlord, the subtenant shall attorn to Landlord. In no event, however, shall Landlord be liable for any previous act or omission by Tenant under the sublease or for the return of any advance rental payments or deposits under the sublease that have not been actually delivered to Landlord, nor shall Landlord be bound by any sublease modification executed without Landlord's consent or for any advance rental payment by the subtenant in excess of one month's rent. The general provisions of this Lease, including without limitation those pertaining to insurance and indemnification, shall be deemed incorporated by reference into the sublease despite the termination of this Lease. SECTION 9.4. CERTAIN TRANSFERS. The sale of all or substantially all of Tenant's assets (other than bulk sales in the ordinary course of business) or, if Tenant is a corporation, an unincorporated association, or a partnership, the transfer, assignment or hypothecation of any stock or interest in such corporation, association, or partnership in the aggregate of twenty-five percent (25%) or more (except for publicly traded shares of stock constituting a transfer of twenty-five percent (25%) or more in the aggregate, so long as no change in the controlling interest of Tenant occurs as a result thereof) shall be deemed an assignment within the meaning and provisions of this Article. Notwithstanding the foregoing, Landlord's consent shall not be required for any Transfer to an "Affiliate" (as defined below), so long as (i) the net worth of the transferee after such Transfer is at least equal to the greater of the net worth of Tenant as of the execution of this Lease by Landlord or the net worth of Tenant immediately prior to the date of such Transfer, evidence of which, satisfactory to Landlord, shall be presented to Landlord prior to such Transfer, (ii) Tenant shall provide to Landlord, prior to such Transfer, written notice of such Transfer and such assignment documentation and other information as Landlord may request in connection therewith, and (iii) all of the other terms and requirements of this Article shall apply with respect to such Transfer. As used herein, Tenant's "Affiliate" shall be defined as (i) a corporation into or with which Tenant is merged or consolidated; (ii) a corporation into which all or substantially all of Tenant's assets are transferred; (iii) any corporation or other entity which controls or is controlled by Tenant; or (iv) a corporation controlled by Tenant's parent corporation to the same extent as Tenant is controlled by such parent corporation. ARTICLE X. INSURANCE AND INDEMNITY SECTION 10.1. TENANT'S INSURANCE. Tenant, at its sole cost and expense, shall provide and maintain in effect the insurance described in Exhibit D. Evidence of that insurance must be delivered to Landlord prior to the Commencement Date. SECTION 10.2. LANDLORD'S INSURANCE. Landlord may, at its election, provide any or all of the following types of insurance, with or without deductible and in amounts and coverages as may be determined by Landlord in its discretion: "all risk" property insurance, subject to standard exclusions, covering the Building or Project, and such other risks as Landlord or its mortgagees may from time to time deem appropriate, including leasehold improvements made by Landlord, and commercial general liability coverage. Landlord shall not be required to carry insurance of any kind of Tenant's property, including leasehold improvements, trade fixtures, furnishings, equipment, plate glass, signs and all other items of personal property, and shall not be obligated to repair or replace that property should damage occur. All proceeds of insurance maintained by Landlord upon the Building and Project shall be the property of Landlord, whether or not Landlord is obligated to or elects to make any repairs. At Landlord's option, Landlord may self-insure all or any portion of the risks for which Landlord elects to provide insurance hereunder. SECTION 10.3. TENANT'S INDEMNITY. To the fullest extent permitted by law, but except to the extent of the sole active negligence or willful misconduct of Landlord, its employees, contractors or authorized agents, Tenant 13 10/31/96 shall defend, indemnify, protect, save and hold harmless Landlord, its agents, and any and all affiliates of Landlord, including, without limitation, any corporations or other entities controlling, controlled by or under common control with Landlord, from and against any and all claims, liabilities, costs or expenses arising either before or after the Commencement Date from Tenant's use or occupancy of the Premises, the Building or the Common Areas, or from the conduct of its business, or from any activity, work, or thing done, permitted or suffered by Tenant or its agents, employees, invitees or licensees in or about the Premises, the Building or the Common Areas, or from any default in the performance of any obligation on Tenant's part to be performed under this Lease, or from any act or negligence of Tenant or its agents, employees, visitors, patrons, guests, invitees or licensees. Landlord may, at its option, require Tenant to assume Landlord's defense in any action covered by this Section through counsel satisfactory to Landlord. The provisions of this Section shall expressly survive the expiration or sooner termination of this Lease. SECTION 10.4. LANDLORD'S NONLIABILITY. Except to the extent of the sole active negligence of Landlord, its employees, contractors or authorized agents, Landlord shall not be liable to Tenant, its employees, agents and invitees, and Tenant hereby waives all claims against Landlord for loss of or damage to any property or personal injury, or any other loss, cost, damage, injury or liability whatsoever resulting from fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak or flow from or into any part of the Premises or from the breakage, leakage, obstruction or other defects of the pipes, sprinklers, wires, appliances, plumbing, air conditioning, electrical works or other fixtures in the Building, whether the damage or injury results from conditions arising in the Premises or in other portions of the Building. It is understood that any such condition may require the temporary evacuation or closure of all or a portion of the Building. Notwithstanding any provision of this Lease to the contrary, including, without limitation, the negligence or willful misconduct of Landlord, its employees, contractors or authorized agents, Landlord shall in no event be liable to Tenant, its employees, agents, and invitees, and Tenant hereby waives all claims against Landlord, for loss or interruption of Tenant's business or income (including, without limitation, any consequential damages and lost profit or opportunity costs), or any other loss, cost, damage, injury or liability resulting from, but not limited to, Acts of God (except with respect to restoration obligations pursuant to Article XI below), acts of civil disobedience or insurrection, acts or omissions (criminal or otherwise) of any third parties (other than Landlord's employees or authorized agents), including without limitation, any other tenants within the Project or their agents, employees, contractors, guests or invitees. Except as provided in Sections 11.1 and 12.1 below, there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant's business (including without limitation consequential damages and lost profit or opportunity costs) arising from the making of any repairs, alterations or improvements to any portion of the Building, including repairs to the Premises, nor shall any related activity by Landlord constitute an actual or constructive eviction; provided, however, that in making repairs, alterations or improvements, Landlord shall interfere as little as reasonably practicable with the conduct of Tenant's business in the Premises. Neither Landlord nor its agents shall be liable for interference with light or other similar intangible interests. Tenant shall immediately notify Landlord in case of fire or accident in the Premises, the Building or the Project and of defects in any improvements or equipment. SECTION 10.5. WAIVER OF SUBROGATION. Landlord and Tenant each hereby waives all rights of recovery against the other and the other's agents on account of loss and damage occasioned to the property of such waiving party to the extent only that such loss or damage is required to be insured against under any "all risk" property insurance policies required by this Article X; provided however, that (i) the foregoing waiver shall not apply to the extent of Tenant's obligations to pay deductibles under any such policies and this Lease, and (ii) if any loss is due to the act, omission or negligence or willful misconduct of Tenant or its agents, employees, contractors, guests or invitees, Tenant's liability insurance shall be primary and shall cover all losses and damages prior to any other insurance hereunder. By this waiver it is the intent of the parties that neither Landlord nor Tenant shall be liable to any insurance company (by way of subrogation or otherwise) insuring the other party for any loss or damage insured against under any "all-risk" property insurance policies required by this Article, even though such loss or damage might be occasioned by the negligence of such party, its agents, employees, contractors, guests or invitees. The provisions of this Section shall not limit the indemnification provisions elsewhere contained in this Lease. ARTICLE XI. DAMAGE OR DESTRUCTION. SECTION 11.1. RESTORATION. (a) If the Building is damaged, Landlord shall repair that damage as soon as reasonably possible, at its expense, unless: (i) Landlord reasonably determines that the cost of repair is not covered by Landlord's fire and extended coverage insurance plus such additional amounts Tenant elects, at its option, to contribute, excluding however the deductible (for which Tenant shall be responsible for Tenant's proportionate share); (ii) Landlord reasonably determines that the Premises cannot, with reasonable diligence, be fully repaired by Landlord (or cannot be safely repaired because of the presence of hazardous factors, including without limitation Hazardous Materials, earthquake faults, and other similar dangers) within two hundred seventy (270) days after the date of the damage; (iii) an event of default by Tenant has occurred and is continuing at the time of such damage; or (iv) the damage occurs during the final twelve (12) months of the Term. Landlord shall notify Tenant in writing ("Landlord's Notice") within sixty (60) days after the damage occurs as to (i) whether Landlord is terminating this Lease as a result of the damage and (ii) if Landlord is not terminating this Lease, the number of days within which Landlord has estimated that the Premises, with reasonable diligence, are likely to be fully repaired. In the event Landlord elects to terminate this Lease, this Lease shall terminate as of the date specified for termination by Landlord's Notice (which termination date shall in no event be later than sixty (60) days following the date of the damage, or, if no such date is specified, such termination shall be the date of Landlord's Notice). 14 10/31/96 (b) If Landlord does not elect to terminate this Lease under subsection (a), and provided that Tenant is not in default under this Lease (with all applicable notice of default having been given, and applicable cure periods having expired without Tenant having cured such default) then within ten (10) days following delivery of Landlord's Notice pursuant to subsection (a) above, Tenant may elect to terminate this Lease by written notice to Landlord, but only if (i) Landlord's Notice specifies that Landlord has determined that the Premises cannot be repaired, with reasonable diligence, within two hundred seventy (270) days after the date of damage or (ii) if the damage has occurred within the final twelve (12) months of the Term. If Tenant fails to provide such termination notice within such ten (10) day period, Tenant shall be deemed to have waived any termination right under this subsection or any other applicable law. In the event that neither Landlord nor Tenant terminates this Lease pursuant to this Section as a result of damage to the Building or Premises, then Landlord shall thereafter repair that damage as soon as reasonably possible and this Lease shall continue in effect for the remainder of the Term, provided that Landlord shall have no obligation as to any other leasehold improvements made by Tenant or any Alterations (as defined in Section 7.3) constructed by Tenant. Landlord shall have no liability to Tenant in the event that the Premises or the Building has not been fully repaired within the time period specified by Landlord in Landlord' Notice to Tenant as described in subsection(a). (c) Commencing on the date of any damage to the Building, and ending on the sooner of the date the damage is repaired or the date this Lease is terminated, the rental to be paid under this Lease shall be abated in the same proportion that the floor area of the Building that is rendered unusable by the damage from time to time bears to the total floor area of the Building, but only to the extent that Tenant is carrying the business interruption insurance required of Tenant in Exhibit D. (d) Notwithstanding the provisions of subsections (a), (b) and (c) of this Section, and subject to the provisions of Section 10.5 above, the cost of any repairs shall be borne by Tenant, and Tenant shall not be entitled to rental abatement or termination rights, if the damage is due solely to the fault or neglect of Tenant or its employees, subtenants, invitees or representatives. In addition, the provisions of this Section shall not be deemed to require Landlord to repair any improvements or fixtures that Tenant is obligated to repair or insure pursuant to any other provision of this Lease. (e) Tenant shall fully cooperate with Landlord in removing Tenant's personal property and any debris from the Premises to facilitate all inspections of the Premises and the making of any repairs. Notwithstanding anything to the contrary contained in this Lease, if Landlord in good faith believes there is a risk of injury to persons or damage to property from entry into the Building or Premises following any damage or destruction thereto, Landlord may restrict entry into the Building or the Premises by Tenant, its employees, agents and contractors in a non-discriminatory manner, without being deemed to have violated Tenant's rights of quiet enjoyment to, or made an unlawful detainer of, or evicted Tenant from, the Premises. Upon request, Landlord shall consult with Tenant to determine if there are safe methods of entry into the Building or the Premises solely in order to allow Tenant to retrieve files, data in computers, and necessary inventory, subject however to all indemnities and waivers of liability from Tenant to Landlord contained in this Lease and any additional indemnities and waivers of liability which Landlord may require. SECTION 11.2. LEASE GOVERNS. Tenant agrees that the provisions of this Lease, including without limitation Section 11.1, shall govern any damage or destruction and shall accordingly supersede any contrary statute or rule of law. ARTICLE XII. EMINENT DOMAIN SECTION 12.1. TOTAL OR PARTIAL TAKING. If all or a material portion of the Premises is taken by any lawful authority by exercise of the right of eminent domain, or sold to prevent a taking, either Tenant or Landlord may terminate this Lease effective as of the date possession is required to be surrendered to the authority. In the event title to a portion of the Premises is taken or sold in lieu of taking, and if Landlord elects to restore the Premises in such a way as to alter the Premises materially, either party may terminate this Lease, by written notice to the other party, effective on the date of vesting of title. In the event neither party has elected to terminate this Lease as provided above, then Landlord shall promptly, after receipt of a sufficient condemnation award, proceed to restore the Premises to substantially their condition prior to the taking, and a proportionate allowance shall be made to Tenant for the rent corresponding to the time during which, and to the part of the Premises of which, Tenant is deprived on account of the taking and restoration. In the event of a taking, Landlord shall be entitled to the entire amount of the condemnation award without deduction for any estate or interest of Tenant; provided that nothing in this Section shall be deemed to give Landlord any interest in, or prevent Tenant from seeking any award against the taking authority for, the taking of personal property and fixtures belonging to Tenant or for relocation or business interruption expenses recoverable from the taking authority. SECTION 12.2 TEMPORARY TAKING. No temporary taking of the Premises shall terminate this Lease or give Tenant any right to abatement of rent, and any award specifically attributable to a temporary taking of the Premises shall belong entirely to Tenant. A temporary taking shall be deemed to be a taking of the use or occupancy of the Premises for a period of not to exceed one hundred eight (180) days. SECTION 12.3. TAKING OF PARKING AREA. In the event there shall be a taking of the parking area such that Landlord can no longer provide sufficient parking to comply with this Lease, Landlord may substitute reasonably equivalent parking in a location reasonably close to the Building; provided that if Landlord fails to make that substitution within ninety (90) days following the taking and if the taking materially impairs Tenant's use and enjoyment 15 10/31/96 of the Premises, Tenant may, at its option, terminate this Lease by written notice to Landlord. If this Lease is not so terminated by Tenant, there shall be no abatement of rent and this Lease shall continue in effect. ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS SECTION 13.1. SUBORDINATION. At the option of Landlord, this Lease shall be either superior or subordinate to all ground or underlying leases, mortgages and deeds of trust, if any, which may hereafter affect the Premises, and to all renewals, modifications, consolidations, replacements and extensions thereof; provided, that so long as Tenant is not in default under this Lease (with all applicable notices of default having been given, and applicable cure periods having expired without Tenant having cured such default), this Lease shall not be terminated or Tenant's quiet enjoyment of the Premises disturbed in the event of termination of any such ground or underlying lease, or the foreclosure of any such mortgage or deed of trust, to which Tenant has subordinated this Lease pursuant to this Section. In the event of a termination or foreclosure, Tenant shall become a tenant of and attorn to the successor-in-interest to Landlord upon the same terms and conditions as are contained in this Lease, and shall execute any instrument reasonably required by Landlord's successor for that purpose. Tenant shall also, upon written request of Landlord, execute and deliver all instruments as may be required from time to time to subordinate the rights of Tenant under this Lease to any ground or underlying lease or to the lien of any mortgage or deed of trust (provided that such instruments include the nondisturbance and attornment provisions set forth above), or, if requested by Landlord, to subordinate, in whole or in part, any ground or underlying lease or the lien of any mortgage or deed of trust to this Lease. SECTION 13.2. ESTOPPEL CERTIFICATE. (a) Tenant shall, at any time upon not less than ten (10) days prior written notice from Landlord, execute, acknowledge and deliver to Landlord, in any form that Landlord may reasonably require, a statement in writing (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of the modification and certifying that this Lease, as modified, is in full force and effect) and the dates to which the rental, additional rent and other charges have been paid in advance, if any, and (ii) acknowledging that, to Tenant's knowledge, there are no uncured defaults on the part of Landlord, or specifying each default if any are claimed, and (iii) setting forth all further information that Landlord may reasonably require. Tenant's statement may be relied upon by any prospective purchaser or encumbrancer of the Premises. (b) Notwithstanding any other rights and remedies of Landlord, Tenant's failure to deliver any estoppel statement within the provided time shall be conclusive upon Tenant that (i) this Lease is in full force and effect, without modification except as may be represented by Landlord, (ii) there are no uncured defaults in Landlord's performance, and (iii) not more than one month's rental has been paid in advance. SECTION 13.3 FINANCIALS. (a) Tenant shall deliver to Landlord, prior to the execution of this Lease and thereafter at any time within ten (10) days following Landlord's written request (but not more frequently than twice in any calendar year), Tenant's current financial statements, certified true, accurate and complete by the chief financial officer of Tenant, including a balance sheet and profit and loss statement for the most recent prior year (collectively, the "Statements"), which Statements shall accurately and completely reflect the financial condition of Tenant. Landlord agrees that it will keep the Statements confidential, except that Landlord shall have the right to deliver the same to any proposed purchaser or encumbrancer of the Premises. (b) Tenant acknowledges that Landlord is relying on the Statements in its determination to enter into this Lease, and Tenant represents to Landlord, which representation shall be deemed made on the date of this Lease and again on the Commencement Date, that no material change in the financial condition of Tenant, as reflected in the Statements, has occurred since the date Tenant delivered the Statements to Landlord. The Statements are represented and warranted by Tenant to be correct and to accurately and fully reflect Tenant's true financial condition as of the date of submission by any Statements to Landlord. ARTICLE XIV. DEFAULTS AND REMEDIES SECTION 14.1. TENANT'S DEFAULTS. In addition to any other event of default set forth in this Lease, the occurrence of any one or more of the following events shall constitute a default by Tenant: (a) The failure by Tenant to make any payment of rent or additional rent required to be made by Tenant, as and when due, where the failure continues for a period of ten (10) days after written notice from Landlord to Tenant; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedures Section 1161 and 1161(a) as amended. For purposes of these default and remedies provisions, the term "additional rent" shall be deemed to include all amounts of any type whatsoever other than Basic Rent to be paid by Tenant pursuant to the terms of this Lease. (b) Assignment, sublease, encumbrance or other transfer of the Lease by Tenant, either voluntarily or by operation of law, whether by judgment, execution, transfer by intestacy or testacy, or other means, without the prior consent of Landlord. 16 10/31/96 (c) The discovery by Landlord that any financial statement provided by Tenant, or by any affiliate, successor or guarantor of Tenant, was materially false. (d) The failure of Tenant to timely and fully provide any subordination agreement, estoppel certificate or financial statements in accordance with the requirements of Article XIII, if such failure continues for ten (10) days after written notice from Landlord. (e) The failure or inability by Tenant to observe or perform any of the express or implied covenants or provisions of this Lease to be observed or performed by Tenant, other than as specified in any other subsection of this Section, where the failure continues for a period of thirty (30) days after written notice from Landlord to Tenant or such shorter period as is specified in any other provision of this Lease; provided, however, that any such notice shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161 and 1161(a) as amended. However, if the nature of the failure is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commences the cure within thirty (30) days, and thereafter diligently pursues the cure to completion. (f) (i) The making by Tenant of any general assignment for the benefit of creditors; (ii) the filing by or against Tenant of a petition to have Tenant adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts discharged or 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 within thirty (30) days); (iii) 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, if possession is not restored to Tenant within thirty (30) days; or (iv) 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 the seizure is not discharged within thirty (30) days. Landlord shall not be deemed to have knowledge of any event described in this subsection unless notification in writing is received by Landlord, nor shall there by any presumption attributable to Landlord of Tenant's insolvency. In the event that any provision of this subsection is contrary to applicable law, the provision shall be of no force or effect. SECTION 14.2. LANDLORD'S REMEDIES. (a) In the event of any default by Tenant, then in addition to any other remedies available to Landlord, Landlord may exercise the following remedies: (i) Landlord may terminate Tenant's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. Such termination shall not affect any accrued obligations of Tenant under this Lease. Upon termination, Landlord shall have the right to reenter the Premises and remove all persons and property. Landlord shall also be entitled to recover from Tenant: (1) The worth at the time of award of the unpaid rent and additional rent which had been earned at the time of termination; (2) The worth at the time of award of the amount by which the unpaid rent and additional rent which would have been earned after termination until the time of award exceeds the amount of such loss that Tenant proves could have been reasonably avoided; (3) The worth at the time of award of the amount by which the unpaid rent and additional rent for the balance of the Term after the time of award exceeds the amount of such loss that Tenant proves could be reasonably avoided; (4) Any other amount necessary to compensate Landlord for all the 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 from Tenant's default, including, but not limited to, the cost of recovering possession of the Premises, refurbishment of the Premises, marketing costs, commissions and other expenses of reletting, including necessary repair, the unamortized portion of any tenant improvements and brokerage commissions funded by Landlord in connection with this Lease, reasonable attorneys' fees, and any other reasonable costs; and (5) At Landlord's election, all other amounts in addition to or in lieu of the foregoing as may be permitted by law. The term "rent" as used in this Lease shall be deemed to mean the Basic Rent and all other sums required to be paid by Tenant to Landlord pursuant to the terms of this Lease. Any sum, other than Basic Rent, shall be computed on the basis of the average monthly amount accruing during the twenty-four (24) month period immediately prior to default, except that if it becomes necessary to compute such rental before the twenty-four (24) month period has occurred, then the computation shall be on the basis of the average monthly amount during the shorter period. As used in subparagraphs (1) and (2) above, the "worth at the time of award" shall be computed by allowing interest at the rate of ten percent (10%) per annum. As used in subparagraph (3) above, the "worth at the time of award" shall be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). (ii) Landlord may elect not to terminate Tenant's right to possession of the Premises, in which event Landlord may continue to enforce all of its rights and remedies under this Lease, including the right to collect all rent as it becomes due. Efforts by the Landlord to maintain, preserve or relet the Premises, or the appointment of a receiver to protect the Landlord's interests under this Lease, shall not constitute a termination of the Tenant's right 10/31/96 17 to possession of the Premises. In the event that Landlord elects to avail itself of the remedy provided by this subsection (ii), Landlord shall not unreasonably withhold its consent to an assignment or subletting of the Premises subject to the reasonable standards for Landlord's consent as are contained in this Lease. (b) The various rights and remedies reserved to Landlord in this Lease or otherwise shall be cumulative and, except as otherwise provided by California law, Landlord may pursue any or all of its rights and remedies at the same time. (c) No delay or omission of Landlord to exercise any right or remedy shall be construed as a waiver of the right or remedy or of any default by Tenant. The acceptance by Landlord of rent shall not be a (i) waiver of any preceding breach or default by Tenant of any provision of this Lease, other than the failure of Tenant to pay the particular rent accepted, regardless of Landlord's knowledge of the preceding breach or default at the time of acceptance of rent, or (ii) a waiver of Landlord's right to exercise any remedy available to Landlord by virtue of the breach or default. The acceptance of any payment from a debtor in possession, a trustee, a receiver or any other person acting on behalf of Tenant or Tenant's estate shall not waive or cure a default under Section 14.1. No payment by Tenant or receipt by Landlord of a lesser amount than the rent required by this Lease shall be deemed to be other than a partial payment on account of the earliest due stipulated rent, nor shall any endorsement or statement on any check or letter be deemed an accord and satisfaction and Landlord shall accept the check or payment without prejudice to Landlord's right to recover the balance of the rent or pursue any other remedy available to it. No act or thing done by Landlord or Landlord's agents during the Term shall be deemed an acceptance of a surrender of the Premises, and no agreement to accept a surrender shall be valid unless in writing and signed by Landlord. No employee of Landlord or of Landlord's agents shall have any power to accept the keys to the Premises prior to the termination of this Lease, and the delivery of the keys to any employee shall not operate as a termination of the Lease or a surrender of the Premises. SECTION 14.3. LATE PAYMENTS. (a) Any rent due under this Lease that is not received by Landlord within ten (10) days of the date when due shall bear interest at the maximum rate permitted by law from the date due until fully paid. The payment of interest shall not cure any default by Tenant under this Lease. In addition, Tenant acknowledges that the late payment by Tenant to Landlord of rent will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult and impracticable to ascertain. Those costs may include, but are not limited to, administrative, processing and accounting charges, and late charges which may be imposed on Landlord by the terms of any ground lease, mortgage or trust deed covering the Premises. Accordingly, if any rent due from Tenant shall not be received by Landlord or Landlord's designee within ten (10) days after the date due, then Tenant shall pay to Landlord, in addition to the interest provided above, a late charge in a sum equal to the greater of five percent (5%) of the amount overdue or Two Hundred Fifty Dollars ($250.00) for each delinquent payment. Acceptance of a late charge by Landlord shall not constitute a waiver of Tenant's default with respect to the overdue amount, nor shall it prevent Landlord from exercising any of its other rights and remedies. (b) Following each second consecutive installment of rent that is not paid within ten (10) days following notice of nonpayment from Landlord, Landlord shall have the option (i) to require that beginning with the first payment of rent next due, rent shall no longer be paid in monthly installments but shall be payable quarterly three (3) months in advance and/or (ii) to require that Tenant increase the amount, if any, of the Security Deposit by one hundred percent (100%). Should Tenant deliver to Landlord, at any time during the Term, two (2) or more insufficient checks, the Landlord may require that all monies then and thereafter due from Tenant be paid to Landlord by cashier's check. SECTION 14.4. RIGHT OF LANDLORD TO PERFORM. All covenants and agreements to be performed by Tenant under this Lease shall be performed at Tenant's sole cost and expense and without any abatement of rent or right of set-off. If Tenant fails to pay any sum of money, other than rent, or fails to perform any other act on its part to be performed under this Lease, and the failure continues beyond any applicable grace period set forth in Section 14.1, then in addition to any other available remedies, Landlord may, at its election make the payment or perform the other act on Tenant's part. Landlord's election to make the payment or perform the act on Tenant's part shall not give rise to any responsibility of Landlord to continue making the same or similar payments or performing the same or similar acts. Tenant shall, promptly upon demand by Landlord, reimburse Landlord for all sums paid by Landlord and all necessary incidental costs, together with interest at the maximum rate permitted by law from the date of the payment by Landlord. Landlord shall have the same rights and remedies if Tenant fails to pay those amounts as Landlord would have in the event of a default by Tenant in the payment of rent. SECTION 14.5. DEFAULT BY LANDLORD. Landlord shall not be deemed to be in default in the performance of any obligation under this Lease unless and until it has failed to perform the obligation within thirty (30) days after written notice by Tenant to Landlord specifying in reasonable detail the nature and extent of the failure; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be deemed to be in default if it commences performance within the thirty (30) day period and thereafter diligently pursues the cure to completion. SECTION 14.6. EXPENSES AND LEGAL FEES. All sums reasonably incurred by Landlord in connection with any event of default by Tenant under this Lease or holding over of possession by Tenant after the expiration or earlier termination of this Lease, including without limitation all costs, expenses and actual accountants, appraisers, attorneys and other professional fees, and any collection agency or other collection charges, shall be due and payable by Tenant to Landlord on demand, and shall bear interest at the rate of ten percent (10%) per annum. Should either Landlord or Tenant bring any action in connection with this Lease, the prevailing party shall be entitled to recover as 18 10/31/96 a part of the action its reasonable attorneys' fees, and all other costs. The prevailing party for the purpose of this paragraph shall be determined by the trier of the facts. SECTION 14.7. WAIVER OF JURY TRIAL. LANDLORD AND TENANT EACH ACKNOWLEDGES THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER (AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR SUBSIDIARY OR AFFILIATED ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM OF INJURY OR DAMAGE. SECTION 14.8. SATISFACTION OF JUDGMENT. The obligations of Landlord do not constitute the personal obligations of the individual partners, trustees, directors, officers or shareholders of Landlord or its constituent partners. Should Tenant recover a money judgment against Landlord, such judgment shall be satisfied only out of the proceeds of sale received upon execution of such judgment and levied thereon against the right, title and interest of Landlord in the Project and out of the rent or other income from such property receivable by Landlord or out of consideration received by Landlord from the sale or other disposition of all or any part of Landlord's right, title or interest in the Project, and no action for any deficiency may be sought or obtained by Tenant. SECTION 14.9. LIMITATION OF ACTIONS AGAINST LANDLORD. Any claim, demand or right of any kind by Tenant which is based upon or arises in connection with this Lease shall be barred unless Tenant commences an action thereon within twelve (12) months after the date that the act, omission, event or default upon which the claim, demand or right arises, has occurred. ARTICLE XV. END OF TERM SECTION 15.1. HOLDING OVER. This Lease shall terminate without further notice upon the expiration of the Term, and any holding over by Tenant after the expiration shall not constitute a renewal or extension of this Lease, or give Tenant any rights under this Lease, except when in writing signed by both parties. If Tenant holds over for any period after the expiration (or earlier termination) of the Term without the prior written consent of Landlord, such possession shall constitute a tenancy at sufferance only; such holding over with the prior written consent of Landlord shall constitute a month-to-month tenancy commencing on the first (1st) day following the termination of this Lease. In either of such events, possession shall be subject to all of the terms of this Lease, except that the monthly Basic Rent shall be the greater of (a) one hundred fifty percent (150%) of the Basic Rent for the month immediately preceding the date of termination for the initial three (3) months of holdover, and two hundred percent (200%) of the Basic Rent for the month immediately preceding the date of termination for each month of holdover thereafter, or (b) the then currently scheduled Basic Rent for comparable space in the Project. If Tenant fails to surrender the Premises upon the expiration of this Lease despite demand to do so by Landlord, Tenant shall indemnify and hold Landlord harmless from all loss or liability, including without limitation, any claims made by any succeeding tenant relating to such failure to surrender, provided Tenant has been notified in writing by Landlord prior to the expiration of the Term of such succeeding tenant. Acceptance by Landlord of rent after the termination shall not constitute a consent to a holdover or result in a renewal of this Lease. The foregoing provisions of this Section are in addition to and do not affect the Landlord's right of re-entry or any other rights of Landlord under this Lease or at law. SECTION 15.2. MERGER ON TERMINATION. The voluntary or other surrender of this Lease by Tenant, or a mutual termination of this Lease, shall terminate any or all existing subleases unless Landlord, at its option, elects in writing to treat the surrender or termination as an assignment to it of any or all subleases affecting the Premises. SECTION 15.3. SURRENDER OF PREMISES; REMOVAL OF PROPERTY. Upon the Expiration Date or upon any earlier termination of this Lease, Tenant shall quit and surrender possession of the Premises to Landlord in as good order, condition and repair as when received or as hereafter may be improved by Landlord or Tenant, reasonable wear and tear and repairs which are Landlord's obligation excepted, and shall, without expense to Landlord, remove or cause to be removed from the Premises all personal property and debris, except for any items that Landlord may by written authorization allow to remain. Tenant shall repair all damage to the Premises resulting from the removal, which repair shall include the patching and filling of holes and repair of structural damage, provided that Landlord may instead elect to repair any structural damage at Tenant's expense. If Tenant shall fail to comply with the provisions of this Section, Landlord may effect the removal and/or make any repairs, and the cost to Landlord shall be additional rent payable by Tenant upon demand. If Tenant fails to remove Tenant's personal property from the Premises upon the expiration of the Term, Landlord may remove, store, dispose of and/or retain such personal property, at Landlord's option, in accordance with then applicable laws, all at the expense of Tenant. If requested by Landlord, Tenant shall execute, acknowledge and deliver to Landlord an instrument in writing releasing and quitclaiming to Landlord all right, title and interest of Tenant in the Premises. 19 10/31/96 ARTICLE XVI. PAYMENTS AND NOTICES All sums payable by Tenant to Landlord shall be paid, without deduction or offset, in lawful money of the United States to Landlord at its address set forth in Item 12 of the Basic Lease Provisions, or at any other place as Landlord may designate in writing. Unless this Lease expressly provides otherwise, as for example in the payment of rent pursuant to Section 4.1, all payments shall be due and payable within five (5) days after demand. All payments requiring proration shall be prorated on the basis of a thirty (30) day month and a three hundred sixty (360) day year. Any notice, election, demand, consent, approval or other communication to be given or other document to be delivered by either party to the other may be delivered in person or by reputable overnight delivery service to the other party, or by facsimile transmission, or may be deposited in the United States mail, duly registered or certified, postage prepaid, return receipt requested, and addressed to the other party at the address set forth in Item 12 of the Basic Lease Provisions, or if to Tenant, at that address or, from and after the Commencement Date, at the Premises (whether or not Tenant has departed from, abandoned or vacated the Premises). Either party may, by written notice to the other, served in the manner provided in this Article, designate a different address. If any notice or other document is sent by regular mail, it shall be deemed served or delivered twenty-four (24) hours after mailing. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. Notices delivered by U.S. Express Mail or overnight delivery service guaranteeing next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the postal service delivery service. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day. If more than one person or entity is named as Tenant under this Lease, service of any notice upon any one of them shall be deemed as service upon all of them. ARTICLE XVII. RULES AND REGULATIONS Tenant agrees to observe faithfully and comply strictly with the Rules and Regulations, attached as Exhibit E, and any reasonable and nondiscriminatory amendments, modifications and/or additions as may be adopted and published by written notice to tenants by Landlord for the safety, care, security, good order, or cleanliness of the Premises, and Project and Common Areas (if applicable). Landlord shall not be liable to Tenant for any violation of the Rules and Regulations or the breach of any covenant or condition in any lease by any other tenant or such tenant's agents, employees, contractors, quests or invitees. One or more waivers by Landlord of any breach of the Rules and Regulations by Tenant or by any other tenant(s) shall not be a waiver of any subsequent breach of that rule or any other. Tenant's failure to keep and observe the Rules and Regulations shall constitute a default under this Lease. In the case of any conflict between the Rules and Regulations and this Lease, this Lease shall be controlling. ARTICLE XVIII. BROKER'S COMMISSION The parties recognize as the broker(s) who negotiated this Lease the firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic Lease Provisions, and agree that Landlord shall be responsible for the payment of brokerage commissions to those broker(s) unless otherwise provided in this Lease. Tenant warrants that it has had no dealings with any other real estate broker or agent in connection with the negotiation of this Lease, and Tenant agrees to indemnify and hold Landlord harmless from any cost, expense or liability (including reasonable attorneys' fees) for any compensation, commissions or charges claimed by any other real estate broker or agent employed or claiming to represent or to have been employed by Tenant in connection with the negotiation of this Lease. The foregoing agreement shall survive the termination of this Lease. ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST In the event of any transfer of Landlord's interest in the Premises, the transferor shall be automatically relieved of all obligations on the part of Landlord accruing under this Lease from and after the date of the transfer, provided that any funds held by the transferor in which Tenant has an interest shall be turned over, subject to that interest, to the transferee and Tenant is notified of the transfer as required by law. No holder of a mortgage and/or deed of trust to which this Lease is or may be subordinate, and no landlord under a so-called sale-leaseback, shall be responsible in connection with the Security Deposit, unless the mortgagee or holder of the deed of trust or the landlord actually receives the Security Deposit. It is intended that the covenants and obligations contained in this Lease on the part of Landlord shall, subject to the foregoing, be binding on Landlord, its successors and assigns, only during and in respect to their respective successive periods of ownership. 20 10/31/96 ARTICLE XX. INTERPRETATION SECTION 20.1. GENDER AND NUMBER. Whenever the context of this Lease requires, the words "Landlord" and "Tenant" shall include the plural as well as the singular, and words used in neuter, masculine or feminine genders shall include the others. SECTION 20.2. HEADINGS. The captions and headings of the articles and sections of this Lease are for convenience only, are not a part of this Lease and shall have no effect upon its construction or interpretation. SECTION 20.3. JOINT AND SEVERAL LIABILITY. If more than one person or entity is named as Tenant, the obligations imposed upon each shall be joint and several and the act of or notice from, or notice or refund to, or the signature of, any one or more of them shall be binding on all of them with respect to the tenancy of this Lease, including, but not limited to, any renewal, extension, termination or modification of this Lease. SECTION 20.4. SUCCESSORS. Subject to Articles IX and XIX, all rights and liabilities given to or imposed upon Landlord and Tenant shall extend to and bind their respective heirs, executors, administrators, successors and assigns. Nothing contained in this Section is intended, or shall be construed, to grant to any person other than Landlord and Tenant and their successors and assigns any rights or remedies under this Lease. SECTION 20.5. TIME OF ESSENCE. Time is of the essence with respect to the performance of every provision of this Lease. SECTION 20.6. CONTROLLING LAW. This Lease shall be governed by and interpreted in accordance with the laws of the State of California. SECTION 20.7. SEVERABILITY. If any term or provision of this Lease, the deletion of which would not adversely affect the receipt of any material benefit by either party or the deletion of which is consented to by the party adversely affected, shall be held invalid or unenforceable to any extent, the remainder of this Lease shall not be affected and each term and provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. SECTION 20.8. WAIVER AND CUMULATIVE REMEDIES. One or more waivers by Landlord or Tenant of any breach of any term, covenant or condition contained in this Lease shall not be a waiver of any subsequent breach of the same or any other term, covenant or condition. Consent to any act by one of the parties shall not be deemed to render unnecessary the obtaining of that party's consent to any subsequent act. Any waiver by either party of any provision of this Lease must be in writing. Such written waiver shall affect only the provision specified and only for the time and in the manner stated in the writing. The rights and remedies of Landlord under this Lease shall be cumulative and in addition to any and all other rights and remedies which Landlord may have. SECTION 20.9. INABILITY TO PERFORM. In the event that either party shall be delayed or hindered in or prevented from the performance of any work or in performing any act required under this Lease by reason of any cause beyond the reasonable control of that party, then the performance of the work or the doing of the act shall be excused for the period of the delay and the time for performance shall be extended for a period equivalent to the period of the delay. The provisions of this Section shall not operate to excuse Tenant from the prompt payment of rent or from the timely performance of any other obligation under this Lease within Tenant's reasonable control. SECTION 20.10. ENTIRE AGREEMENT. This Lease and its exhibits and other attachments cover in full each and every agreement of every kind between the parties concerning the Premises, the Building, and the Project, and all preliminary negotiations, oral agreements, understandings and/or practices, except those contained in this Lease, are superseded and of no further effect. Tenant waives its rights to rely on any representations or promises made by Landlord or others which are not contained in this Lease. No verbal agreement or implied covenant shall be held to modify the provisions of this Lease, any statute, law, or custom to the contrary notwithstanding. SECTION 20.11. QUIET ENJOYMENT. Upon the observance and performance of all the covenants, terms and conditions on Tenant's part to be observed and performed, and subject to the other provisions of this lease, Tenant shall peaceably and quietly hold and enjoy the Premises for the Term without hindrance or interruption by Landlord or any other person claiming by or through Landlord. SECTION 20.12. SURVIVAL. All covenants of Landlord or Tenant which reasonably would be intended to survive the expiration or sooner termination of this Lease, including without limitation any warranty or indemnity hereunder, shall so survive and continue to be binding upon and inure to the benefit of the respective parties and their successors and assigns. ARTICLE XXI. EXECUTION AND RECORDING SECTION 21.1. COUNTERPARTS. This Lease may be executed in one or more counterparts, each of which shall constitute an original and all of which shall be one and the same agreement. SECTION 21.2. CORPORATE AND PARTNERSHIP AUTHORITY. If Tenant is a corporation or partnership, each individual executing this Lease on behalf of the corporation or partnership represents and warrants that 21 10/31/96 he is duly authorized to execute and deliver this Lease on behalf of the corporation or partnership, and that this Lease is binding upon the corporation or partnership in accordance with its terms. Tenant shall, at Landlord's request, deliver a certified copy of its board of directors' resolution or partnership agreement or certificate authorizing or evidencing the execution of this Lease. SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER. The submission of this Lease to Tenant shall be for examination purposes only, and shall not constitute an offer to or option for Tenant to lease the Premises. Execution of this Lease by Tenant and its return to Landlord shall not be binding upon Landlord, notwithstanding any time interval, until Landlord has in fact executed and delivered this Lease to Tenant, it being intended that this Lease shall only become effective upon execution by Landlord and delivery of a fully executed counterpart to Tenant. SECTION 21.4. RECORDING. Tenant shall not record this Lease without the prior written consent of Landlord. Tenant, upon the request of Landlord, shall execute and acknowledge a "short form" memorandum of this Lease for recording purposes. SECTION 21.5. AMENDMENTS. No amendment or termination of this Lease shall be effective unless in writing signed by authorized signatories of Tenant and Landlord, or by their respective successors in interest. No actions, policies, oral or informal arrangements, business dealings or other course of conduct by or between the parties shall be deemed to modify this Lease in any respect. SECTION 21.6. EXECUTED COPY. Any fully executed photocopy or similar reproduction of this Lease shall be deemed an original for all purposes. SECTION 21.7. ATTACHMENTS. All exhibits, amendments, riders and addenda attached to this Lease are hereby incorporated into and made a part of this Lease. ARTICLE XXII. MISCELLANEOUS SECTION 22.1. NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and agrees that the terms of this Lease are confidential and constitute proprietary information of Landlord. Disclosure of the terms could adversely affect the ability of Landlord to negotiate other leases and impair Landlord's relationship with other tenants. Accordingly, Tenant agrees that it, and its partners, officers, directors, employees and attorneys, shall not intentionally and voluntarily disclose the terms and conditions of this Lease to any other tenant or apparent prospective tenant of the Project, either directly or indirectly, without the prior written consent of Landlord, provided, however, that Tenant may disclose the terms to prospective subtenants or assignees under this Lease. SECTION 22.2. GUARANTY. As a condition to the execution of this Lease by Landlord, the obligations, covenants and performance of the Tenant as herein provided shall be guaranteed in writing by the Guarantor(s) listed in Item 7 of the Basic Lease Provisions, if any, on a form of guaranty provided by Landlord. SECTION 22.3. CHANGES REQUESTED BY LENDER. If, in connection with obtaining financing for the Project, the lender shall request reasonable modifications in this Lease as a condition to the financing, Tenant will not unreasonably withhold or delay its consent, provided that the modifications do not materially increase the obligations of Tenant or materially and adversely affect the leasehold interest created by this Lease. SECTION 22.4. MORTGAGEE PROTECTION. No act or failure to act on the part of Landlord which would otherwise entitle Tenant to be relieved of its obligations hereunder or to terminate this Lease shall result in such a release or termination unless (a) Tenant has given notice by registered or certified mail to any beneficiary of a deed of trust or mortgage covering the Premises whose address has been furnished to Tenant and (b) such beneficiary is afforded a reasonable opportunity to cure the default by Landlord (which in no event shall be less than sixty (60) days), including, if necessary to effect the cure, time to obtain possession of the Premises by power of sale or judicial foreclosure provided that such foreclosure remedy is diligently pursued. Tenant agrees that each beneficiary of a deed of trust or mortgage covering the Premises is an express third party beneficiary hereof, Tenant shall have no right or claim for the collection of any deposit from such beneficiary or from any purchaser at a foreclosure sale unless such beneficiary or purchaser shall have actually received and not refunded the deposit, and Tenant shall comply with any written directions by any beneficiary to pay rent due hereunder directly to such beneficiary without determining whether an event of default exists under such beneficiary's deed of trust. SECTION 22.5. COVENANTS AND CONDITIONS. All of the provisions of this Lease shall be construed to be conditions as well as covenants as though the words specifically expressing or imparting covenants and conditions were used in each separate provision. SECTION 22.6. SECURITY MEASURES. Tenant hereby acknowledges that Landlord shall have no obligation whatsoever to provide guard service or other security measures for the benefit of the Premises or the Project. Tenant assumes all responsibility for the protection of Tenant, its agents, invitees and property from acts of third parties. Nothing herein contained shall prevent Landlord, at its sole option, from providing security protection for the Project or any part thereof, in which event the cost thereof shall be included within the definition of Building Costs. 22 10/31/96 SECTION 22.7 JAMS. (a) All claims or disputes between Landlord and Tenant arising out of, or relating to the Lease which either party is expressly authorized by a provision hereof to submit to arbitration, shall be decided by the JAMS/ENDISPUTE, or its successor, in Orange, California ("JAMS"), unless the parties mutually agree otherwise. Within ten (10) business days following submission to JAMS, JAMS shall designate three arbitrators and each party may, within five (5) business days thereafter, veto one of the three persons so designated. If two different designated arbitrators have been vetoed, the third arbitrator shall hear and decide the matter. If only one designated arbitrator has been vetoed, JAMS shall select which of the two remaining arbitrators shall hear and decide the matter. The parties to the arbitration shall be entitled to such discovery as would be available to them in the Superior Court of the State of California. Any arbitration pursuant to this Section 22.7 shall be decided within thirty (30) days of submission of JAMS. The decision of the arbitrator shall be final and binding on the parties. All costs associated with arbitration shall be awarded to the prevailing party as determined by the arbitrator. (b) Notice of the demand for arbitration by either party to the Lease shall be filed in writing with the other party to the Lease and with JAMS and shall be made within a reasonable time after the dispute has arisen. The award rendered by the arbitrators shall be final, and judgment may be entered upon it in accordance with applicable law in any court having jurisdiction thereof. Except by written consent of the person or entity sought to be joined, no arbitration arising out of or relating to the Lease shall include, by consolidation, joinder or in any other manner, any person or entity not a party to the Lease under which such arbitration is filed unless (1) such person or entity is substantially involved in a common question of fact or law, (2) the presence of such person or entity is required if complete relief is to be accorded in the arbitration, or (3) the interest or responsibility of such person or entity in the matter is not insubstantial. (c) The agreement herein among the parties to the Lease and any other written agreement to arbitrate referred to herein shall be specifically enforceable under prevailing law. LANDLORD: TENANT: THE IRVINE COMPANY RAINBOW TECHNOLOGIES, INC., [LEGAL APPROVAL STAMP] a Delaware corporation By: /s/ Richard G. Sim By: /s/ Walter Straub ------------------------------ ----------------------------------- Richard G. Sim Name: Walter Straub Executive Vice President Title: President By: /s/ Nancy Trujillo By: Patrick Fevery ------------------------------ ----------------------------------- Nancy E. Trujillo Name: Patrick Fevery Assistant Secretary Title: Secretary 23 10/31/96 EXHIBIT B THE IRVINE COMPANY - INVESTMENT PROPERTIES GROUP HAZARDOUS MATERIAL SURVEY FORM The purpose of this form is to obtain information regarding the use of hazardous substances on Investment Properties Group ("IPG") property. Prospective tenants and contractors should answer the questions in light of their proposed activities on the premises. Existing tenants and contractors should answer the questions as they relate to ongoing activities on the premises and should update any information previously submitted. If additional space is needed to answer the questions, you may attach separate sheets of paper to this form. When completed, the form should be sent to the following address: INSIGNIA/ESG OF CALIFORNIA, INC. 1 Ada, Suite 270 Irvine, CA 92618 Your cooperation in this matter is appreciated. If you have any questions, please call your property manager at (714) 753-4744 for assistance. 1. GENERAL INFORMATION Name of Responding Company: ______________________________________________ Check all that apply: Tenant ( ) Contractor ( ) Prospective ( ) Existing ( ) Mailing Address: _________________________________________________________ Contact Person & Title: __________________________________________________ Telephone Number: ( ) ______-________ Current TIC Tenant(s): Address of Lease Premises: _______________________________________________ Length of Lease or Contract Term: ________________________________________ Prospective TIC Tenant(s): Address of Proposed Lease Premises: _______________________________________ Address of Current Operations: ____________________________________________ Describe the proposed operations to take place on the property, including principal products manufactured or services to be conducted. Existing tenants and contractors should describe any proposed changes to ongoing operations. _______________________________________________________________ ___________________________________________________________________________ ___________________________________________________________________________ 2. HAZARDOUS MATERIALS. For the purposes of this Survey Form, the term "hazardous material" means any raw material, product or agent considered hazardous under any state or federal law. The term does not include wastes which are intended to be discarded. 2.1 Will any hazardous materials be used or stored on site? Chemical Products Yes ( ) No ( ) Biological Hazards/ Infectious Wastes Yes ( ) No ( ) Radioactive Materials Yes ( ) No ( ) Petroleum Products Yes ( ) No ( ) 1 2.2 List any hazardous materials to be used or stored, the quantities that will be on-site at any given time, and the location and method of storage (e.g., bottles in storage closet on the premises). LOCATION AND METHOD HAZARDOUS MATERIALS OF STORAGE QUANTITY ------------------- ------------------- ------------ ------------------- ------------------- ------------ ------------------- ------------------- ------------ ------------------- ------------------- ------------ 2.3 Is any underground storage of hazardous materials proposed or currently conducted on the premises? Yes ( ) No ( ) If yes, describe the materials to be stored, and the size and construction of the tank. Attach copies of any permits obtained for the underground storage of such substances. --------------- ---------------------------------------------------------------- ---------------------------------------------------------------- 3. HAZARDOUS WASTE. For the purposes of this Survey Form, the term "hazardous waste" means any waste (including biological, infectious or radioactive waste) considered hazardous under any state or federal law, and which is intended to be discarded. 3.1 List any hazardous waste generated or to be generated on the premises, and indicate the quantity generated on a monthly basis. LOCATION AND METHOD OF STORAGE PRIOR HAZARDOUS WASTE TO DISPOSAL QUANTITY ------------------- ------------------- ------------ ------------------- ------------------- ------------ ------------------- ------------------- ------------ ------------------- ------------------- ------------ 3.2 Describe the method(s) of disposal (including recycling) for each waste. Indicate where and how often disposal will take place. LOCATION OF DISPOSAL HAZARDOUS MATERIALS SITE DISPOSAL METHOD ------------------- ------------------- ------------ ------------------- ------------------- ------------ ------------------- ------------------- ------------ ------------------- ------------------- ------------ 3.3 Is any treatment or processing of hazardous, infectious or radioactive wastes currently conducted or proposed to be conducted on the premise? Yes ( ) No ( ) If yes, please describe any existing or proposed treatment methods. --------------------------------------------------------- ----------------------------------------------------------------- ----------------------------------------------------------------- 3.4 Attach copies of any hazardous waste permits or licenses issued to your company with respect to its operations on the premises. 2 4. SPILLS 4.1 During the past year, have any spills or releases of hazardous materials occurred on the premises? Yes ( ) No ( ) If so, please describe the spill and attach the results of any testing conducted to determine the extent of such spills.____________ _____________________________________________________________________ _____________________________________________________________________ 4.2 Were any agencies notified in connection with such spills? Yes ( ) No ( ) If so, attach copies of any spill reports or other correspondence with regulatory agencies. 4.3 Were any clean-up actions undertaken in connection with the spills? Yes ( ) No ( ) If so, briefly describe the actions taken. Attach copies of any clearance letters obtained from any regulatory agencies involved and the results of any final soil or groundwater sampling done upon completion of the clean-up work._____________________________________ _____________________________________________________________________ _____________________________________________________________________ 5. WASTEWATER TREATMENT/DISCHARGE 5.1 Do you discharge industrial wastewater to: ____ storm drain? ____ sewer? ____ surface water? ____ no industrial discharge 5.2 Is your industrial wastewater treated before discharge? Yes ( ) No ( ) If yes, describe the type of treatment conducted. ___________________ _____________________________________________________________________ 5.3 Attach copies of any wastewater discharge permits issued to your company with respect to its operations on the premises. 6. AIR DISCHARGES 6.1 Do you have any air filtration systems or stacks that discharge into the air? Yes ( ) No ( ) 6.2 Do you operate any equipment that require air emissions permits? Yes ( ) No ( ) 6.3 Attach copies of any air discharge permits pertaining to these operations. 7. HAZARDOUS MATERIALS DISCLOSURES 7.1 Does your company handle an aggregate of at least 500 pounds, 55 gallons or 200 cubic feet of hazardous material at any given time? Yes ( ) No ( ) 7.2 Has your company prepared a Hazardous Materials Disclosure - Chemical Inventory and Business Emergency Plan or similar disclosure document pursuant to state or county requirements? Yes ( ) No ( ) If so, attach a copy. 3 7.3 Are any of the chemicals used in your operation regulated under Proposition 65? If so, describe the procedures followed to comply with these requirements. _______________________________________________________ _____________________________________________________________________ _____________________________________________________________________ 7.4 Is your company subject to OSHA Hazard Communication Standard Requirements? Yes ( ) No ( ) If so, describe the procedures followed to comply with these requirements. _______________________________________________________ _____________________________________________________________________ _____________________________________________________________________ 8. ANIMAL TESTING 8.1 Does your company bring or intend to bring live animals onto the premises for research or development purposes? Yes ( ) No ( ) If so, describe the activity. _______________________________________ _____________________________________________________________________ _____________________________________________________________________ 8.2 Does your company bring or intend to bring animal body parts or bodily fluids onto the premises for research or development purposes? Yes ( ) No ( ) If so, describe the activity. _______________________________________ _____________________________________________________________________ _____________________________________________________________________ 9. ENFORCEMENT ACTIONS, COMPLAINTS 9.1 Has your company ever been subject to any agency enforcement actions, administrative orders, lawsuits, or consent orders/decrees regarding environmental compliance or health and safety? Yes ( ) No ( ) If so, describe the actions and any continuing obligations imposed as a result of these actions. _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ 9.2 Has your company ever received any request for information, notice of violation or demand letter, complaint, or inquiry regarding environmental compliance or health and safety? Yes ( ) No ( ) 9.3 Has an environmental audit ever been conducted which concerned operations or activities on premises occupied by you? Yes ( ) No ( ) 9.4 If you answered "yes" to any questions in this section, describe the environmental action or complaint and any continuing compliance obligation imposed as a result of the same. _____________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ _____________________________ _____________________________ By: _________________________ Name:____________________ Title:___________________ Date:____________________ 4 EXHIBIT C LANDLORD'S DISCLOSURES SPECTRUM The capitalized terms used and not otherwise defined in this Exhibit shall have the same definitions as set forth in the Lease. The provisions of this Exhibit shall supersede any inconsistent or conflicting provisions of the Lease. 1. Landlord has been informed that the El Toro Marine Corps Air Station (MCAS) has been listed as a Federal Superfund site as a result of chemical releases occurring over many years of occupancy. Various chemicals including jet fuel, motor oil and solvents have been discharged in several areas throughout the MCAS site. A regional study conducted by the Orange County Water District has estimated that groundwaters beneath more than 2,900 acres have been impacted by Trichloroethlene (TCE), an industrial solvent. There is a potential that this substance may have migrated into the ground water underlying the Premises. The U.S. Environmental Protection Agency, the Santa Ana Region Quality Control Board, and the Orange County Health Care Agency are overseeing the investigation/cleanup of this contamination. To the Landlord's current actual knowledge, the ground water in this area is used for irrigation purposes only, and there is no practical impediment to the use or occupancy of the Premises due to the El Toro discharges. Page 1 of 1 2/19/97 EXHIBIT D TENANT'S INSURANCE The following standards for Tenant's insurance shall be in effect at the Building. Landlord reserves the right to adopt reasonable nondiscriminatory modifications and additions to those standards. Tenant agrees to obtain and present evidence to Landlord that it has fully complied with the insurance requirements. 1. Tenant shall, at its sole cost and expense, commencing on the date Tenant is given access to the Premises for any purpose and during the entire Term, procure, pay for and keep in full force and effect: (i) commercial general liability insurance with respect to the Premises and the operations of or on behalf of Tenant in, on or about the Premises, including but not limited to personal injury, owned and nonowned automobile, blanket contractual, independent contractors, broad form property damage (with an exception to any pollution exclusion with respect to damage arising out of heat, smoke or fumes from a hostile fire), fire legal liability, products liability (if a product is sold from the Premises), liquor law liability (if alcoholic beverages are sold, served or consumed within the Premises), and severability of interest, which policy(ies) shall be written on an "occurrence" basis and for not less than the amount set forth in Item 13 of the Basic Lease Provisions, with a combined single limit (with a $50,000 minimum limit on fire legal liability) per occurrence for bodily injury, death, and property damage liability, or the current limit of liability carried by Tenant, whichever is greater, and subject to such increases in amounts as Landlord may reasonably determine from time to time; (ii) workers' compensation insurance coverage as required by law, together with employers' liability insurance; (iii) with respect to improvements, alterations, and the like required or permitted to be made by Tenant under this Lease, builder's all-risk insurance, in an amount equal to the replacement cost of the work; (iv) insurance against fire, vandalism, malicious mischief, sprinkler leakage coverage and such other additional perils as may be included in a standard "all risk" form in general use in the county in which the Premises are situated, insuring Tenant's leasehold improvements, trade fixtures, furnishings, equipment and items of personal property of Tenant located in the Premises, in an amount equal to not less than ninety percent (90%) of their actual replacement cost (with replacement cost endorsement); and (v) business interruption insurance in amounts satisfactory to cover one (1) year of loss. Notwithstanding anything to the contrary contained in the foregoing, in no event shall Tenant be required to carry flood insurance (other than the required sprinkler leakage coverage). In no event shall the limits of any policy be considered as limiting the liability of Tenant under this Lease. 2. In the event Landlord consents to Tenant's use, generation or storage of Hazardous Materials on, under or about the Premises pursuant to Section 5.3 of this Lease, Landlord shall have the continuing right to require Tenant, at Tenant's sole cost and expense (provided the same is available for purchase upon commercially reasonable terms), to purchase insurance specified and approved by Landlord, with coverage not less than Five Million Dollars ($5,000,000.00), insuring (i) any Hazardous Materials shall be removed from the Premises, (ii) the Premises shall be restored to a clean, healthy, safe and sanitary condition, and (iii) any liability of Tenant, Landlord and Landlord's officers, directors, shareholders, agents, employees and representatives, arising from such Hazardous Materials. 3. All policies of insurance required to be carried by Tenant pursuant to this Exhibit D containing a deductible exceeding Ten Thousand Dollars ($10,000.00) per occurrence must be approved in writing by Landlord prior to the issuance of such policy. Such approval shall not be unreasonably withheld or conditioned by Landlord. Tenant shall be solely responsible for the payment of all deductibles. 4. All policies of insurance required to be carried by Tenant pursuant to this Exhibit D shall be written by responsible insurance companies authorized to do business in the State of California and with a Best's rating of not less than "A" subject to final acceptance and approval by Landlord. Any insurance required of Tenant may be furnished by Tenant under any blanket policy carried by it or under a separate policy, so long as (i) the Premises are specifically covered (by rider, endorsement or otherwise), (ii) the limits of the policy are applicable on a "per location" basis to the Premises and provide for restoration of the aggregate limits, and (iii) the policy otherwise complies with the provisions of this Exhibit D. A true and exact copy of each paid up policy evidencing the insurance (appropriately authenticated by the insurer) or a certificate of insurance, certifying that the policy has been issued, provides the coverage required by this Exhibit D and contains the required provisions, shall be delivered to Landlord prior to the date Tenant is given the right of possession of the Premises. Proper evidence of the renewal of any insurance coverage shall also be delivered to Landlord not less than thirty (30) days prior to the expiration of the coverage. Landlord may at any time, and from time to time, and upon at least 24 hours written notification, inspect and/or copy any and all insurance policies required by this Lease. 5. Each policy evidencing insurance required to be carried by Tenant pursuant to this Exhibit D shall contain the following provisions and/or clauses satisfactory to Landlord: (i) a provision that the policy and the coverage provided shall be primary and that any coverage carried by Landlord shall be noncontributory with respect to any policies carried by Tenant except as to workers' compensation insurance; (ii) a provision including Landlord, the Additional Insureds identified in Item 11 of the Basic Lease Provisions, and any other parties in interest designated by Landlord as an additional insured, except as to workers' compensation insurance; (iii) a waiver by the insurer of any right to subrogation against Landlord, its agents, employees, contractors and representatives which arises or might arise by reason of any payment under the policy or by reason of any act or omission of Landlord, its agents, employees, contractors or representatives; and (iv) a provision that the insurer will not cancel or change the coverage provided by the policy without first giving Landlord thirty (30) days prior written notice. 6. In the event that Tenant fails to procure, maintain and/or pay for, at the times and for the durations specified in this Exhibit D, any insurance required by this Exhibit D, or fails to carry insurance required by any governmental authority, Landlord may at its election procure that insurance and pay the premiums, in which event Tenant shall repay Landlord all sums paid by Landlord, together with interest at the maximum rate permitted by law and any related costs or expenses incurred by Landlord, within ten (10) days following Landlord's written demand to Tenant. Page 1 of 1 08/02/96 EXHIBIT E RULES AND REGULATIONS This Exhibit sets forth the rules and regulations governing Tenant's use of the Premises leased to Tenant pursuant to the terms, covenants and conditions of the Lease to which this Exhibit is attached and therein made part thereof. In the event of any conflict or inconsistency between this Exhibit and the Lease, the Lease shall control. 1. Tenant shall not place anything or allow anything to be placed near the glass of any window, door, partition or wall which may appear unsightly from outside the Premises. 2. The walls, walkways, sidewalks, entrance passages, courts and vestibules shall not be obstructed or used for any purpose other than ingress and egress of pedestrian travel to and from the Premises, and shall not be used for loitering or gathering, or to display, store or place any merchandise, equipment or devices, or for any other purpose. The walkways, entrance passageways, courts, vestibules and roof are not for the use of the general public and Landlord shall in all cases retain the right to control and prevent access thereto by all persons whose presence in the judgment of the Landlord shall be prejudicial to the safety, character, reputation and interests of the Building and its tenants, provided that nothing herein contained shall be construed to prevent such access to persons with whom Tenant normally deals in the ordinary course of Tenant's business unless such persons are engaged in illegal activities. No tenant or employee or invitee of any tenant shall be permitted upon the roof of the Building. 3. No awnings or other projection shall be attached to the outside walls of the Building. No security bars or gates, curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises without the prior written consent of Landlord. Neither the interior nor exterior of any windows shall be coated or otherwise sunscreened without the express written consent of Landlord. 4. Tenant shall not deface any part of the Premises or the Building. Tenant shall not lay linoleum, tile, carpet or other similar floor covering so that the same shall be affixed to the floor of the Premises in any manner except as approved by Landlord in writing. The expense of repairing any damage resulting from a violation of this rule or removal of any floor covering shall be borne by Tenant. 5. The toilet rooms, urinals, wash bowls and other plumbing apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or invitees, caused it. 6. Landlord shall direct electricians as to the manner and location of any future telephone wiring. No boring or cutting for wires will be allowed without the prior consent of Landlord. The locations of the telephones, call boxes and other office equipment affixed to the Premises shall be subject to the prior written approval of Landlord, which approval shall not be unreasonably withheld, conditioned or delayed. 7. The Premises shall not be used for manufacturing or for the storage of merchandise except as such manufacturing or storage is consistent with Item 3 of the Basic Lease Provision and Article V of the Lease, or such storage is incidental to the permitted use of the Premises. No exterior storage shall be allowed at any time without the prior written approval of Landlord. The Premises shall not be used for cooking or washing clothes without the prior written consent of Landlord, or for lodging or sleeping or for any immoral or illegal purposes. 8. Tenant shall not make, or permit to be made, any unseemly or disturbing noises or disturb or interfere with occupants of this or neighboring buildings or premises or those having business with them, whether by the use of any musical instrument, radio, phonograph, noise, or otherwise. Tenant shall not use, keep or permit to be used, or kept, any foul or obnoxious gas or substance in the Premises or permit or suffer the Premises to be used or occupied in any manner offensive or objectionable to Landlord or other occupants of this or neighboring buildings or premises by reason of any odors, fumes or gases. 9. No animals shall be permitted at any time within the Premises. 10. Tenant shall not use the name of the Building or the Project in connection with or in promoting or advertising the business of Tenant, except as Tenant's address, without the written consent of Landlord. Landlord shall have the right to prohibit any advertising by any Tenant which, in Landlord's reasonable opinion, tends to impair the reputation of the Project or its desirability for its intended uses, and upon written notice from Landlord any Tenant shall refrain from or discontinue such advertising. 11. Canvassing, soliciting, peddling, parading, picketing, demonstrating or otherwise engaging in any conduct that unreasonably impairs the value or use of the Premises or the Project are prohibited and each Tenant shall cooperate to prevent the same. 12. No equipment of any type shall be placed on the Premises which in Landlord's opinion exceeds the load limits of the floor or otherwise threatens the soundness of the structure or improvements of the Building. 1 08/02/96 13. No air conditioning unit or other similar apparatus shall be installed or used by any Tenant without the prior written consent of Landlord. 14. No aerial antenna or satellite dish shall be erected on the roof or exterior walls of the Premises, or on the grounds, without in each instance, the prior written consent of Landlord. Any aerial antenna or satellite dish so installed without such written consent shall be subject to removal by Landlord at any time without prior notice at the expense of the Tenant, and Tenant shall upon Landlord's demand pay a removal fee to Landlord of not less than $200.00. 15. The entire Premises, including vestibules, entrances, doors, fixtures, windows and plate glass, shall at all times be maintained in a safe, neat and clean condition by Tenant. All trash, refuse and waste materials shall be regularly removed from the Premises by Tenant and placed in the containers at the locations designated by Landlord for refuse collection. All cardboard boxes must be "broken down" prior to being placed in the trash container. All styrofoam chips must be bagged or otherwise contained prior to placement in the trash container, so as not to constitute a nuisance. Pallets may not be disposed of in the trash container or enclosures. The burning of trash, refuse or waste materials is prohibited. 16. Tenant shall use at Tenant's cost such pest extermination contractor as Landlord may direct and at such intervals as Landlord may require. 17. All keys for the Premises shall be provided to Tenant by Landlord and Tenant shall return to Landlord any of such keys so provided upon the termination of the Lease. Tenant shall not change locks or install other locks on doors of the Premises, without the prior written consent of Landlord which consent shall not be unreasonably withheld, conditioned or delayed. In the event of loss of any keys furnished by Landlord for Tenant, Tenant shall pay to Landlord the costs thereof. 18. No person shall enter or remain within the Project while intoxicated or under the influence of liquor or drugs. Landlord shall have the right to exclude or expel from the Project any person who, in the absolute discretion of Landlord, is under the influence of liquor or drugs. Landlord reserves the right to amend or supplement the foregoing Rules and Regulations and to adopt and promulgate additional rules and regulations applicable to the Premises, provided, however, that such amended, supplemental or additional rules and regulations do not materially and adversely affect either the rights of Tenant under this Lease or Tenant's leasehold interest in the Premises, and/or materially increase Tenant's obligations under the Lease. Notice of such rules and regulations and amendments and supplements thereto, if any, shall be given to the Tenant. 2 08/02/96 EXHIBIT X WORK LETTER DOLLAR ALLOWANCE [SECOND GENERATION SPACE] The Tenant Improvement work (herein "Tenant Improvements") shall consist of any work required to complete the Premises pursuant to approved plans and specifications. All of the Tenant Improvement work shall be performed by the "TI Contractor" selected by Landlord, all in accordance with the procedures and requirements set forth below. I. ARCHITECTURAL AND CONSTRUCTION PROCEDURES A. Within ninety (90) days prior to the Commencement Date of this Lease, Tenant shall provide in writing to Landlord or Landlord's architect all specifications and information for Tenant's proposed Tenant Improvements work in the Premises, including without limitation Tenant's final selection of wall and floor finishes, complete specifications and locations (including load and HVAC requirements) of Tenant's equipment, and details of all "Non-Standard Improvements" (as defined below) to be installed in the Premises (collectively, "Programming Information"). Tenant understands that final construction documents for the Tenant Improvements shall be predicated on the Programming Information, and accordingly that such information must be accurate and complete. B. Within thirty (30) days after receipt by Landlord of Tenant's Programming Information, Landlord shall provide both (i) a detailed space plan for the Premises, prepared by Landlord's architect, for Tenant's proposed Tenant Improvement work based on the Programming Information submitted by Tenant, which shall include, to the extent applicable, interior partitions, ceilings, interior finishes, interior office doors, suite entrance, floor coverings, window coverings, lighting, electrical and telephone outlets, plumbing connections, heavy floor loads and other special requirements ("Preliminary Plan"), and (ii) an estimate, prepared by Landlord's construction manager, of the cost for which Landlord will complete or cause to be completed the Tenant Improvements ("Preliminary Cost Estimate"). Tenant shall approve or disapprove each of the Preliminary Plan and the Preliminary Cost Estimate by signing copies of the appropriate document and delivering same to Landlord within five (5) working days of its receipt by Tenant. If Tenant disapproves any matter, Tenant shall specify in detail the reasons for disapproval and Landlord shall attempt to modify the Preliminary Plan and the Preliminary Cost Estimate to incorporate Tenant's suggested revisions in a mutually satisfactory manner. C. The Tenant Improvements shall incorporate only Landlord's building standard materials and specifications ("Standards"), whether or not the full amount of the Landlord's Contribution is used for the construction thereof. No deviations from the Standards may be required by Tenant with respect to doors and frames, finish hardware, entry graphics, the ceiling system, light fixtures and switches, mechanical systems, life and safety systems, and/or window coverings; provided that Landlord may, in its sole discretion, authorize in writing one or more of such deviations, in which event Tenant shall pay to Landlord, prior to the commencement of construction and in addition to sums otherwise due hereunder from Tenant, an amount equal to the cost, as reasonably estimated by Landlord, of replacing the deviating item(s) with the applicable Standard item(s) upon the expiration or termination of this Lease. All other non-standard items ("Non-Standard Improvements") shall be subject to the reasonable prior approval of Landlord. Landlord shall in no event be required to approve any Non-Standard Improvement if Landlord determines that such improvement (i) is of a lesser quality than the corresponding Standard, (ii) fails to conform to applicable governmental requirements, (iii) requires building services beyond the level normally provided to other tenants, or (iv) would have an adverse aesthetic impact from the exterior of the Premises. D. Within thirty (30) days after Tenant's approval of the Preliminary Plan and Preliminary Cost Estimate, Landlord's architect and engineers shall prepare and deliver to Tenant working drawings and specifications ("Working Drawings and Specifications"). Within five (5) working days after the completion of the competitive bid process described below, the "Bid Amount" (as defined below) together with Landlord's final cost estimate of the Completion Cost of the Tenant Improvements work (the "Final Cost Estimate") shall be delivered to Tenant. Tenant shall have five (5) working days from the receipt thereof to approve or disapprove the Working Drawings and Specifications and the Final Cost Estimate. Tenant shall not unreasonably withhold or delay its approval, and any disapproval or requested modification shall be limited to items not contained in the approved Preliminary Plan or Preliminary Cost Estimate. Should Tenant disapprove the Working Drawings and Specifications and the Final Cost Estimate, such disapproval shall be accompanied by a detailed list of revisions. Any revision requested by Tenant and accepted by Landlord shall be incorporated within ten (10) business days of the receipt of Tenant's list of April 6, 2000 1 06/97 revisions into a revised set of Working Drawings and Specifications and Final Cost Estimate, and Tenant shall approve same in writing within five (5) business days of receipt without further revision. E. In the event that Tenant requests in writing a revision in the approved Working Drawings and Specifications ("Change"), Landlord shall advise Tenant by written change order as soon as is practical of any increase in the Completion Cost (as defined below) and/or any delay in the construction of the Tenant Improvements that such Change would cause. Tenant shall approve or disapprove such change order in writing within two (2) working days following its receipt from Landlord. Tenant's approval of a Change shall be accompanied by Tenant's payment of any resulting increase in the Completion Cost. Landlord shall have the right to decline Tenant's request for a Change for any of the reasons set forth in Article I.C above for Landlord's disapproval of a Non-Standard Improvement. It is understood that Landlord shall have no obligation to interrupt or modify the Tenant Improvement work pending Tenant's approval of a change order. F. Landlord shall submit the Working Drawings and Specifications to a competitive bidding process involving at least three (3) licensed and reputable general contractors. If requested by Tenant, Landlord shall provide copies of the bid responses to Tenant. After adjustments for any inconsistent assumptions to reflect an "apples to apples" comparison, Landlord shall select the lowest qualified bidder and that bid so selected shall be referred to as the "Bid Amount". In the event Landlord selects other than the lowest bidder, it shall do so based on commercially reasonable factors which it shall demonstrate to Tenant. Upon selection of the bidder, Landlord shall enter into a "lump sum" or "fixed price" construction contract with the chosen contractor (the "TI Contractor") for construction of the Tenant Improvements in accordance with the approved and final Working Drawings and Specifications for the Bid Amount (the "TI Contract"). G. It is understood that the Tenant Improvements shall be constructed during Tenant's occupancy of the Premises. In this regard, Tenant agrees to assume any risk of injury, loss or damage which may result. Tenant further agrees that no rental abatement shall result while the Tenant Improvements are completed in the Premises. H. Tenant hereby designates its Director, Human Resources, Telephone No. (949) 450-7300, as its representative, agent and attorney-in-fact for the purpose of receiving notices, approving submittals and issuing requests for Changes, and Landlord shall be entitled to rely upon authorizations and directives of such person(s) as if given directly by Tenant. Tenant may amend the designation of its construction representative(s) at any time upon delivery of written notice to Landlord. II. COST OF TENANT IMPROVEMENTS A. Landlord shall complete, or cause to be completed, the Tenant Improvements, at the construction cost shown in the approved Final Cost Estimate (subject to the provisions of this Work Letter), in accordance with final Working Drawings and Specifications approved by both Landlord and Tenant. Landlord shall pay towards the final construction costs ("Completion Cost") as incurred a maximum of Two Hundred Thirty Four Thousand Nine Hundred Twenty-Two Dollars ($234,922.00) ("Landlord's Contribution"), based on $3.88 per rentable square foot of the Premises, and Tenant shall be fully responsible for the remainder ("Tenant's Contribution"). If the actual cost of completion of the Tenant Improvements is less than the maximum amount provided for the Landlord's Contribution, such savings shall inure to the benefit of Landlord and Tenant shall not be entitled to any credit or payment. Notwithstanding anything to the contrary contained in this Work Letter and/or in the Lease, Landlord shall not be obligated to fund any portion of the Landlord's Contribution prior to July 1, 2000, and Landlord's obligation to fund the Landlord's Contribution shall cease as to any portion of the Tenant Improvements if Working Drawings and Specifications are not approved and contracts are not let by Landlord for such portion of the Tenant Improvements prior to June 15, 2001. B. The Completion Cost shall include all direct costs of Landlord in completing the Tenant Improvements, including but not limited to the following: (i) the TI Contractor's Bid Amount, (ii) payments made to architects, engineers, contractors, subcontractors and other third party consultants in the performance of the work, (iii) permit fees and other sums paid to governmental agencies, (iv) costs of all materials incorporated into the work or used in connection with the work, and (v) keying and signage costs. The Completion Cost shall also include an administrative/supervision fee to be paid to the Landlord in the amount of five percent (5%) of all such direct costs. C. Prior to start of construction of the Tenant Improvements, Tenant shall pay to Landlord in full the amount of the Tenant's Contribution set forth in the Final Cost Estimate. If the actual Completion Cost of the Tenant Improvements is less than the Final Cost Estimate, any portion of the Tenant's April 6, 2000 2 06/97 Contribution paid by Tenant but not expended towards the Completion Cost shall be credited to rent next due under this Lease. If the actual Completion Cost is greater than the Final Cost Estimate because of modifications or extras not reflected on the approved working drawings, then Tenant shall pay to Landlord, within ten (10) days following submission of an invoice therefor, all such additional costs, including any additional architectural fee. If Tenant defaults in the payment of any sums due under this Work Letter, Landlord shall (in addition to all other remedies) have the same rights as in the case of Tenant's failure to pay rent under the Lease. April 6, 2000 3 06/97 EX-99.(A) 4 a85794exv99wxay.htm EXHIBIT 99(A)

Exhibit 99(a)

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), each of the undersigned officers of Rainbow Technologies, Inc. (the “Company”), does hereby certify with respect to the Quarterly Report of the Company on Form 10-Q for the quarter ended September 30, 2002 as filed with the Securities and Exchange Commission (the “10-Q Report”) that to their knowledge:

     (1)  the 10-Q Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     (2)  the information contained in the 10-Q Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ WALTER W. STRAUB

Walter W. Straub
President and Chief Executive Officer
November 12, 2002

/s/ PATRICK E. FEVERY

Patrick E. Fevery
Vice President and Chief Financial Officer
November 12, 2002

This certification accompanies this 10-Q Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

-----END PRIVACY-ENHANCED MESSAGE-----

EX-10.(O)

EXHIBIT 10(o)


                                INDUSTRIAL LEASE
                              (SINGLE TENANT; NET)


                                    BETWEEN


                               THE IRVINE COMPANY


                                      AND


                           RAINBOW TECHNOLOGIES, INC.

                           INDEX TO INDUSTRIAL LEASE
                              (Single Tenant; Net)


ARTICLE I.     BASIC LEASE PROVISIONS

ARTICLE II.    PREMISES
 Section 2.1   Leased Premises
 Section 2.2   Acceptance of Premises
 Section 2.3   Building Name and Address

ARTICLE III.   TERM
 Section 3.1   General
 Section 3.2   Right to Extend this Lease

ARTICLE IV.    RENT AND OPERATING EXPENSES
 Section 4.1   Basic Rent
 Section 4.2   Operating Expenses
 Section 4.3   Security Deposit

ARTICLE V.     USES
 Section 5.1   Use
 Section 5.2   Signs
 Section 5.3   Hazardous Materials

ARTICLE VI.    COMMON AREAS; SERVICES
 Section 6.1   Utilities and Services
 Section 6.2   Operation and Maintenance of Common Areas
 Section 6.3   Use of Common Areas
 Section 6.4   Parking
 Section 6.5   Changes and Additions by Landlord

ARTICLE VII.   MAINTAINING THE PREMISES
 Section 7.1   Tenant's Maintenance and Repair
 Section 7.2   Landlord's Maintenance and Repair
 Section 7.3   Alterations
 Section 7.4   Mechanic's Liens
 Section 7.5   Entry and Inspection

ARTICLE VIII.  TAXES AND ASSESSMENTS ON TENANT'S PROPERTY

ARTICLE IX.    ASSIGNMENT AND SUBLETTING
 Section 9.1   Rights of Parties
 Section 9.2   Effect of Transfer
 Section 9.3   Sublease Requirements
 Section 9.4   Certain Transfers

ARTICLE X.     INSURANCE AND INDEMNITY
 Section 10.1  Tenant's Insurance
 Section 10.2  Landlord's Insurance
 Section 10.3  Tenant's Indemnity
 Section 10.4  Landlord's Nonliability
 Section 10.5  Waiver of Subrogation

ARTICLE XI.    DAMAGE OR DESTRUCTION
 Section 11.1  Restoration
 Section 11.2  Lease Governs

ARTICLE XII.   EMINENT DOMAIN
 Section 12.1  Total or Partial Taking
 Section 12.2  Temporary Taking
 Section 12.3  Taking of Parking Area

ARTICLE XIII.  SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIAL
 Section 13.1  Subordination
 Section 13.2  Estoppel Certificate
 Section 13.3  Financials


                                      (i)


ARTICLE XIV.   DEFAULTS AND REMEDIES
Section 14.1   Tenant's Defaults
Section 14.2   Landlord's Remedies
Section 14.3   Late Payments
Section 14.4   Right of Landlord to Perform
Section 14.5   Default by Landlord
Section 14.6   Expenses and Legal Fees
Section 14.7   Waiver of Jury Trial
Section 14.8   Satisfaction of Judgment
Section 14.9   Limitation of Actions Against Landlord

ARTICLE XV.    END OF TERM
Section 15.1   Holding Over
Section 15.2   Merger on Termination
Section 15.3   Surrender of Premises; Removal of Property


ARTICLE XVI.   PAYMENTS AND NOTICES

ARTICLE XVII.  RULES AND REGULATIONS

ARTICLE XVIII. BROKER'S COMMISSION

ARTICLE XIX.   TRANSFER OF LANDLORD'S INTEREST

ARTICLE XX.    INTERPRETATION
Section 20.1   Gender and Number
Section 20.2   Headings
Section 20.3   Joint and Several Liability
Section 20.4   Successors
Section 20.5   Time of Essence
Section 20.6   Controlling Law
Section 20.7   Severability
Section 20.8   Waiver and Cumulative Remedies
Section 20.9   Inability to Perform
Section 20.10  Entire Agreement
Section 20.11  Quiet Enjoyment
Section 20.12  Survival

ARTICLE XXI.   EXECUTION AND RECORDING
Section 21.1   Counterparts
Section 21.2   Corporate and Partnership Authority
Section 21.3   Execution of Lease; No Option or Offer
Section 21.4   Recording
Section 21.5   Amendments
Section 21.6   Executed Copy
Section 21.7   Attachments

ARTICLE XXII.  MISCELLANEOUS
Section 22.1   Nondisclosure of Lease Terms
Section 22.2   Guaranty
Section 22.3   Changes Requested by Lender
Section 22.4   Mortgagee Protection
Section 22.5   Covenants and Conditions
Section 22.6   Security Measures
Section 22.7   JAMS

EXHIBITS
Exhibit A      Description of the Premises
Exhibit B      Environmental Questionnaire
Exhibit C      Landlord's Disclosures
Exhibit D      Insurance Requirements
Exhibit E      Rules and Regulations
Exhibit F      "As Built" Drawings
Exhibit X      Work Letter
Exhibit Y      Project Site Plan




                                      (ii)


                                INDUSTRIAL LEASE
                                ----------------
                              (Single Tenant; Net)


     THIS LEASE is made as of the 14th day of April, 2000, by and between THE
IRVINE COMPANY, hereafter called "Landlord," and RAINBOW TECHNOLOGIES, INC.,  a
Delaware corporation, hereinafter called "Tenant."


                       ARTICLE I. BASIC LEASE PROVISIONS


     Each reference in this Lease to the "Basic Lease Provisions" shall mean
and refer to the following collective terms, the application of which shall be
governed by the provisions in the remaining Articles of this Lease.


 1.  Premises: The Premises are more particularly described in Section 2.1.

     Address of Building: 50 Technology Drive, Irvine, CA 92718


 2.  Project Description: Lakeview Business Center I


 3.  Use of Premises: corporate headquarters, general office, research &
     development, storage and any other uses which are permitted by law and/or
     applicable zoning ordinances but not detrimental to the Premises or
     Project, provided that in no event shall any retail uses be permitted.


 4.  Commencement Date: August 1, 2000


 5.  Lease Term: The Term of this Lease shall expire at midnight on July 31,
     2005.


 6.  Basic Rent: Seventy Five Thousand Six Hundred Eighty-Four Dollars
     ($75,684.00) per month, based on $1.25 per rentable square foot.

     Basic Rent is subject to adjustment as follows:

     Commencing August 1, 2001, the Basic Rent shall be Seventy Eight Thousand
     One Hundred Six Dollars ($78,106.00) per month, based on $1.29 per
     rentable square foot.

     Commencing August 1, 2002, the Basic Rent shall be Eighty One Thousand
     One Hundred Thirty-Three Dollars ($81,133.00) per month, based on $1.34 per
     rentable square foot.

     Commencing August 1, 2003, the Basic Rent shall be Eighty One Thousand
     Five Hundred Fifty-Five Dollars ($81,555.00) per month, based on $1.38 per
     rentable square foot.

     Commencing August 1, 2004, the Basic Rent shall be Eighty Six Thousand Five
     Hundred Eighty-Two Dollars ($86,582.00) per month, based on $1.43 per
     rentable square foot.


 7.  Guarantor(s): None


 8.  Floor Area of Premises: approximately 60,547 rentable square feet


 9.  Security Deposit: $60,547.00


10.  Broker(s): CB Richard Ellis


11.  Additional Insureds: Insignia/ESG of California, Inc.



                                       1

                                                                        10/31/96


12.  Address for Payments and Notices:

     LANDLORD                                     TENANT

     INSIGNIA/ESG OF CALIFORNIA, INC.             RAINBOW TECHNOLOGIES, INC.
     1 Ada, Suite 270                             50 Technology Drive
     Irvine, CA 92618                             Irvine, CA 92718
                                                  Attn: Director Human Resources

     with a copy of notices to:
     IRVINE INDUSTRIAL COMPANY
     P.O. Box 6370
     Newport Beach, CA 92658-6370
     Attn: Vice President, Industrial Operations


13.  Tenant's Liability Insurance Requirement: $2,000,000.00


14.  Vehicle Parking Spaces: One Hundred Sixty-Five (165)



                                       2

                                                                        10/31/96

                              ARTICLE II. PREMISES


          SECTION 2.1.  LEASED PREMISES. Landlord leases to Tenant and Tenant
leases from Landlord the premises shown in Exhibit A, including the building
identified in Item 1 of the Basic Lease Provisions (which together with the
underlying real property, is called the "Building"), containing approximately
the floor area set forth in Item 8 of the Basic Lease Provisions (the
"Premises"). The Premises is a portion of the project shown in Exhibit Y and
described in Item 2 of the Basic Lease Provisions (the "Project").

          SECTION 2.2.  ACCEPTANCE OF PREMISES. Except as expressly provided in
the last sentence of this Section 2.2, Tenant acknowledges that neither Landlord
nor any representative of Landlord has made any representation or warranty with
respect to the Premises or the Building or the suitability or fitness of either
for any purpose, including without limitation any representations or warranties
regarding zoning or other land use matters, and that neither Landlord nor any
representative of Landlord has made any representations or warranties regarding
(i) what other tenants or uses may be permitted or intended in the Building and
the Project, or (ii) any exclusivity of use by Tenant with respect to its
permitted use of the Premises as set forth in Item 3 of the Basic Lease
Provisions. Tenant further acknowledges that neither Landlord nor any
representative of Landlord has agreed to undertake any alterations or additions
or construct any improvements to the Premises except as expressly provided in
this Lease. It is understood that Tenant having been in possession of the
Premises as a subtenant prior to the Commencement Date of this Lease, the
Premises shall be leased to Tenant in an "as-is" condition without further
obligation on Landlord's part as to improvements whatsoever, except as expressly
provided in the Work Letter attached as EXHIBIT X hereto. Landlord warrants to
Tenant that, as of the date of Landlord's execution of this Lease, Landlord has
received no notice of any claim having been made by any governmental agency that
a violation or violations of applicable building codes, regulations or
ordinances exist with regard to the Premises.

          SECTION 2.3.  BUILDING NAME AND ADDRESS. Tenant shall not utilize any
name selected by Landlord from time to time for the Building and/or the Project
as any part of Tenant's corporate or trade name. Landlord shall have the right
to change the name, address, number or designation of the Building or Project
without liability to Tenant, provided, however, that Landlord shall provide
written notice of any such change initiated by Landlord at least thirty (30)
days before such change is to take effect.


                               ARTICLE III. TERM


          SECTION 3.1.  GENERAL. The Term shall be for the period shown in Item
5 of the Basic Lease Provisions. The Term shall commence on the date set forth
in Item 4 of the Basic Lease Provisions (the "Commencement Date") and shall
expire on the date set forth in Item 5 of the Basic Lease Provisions (the
"Expiration Date").


          SECTION 3.2.  RIGHT TO EXTEND THIS LEASE. Provided that Tenant is not
in default (will all applicable notices of default having been given, and
applicable cure periods having expired without Tenant having cured such default)
under any provision of this Lease, either at the time of exercise of the
extension right granted herein or at the time of the commencement of such
extension, and provided further that either Tenant or Tenant's "Affiliate" (as
defined in Section 9.4) is occupying the Premises and Tenant has not assigned
its interest in this Lease or sublet more than twenty-five percent (25%) of the
Floor Area of the Premises to other than a Tenant's "Affiliate", Tenant may
extend the Term of this Lease for one (1) period of sixty (60) months (the
"Renewal Term"). Tenant shall exercise its right to extend the Term by and only
by delivering to Landlord, not less than nine (9) months or more than twelve
(12) months prior to the expiration date of the Term, Tenant's irrevocable
written notice of its commitment to extend (the "Commitment Notice"). The Basic
Rent payable under the Lease during the Renewal Term shall be determined as
provided in the following provisions.

          If Landlord and Tenant have not by then been able to agree upon the
Basic Rent for the Renewal Term, then within one hundred twenty (120) and ninety
(90) days prior to the expiration date of the Term, Landlord shall notify Tenant
in writing of the Basic Rent that would reflect the fair market rental rate for
a 60-month renewal of comparable space in the Project (together with any
increases thereof during the Renewal Term, if applicable) as of the commencement
of the Renewal Term ("Landlord's Determination"). Should Tenant disagree with
the Landlord's Determination, then Tenant shall, not later than twenty (20) days
thereafter, notify Landlord in writing of Tenant's determination of those fair
market rental rates ("Tenant's Determination"). Within ten (10) days following
delivery of the Tenant's Determination, the parties shall attempt to agree on an
appraiser to determine the fair market rental. If the parties are unable to
agree in that time, then each party shall designate an appraiser within ten (10)
days thereafter. Should either party fail to so designate an appraiser within
that time, then the appraiser designated by the other party shall determine the
fair market rental. Should each of the parties timely designate an appraiser,
then the two appraisers so designated shall appoint a third appraiser who shall,
acting alone, determine the fair market rental for the Premises. Any appraiser
designated hereunder shall have an MAI certification with not less than five (5)
years experience in the valuation of commercial industrial buildings in the
vicinity of the Project.

          Within thirty (30) days following the selection of the appraiser and
such appraiser's receipt of the Landlord's Determination and the Tenant's
Determination, the appraiser shall determine whether the Landlord's
Determination or the Tenant's Determination more accurately reflects the fair
market rental rate for the Renewal Term, as reasonably extrapolated to the
commencement of the Renewal Term. Accordingly, either the Landlord's
Determination or the Tenant's Determination shall be selected by the appraiser
as the fair market rental rate for the Renewal Term. In making



                                       3                               10/31/96

such determination, the appraiser shall consider rental comparables for the
Project (provided that if there are an insufficient number of comparables
within the Project, the appraiser shall consider rental comparables for
similarly improved space within the vicinity of the Project with appropriate
adjustment for location and quality of project), but the appraiser shall not
attribute any factor for market tenant improvement allowances or brokerage
commissions in making its determination of the fair market rental rate. At any
time before the decision of the appraiser is rendered, either party may, by
written notice to the other party, accept the determination of the fair market
rental rate submitted by the other party, in which event such rental rate shall
be deemed adopted as the agreed fair market rental rate for the Renewal Term.
The fees of the appraiser(s) shall be borne entirely by the party whose
determination of the fair market rental rate was not selected by the appraiser.

     Within twenty (20) days after the determination of the fair market rental
rate, Landlord shall prepare an appropriate amendment to this Lease for the
Renewal Term, and Tenant shall execute and return such amendment to Landlord
within twenty (20) days after the receipt of same. Should the fair market
rental rate not be established by the commencement of the Renewal Term, then
Tenant shall continue paying rent at the rate in effect during the last month
of the initial Term, and a lump sum adjustment shall be made promptly upon the
determination of the fair market rental rate for the Renewal Term.

     If Tenant fails to timely comply with any of the provisions of this
paragraph, Tenant's right to extend the Term shall be extinguished and the
Lease shall automatically terminate as of the expiration date of the Term,
without any extension and without liability to Landlord. Any attempt to assign
or transfer any right or interest created by this paragraph shall be void from
its inception. Tenant shall have no other right to extend the Term beyond the
single sixty (60) month extension period created by this paragraph.


                    ARTICLE IV. RENT AND OPERATING EXPENSES


     SECTION 4.1.  BASIC RENT. From and after the Commencement Date, Tenant
shall pay to Landlord without deduction or offset (except as otherwise
expressly permitted by the terms of this Lease), Basic Rent for the Premises in
the total amount shown in Item 6 of the Basic Lease Provisions. Any rental
adjustment shown in Item 6 shall be deemed to occur on the specified monthly
anniversary of the Commencement Date, whether or not that date occurs at the
end of a calendar month. The rent shall be due and payable in advance
commencing on the Commencement Date (as prorated for any partial month) and
continuing thereafter on the first day of each successive calendar month of the
Term. No demand, notice or invoice shall be required for the payment of Basic
Rent.

     SECTION 4.2.  OPERATING EXPENSES.

          (a)  Tenant shall pay to Landlord, as additional rent, "Building
Costs" and "Property Taxes," as those terms are defined below, incurred by
Landlord in the operation of the Building and Project. For convenience of
reference, Property Taxes and Building Costs shall be referred to collectively
as "Operating Expenses".

          (b)  Prior to the Commencement Date and prior to the start of each
full or partial "Expense Recovery Period" (as defined below) thereafter,
Landlord shall give Tenant a written estimate of the amount of Operating
Expenses for the Expense Recovery Period. Tenant shall pay the estimated
amounts to Landlord in equal monthly installments, in advance, with Basic Rent.
If Landlord has not furnished its written estimate for any Expense Recovery
Period by the time set forth above, Tenant shall continue to pay cost
reimbursements at the rates established for the prior Expense Recovery Period,
if any; provided that when the new estimate is delivered to Tenant, Tenant
shall, at the later to occur of the next monthly payment date or fifteen (15)
days after receipt of the new estimate, pay any accrued cost reimbursements
based upon the new estimate. For purposes hereof, "Expense Recovery Period"
shall mean every twelve month period during the Term (or portion thereof for
the first and last lease years) commencing July 1 and ending June 30.

          (c)  Within one hundred twenty (120) days after the end of each
Expense Recovery Period, Landlord shall furnish to Tenant a statement showing in
reasonable detail the actual or prorated Operating Expenses incurred by Landlord
during the period (the "Annual Statement"), and the parties shall within thirty
(30) days thereafter make any payment or allowance necessary to adjust Tenant's
estimated payments, if any, to Tenant's actual owed amounts as shown by the
Annual Statement. Any delay or failure by Landlord in delivering any Annual
Statement hereunder shall not constitute a waiver of Landlord's right to
require Tenant to pay Operating Expenses pursuant hereto. Any amount due Tenant
shall be credited against installments next coming due under this Section 4.2,
and any deficiency shall be paid by Tenant together with the next installment.
Should Tenant fail to object in writing to Landlord's determination of actual
Operating Expenses, or fail to give written notice of its intent to audit
Landlord's Operating Expenses pursuant to the provisions of the next succeeding
paragraph, within one hundred eighty (180) days following delivery of
Landlord's Annual Statement, Landlord's determination of actual Operating
Expenses for the applicable Expense Recovery Period shall be conclusive and
binding on the parties and any future claims to the contrary shall be barred.

               Provided Tenant is not then in default under this Lease (with
all applicable notices having been given, and all applicable cure periods
having expired without Tenant having cured such default), then Tenant shall
have the right to have Tenant's financial officer or a certified public
accountant audit Landlord's determination of actual Operating Expenses, subject
to the terms and conditions hereof. In no event, however, shall such auditor be
compensated by Tenant on a "contingency" basis, or on any other basis tied to
the results of said audit. Tenant shall give written notice to Landlord of
Tenant's intent to audit, if at all, within one hundred eighty (180) days
following delivery of Landlord's


                                       4

Annual Statement for each of the Expense Recovery Periods. Following at least
ten (10) business days notice to Landlord, such audit shall be conducted at a
mutually agreeable time during normal business hours at the office of Landlord
or its management agent where the records are maintained in Orange County,
California. Landlord agrees to make such personnel available to Tenant as is
reasonably necessary for Tenant's employees and agents, to conduct such audit.
Landlord shall make such records available to Tenant's employees and agents, for
inspection during normal business hours. Tenant's employees and agents shall be
entitled to make photostatic copies of such records, provided Tenant bears the
expense of such copying, and further provided that Tenant keeps such copies in a
confidential manner and does not discuss, display or distribute such copies to
any other third party. If Tenant's audit determines that actual Operating
Expenses have been overstated by more than five percent (5%), then subject to
Landlord's right to review and/or contest the audit results, Landlord shall
reimburse Tenant for the reasonable out-of-pocket costs of such audit. Tenant's
Basic Rent shall be appropriately adjusted to reflect any overstatement in
Operating Expenses. In the event of a dispute between Landlord and Tenant
regarding the results of such audit, such dispute shall be submitted to and
resolved by JAMS as provided in Section 22.7 of this Lease.

               All of the information obtained by Tenant and/or its auditor in
connection with such audit, as well as any compromise, settlement, or
adjustment reached between Landlord and Tenant as a result thereof, shall be
held in strict confidence and, except as may be required pursuant to
litigation, shall not be disclosed to any third party, directly or indirectly,
by Tenant or its auditor or any of their officers, agents or employees.
Landlord may require Tenant and its auditor to execute a separate
confidentiality agreement as a condition precedent to any audit.

          (d)  Even though the Lease has terminated and the Tenant has vacated
the Premises, when the final determination is made of Operating Expenses for the
Expense Recovery Period in which the Lease terminates, Tenant shall within
fifteen (15) days following notice from Landlord pay the entire increase due
over the estimated expenses paid. Any overpayment made in the event expenses
decrease shall be rebated by Landlord to Tenant within fifteen (15) days
following the final determination of Operating Expenses for the Expense Recovery
Period in which the Lease terminates.

          (e)  If, at any time during any Expense Recovery Period, any one or
more of the Operating Expenses are increased to a rate(s) or amount(s) in
excess of the rate(s) or amount(s) used in calculating the estimated expenses
for the year, then the estimate of Operating Expenses may in Landlord's
discretion be increased for the month in which such rate(s) or amount(s)
becomes effective and for all succeeding months by an amount equal to the
increase. If Landlord decides to exercise such discretion, Landlord shall give
Tenant written notice of the amount or estimated amount of the increase, the
month in which the increase will become effective, and the month for which the
payments are due. Tenant shall pay the increase to Landlord as a part of
Tenant's monthly payments of estimated expenses as provided in paragraph (b)
above, commencing with the month in which effective.

          (f)  The term "Building Costs" shall include all expenses of
operation and maintenance of the Building and Tenant's proportionate share of
the expenses of the operation and maintenance of the Project, if applicable
(determined as the rentable square footage of the Building divided by the
rentable square footage of all space in the Project, regardless of whether or
not such space is actually leased or occupied), to the extent such expenses are
not billed to and paid directly by Tenant or any other tenant, and shall
include the following costs by way of illustration but not limitation: water
and sewer charges; insurance premiums or reasonable premium equivalents should
Landlord elect to self-insure any risk that Landlord is authorized to insure
hereunder; license, permit, and inspection fees; heat; light; power; air
conditioning; supplies; materials; equipment; tools; the cost of any
environmental, insurance, tax or other consultant utilized by Landlord in
connection with the Building and/or Project; establishment of reasonable
reserves for replacements and/or repair of Common Area improvements (if
applicable), equipment and supplies; costs incurred in connection with
compliance of any laws or changes in laws applicable to the Building or the
Project; the cost of any capital investments (other than tenant improvements
for specific tenants) to the extent of the amortized amount thereof over the
useful life of such capital investments calculated at a market cost of funds,
all as determined by Landlord, for each such year of useful life during the
Term; costs associated with the procurement and maintenance of an intrabuilding
network cable service agreement for any intrabuilding network cable
telecommunications lines within the Project, and any other installation,
maintenance, repair and replacement costs associated with such lines; labor;
reasonably allocated wages and salaries, fringe benefits, and payroll taxes for
administrative and other personnel directly applicable to the Building and/or
Project, including both Landlord's personnel and outside personnel excluding,
however, any leasing personnel); any expense incurred pursuant to Sections 6.1,
6.2, 6.4, 7.2, and 10.2; and a reasonable overhead/management fee for the
professional operation of the Building and Project not to exceed the amount of
fees charged by landlords of comparable projects in the Irvine Spectrum.
Notwithstanding anything to the contrary contained herein, the amount of such
overhead/management fee to be charged to Tenant shall be determined by
multiplying the actual fee charged (which from time to time may be with respect
to the entire Project, a portion of the Project only, the Building only, or the
Project together with other properties owned by Landlord and/or its affiliates)
by a fraction, the numerator of which is the floor area of the Premises (as set
forth in Item No. 8 of the Basic Lease Provisions) and the denominator of which
is the total square footage of space charged with such fee actually leased to
tenants (including Tenant). It is understood that Building Costs shall include
competitive charges for direct services provided by any subsidiary or
division of Landlord.

          (g)  The term "Property Taxes" shall be defined as the following
taxes and expenses attributable to the Building or Tenant's proportionate share
of the following taxes and expenses for the Project (determined as the rentable
square footage of the Building divided by the rentable square footage of all
space in the Project regardless of whether or not such space is actually leased
or occupied), as applicable: (i) all real estate taxes or personal property
taxes, as such property taxes may be reassessed from time to time; and (ii)
other taxes, charges and assessments which are levied with respect to this
Lease or to the Building and/or the Project, and any improvements, fixtures and
equipment

                                       5                                10/31/96

and other property of Landlord located in the Building and/or the Project,
except that general net income and franchise taxes imposed against Landlord
shall be excluded; and (iii) all assessments and fees for public improvements,
services, and facilities and impacts thereon, including without limitation
arising out of any Community Facilities Districts, "Mello Roos" districts,
similar assessment districts, and any traffic impact mitigation assessments or
fees; (iv) any tax, surcharge or assessment which shall be levied in addition to
or in lieu of real estate or personal property taxes, other than taxes covered
by Article VIII; and (v) reasonable costs and expenses incurred in contesting
the amount or validity of any Property Tax by appropriate proceedings.

     SECTION 4.3. SECURITY DEPOSIT. Concurrently with Tenant's delivery of this
Lease, Tenant shall deposit with Landlord the sum, if any, stated in Item 9 of
the Basic Lease Provisions, to be held by Landlord as security for the full and
faithful performance of Tenant's obligations under this Lease (the "Security
Deposit"). Subject to the last sentence of this Section, the Security Deposit
shall be understood and agreed to be the property of Landlord upon Landlord's
receipt thereof, and may be utilized by Landlord in its discretion towards the
payment of all prepaid expenses by Landlord for which Tenant would be required
to reimburse Landlord under this Lease, including without limitation brokerage
commissions and Tenant Improvement costs. Upon any default by Tenant (with all
applicable notices of default having been given, and applicable cure periods
having expired without Tenant having cured such default), including specifically
Tenant's failure to pay rent or to abide by its obligations under Sections 7.1
and 15.3 below, whether or not Landlord is informed of or has knowledge of the
default, the Security Deposit shall be deemed to be automatically and
immediately applied, without waiver of any rights Landlord may have under this
Lease or at law or in equity as a result of the default, as a setoff for full or
partial compensation for that default. If any portion of the Security Deposit is
applied after a default by Tenant, Tenant shall within five (5) days after
written demand by Landlord deposit cash with Landlord in an amount sufficient to
restore the Security Deposit to its original amount. Landlord shall not be
required to keep this Security Deposit separate from its general funds, and
Tenant shall not be entitled to interest on the Security Deposit. If Tenant
fully performs its obligations under this Lease, the Security Deposit or any
balance thereof shall be returned to Tenant (or, at Landlord's option, to the
last assignee of Tenant's interest in this Lease) after the expiration of the
Term, provided that Landlord may retain the Security Deposit to the extent and
until such time as all amounts due from Tenant in accordance with this Lease
have been determined and paid in full.

                                ARTICLE V. USES

     SECTION 5.1. USE. Tenant shall use the Premises only for the purposes
stated in Item 3 of the Basic Lease Provisions, all in accordance with
applicable laws and restrictions and pursuant to approvals to be obtained by
Tenant from all relevant and required governmental agencies and authorities. The
parties agree that any contrary use shall be deemed to cause material and
irreparable harm to Landlord and shall entitle Landlord to injunctive relief in
addition to any other available remedy. Upon at least 24 hours prior written
notice, Tenant, at its expense, shall procure, maintain and make available for
Landlord's inspection throughout the Term, all governmental approvals, licenses
and permits required for the proper and lawful conduct of Tenant's permitted use
of the Premises. Tenant shall not do or permit anything to be done in or about
the Premises which will in any way interfere with the rights of other occupants
of the Building or the Project, or use or allow the Premises to be used for any
unlawful purpose, nor shall Tenant permit any nuisance or commit any waste in
the Premises or the Project. Tenant shall not do or permit to be done anything
which will invalidate or increase the cost of any insurance policy(ies) covering
the Building, the Project and/or their contents, and shall comply with all
applicable insurance underwriters rules and the requirements of the Pacific Fire
Rating Bureau or any other organization performing a similar function. Tenant
shall comply at its expense with all present and future laws, ordinances,
restrictions, regulations, orders, rules and requirements of all governmental
authorities that pertain to Tenant or its use of the Premises, including without
limitation all federal and state occupational health and safety requirements,
whether or not Tenant's compliance will necessitate expenditures or interfere
with its use and enjoyment of the Premises. Tenant shall comply at its expense
with all present and future covenants, conditions, easements or restrictions now
or hereafter affecting or encumbering the Building and/or the Project, and any
amendments or modifications thereto, including without limitation the payment by
Tenant of any periodic or special dues or assessments charged against the
Premises or Tenant which may be allocated to the Premises or Tenant in
accordance with the provisions thereof. Tenant shall promptly upon demand
reimburse Landlord for any additional insurance premium charged by reason of
Tenant's failure to comply with the provisions of this Section, and shall
indemnify Landlord from any liability and/or expense resulting from Tenant's
noncompliance.

     SECTION 5.2. SIGNS. Provided Tenant continues to occupy the entire
Premises, Tenant shall have the non-exclusive right to one (1) exterior
building-top sign on the Building, subject to Landlord's right of prior approval
that such exterior signage is in compliance with the Signage Criteria (defined
below). Landlord confirms and agrees that Tenant's building-top sign on the
Building existing as of the execution of this Lease is approved by Landlord.
Except as provided in the foregoing or as otherwise approved in writing by
Landlord, in its sole discretion, Tenant shall have no right to maintain
identification signs in any location in, on or about the Premises, the Building
or the Project and shall not place or erect any signs, displays or other
advertising materials that are visible from the exterior of the Building. The
size, design, graphics, material, style, color and other physical aspects of any
permitted sign shall be subject to Landlord's written approval prior to
installation (which approval may be withheld in Landlord's discretion), any
covenants, conditions or restrictions encumbering the Premises, Landlord's
signage program for the Project, as in effect from time to time and approved by
the City in which the Premises are located ("Signage Criteria"), and any
applicable municipal or other governmental permits and approvals. Tenant
acknowledges having received and reviewed a copy of the current Signage Criteria
for the Project. Tenant shall be responsible for the cost of any permitted sign,
including the fabrication, installation, maintenance and removal thereof. If
Tenant fails to maintain its sign, or if Tenant fails to remove same upon
termination of this Lease and repair any damage caused by such removal, Landlord
may do so at Tenant's expense.

                                       6                                10/31/96


     SECTION 5.3    HAZARDOUS MATERIALS.


          (a)  For purposes of this Lease, the term "Hazardous Materials"
includes (i) any "hazardous materials" as defined in Section 25501(n) of the
California Health and Safety Code, (ii) any other substance or matter which
results in liability to any person or entity from exposure to such substance or
matter under any statutory or common law theory, and (iii) any substance or
matter which is in excess of permitted levels set forth in any federal,
California or local law or regulation pertaining to any hazardous or toxic
substance, material or waste.

          (b)  Tenant shall not cause or permit any Hazardous Materials to be
brought upon, stored, used, generated, released or disposed of on, under, from
or about the Premises (including without limitation the soil and groundwater
thereunder) without the prior written consent of Landlord. Notwithstanding the
foregoing, Tenant shall have the right, without obtaining prior written consent
of Landlord, to utilize within the Premises standard office products that may
contain Hazardous Materials (such as photocopy toner, "White Out", and the
like), provided however, that (i) Tenant shall maintain such products in their
original retail packaging, shall follow all instructions on such packaging with
respect to the storage, use and disposal of such products, and shall otherwise
comply with all applicable laws with respect to such products, and (ii) all of
the other terms and provisions of this Section 5.3 shall apply with respect to
Tenant's storage, use and disposal of all such products. Landlord may, in its
sole discretion, place such conditions as Landlord deems appropriate with
respect to any such Hazardous Materials, and may further require that Tenant
demonstrate that any such Hazardous Materials are necessary or useful to
Tenant's business and will be generated, stored, used and disposed of in a
manner that complies with all applicable laws and regulations pertaining
thereto and with good business practices. Tenant understands that Landlord may
utilize an environmental consultant to assist in determining conditions of
approval in connection with the storage, generation, release, disposal or use
of Hazardous Materials by Tenant on or about the Premises, and/or to conduct
periodic inspections of the storage, generation, use, release and/or disposal of
such Hazardous Materials by Tenant on and from the Premises, and Tenant agrees
that any costs incurred by Landlord in connection therewith shall be reimbursed
by Tenant to Landlord as additional rent hereunder upon demand.

          (c)  Prior to the execution of this Lease, Tenant shall complete,
execute and deliver to Landlord an Environmental Questionnaire and Disclosure
Statement (the "Environmental Questionnaire") in the form of Exhibit B attached
hereto. The completed Environmental Questionnaire shall be deemed incorporated
into this Lease for all purposes, and Landlord shall be entitled to rely fully
on the information contained therein. On each anniversary of the Commencement
Date until the expiration or sooner termination of this Lease, Tenant shall
disclose to Landlord in writing the names and amounts of all Hazardous
Materials which were stored, generated, used, released and/or disposed of on,
under or about the Premises for the twelve-month period prior thereto, and
which Tenant desires to store, generate, use, release and/or dispose of on,
under or about the Premises for the succeeding twelve-month period. In
addition, to the extent Tenant is permitted to utilize Hazardous Materials upon
the Premises, Tenant shall promptly provide Landlord with complete and legible
copies of all the following environmental documents relating thereto: reports
filed pursuant to any self-reporting requirements; permit applications,
permits, monitoring reports, workplace exposure and community exposure warnings
or notices and all other reports, disclosures, plans or documents (even those
which may be characterized as confidential) relating to water discharges, air
pollution, waste generation or disposal, and underground storage tanks for
Hazardous Materials; orders, reports, notices, listing and correspondence (even
those which may be considered confidential) of or concerning the release,
investigation of, compliance, cleanup, remedial and corrective actions, and
abatement of Hazardous Materials; and all complaints, pleadings and other legal
documents filed by or against Tenant related to Tenant's use, handling,
storage, release and/or disposal of Hazardous Materials.

          (d)  Landlord and its agents shall have the right, but not the
obligation, to inspect, sample and/or monitor the Premises and/or the soil or
groundwater thereunder at any time to determine whether Tenant is complying
with the terms of this Section 5.3, and in connection therewith Tenant shall
provide Landlord with full access to all relevant facilities, records and
personnel. If Tenant is not in compliance with any of the provisions of this
Section 5.3, or in the event of a release of any Hazardous Materials on, under
or about the Premises caused or permitted by Tenant, its agents, employees,
contractors, licensees or invitees, Landlord and its agents shall have the
right, but not the obligation, without limitation upon any of Landlord's other
rights and remedies under this Lease, to immediately enter upon the Premises
without notice and to discharge Tenant's obligations under this Section 5.3 at
Tenant's expense, including without limitation the taking of emergency or
long-term remedial action. Landlord and its agents shall endeavor to minimize
interference with Tenant's business in connection therewith, but shall not be
liable for any such interference. In addition, Landlord, at Tenant's expense,
shall have the right, but not the obligation, to join and participate in any
legal proceedings or actions initiated in connection with any claims arising
out of the storage, generation, use, release and/or disposal by Tenant or its
agents, employees, contractors, licensees or invitees of Hazardous Materials
on, under, from or about the Premises.

          (e)  If the presence of any Hazardous Materials on, under, from or
about the Premises or the Project caused or permitted by Tenant or its agents,
employees, contractors, licensees or invitees results in (i) injury to any
person, (ii) injury to or any contamination of the Premises or the Project, or
(iii) injury to or contamination of any real or personal property wherever
situated, Tenant, at its expense, shall promptly take all actions necessary to
return the Premises and the Project and any other affected real or personal
property owned by Landlord to the condition existing prior to the introduction
of such Hazardous Materials and to remedy or repair any such injury or
contamination, including without limitation, any cleanup, remediation, removal,
disposal, neutralization or other treatment of any such Hazardous Materials.
Notwithstanding the foregoing, Tenant shall not, without Landlord's prior
written consent, take any remedial action in response to the presence of any
Hazardous Materials on, under or about the Premises or the Project or any other
affected real or personal property owned by Landlord or enter into any similar
agreement, consent, decree or other compromise with any governmental agency
with respect to any Hazardous Materials claims; provided however, Landlord's
prior written consent shall not be necessary in the event that the presence of
Hazardous Materials on, under




                                   7                                    10/31/96



or about the Premises or the Project or any other affected real or personal
property owned by Landlord (i) imposes an immediate threat to the health, safety
or welfare of any individual or (ii) is of such a nature that an immediate
remedial response is necessary and it is not possible to obtain Landlord's
consent before taking such action. To the fullest extent permitted by law,
Tenant shall indemnify, hold harmless, protect and defend (with attorneys
acceptable to Landlord) Landlord and any successors to all or any portion of
Landlord's interest in the Premises and the Project and any other real or
personal property owned by Landlord from and against any and all liabilities,
losses, damages, diminution in value, judgments, fines, demands, claims,
recoveries, deficiencies, costs and expenses (including without limitation
attorneys' fees, court costs and other professional expenses), whether
foreseeable or unforeseeable, arising directly or indirectly out of the use,
generation, storage, treatment, release, on- or off-site disposal or
transportation of Hazardous Materials on, into, from, under or about the
Premises, the Building and the Project and any other real or personal property
owned by Landlord caused or permitted by Tenant, its agents, employees,
contractors, licensees or invitees, specifically including without limitation
the cost of any required or necessary repair, restoration, cleanup or
detoxification of the Premises, the Building and the Project and any other real
or personal property owned by Landlord, and the preparation of any closure or
other required plans, whether or not such action is required or necessary during
the Term or after the expiration of this Lease. If Landlord at any time
discovers that Tenant or its agents, employees, contractors, licensees or
invitees may have caused or permitted the release of a Hazardous Material on,
under, from or about the Premises or the Project or any other real or personal
property owned by Landlord, Tenant shall, at Landlord's request, immediately
prepare and submit to Landlord a comprehensive plan, subject to Landlord's
approval, specifying the actions to be taken by Tenant to return the Premises or
the Project or any other real or personal property owned by Landlord to the
condition existing prior to the introduction of such Hazardous Materials. Upon
Landlord's approval of such cleanup plan, Tenant shall, at its expense, and
without limitation of any rights and remedies of Landlord under this Lease or at
law or in equity, immediately implement such plan and proceed to cleanup such
Hazardous Materials in accordance with all applicable laws and as required by
such plan and this Lease. The provisions of this subsection (e) shall expressly
survive the expiration or sooner termination of this Lease.

          (f)  Landlord hereby discloses to Tenant, and Tenant hereby
acknowledges, certain facts relating to Hazardous Materials at the Project known
by Landlord to exist as of the date of this Lease, as more particularly
described in Exhibit C attached hereto. Tenant shall have no liability or
responsibility with respect to the Hazardous Materials facts described in
Exhibit C, nor with respect to any Hazardous Materials which were not caused or
permitted by Tenant, its agents, employees, contractors, licensees or invitees.
Notwithstanding the preceding two sentences, Tenant agrees to notify its agents,
employees, contractors, licensees, and invitees of any exposure or potential
exposure to Hazardous Materials at the Premises that Landlord brings to Tenant's
attention. Landlord shall take responsibility, at its sole cost and expense, for
any governmentally-ordered clean-up, remediation, removal, disposal,
neutralization or other treatment of Hazardous Materials conditions described in
this Section 5.3(f). The foregoing obligation on the part of Landlord shall
include the reasonable costs (including, without limitation, reasonable
attorney's fees) of defending Tenant (with attorneys reasonably acceptable to
Tenant) from and against any legal action or proceeding instituted by any
governmental agency in connection with such clean-up, remediation, removal,
disposal, neutralization or other treatment of such conditions, provided that
Tenant promptly tenders such defense to Landlord.

          (g)  In the event of any foreclosure of a mortgage or deed of trust
encumbering the Building and/or the Project, the obligations on the part of
Landlord contained in Section 5.3(f) above shall be personal to Landlord and
shall not be binding on nor inure against any lender acquiring the Building
and/or the Project by foreclosure of its mortgage or deed of trust or deed in
lieu of foreclosure, or any successor in interest to such lender.


                       ARTICLE VI. COMMON AREAS; SERVICES


     SECTION 6.1.  UTILITIES AND SERVICES. Tenant shall be responsible for and
shall pay promptly, directly to the appropriate supplier, all charges for water,
gas, electricity, sewer, heat, light, power, telephone, refuse pickup,
janitorial service, interior landscape maintenance and all other utilities,
materials and services furnished directly to Tenant or the Premises or used by
Tenant in, on or about the Premises during the Term, together with any taxes
thereon. Landlord shall not be liable for damages or otherwise for any failure
or interruption of any utility or other service furnished to the Premises, and
no such failure or interruption shall be deemed an eviction or entitle Tenant to
terminate this Lease or withhold or abate any rent due hereunder. Landlord shall
at all reasonable times have free access to all electrical and mechanical
installations of Landlord.

          Notwithstanding the foregoing, if as a result of the direct actions of
Landlord, its authorized agents or employees, for more than three (3)
consecutive business days following written notice to Landlord there is no HVAC
or electricity services to all or a portion of the Premises, or such an
interruption of other essential utilities and building services, such as fire
protection or water, so that all or a portion of the Premises cannot be used by
Tenant, then Tenant's Basic Rent (or an equitable portion of such Basic Rent to
the extent that less than all of the Premises are affected) shall thereafter be
abated until the Premises are again usable by Tenant; provided, however, that if
Landlord is diligently pursuing the repair of such utilities or services and
Landlord provides substitute services reasonably suitable for Tenant's purposes,
as for example, bringing in portable air-conditioning equipment, then there
shall not be an abatement of Basic Rent. The foregoing provisions shall not
apply in case of the actions of parties other than Landlord, its contractors,
authorized agents or employees, or in the case of damage to, or destruction of,
the Premises (which shall be governed by the provisions of Article XI of the
Lease). Any disputes concerning the foregoing provisions shall be submitted to
and resolved by JAMS arbitration pursuant to Section 22.7 of this Lease.


                                       8                               10/31/96

     SECTION 6.2.  OPERATION AND MAINTENANCE OF COMMON AREAS.  During the Term,
Landlord shall operate all Common Areas within the Project. The term "Common
Areas" shall mean all areas which are not held for exclusive use by persons
entitled to occupy space, and all other appurtenant areas and improvements
provided by Landlord for the common use of Landlord and tenants and their
respective employees and invitees, including without limitation parking areas
and structures, driveways, sidewalks, landscaped and planted areas, hallways
and interior stairwells not located within the premises of any tenant, common
electrical rooms and roof access entries, common entrances and lobbies,
elevators, and restrooms not located within the premises of any tenant.

     SECTION 6.3  USE OF COMMON AREAS.  The occupancy by Tenant of the Premises
shall include the use of the Common Areas in common with Landlord and with all
others for whose convenience and use the Common Areas may be provided by
Landlord, subject, however, to compliance with all rules and regulations as are
prescribed from time to time by Landlord. Landlord shall operate and maintain
the Common Areas as a first-class business park in the manner Landlord may
determine to be appropriate. All costs incurred by Landlord for the maintenance
and operation of the Common Areas shall be included in Building Costs unless
any particular cost incurred can be charged to a specific tenant of the
Project. Landlord shall at all times during the Term have exclusive control of
the Common Areas, and may restrain any use or occupancy, except as authorized
by Landlord's rules and regulations. Tenant shall keep the Common Areas clear
of any obstruction or unauthorized use related to Tenant's operations. Landlord
may temporarily close any portion of the Common Areas for repairs, remodeling
and/or alterations, to prevent a public dedication or the accrual of
prescriptive rights, or for any other reason deemed sufficient by Landlord,
without liability to Landlord.

     SECTION 6.4  PARKING.  Tenant shall be entitled to the number of vehicle
parking spaces set forth in Item 14 of the Basic Lease Provisions, which spaces
shall be unreserved and unassigned, on those portions of the Common Areas
designated by Landlord for parking. Tenant shall not use more parking spaces
than such number. All parking spaces shall be used only for parking vehicles no
larger than full size passenger automobiles or pickup trucks. Tenant shall not
permit or allow any vehicles that belong to or are controlled by Tenant or
Tenant's employees, suppliers, shippers, customers or invitees to be loaded,
unloaded or parked in areas other than those designated by Landlord for such
activities. If Tenant permits or allows any of the prohibited activities
described above, then Landlord shall have the right, without notice, in addition
to such other rights and remedies that Landlord may have, to remove or tow away
the vehicle involved and charge the costs to Tenant. Parking within the Common
Areas shall be limited to striped parking stalls, and no parking shall be
permitted in any driveways, access ways or in any area which would prohibit or
impede the free flow of traffic within the Common Areas. There shall be no
parking of any vehicles for longer than a forty-eight (48) hour period unless
otherwise authorized by Landlord, and vehicles which have been abandoned or
parked in violation of the terms hereof may be towed away at the owner's
expense. Nothing contained in this Lease shall be deemed to create liability
upon Landlord for any damage to motor vehicles of visitors or employees, for any
loss of property from within these motor vehicles, or for any injury to Tenant,
its visitors or employees, unless ultimately determined to be caused by the sole
active negligence or willful misconduct of Landlord, its agents, servants and
employees. Landlord shall have the right to establish, and from time to time
amend, and to enforce against all users all reasonable rules and regulations
(including the designation of areas for employee parking) that Landlord may deem
necessary and advisable for the proper and efficient operation and maintenance
of parking within the Common Areas. Landlord shall have the right to construct,
maintain and operate lighting facilities within the parking areas; to change the
area, level, location and arrangement of the parking areas and improvements
therein (provided, however, that (i) no such change shall deprive Tenant of that
number of vehicle parking spaces set forth in Item 14 of the Basic Lease
Provisions, and (ii) no such change shall result in Tenant's vehicle parking
spaces being moved across any street dedicated to the City of Irvine); to
restrict parking by tenants, their officers, agents and employees to employee
parking areas; after the expiration of the initial 60-month Term of this Lease,
to enforce parking charges by operation of meters or otherwise (provided that
any appraiser selected pursuant to the provisions of Section 3.2 of this Lease
may consider such factor in determining the fair market rental for the Premises
pursuant to the applicable provisions of said Section 3.2); and to do and
perform such other acts in and to the parking areas and improvements therein as,
in the use of good business judgment, Landlord shall determine to be advisable.
Any person using the parking area shall observe all directional signs and arrows
and any posted limits. In no event shall Tenant interfere with the use and
enjoyment of the parking area by other tenants of the Project or their employees
or invitees. Parking areas shall be used only for parking vehicles. Washing,
waxing, cleaning or servicing of vehicles, or the storage of vehicles for
24-hour periods, is prohibited unless otherwise authorized by Landlord. Tenant
shall be liable for any damage to the parking areas caused by Tenant or Tenant's
employees, suppliers, shippers, customers or invitees, including without
limitation damage from excess oil leakage. Tenant shall have no right to install
any fixtures, equipment or personal property in the parking areas.

     SECTION 6.5.  CHANGES AND ADDITIONS BY LANDLORD.  Landlord reserves the
right to make alterations or additions to the Project, or to the attendant
fixtures, equipment and Common Areas. Landlord may at any time relocate or
remove any of the various buildings (other than the Building), parking areas,
and other Common Areas, and may add buildings and areas to the Project from
time to time. No change shall entitle Tenant to any abatement of rent or other
claim against Landlord, provided that the change does not deprive Tenant of
reasonable access to or use of the Premises.

                     ARTICLE VII.  MAINTAINING THE PREMISES

     SECTION 7.1.  TENANT'S MAINTENANCE AND REPAIR.  Tenant at its sole expense
shall comply with all applicable laws and governmental regulations governing
the Premises and make all repairs necessary to keep the Premises in the
condition as existed on the Commencement Date (or on any later date that the
improvements may have

                                       9                              10/31/96

been installed), excepting ordinary wear and tear, including without limitation
the electrical and mechanical systems, any air conditioning, ventilating or
heating equipment which serves the Premises, all walls, glass, windows, doors,
door closures, hardware, fixtures, electrical, plumbing, fire extinguisher
equipment and other equipment. Any damage or deterioration of the Premises shall
not be deemed ordinary wear and tear if the same could have been prevented by
good maintenance practices by Tenant. As part of its maintenance obligations
hereunder, Tenant shall, at Landlord's request, provide Landlord with copies of
all maintenance schedules, reports and notices prepared by, for or on behalf of
Tenant. Tenant shall obtain preventive maintenance contracts from a licensed
heating and air conditioning contractor to provide for regular inspection and
maintenance of the heating, ventilating and air conditioning systems servicing
the Premises, all subject to Landlord's approval. All repairs shall be at least
equal in quality to the original work, shall be made only by a licensed
contractor approved in writing in advance by Landlord and shall be made only at
the time or times approved by Landlord. Any contractor utilized by Tenant shall
be subject to Landlord's standard requirements for contractors, as modified from
time to time. Landlord shall have the right at all times to inspect Tenant's
maintenance of all equipment (including without limitation air conditioning,
ventilating and heating equipment), and may impose reasonable restrictions and
requirements with respect to repairs, as provided in Section 7.3, and the
provisions of Section 7.4 shall apply to all repairs. If Tenant fails to
properly maintain and/or repair the Premises as herein provided (including,
without limitation, failure to properly maintain and repair the electrical and
mechanical systems and air conditioning, ventilating or heating equipment
serving the Premises) then, following Landlord's notice and the expiration of
the applicable cure period, Landlord may elect to make any repair or maintenance
required hereunder on behalf of Tenant and at Tenant's expense, and Tenant shall
promptly reimburse Landlord for all costs incurred upon submission of an
invoice.

     SECTION 7.2.  LANDLORD'S MAINTENANCE AND REPAIR. Subject to Section 7.1
and Article XI, Landlord shall provide service, maintenance and repair with
respect to the roof, foundations, and footings of the Building, all
landscaping, walkways, parking areas, Common Areas, exterior lighting, and the
exterior surfaces of the exterior walls of the Building, except that Tenant at
its expense shall make all repairs which Landlord deems reasonably necessary as
a result of the act or negligence of Tenant, its agents, employees, invitees,
subtenants or contractors. Landlord shall have the right to employ or designate
any reputable person or firm, including any employee or agent of Landlord or
any of Landlord's affiliates or divisions, to perform any service, repair or
maintenance function. Landlord need not make any other improvements or repairs
except as specifically required under this Lease, and nothing contained in this
Section shall limit Landlord's right to reimbursement from Tenant for
maintenance, repair costs and replacement costs as provided elsewhere in this
Lease. Tenant understands that it shall not make repairs at Landlord's expense
or by rental offset. Tenant further understands that Landlord shall not be
required to make any repairs to the roof, foundations or footings unless and
until Tenant has notified Landlord in writing of the need for such repair and
Landlord shall have a reasonable period of time thereafter to commence and
complete said repair, if warranted. All costs of any maintenance and repairs on
the part of Landlord provided hereunder shall be considered part of Building
Costs.

     SECTION 7.3.  ALTERATIONS. Tenant shall make no alterations, additions or
improvements to the Premises without the prior written consent of Landlord,
which consent may be given or withheld in Landlord's sole discretion.
Notwithstanding the foregoing: (A) Landlord's consent shall not be required for
any "Qualified Alterations" (as hereinafter defined) costing less than
Twenty-Five Thousand Dollars ($25,000.00) in the aggregate during any Expense
Recovery Period of the Term, and (B) Landlord shall not unreasonably withhold
its consent to any Qualified Alterations project which costs less than Two
Dollars ($2.00) per square foot of the improved portion of the Premises
(excluding warehouse square footage). As used herein, "Qualified Alterations"
shall mean those alterations, additions or improvements to the Premises which do
not (i) affect the exterior of the Building or outside areas (or be visible from
adjoining sites), or (ii) affect or penetrate any of the structural portions of
the Building, including but not limited to the roof, or (iii) require any change
to the basic floor plan of the Premises, any change to any structural or
mechanical systems of the Premises, or any governmental permit as a prerequisite
to the construction thereof, or (iv) interfere in any manner with the proper
functioning of or Landlord's access to any mechanical, electrical, plumbing or
HVAC systems, facilities or equipment located in or serving the Building, or (v)
diminish the value of the Premises. Landlord may impose, as a condition to its
consent, any requirements that Landlord in its discretion may deem reasonable or
desirable, including but not limited to a requirement that all work be covered
by a lien and completion bond satisfactory to Landlord and requirements as to
the manner, time, and contractor for performance of the work. Tenant shall
obtain all required permits for the work and shall perform the work in
compliance with all applicable laws, regulations and ordinances, all covenants,
conditions and restrictions affecting the Project, and the Rules and Regulations
(hereafter defined). Tenant understands and agrees that Landlord shall be
entitled to a supervision fee in the amount of five percent (5%) of the cost of
the work of any alterations, additions or improvements requiring Landlord's
consent. If any governmental entity requires, as a condition to any proposed
alterations, additions or improvements to the Premises by Tenant, that
improvements be made to the Common Areas, then Tenant shall, at Tenant's sole
expense, but subject to Landlord's right to consent to such proposed
alterations, additions or improvements to the Premises, make such required
improvements to the Common Areas in such manner, utilizing such materials, and
with such contractors (including, if required by Landlord, Landlord's
contractors) as Landlord may require in its sole discretion. Under no
circumstances shall Tenant make any improvement which incorporates any Hazardous
Materials, including without limitation asbestos-containing construction
materials into the Premises. Any request for Landlord's consent shall be made in
writing and shall contain architectural plans describing the work in detail
reasonably satisfactory to Landlord. Unless Landlord otherwise agrees in
writing, all alterations, additions or improvements affixed to the Premises
(excluding moveable trade fixtures and furniture) shall become the property of
Landlord and shall be surrendered with the Premises at the end of the Term,
except that Landlord may, as provided in the next succeeding paragraph of this
Section 7.3, require Tenant to remove by the Expiration Date, or sooner
termination date of this Lease, all or any alterations, decorations, fixtures,
additions, improvements and the like installed either by Tenant or by Landlord
at Tenant's request and to repair any damage to the Premises arising from that
removal. Except as otherwise provided in this Lease or in any Exhibit to this
Lease, should Landlord make any alteration or improvement to the Premises for
Tenant, Landlord shall be entitled to prompt reimbursement from Tenant for all
costs incurred.

                                       10
                                                                        10/31/96

          As of the Expiration Date or earlier termination of this Lease and
subject to the provisions of Section 15.3 of the Lease for removal and repair,
Landlord shall have the right to require Tenant to remove any alterations,
additions or improvements made by Tenant to the Premises, whether or not
Landlord's consent was required. Notwithstanding the foregoing, if at the time
of requesting Landlord's consent to any such alterations, improvements or
additions, Tenant shall request in writing whether or not Landlord shall
require such improvements, alterations or additions to be removed as of the
Expiration Date or earlier termination of this Lease, then Landlord's right to
require Tenant to remove such improvements, alterations or additions, shall be
exercised, if at all, at the time of Landlord's consent thereto.

          Notwithstanding the provisions of the preceding paragraph of this
Section 7.3, Tenant shall have no obligation to remove those alterations,
additions and improvements to the Premises shown in the "as built" floor plan
drawings copies of which are attached as Exhibit F hereto.

          SECTION 7.4. MECHANIC'S LIENS. Tenant shall keep the Premises free
from any liens arising out of any work performed, materials furnished, or
obligations incurred by or for Tenant. Upon request by Landlord, Tenant shall
promptly cause any such lien to be released by posting a bond in accordance
with California Civil Code Section 3143 or any successor statute. In the event
that Tenant shall not, within thirty (30) days following the imposition of any
lien, cause the lien to be released of record by payment or posting of a proper
bond, Landlord shall have, in addition to all other available remedies, the
right to cause the lien to be released by any means it deems proper, including
payment of or defense against the claim giving rise to the lien. All expenses
so incurred by Landlord, including Landlord's attorneys' fees, and any
consequential or other damages incurred by Landlord arising out of such lien,
shall be reimbursed by Tenant promptly following Landlord's demand, together
with interest from the date of payment by Landlord at the maximum rate
permitted by law until paid. Tenant shall give Landlord no less than twenty
(20) days' prior notice in writing before commencing construction of any kind
on the Premises so that Landlord may post and maintain notices of
nonresponsibility on the Premises.

          SECTION 7.5. ENTRY AND INSPECTION. Landlord shall at all reasonable
times, upon at least 24 hours prior written or oral notice (except in
emergencies, when no notice shall be required) have the right to enter the
Premises to inspect them, to supply services in accordance with this Lease, to
protect the interests of Landlord in the Premises, and to submit the Premises
to prospective or actual purchasers or encumbrance holders (or, during the last
one hundred and eighty (180) days of the Term or when an uncured Tenant default
exists, to prospective tenants), all without being deemed to have caused an
eviction of Tenant and without abatement of rent except as provided elsewhere in
this Lease. Landlord shall have the right, if desired, to retain a key which
unlocks all of the doors in the Premises, excluding Tenant's vaults and safes,
and Landlord shall have the right to use any and all means which Landlord may
deem proper to open the doors in an emergency in order to obtain entry to the
Premises, and any such emergency entry to the Premises obtained by Landlord
shall not under any circumstances be deemed to be a forcible or unlawful entry
into, or a detainer of, the Premises, or any eviction of Tenant from the
Premises.

            ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY

          Tenant shall be liable for and shall pay before delinquency, all
taxes and assessments levied against all personal property of Tenant located in
the Premises, against all improvements to the Premises made by Landlord or
Tenant which are above Landlord's Project standard in quality and/or quantity
for comparable space within the Project ("Above Standard Improvements"), and
against any alterations, additions or like improvements made to the Premises by
or on behalf of Tenant. When possible Tenant shall cause its personal property,
Above Standard Improvements and alterations to be assessed and billed
separately from the real property of which the Premises form a part. If any
taxes on Tenant's personal property, Above Standard Improvements and/or
alterations are levied against Landlord or Landlord's property and if Landlord
pays the same, or if the assessed value of Landlord's property is increased by
the inclusion of a value placed upon the personal property, Above Standard
Improvements and/or alterations of Tenant and if Landlord pays the taxes based
upon the increased assessment, Tenant shall pay to Landlord the taxes so levied
against Landlord or the proportion of the taxes resulting from the increase in
the assessment. In calculating what portion of any tax bill which is assessed
against Landlord separately, or Landlord and Tenant jointly, is attributable to
Tenant's Above Standard Improvements, alterations and personal property,
Landlord's reasonable determination shall be conclusive.


                     ARTICLE IX. ASSIGNMENT AND SUBLETTING


          SECTION 9.1. RIGHTS OF PARTIES.

               (a) Notwithstanding any provision of this Lease to the contrary,
Tenant will not, either voluntarily or by operation of law, assign, sublet,
encumber, or otherwise transfer all or any part of Tenant's interest in this
Lease ("Transfer"), or permit the Premises to be occupied by anyone other than
Tenant, without Landlord's prior written consent, which consent shall not
unreasonably be withheld or conditioned in accordance with the provisions of
Section 9.1.(b). No assignment (whether voluntary, involuntary or by operation
of law) and no subletting shall be valid or effective without Landlord's prior
written consent and, at Landlord's election, any such assignment or subletting
or attempted assignment or subletting shall constitute a material default of
this Lease. Landlord shall not be deemed to have given its consent to any
assignment or subletting by any other course of action, including its acceptance
of any name for listing in the Building directory. To the extent not prohibited
by provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the
"Bankruptcy Code"), including Section 365(f)(1), Tenant on behalf of itself and
its creditors,


                                       11                           10/31/96

administrators and assigns waives the applicability of Section 365(e) of the
Bankruptcy Code unless the proposed assignee of the Trustee for the estate of
the bankrupt meets Landlord's standard for consent as set forth in Section
9.1(b) of this Lease. If this Lease is assigned to any person or entity
pursuant to the provisions of the Bankruptcy Code, any and all monies or other
considerations to be delivered in connection with the assignment shall be
delivered to Landlord, shall be and remain the exclusive property of Landlord
and shall not constitute property of Tenant or of the estate of Tenant within
the meaning of the Bankruptcy Code. Any person or entity to which this Lease is
assigned pursuant to the provisions of the Bankruptcy Code shall be deemed to
have assumed all of the obligations arising under this Lease on and after the
date of the assignment, and shall upon demand execute and deliver to Landlord
an instrument confirming that assumption.

          (b)  If Tenant desires to transfer an interest in this Lease, it shall
first notify Landlord of its desire and shall submit in writing to Landlord: (i)
the name and address of the proposed transferee; (ii) the nature of any proposed
subtenant's or assignee's business to be carried on in the Premises; (iii) the
terms and provisions of any proposed sublease or assignment, including a copy of
the proposed assignment or sublease form; (iv) evidence of insurance of the
proposed assignee or subtenant complying with the requirements of Exhibit D
hereto; (v) a completed Environmental Questionnaire from the proposed assignee
or subtenant; and (vi) any other information requested by Landlord and
reasonably related to the transfer. Except as provided in Subsection (e) of this
Section, Landlord shall not unreasonably withhold or condition its consent,
provided: (1) the use of the Premises will be consistent with the provisions of
this Lease and with Landlord's commitment to other tenants of the Project; (2)
the proposed assignee or subtenant has not been required by any prior landlord,
lender or governmental authority to take remedial action in connection with
Hazardous Materials contaminating a property arising out of the proposed
assignee's or subtenant's actions or use of the property in question and is not
subject to any enforcement order issued by any governmental authority in
connection with the use, disposal or storage of a Hazardous Material; (3) at
Landlord's election, insurance requirements shall be brought into conformity
with Landlord's then current leasing practice; (4) any proposed subtenant or
assignee demonstrates that it is financially responsible by submission to
Landlord of all reasonable information as Landlord may request concerning the
proposed subtenant or assignee, including, but not limited to, a balance sheet
of the proposed subtenant or assignee as of a date within ninety (90) days of
the request for Landlord's consent and statements of income or profit and loss
of the proposed subtenant or assignee for the two-year period preceding the
request for Landlord's consent, and/or a certification signed by the proposed
subtenant or assignee that it has not been evicted or been in arrears in rent at
any other leased premises for the 3-year period preceding the request for
Landlord's consent; (5) any proposed subtenant or assignee demonstrates to
Landlord's reasonable satisfaction a record of successful experience in
business; and (6) the proposed assignee or subtenant is not an existing tenant
of the Project or a prospect with whom Landlord is actively negotiating to
become a tenant at the Project. If Tenant has any exterior sign rights under
this Lease, such rights are personal to Tenant and may not be assigned or
transferred to any assignee of this Lease or subtenant of the Premises without
Landlord's prior written consent, which may be withheld in Landlord's sole and
absolute discretion.

               If Landlord consents to the proposed transfer, Tenant may within
ninety (90) days after the date of the consent effect the transfer upon the
terms described in the information furnished to Landlord; provided that any
material change in the terms shall be subject to Landlord's consent as set forth
in this Section. Landlord shall approve or disapprove any requested transfer
within fifteen (15) business days following receipt of Tenant's written request,
the information set forth above, and the fee set forth below.

          (c)  Notwithstanding the provisions of Subsection (b) above, in lieu
of consenting to a proposed assignment or subletting, Landlord may elect to (i)
sublease the Premises (or the portion proposed to be subleased), or take an
assignment of Tenant's interest in this Lease, upon the same terms as offered
to the proposed subtenant or assignee (excluding terms relating to the purchase
of personal property, the use of Tenant's name or the continuation of Tenant's
business), or (ii) terminate this Lease as to the portion of the Premises
proposed to be subleased or assigned with a proportionate abatement in the rent
payable under this Lease, effective on the date that the proposed sublease or
assignment would have become effective. Landlord may thereafter, at its option,
assign or re-let any space so recaptured to any third party, including without
limitation the proposed transferee of Tenant.

          (d)  Tenant agrees that fifty percent (50%) of any amounts paid by
the assignee or subtenant, however described, in excess of (i) the Basic Rent
payable by Tenant hereunder, or in the case of a sublease of a portion of the
Premises, in excess of the Basic Rent reasonably allocable to such portion,
plus (ii) Tenant's direct out-of-pocket costs which Tenant certifies to
Landlord have been paid to provide occupancy related services to such assignee
or subtenant of a nature commonly provided by landlords of similar space, shall
be the property of Landlord and such amounts shall be payable directly to
Landlord by the assignee or subtenant or, at Landlord's option, by Tenant. At
Landlord's request, a written agreement shall be entered into by and among
Tenant, Landlord and the proposed assignee or subtenant confirming the
requirements of this subsection.

          (e)  Tenant shall pay to Landlord a fee of Five Hundred Dollars
($500.00) if and when any transfer hereunder is requested by Tenant. Such fee
is hereby acknowledged as a reasonable amount to reimburse Landlord for its
costs of review and evaluation of a proposed assignee/sublessee, and Landlord
shall not be obligated to commence such review and evaluation unless and until
such fee is paid.

     SECTION 9.2.  EFFECT OF TRANSFER. No subletting or assignment, even with
the consent of Landlord, shall relieve Tenant of its obligation to pay rent and
to perform all its other obligations under this Lease. Moreover, Tenant shall
indemnify and hold Landlord harmless, as provided in Section 10.3, for any act
or omission by an assignee or subtenant. Each assignee, other than Landlord,
shall be deemed to assume all obligations of Tenant under this Lease and shall
be liable jointly and severally with Tenant for the payment of all rent, and
for the due performance of all of Tenant's obligations, under this Lease. No
transfer shall be binding on Landlord unless any document memorializing


                                       12                              10/31/96


the transfer is delivered to Landlord and both the assignee/subtenant and
Tenant deliver to Landlord an executed consent to transfer instrument prepared
by Landlord and consistent with the requirements of this Article. The
acceptance by Landlord of any payment due under this Lease from any other
person shall not be deemed to be a waiver by Landlord of any provision of this
Lease or to be a consent to any transfer. Consent by Landlord to one or more
transfers shall not operate as a waiver or estoppel to the future enforcement
by Landlord of its rights under this Lease.

     SECTION 9.3.  SUBLEASE REQUIREMENTS. The following terms and conditions
shall apply to any subletting by Tenant of all or any part of the Premises and
shall be deemed included in each sublease:

          (a)  Each and every provision contained in this Lease (other than
with respect to the payment of rent hereunder) is incorporated by reference
into and made a part of such sublease, with "Landlord" hereunder meaning the
sublandlord therein and "Tenant" hereunder meaning the subtenant therein.

          (b)  Tenant hereby irrevocably assigns to Landlord all of Tenant's
interest in all rentals and income arising from any sublease of the Premises,
and Landlord may collect such rent and income and apply same toward Tenant's
obligations under this Lease; provided, however, that until a default occurs in
the performance of Tenant's obligations under this Lease, Tenant shall have the
right to receive and collect the sublease rentals. Landlord shall not, by
reason of this assignment or the collection of sublease rentals, be deemed
liable to the subtenant for the performance of any of Tenant's obligations
under the sublease. Tenant hereby irrevocably authorizes and directs any
subtenant, upon receipt of a written notice from Landlord stating that an
uncured default exists in the performance of Tenant's obligations under this
Lease, to pay to Landlord all sums then and hereafter due under the sublease.
Tenant agrees that the subtenant may rely on that notice without any duty of
further inquiry and notwithstanding any notice or claim by Tenant to the
contrary. Tenant shall have no right or claim against the subtenant or Landlord
for any rentals so paid to Landlord.

          (c)  In the event of the termination of this Lease, Landlord may, at
its sole option, take over Tenant's entire interest in any sublease and, upon
notice from Landlord, the subtenant shall attorn to Landlord. In no event,
however, shall Landlord be liable for any previous act or omission by Tenant
under the sublease or for the return of any advance rental payments or deposits
under the sublease that have not been actually delivered to Landlord, nor shall
Landlord be bound by any sublease modification executed without Landlord's
consent or for any advance rental payment by the subtenant in excess of one
month's rent. The general provisions of this Lease, including without
limitation those pertaining to insurance and indemnification, shall be deemed
incorporated by reference into the sublease despite the termination of this
Lease.

     SECTION 9.4. CERTAIN TRANSFERS. The sale of all or substantially all of
Tenant's assets (other than bulk sales in the ordinary course of business) or,
if Tenant is a corporation, an unincorporated association, or a partnership,
the transfer, assignment or hypothecation of any stock or interest in such
corporation, association, or partnership in the aggregate of twenty-five
percent (25%) or more (except for publicly traded shares of stock constituting
a transfer of twenty-five percent (25%) or more in the aggregate, so long as no
change in the controlling interest of Tenant occurs as a result thereof) shall
be deemed an assignment within the meaning and provisions of this Article.
Notwithstanding the foregoing, Landlord's consent shall not be required for any
Transfer to an "Affiliate" (as defined below), so long as (i) the net worth of
the transferee after such Transfer is at least equal to the greater of the net
worth of Tenant as of the execution of this Lease by Landlord or the net worth
of Tenant immediately prior to the date of such Transfer, evidence of which,
satisfactory to Landlord, shall be presented to Landlord prior to such
Transfer, (ii) Tenant shall provide to Landlord, prior to such Transfer,
written notice of such Transfer and such assignment documentation and other
information as Landlord may request in connection therewith, and (iii) all of
the other terms and requirements of this Article shall apply with respect to
such Transfer. As used herein, Tenant's "Affiliate" shall be defined as (i) a
corporation into or with which Tenant is merged or consolidated; (ii) a
corporation into which all or substantially all of Tenant's assets are
transferred; (iii) any corporation or other entity which controls or is
controlled by Tenant; or (iv) a corporation controlled by Tenant's parent
corporation to the same extent as Tenant is controlled by such parent
corporation.


                       ARTICLE X. INSURANCE AND INDEMNITY


     SECTION 10.1.  TENANT'S INSURANCE. Tenant, at its sole cost and expense,
shall provide and maintain in effect the insurance described in Exhibit D.
Evidence of that insurance must be delivered to Landlord prior to the
Commencement Date.

     SECTION 10.2.  LANDLORD'S INSURANCE. Landlord may, at its election, provide
any or all of the following types of insurance, with or without deductible and
in amounts and coverages as may be determined by Landlord in its discretion:
"all risk" property insurance, subject to standard exclusions, covering the
Building or Project, and such other risks as Landlord or its mortgagees may from
time to time deem appropriate, including leasehold improvements made by
Landlord, and commercial general liability coverage. Landlord shall not be
required to carry insurance of any kind of Tenant's property, including
leasehold improvements, trade fixtures, furnishings, equipment, plate glass,
signs and all other items of personal property, and shall not be obligated to
repair or replace that property should damage occur. All proceeds of insurance
maintained by Landlord upon the Building and Project shall be the property of
Landlord, whether or not Landlord is obligated to or elects to make any repairs.
At Landlord's option, Landlord may self-insure all or any portion of the risks
for which Landlord elects to provide insurance hereunder.

     SECTION 10.3.  TENANT'S INDEMNITY. To the fullest extent permitted by law,
but except to the extent of the sole active negligence or willful misconduct of
Landlord, its employees, contractors or authorized agents, Tenant


                                       13                              10/31/96


shall defend, indemnify, protect, save and hold harmless Landlord, its agents,
and any and all affiliates of Landlord, including, without limitation, any
corporations or other entities controlling, controlled by or under common
control with Landlord, from and against any and all claims, liabilities, costs
or expenses arising either before or after the Commencement Date from Tenant's
use or occupancy of the Premises, the Building or the Common Areas, or from the
conduct of its business, or from any activity, work, or thing done, permitted or
suffered by Tenant or its agents, employees, invitees or licensees in or about
the Premises, the Building or the Common Areas, or from any default in the
performance of any obligation on Tenant's part to be performed under this Lease,
or from any act or negligence of Tenant or its agents, employees, visitors,
patrons, guests, invitees or licensees. Landlord may, at its option, require
Tenant to assume Landlord's defense in any action covered by this Section
through counsel satisfactory to Landlord. The provisions of this Section shall
expressly survive the expiration or sooner termination of this Lease.

     SECTION 10.4. LANDLORD'S NONLIABILITY. Except to the extent of the sole
active negligence of Landlord, its employees, contractors or authorized agents,
Landlord shall not be liable to Tenant, its employees, agents and invitees, and
Tenant hereby waives all claims against Landlord for loss of or damage to any
property or personal injury, or any other loss, cost, damage, injury or
liability whatsoever resulting from fire, explosion, falling plaster, steam,
gas, electricity, water or rain which may leak or flow from or into any part of
the Premises or from the breakage, leakage, obstruction or other defects of the
pipes, sprinklers, wires, appliances, plumbing, air conditioning, electrical
works or other fixtures in the Building, whether the damage or injury results
from conditions arising in the Premises or in other portions of the Building. It
is understood that any such condition may require the temporary evacuation or
closure of all or a portion of the Building. Notwithstanding any provision of
this Lease to the contrary, including, without limitation, the negligence or
willful misconduct of Landlord, its employees, contractors or authorized agents,
Landlord shall in no event be liable to Tenant, its employees, agents, and
invitees, and Tenant hereby waives all claims against Landlord, for loss or
interruption of Tenant's business or income (including, without limitation, any
consequential damages and lost profit or opportunity costs), or any other loss,
cost, damage, injury or liability resulting from, but not limited to, Acts of
God (except with respect to restoration obligations pursuant to Article XI
below), acts of civil disobedience or insurrection, acts or omissions (criminal
or otherwise) of any third parties (other than Landlord's employees or
authorized agents), including without limitation, any other tenants within the
Project or their agents, employees, contractors, guests or invitees. Except as
provided in Sections 11.1 and 12.1 below, there shall be no abatement of rent
and no liability of Landlord by reason of any injury to or interference with
Tenant's business (including without limitation consequential damages and lost
profit or opportunity costs) arising from the making of any repairs, alterations
or improvements to any portion of the Building, including repairs to the
Premises, nor shall any related activity by Landlord constitute an actual or
constructive eviction; provided, however, that in making repairs, alterations or
improvements, Landlord shall interfere as little as reasonably practicable with
the conduct of Tenant's business in the Premises. Neither Landlord nor its
agents shall be liable for interference with light or other similar intangible
interests. Tenant shall immediately notify Landlord in case of fire or accident
in the Premises, the Building or the Project and of defects in any improvements
or equipment.

     SECTION 10.5. WAIVER OF SUBROGATION. Landlord and Tenant each hereby
waives all rights of recovery against the other and the other's agents on
account of loss and damage occasioned to the property of such waiving party to
the extent only that such loss or damage is required to be insured against
under any "all risk" property insurance policies required by this Article X;
provided however, that (i) the foregoing waiver shall not apply to the extent
of Tenant's obligations to pay deductibles under any such policies and this
Lease, and (ii) if any loss is due to the act, omission or negligence or
willful misconduct of Tenant or its agents, employees, contractors, guests or
invitees, Tenant's liability insurance shall be primary and shall cover all
losses and damages prior to any other insurance hereunder. By this waiver it is
the intent of the parties that neither Landlord nor Tenant shall be liable to
any insurance company (by way of subrogation or otherwise) insuring the other
party for any loss or damage insured against under any "all-risk" property
insurance policies required by this Article, even though such loss or damage
might be occasioned by the negligence of such party, its agents, employees,
contractors, guests or invitees. The provisions of this Section shall not limit
the indemnification provisions elsewhere contained in this Lease.

                       ARTICLE XI. DAMAGE OR DESTRUCTION.

     SECTION 11.1. RESTORATION.

          (a)  If the Building is damaged, Landlord shall repair that damage as
soon as reasonably possible, at its expense, unless: (i) Landlord reasonably
determines that the cost of repair is not covered by Landlord's fire and
extended coverage insurance plus such additional amounts Tenant elects, at its
option, to contribute, excluding however the deductible (for which Tenant shall
be responsible for Tenant's proportionate share); (ii) Landlord reasonably
determines that the Premises cannot, with reasonable diligence, be fully
repaired by Landlord (or cannot be safely repaired because of the presence of
hazardous factors, including without limitation Hazardous Materials, earthquake
faults, and other similar dangers) within two hundred seventy (270) days after
the date of the damage; (iii) an event of default by Tenant has occurred and is
continuing at the time of such damage; or (iv) the damage occurs during the
final twelve (12) months of the Term. Landlord shall notify Tenant in writing
("Landlord's Notice") within sixty (60) days after the damage occurs as to (i)
whether Landlord is terminating this Lease as a result of the damage and (ii)
if Landlord is not terminating this Lease, the number of days within which
Landlord has estimated that the Premises, with reasonable diligence, are likely
to be fully repaired. In the event Landlord elects to terminate this Lease,
this Lease shall terminate as of the date specified for termination by
Landlord's Notice (which termination date shall in no event be later than sixty
(60) days following the date of the damage, or, if no such date is specified,
such termination shall be the date of Landlord's Notice).

                                       14                               10/31/96



               (b) If Landlord does not elect to terminate this Lease under
subsection (a), and provided that Tenant is not in default under this Lease
(with all applicable notice of default having been given, and applicable cure
periods having expired without Tenant having cured such default) then within
ten (10) days following delivery of Landlord's Notice pursuant to subsection
(a) above, Tenant may elect to terminate this Lease by written notice to
Landlord, but only if (i) Landlord's Notice specifies that Landlord has
determined that the Premises cannot be repaired, with reasonable diligence,
within two hundred seventy (270) days after the date of damage or (ii) if the
damage has occurred within the final twelve (12) months of the Term. If Tenant
fails to provide such termination notice within such ten (10) day period,
Tenant shall be deemed to have waived any termination right under this
subsection or any other applicable law. In the event that neither Landlord nor
Tenant terminates this Lease pursuant to this Section as a result of damage to
the Building or Premises, then Landlord shall thereafter repair that damage as
soon as reasonably possible and this Lease shall continue in effect for the
remainder of the Term, provided that Landlord shall have no obligation as to
any other leasehold improvements made by Tenant or any Alterations (as defined
in Section 7.3) constructed by Tenant. Landlord shall have no liability to
Tenant in the event that the Premises or the Building has not been fully
repaired within the time period specified by Landlord in Landlord' Notice to
Tenant as described in subsection(a).


               (c) Commencing on the date of any damage to the Building, and
ending on the sooner of the date the damage is repaired or the date this Lease
is terminated, the rental to be paid under this Lease shall be abated in the
same proportion that the floor area of the Building that is rendered unusable
by the damage from time to time bears to the total floor area of the Building,
but only to the extent that Tenant is carrying the business interruption
insurance required of Tenant in Exhibit D.


               (d) Notwithstanding the provisions of subsections (a), (b) and
(c) of this Section, and subject to the provisions of Section 10.5 above, the
cost of any repairs shall be borne by Tenant, and Tenant shall not be entitled
to rental abatement or termination rights, if the damage is due solely to the
fault or neglect of Tenant or its employees, subtenants, invitees or
representatives. In addition, the provisions of this Section shall not be
deemed to require Landlord to repair any improvements or fixtures that Tenant
is obligated to repair or insure pursuant to any other provision of this Lease.


               (e) Tenant shall fully cooperate with Landlord in removing
Tenant's personal property and any debris from the Premises to facilitate all
inspections of the Premises and the making of any repairs. Notwithstanding
anything to the contrary contained in this Lease, if Landlord in good faith
believes there is a risk of injury to persons or damage to property from entry
into the Building or Premises following any damage or destruction thereto,
Landlord may restrict entry into the Building or the Premises by Tenant, its
employees, agents and contractors in a non-discriminatory manner, without being
deemed to have violated Tenant's rights of quiet enjoyment to, or made an
unlawful detainer of, or evicted Tenant from, the Premises. Upon request,
Landlord shall consult with Tenant to determine if there are safe methods of
entry into the Building or the Premises solely in order to allow Tenant to
retrieve files, data in computers, and necessary inventory, subject however to
all indemnities and waivers of liability from Tenant to Landlord contained in
this Lease and any additional indemnities and waivers of liability which
Landlord may require.


          SECTION 11.2.  LEASE GOVERNS. Tenant agrees that the provisions of
this Lease, including without limitation Section 11.1, shall govern any damage
or destruction and shall accordingly supersede any contrary statute or rule of
law.


                          ARTICLE XII. EMINENT DOMAIN

          SECTION 12.1. TOTAL OR PARTIAL TAKING. If all or a material portion
of the Premises is taken by any lawful authority by exercise of the right of
eminent domain, or sold to prevent a taking, either Tenant or Landlord may
terminate this Lease effective as of the date possession is required to be
surrendered to the authority. In the event title to a portion of the Premises
is taken or sold in lieu of taking, and if Landlord elects to restore the
Premises in such a way as to alter the Premises materially, either party may
terminate this Lease, by written notice to the other party, effective on the
date of vesting of title. In the event neither party has elected to terminate
this Lease as provided above, then Landlord shall promptly, after receipt of a
sufficient condemnation award, proceed to restore the Premises to substantially
their condition prior to the taking, and a proportionate allowance shall be
made to Tenant for the rent corresponding to the time during which, and to the
part of the Premises of which, Tenant is deprived on account of the taking and
restoration. In the event of a taking, Landlord shall be entitled to the entire
amount of the condemnation award without deduction for any estate or interest
of Tenant; provided that nothing in this Section shall be deemed to give
Landlord any interest in, or prevent Tenant from seeking any award against the
taking authority for, the taking of personal property and fixtures belonging to
Tenant or for relocation or business interruption expenses recoverable from the
taking authority.


          SECTION 12.2 TEMPORARY TAKING. No temporary taking of the Premises
shall terminate this Lease or give Tenant any right to abatement of rent, and
any award specifically attributable to a temporary taking of the Premises shall
belong entirely to Tenant. A temporary taking shall be deemed to be a taking of
the use or occupancy of the Premises for a period of not to exceed one hundred
eight (180) days.


          SECTION 12.3. TAKING OF PARKING AREA. In the event there shall be a
taking of the parking area such that Landlord can no longer provide sufficient
parking to comply with this Lease, Landlord may substitute reasonably
equivalent parking in a location reasonably close to the Building; provided
that if Landlord fails to make that substitution within ninety (90) days
following the taking and if the taking materially impairs Tenant's use and
enjoyment



                                       15                          10/31/96



of the Premises, Tenant may, at its option, terminate this Lease by written
notice to Landlord. If this Lease is not so terminated by Tenant, there shall
be no abatement of rent and this Lease shall continue in effect.

         ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS

     SECTION 13.1.  SUBORDINATION.  At the option of Landlord, this Lease shall
be either superior or subordinate to all ground or underlying leases, mortgages
and deeds of trust, if any, which may hereafter affect the Premises, and to all
renewals, modifications, consolidations, replacements and extensions thereof;
provided, that so long as Tenant is not in default under this Lease (with all
applicable notices of default having been given, and applicable cure periods
having expired without Tenant having cured such default), this Lease shall not
be terminated or Tenant's quiet enjoyment of the Premises disturbed in the
event of termination of any such ground or underlying lease, or the foreclosure
of any such mortgage or deed of trust, to which Tenant has subordinated this
Lease pursuant to this Section. In the event of a termination or foreclosure,
Tenant shall become a tenant of and attorn to the successor-in-interest to
Landlord upon the same terms and conditions as are contained in this Lease, and
shall execute any instrument reasonably required by Landlord's successor for
that purpose. Tenant shall also, upon written request of Landlord, execute and
deliver all instruments as may be required from time to time to subordinate the
rights of Tenant under this Lease to any ground or underlying lease or to the
lien of any mortgage or deed of trust (provided that such instruments include
the nondisturbance and attornment provisions set forth above), or, if requested
by Landlord, to subordinate, in whole or in part, any ground or underlying
lease or the lien of any mortgage or deed of trust to this Lease.

     SECTION 13.2.  ESTOPPEL CERTIFICATE.

          (a)  Tenant shall, at any time upon not less than ten (10) days prior
written notice from Landlord, execute, acknowledge and deliver to Landlord, in
any form that Landlord may reasonably require, a statement in writing (i)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of the modification and certifying that this Lease,
as modified, is in full force and effect) and the dates to which the rental,
additional rent and other charges have been paid in advance, if any, and (ii)
acknowledging that, to Tenant's knowledge, there are no uncured defaults on the
part of Landlord, or specifying each default if any are claimed, and (iii)
setting forth all further information that Landlord may reasonably require.
Tenant's statement may be relied upon by any prospective purchaser or
encumbrancer of the Premises.

          (b)  Notwithstanding any other rights and remedies of Landlord,
Tenant's failure to deliver any estoppel statement within the provided time
shall be conclusive upon Tenant that (i) this Lease is in full force and effect,
without modification except as may be represented by Landlord, (ii) there are no
uncured defaults in Landlord's performance, and (iii) not more than one month's
rental has been paid in advance.

     SECTION 13.3  FINANCIALS.

          (a)  Tenant shall deliver to Landlord, prior to the execution of this
Lease and thereafter at any time within ten (10) days following Landlord's
written request (but not more frequently than twice in any calendar year),
Tenant's current financial statements, certified true, accurate and complete by
the chief financial officer of Tenant, including a balance sheet and profit and
loss statement for the most recent prior year (collectively, the "Statements"),
which Statements shall accurately and completely reflect the financial
condition of Tenant. Landlord agrees that it will keep the Statements
confidential, except that Landlord shall have the right to deliver the same to
any proposed purchaser or encumbrancer of the Premises.

          (b)  Tenant acknowledges that Landlord is relying on the Statements
in its determination to enter into this Lease, and Tenant represents to
Landlord, which representation shall be deemed made on the date of this Lease
and again on the Commencement Date, that no material change in the financial
condition of Tenant, as reflected in the Statements, has occurred since the
date Tenant delivered the Statements to Landlord. The Statements are
represented and warranted by Tenant to be correct and to accurately and fully
reflect Tenant's true financial condition as of the date of submission by any
Statements to Landlord.

                       ARTICLE XIV. DEFAULTS AND REMEDIES

     SECTION 14.1.  TENANT'S DEFAULTS.  In addition to any other event of
default set forth in this Lease, the occurrence of any one or more of the
following events shall constitute a default by Tenant:

          (a)  The failure by Tenant to make any payment of rent or additional
rent required to be made by Tenant, as and when due, where the failure
continues for a period of ten (10) days after written notice from Landlord to
Tenant; provided, however, that any such notice shall be in lieu of, and not in
addition to, any notice required under California Code of Civil Procedures
Section 1161 and 1161(a) as amended. For purposes of these default and remedies
provisions, the term "additional rent" shall be deemed to include all amounts
of any type whatsoever other than Basic Rent to be paid by Tenant pursuant to
the terms of this Lease.

          (b)  Assignment, sublease, encumbrance or other transfer of the Lease
by Tenant, either voluntarily or by operation of law, whether by judgment,
execution, transfer by intestacy or testacy, or other means, without the prior
consent of Landlord.

                                       16                               10/31/96


          (c)  The discovery by Landlord that any financial statement provided
by Tenant, or by any affiliate, successor or guarantor of Tenant, was materially
false.

          (d)  The failure of Tenant to timely and fully provide any
subordination agreement, estoppel certificate or financial statements in
accordance with the requirements of Article XIII, if such failure continues for
ten (10) days after written notice from Landlord.

          (e)  The failure or inability by Tenant to observe or perform any of
the express or implied covenants or provisions of this Lease to be observed or
performed by Tenant, other than as specified in any other subsection of this
Section, where the failure continues for a period of thirty (30) days after
written notice from Landlord to Tenant or such shorter period as is specified in
any other provision of this Lease; provided, however, that any such notice shall
be in lieu of, and not in addition to, any notice required under California Code
of Civil Procedure Section 1161 and 1161(a) as amended. However, if the nature
of the failure is such that more than thirty (30) days are reasonably required
for its cure, then Tenant shall not be deemed to be in default if Tenant
commences the cure within thirty (30) days, and thereafter diligently pursues
the cure to completion.

          (f)  (i) The making by Tenant of any general assignment for the
benefit of creditors; (ii) the filing by or against Tenant of a petition to have
Tenant adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts
discharged or 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 within thirty (30) days); (iii) 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, if possession is
not restored to Tenant within thirty (30) days; or (iv) 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 the seizure
is not discharged within thirty (30) days. Landlord shall not be deemed to have
knowledge of any event described in this subsection unless notification in
writing is received by Landlord, nor shall there by any presumption attributable
to Landlord of Tenant's insolvency. In the event that any provision of this
subsection is contrary to applicable law, the provision shall be of no force or
effect.

     SECTION 14.2.  LANDLORD'S REMEDIES.

          (a)  In the event of any default by Tenant, then in addition to any
other remedies available to Landlord, Landlord may exercise the following
remedies:

               (i)  Landlord may terminate Tenant's right to possession of the
Premises by any lawful means, in which case this Lease shall terminate and
Tenant shall immediately surrender possession of the Premises to Landlord. Such
termination shall not affect any accrued obligations of Tenant under this
Lease. Upon termination, Landlord shall have the right to reenter the Premises
and remove all persons and property. Landlord shall also be entitled to recover
from Tenant:

                    (1)  The worth at the time of award of the unpaid rent and
additional rent which had been earned at the time of termination;

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

                    (3)  The worth at the time of award of the amount by which
the unpaid rent and additional rent for the balance of the Term after the time
of award exceeds the amount of such loss that Tenant proves could be reasonably
avoided;

                    (4)  Any other amount necessary to compensate Landlord for
all the 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 from Tenant's default, including, but not limited to, the cost
of recovering possession of the Premises, refurbishment of the Premises,
marketing costs, commissions and other expenses of reletting, including
necessary repair, the unamortized portion of any tenant improvements and
brokerage commissions funded by Landlord in connection with this Lease,
reasonable attorneys' fees, and any other reasonable costs; and

                    (5)  At Landlord's election, all other amounts in addition
to or in lieu of the foregoing as may be permitted by law. The term "rent" as
used in this Lease shall be deemed to mean the Basic Rent and all other sums
required to be paid by Tenant to Landlord pursuant to the terms of this Lease.
Any sum, other than Basic Rent, shall be computed on the basis of the average
monthly amount accruing during the twenty-four (24) month period immediately
prior to default, except that if it becomes necessary to compute such rental
before the twenty-four (24) month period has occurred, then the computation
shall be on the basis of the average monthly amount during the shorter period.
As used in subparagraphs (1) and (2) above, the "worth at the time of award"
shall be computed by allowing interest at the rate of ten percent (10%) per
annum. As used in subparagraph (3) above, the "worth at the time of award"
shall be computed by discounting the amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%).

               (ii) Landlord may elect not to terminate Tenant's right to
possession of the Premises, in which event Landlord may continue to enforce all
of its rights and remedies under this Lease, including the right to collect all
rent as it becomes due. Efforts by the Landlord to maintain, preserve or relet
the Premises, or the appointment of a receiver to protect the Landlord's
interests under this Lease, shall not constitute a termination of the Tenant's
right

                                                                        10/31/96

                                       17


to possession of the Premises. In the event that Landlord elects to avail
itself of the remedy provided by this subsection (ii), Landlord shall not
unreasonably withhold its consent to an assignment or subletting of the
Premises subject to the reasonable standards for Landlord's consent as are
contained in this Lease.

          (b)  The various rights and remedies reserved to Landlord in this
Lease or otherwise shall be cumulative and, except as otherwise provided by
California law, Landlord may pursue any or all of its rights and remedies at
the same time.

          (c)  No delay or omission of Landlord to exercise any right or remedy
shall be construed as a waiver of the right or remedy or of any default by
Tenant. The acceptance by Landlord of rent shall not be a (i) waiver of any
preceding breach or default by Tenant of any provision of this Lease, other
than the failure of Tenant to pay the particular rent accepted, regardless of
Landlord's knowledge of the preceding breach or default at the time of
acceptance of rent, or (ii) a waiver of Landlord's right to exercise any remedy
available to Landlord by virtue of the breach or default. The acceptance of any
payment from a debtor in possession, a trustee, a receiver or any other person
acting on behalf of Tenant or Tenant's estate shall not waive or cure a default
under Section 14.1. No payment by Tenant or receipt by Landlord of a lesser
amount than the rent required by this Lease shall be deemed to be other than a
partial payment on account of the earliest due stipulated rent, nor shall any
endorsement or statement on any check or letter be deemed an accord and
satisfaction and Landlord shall accept the check or payment without prejudice
to Landlord's right to recover the balance of the rent or pursue any other
remedy available to it. No act or thing done by Landlord or Landlord's agents
during the Term shall be deemed an acceptance of a surrender of the Premises,
and no agreement to accept a surrender shall be valid unless in writing and
signed by Landlord. No employee of Landlord or of Landlord's agents shall have
any power to accept the keys to the Premises prior to the termination of this
Lease, and the delivery of the keys to any employee shall not operate as a
termination of the Lease or a surrender of the Premises.

     SECTION 14.3.  LATE PAYMENTS.

          (a)  Any rent due under this Lease that is not received by Landlord
within ten (10) days of the date when due shall bear interest at the maximum
rate permitted by law from the date due until fully paid. The payment of
interest shall not cure any default by Tenant under this Lease. In addition,
Tenant acknowledges that the late payment by Tenant to Landlord of rent will
cause Landlord to incur costs not contemplated by this Lease, the exact amount
of which will be extremely difficult and impracticable to ascertain. Those
costs may include, but are not limited to, administrative, processing and
accounting charges, and late charges which may be imposed on Landlord by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any rent due from Tenant shall not be received by Landlord or
Landlord's designee within ten (10) days after the date due, then Tenant shall
pay to Landlord, in addition to the interest provided above, a late charge in a
sum equal to the greater of five percent (5%) of the amount overdue or Two
Hundred Fifty Dollars ($250.00) for each delinquent payment. Acceptance of a
late charge by Landlord shall not constitute a waiver of Tenant's default with
respect to the overdue amount, nor shall it prevent Landlord from exercising
any of its other rights and remedies.

          (b)  Following each second consecutive installment of rent that is
not paid within ten (10) days following notice of nonpayment from Landlord,
Landlord shall have the option (i) to require that beginning with the first
payment of rent next due, rent shall no longer be paid in monthly installments
but shall be payable quarterly three (3) months in advance and/or (ii) to
require that Tenant increase the amount, if any, of the Security Deposit by one
hundred percent (100%). Should Tenant deliver to Landlord, at any time during
the Term, two (2) or more insufficient checks, the Landlord may require that
all monies then and thereafter due from Tenant be paid to Landlord by cashier's
check.

     SECTION 14.4.  RIGHT OF LANDLORD TO PERFORM. All covenants and agreements
to be performed by Tenant under this Lease shall be performed at Tenant's sole
cost and expense and without any abatement of rent or right of set-off. If
Tenant fails to pay any sum of money, other than rent, or fails to perform any
other act on its part to be performed under this Lease, and the failure
continues beyond any applicable grace period set forth in Section 14.1, then in
addition to any other available remedies, Landlord may, at its election make
the payment or perform the other act on Tenant's part. Landlord's election to
make the payment or perform the act on Tenant's part shall not give rise to any
responsibility of Landlord to continue making the same or similar payments or
performing the same or similar acts. Tenant shall, promptly upon demand by
Landlord, reimburse Landlord for all sums paid by Landlord and all necessary
incidental costs, together with interest at the maximum rate permitted by law
from the date of the payment by Landlord. Landlord shall have the same rights
and remedies if Tenant fails to pay those amounts as Landlord would have in the
event of a default by Tenant in the payment of rent.

     SECTION 14.5.  DEFAULT BY LANDLORD. Landlord shall not be deemed to be in
default in the performance of any obligation under this Lease unless and until
it has failed to perform the obligation within thirty (30) days after written
notice by Tenant to Landlord specifying in reasonable detail the nature and
extent of the failure; provided, however, that if the nature of Landlord's
obligation is such that more than thirty (30) days are required for its
performance, then Landlord shall not be deemed to be in default if it commences
performance within the thirty (30) day period and thereafter diligently pursues
the cure to completion.

     SECTION 14.6.  EXPENSES AND LEGAL FEES. All sums reasonably incurred by
Landlord in connection with any event of default by Tenant under this Lease or
holding over of possession by Tenant after the expiration or earlier
termination of this Lease, including without limitation all costs, expenses and
actual accountants, appraisers, attorneys and other professional fees, and any
collection agency or other collection charges, shall be due and payable by
Tenant to Landlord on demand, and shall bear interest at the rate of ten
percent (10%) per annum. Should either Landlord or Tenant bring any action in
connection with this Lease, the prevailing party shall be entitled to recover as


                                       18                              10/31/96


a part of the action its reasonable attorneys' fees, and all other costs. The
prevailing party for the purpose of this paragraph shall be determined by the
trier of the facts.

     SECTION 14.7. WAIVER OF JURY TRIAL. LANDLORD AND TENANT EACH ACKNOWLEDGES
THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH
RESPECT TO ITS RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY
EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST
THE OTHER (AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR
SUBSIDIARY OR AFFILIATED ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT OF OR
IN ANY WAY CONNECTED WITH THIS LEASE, TENANT'S USE OR OCCUPANCY OF THE
PREMISES, AND/OR ANY CLAIM OF INJURY OR DAMAGE.

     SECTION 14.8.  SATISFACTION OF JUDGMENT.  The obligations of Landlord do
not constitute the personal obligations of the individual partners, trustees,
directors, officers or shareholders of Landlord or its constituent partners.
Should Tenant recover a money judgment against Landlord, such judgment shall be
satisfied only out of the proceeds of sale received upon execution of such
judgment and levied thereon against the right, title and interest of Landlord
in the Project and out of the rent or other income from such property
receivable by Landlord or out of consideration received by Landlord from the
sale or other disposition of all or any part of Landlord's right, title or
interest in the Project, and no action for any deficiency may be sought or
obtained by Tenant.

     SECTION 14.9.  LIMITATION OF ACTIONS AGAINST LANDLORD.  Any claim, demand
or right of any kind by Tenant which is based upon or arises in connection with
this Lease shall be barred unless Tenant commences an action thereon within
twelve (12) months after the date that the act, omission, event or default upon
which the claim, demand or right arises, has occurred.

                            ARTICLE XV. END OF TERM

     SECTION 15.1.  HOLDING OVER.  This Lease shall terminate without further
notice upon the expiration of the Term, and any holding over by Tenant after the
expiration shall not constitute a renewal or extension of this Lease, or give
Tenant any rights under this Lease, except when in writing signed by both
parties. If Tenant holds over for any period after the expiration (or earlier
termination) of the Term without the prior written consent of Landlord, such
possession shall constitute a tenancy at sufferance only; such holding over
with the prior written consent of Landlord shall constitute a month-to-month
tenancy commencing on the first (1st) day following the termination of this
Lease. In either of such events, possession shall be subject to all of the terms
of this Lease, except that the monthly Basic Rent shall be the greater of (a)
one hundred fifty percent (150%) of the Basic Rent for the month immediately
preceding the date of termination for the initial three (3) months of holdover,
and two hundred percent (200%) of the Basic Rent for the month immediately
preceding the date of termination for each month of holdover thereafter, or (b)
the then currently scheduled Basic Rent for comparable space in the Project. If
Tenant fails to surrender the Premises upon the expiration of this Lease despite
demand to do so by Landlord, Tenant shall indemnify and hold Landlord harmless
from all loss or liability, including without limitation, any claims made by any
succeeding tenant relating to such failure to surrender, provided Tenant has
been notified in writing by Landlord prior to the expiration of the Term of such
succeeding tenant. Acceptance by Landlord of rent after the termination shall
not constitute a consent to a holdover or result in a renewal of this Lease. The
foregoing provisions of this Section are in addition to and do not affect the
Landlord's right of re-entry or any other rights of Landlord under this Lease or
at law.

     SECTION 15.2.  MERGER ON TERMINATION.  The voluntary or other surrender of
this Lease by Tenant, or a mutual termination of this Lease, shall terminate any
or all existing subleases unless Landlord, at its option, elects in writing to
treat the surrender or termination as an assignment to it of any or all
subleases affecting the Premises.

     SECTION 15.3.  SURRENDER OF PREMISES; REMOVAL OF PROPERTY.  Upon the
Expiration Date or upon any earlier termination of this Lease, Tenant shall quit
and surrender possession of the Premises to Landlord in as good order, condition
and repair as when received or as hereafter may be improved by Landlord or
Tenant, reasonable wear and tear and repairs which are Landlord's obligation
excepted, and shall, without expense to Landlord, remove or cause to be removed
from the Premises all personal property and debris, except for any items that
Landlord may by written authorization allow to remain. Tenant shall repair all
damage to the Premises resulting from the removal, which repair shall include
the patching and filling of holes and repair of structural damage, provided that
Landlord may instead elect to repair any structural damage at Tenant's expense.
If Tenant shall fail to comply with the provisions of this Section, Landlord may
effect the removal and/or make any repairs, and the cost to Landlord shall be
additional rent payable by Tenant upon demand. If Tenant fails to remove
Tenant's personal property from the Premises upon the expiration of the Term,
Landlord may remove, store, dispose of and/or retain such personal property, at
Landlord's option, in accordance with then applicable laws, all at the expense
of Tenant. If requested by Landlord, Tenant shall execute, acknowledge and
deliver to Landlord an instrument in writing releasing and quitclaiming to
Landlord all right, title and interest of Tenant in the Premises.

                                       19                               10/31/96

                       ARTICLE XVI. PAYMENTS AND NOTICES

     All sums payable by Tenant to Landlord shall be paid, without deduction or
offset, in lawful money of the United States to Landlord at its address set
forth in Item 12 of the Basic Lease Provisions, or at any other place as
Landlord may designate in writing. Unless this Lease expressly provides
otherwise, as for example in the payment of rent pursuant to Section 4.1, all
payments shall be due and payable within five (5) days after demand. All
payments requiring proration shall be prorated on the basis of a thirty (30) day
month and a three hundred sixty (360) day year. Any notice, election, demand,
consent, approval or other communication to be given or other document to be
delivered by either party to the other may be delivered in person or by
reputable overnight delivery service to the other party, or by facsimile
transmission, or may be deposited in the United States mail, duly registered or
certified, postage prepaid, return receipt requested, and addressed to the other
party at the address set forth in Item 12 of the Basic Lease Provisions, or if
to Tenant, at that address or, from and after the Commencement Date, at the
Premises (whether or not Tenant has departed from, abandoned or vacated the
Premises). Either party may, by written notice to the other, served in the
manner provided in this Article, designate a different address. If any notice or
other document is sent by regular mail, it shall be deemed served or delivered
twenty-four (24) hours after mailing. Notices transmitted by facsimile
transmission or similar means shall be deemed delivered upon telephone
confirmation of receipt (confirmation report from fax machine is sufficient),
provided a copy is also delivered via delivery or mail. Any notice sent by
registered or certified mail, return receipt requested, shall be deemed given on
the date of delivery shown on the receipt card, or if no delivery date is shown,
the postmark thereon. Notices delivered by U.S. Express Mail or overnight
delivery service guaranteeing next day delivery shall be deemed given
twenty-four (24) hours after delivery of the same to the postal service delivery
service. If notice is received on a Saturday, Sunday or legal holiday, it shall
be deemed received on the next business day. If more than one person or entity
is named as Tenant under this Lease, service of any notice upon any one of them
shall be deemed as service upon all of them.

                      ARTICLE XVII. RULES AND REGULATIONS

     Tenant agrees to observe faithfully and comply strictly with the Rules and
Regulations, attached as Exhibit E, and any reasonable and nondiscriminatory
amendments, modifications and/or additions as may be adopted and published by
written notice to tenants by Landlord for the safety, care, security, good
order, or cleanliness of the Premises, and Project and Common Areas (if
applicable). Landlord shall not be liable to Tenant for any violation of the
Rules and Regulations or the breach of any covenant or condition in any lease by
any other tenant or such tenant's agents, employees, contractors, quests or
invitees. One or more waivers by Landlord of any breach of the Rules and
Regulations by Tenant or by any other tenant(s) shall not be a waiver of any
subsequent breach of that rule or any other. Tenant's failure to keep and
observe the Rules and Regulations shall constitute a default under this Lease.
In the case of any conflict between the Rules and Regulations and this Lease,
this Lease shall be controlling.

                       ARTICLE XVIII. BROKER'S COMMISSION

     The parties recognize as the broker(s) who negotiated this Lease the
firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic Lease
Provisions, and agree that Landlord shall be responsible for the payment of
brokerage commissions to those broker(s) unless otherwise provided in this
Lease. Tenant warrants that it has had no dealings with any other real estate
broker or agent in connection with the negotiation of this Lease, and Tenant
agrees to indemnify and hold Landlord harmless from any cost, expense or
liability (including reasonable attorneys' fees) for any compensation,
commissions or charges claimed by any other real estate broker or agent
employed or claiming to represent or to have been employed by Tenant in
connection with the negotiation of this Lease. The foregoing agreement shall
survive the termination of this Lease.

                  ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST

     In the event of any transfer of Landlord's interest in the Premises, the
transferor shall be automatically relieved of all obligations on the part of
Landlord accruing under this Lease from and after the date of the transfer,
provided that any funds held by the transferor in which Tenant has an interest
shall be turned over, subject to that interest, to the transferee and Tenant is
notified of the transfer as required by law. No holder of a mortgage and/or deed
of trust to which this Lease is or may be subordinate, and no landlord under a
so-called sale-leaseback, shall be responsible in connection with the Security
Deposit, unless the mortgagee or holder of the deed of trust or the landlord
actually receives the Security Deposit. It is intended that the covenants and
obligations contained in this Lease on the part of Landlord shall, subject to
the foregoing, be binding on Landlord, its successors and assigns, only during
and in respect to their respective successive periods of ownership.

                                       20                               10/31/96





                           ARTICLE XX. INTERPRETATION


     SECTION 20.1.  GENDER AND NUMBER. Whenever the context of this Lease
requires, the words "Landlord" and "Tenant" shall include the plural as well as
the singular, and words used in neuter, masculine or feminine genders shall
include the others.

     SECTION 20.2.  HEADINGS. The captions and headings of the articles and
sections of this Lease are for convenience only, are not a part of this Lease
and shall have no effect upon its construction or interpretation.

     SECTION 20.3.  JOINT AND SEVERAL LIABILITY. If more than one person or
entity is named as Tenant, the obligations imposed upon each shall be joint and
several and the act of or notice from, or notice or refund to, or the signature
of, any one or more of them shall be binding on all of them with respect to the
tenancy of this Lease, including, but not limited to, any renewal, extension,
termination or modification of this Lease.

     SECTION 20.4.  SUCCESSORS. Subject to Articles IX and XIX, all rights and
liabilities given to or imposed upon Landlord and Tenant shall extend to and
bind their respective heirs, executors, administrators, successors and assigns.
Nothing contained in this Section is intended, or shall be construed, to grant
to any person other than Landlord and Tenant and their successors and assigns
any rights or remedies under this Lease.

     SECTION 20.5.  TIME OF ESSENCE. Time is of the essence with respect to the
performance of every provision of this Lease.

     SECTION 20.6.  CONTROLLING LAW. This Lease shall be governed by and
interpreted in accordance with the laws of the State of California.

     SECTION 20.7.  SEVERABILITY. If any term or provision of this Lease, the
deletion of which would not adversely affect the receipt of any material
benefit by either party or the deletion of which is consented to by the party
adversely affected, shall be held invalid or unenforceable to any extent, the
remainder of this Lease shall not be affected and each term and provision of
this Lease shall be valid and enforceable to the fullest extent permitted by
law.

     SECTION 20.8.  WAIVER AND CUMULATIVE REMEDIES. One or more waivers by
Landlord or Tenant of any breach of any term, covenant or condition contained
in this Lease shall not be a waiver of any subsequent breach of the same or any
other term, covenant or condition. Consent to any act by one of the parties
shall not be deemed to render unnecessary the obtaining of that party's consent
to any subsequent act. Any waiver by either party of any provision of this
Lease must be in writing. Such written waiver shall affect only the provision
specified and only for the time and in the manner stated in the writing. The
rights and remedies of Landlord under this Lease shall be cumulative and in
addition to any and all other rights and remedies which Landlord may have.

     SECTION 20.9.  INABILITY TO PERFORM. In the event that either party shall
be delayed or hindered in or prevented from the performance of any work or in
performing any act required under this Lease by reason of any cause beyond the
reasonable control of that party, then the performance of the work or the doing
of the act shall be excused for the period of the delay and the time for
performance shall be extended for a period equivalent to the period of the
delay. The provisions of this Section shall not operate to excuse Tenant from
the prompt payment of rent or from the timely performance of any other
obligation under this Lease within Tenant's reasonable control.

     SECTION 20.10. ENTIRE AGREEMENT. This Lease and its exhibits and other
attachments cover in full each and every agreement of every kind between the
parties concerning the Premises, the Building, and the Project, and all
preliminary negotiations, oral agreements, understandings and/or practices,
except those contained in this Lease, are superseded and of no further effect.
Tenant waives its rights to rely on any representations or promises made by
Landlord or others which are not contained in this Lease. No verbal agreement or
implied covenant shall be held to modify the provisions of this Lease, any
statute, law, or custom to the contrary notwithstanding.

     SECTION 20.11. QUIET ENJOYMENT. Upon the observance and performance of all
the covenants, terms and conditions on Tenant's part to be observed and
performed, and subject to the other provisions of this lease, Tenant shall
peaceably and quietly hold and enjoy the Premises for the Term without hindrance
or interruption by Landlord or any other person claiming by or through Landlord.

     SECTION 20.12. SURVIVAL. All covenants of Landlord or Tenant which
reasonably would be intended to survive the expiration or sooner termination of
this Lease, including without limitation any warranty or indemnity hereunder,
shall so survive and continue to be binding upon and inure to the benefit of
the respective parties and their successors and assigns.

                      ARTICLE XXI. EXECUTION AND RECORDING

     SECTION 21.1.  COUNTERPARTS. This Lease may be executed in one or more
counterparts, each of which shall constitute an original and all of which shall
be one and the same agreement.

     SECTION 21.2.  CORPORATE AND PARTNERSHIP AUTHORITY. If Tenant is a
corporation or partnership, each individual executing this Lease on behalf of
the corporation or partnership represents and warrants that


                                       21                              10/31/96


he is duly authorized to execute and deliver this Lease on behalf of the
corporation or partnership, and that this Lease is binding upon the corporation
or partnership in accordance with its terms. Tenant shall, at Landlord's
request, deliver a certified copy of its board of directors' resolution or
partnership agreement or certificate authorizing or evidencing the execution of
this Lease.

     SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER. The submission of
this Lease to Tenant shall be for examination purposes only, and shall not
constitute an offer to or option for Tenant to lease the Premises. Execution of
this Lease by Tenant and its return to Landlord shall not be binding upon
Landlord, notwithstanding any time interval, until Landlord has in fact
executed and delivered this Lease to Tenant, it being intended that this Lease
shall only become effective upon execution by Landlord and delivery of a fully
executed counterpart to Tenant.

     SECTION 21.4. RECORDING. Tenant shall not record this Lease without the
prior written consent of Landlord. Tenant, upon the request of Landlord, shall
execute and acknowledge a "short form" memorandum of this Lease for recording
purposes.

     SECTION 21.5. AMENDMENTS. No amendment or termination of this Lease shall
be effective unless in writing signed by authorized signatories of Tenant and
Landlord, or by their respective successors in interest. No actions, policies,
oral or informal arrangements, business dealings or other course of conduct by
or between the parties shall be deemed to modify this Lease in any respect.

     SECTION 21.6. EXECUTED COPY. Any fully executed photocopy or similar
reproduction of this Lease shall be deemed an original for all purposes.

     SECTION 21.7. ATTACHMENTS. All exhibits, amendments, riders and addenda
attached to this Lease are hereby incorporated into and made a part of this
Lease.

                          ARTICLE XXII. MISCELLANEOUS

     SECTION 22.1. NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and agrees
that the terms of this Lease are confidential and constitute proprietary
information of Landlord. Disclosure of the terms could adversely affect the
ability of Landlord to negotiate other leases and impair Landlord's
relationship with other tenants. Accordingly, Tenant agrees that it, and its
partners, officers, directors, employees and attorneys, shall not intentionally
and voluntarily disclose the terms and conditions of this Lease to any other
tenant or apparent prospective tenant of the Project, either directly or
indirectly, without the prior written consent of Landlord, provided, however,
that Tenant may disclose the terms to prospective subtenants or assignees
under this Lease.

     SECTION 22.2. GUARANTY. As a condition to the execution of this Lease by
Landlord, the obligations, covenants and performance of the Tenant as herein
provided shall be guaranteed in writing by the Guarantor(s) listed in Item 7 of
the Basic Lease Provisions, if any, on a form of guaranty provided by Landlord.

     SECTION 22.3. CHANGES REQUESTED BY LENDER. If, in connection with
obtaining financing for the Project, the lender shall request reasonable
modifications in this Lease as a condition to the financing, Tenant will not
unreasonably withhold or delay its consent, provided that the modifications do
not materially increase the obligations of Tenant or materially and adversely
affect the leasehold interest created by this Lease.

     SECTION 22.4. MORTGAGEE PROTECTION. No act or failure to act on the part
of Landlord which would otherwise entitle Tenant to be relieved of its
obligations hereunder or to terminate this Lease shall result in such a release
or termination unless (a) Tenant has given notice by registered or certified
mail to any beneficiary of a deed of trust or mortgage covering the Premises
whose address has been furnished to Tenant and (b) such beneficiary is afforded
a reasonable opportunity to cure the default by Landlord (which in no event
shall be less than sixty (60) days), including, if necessary to effect the
cure, time to obtain possession of the Premises by power of sale or judicial
foreclosure provided that such foreclosure remedy is diligently pursued. Tenant
agrees that each beneficiary of a deed of trust or mortgage covering the
Premises is an express third party beneficiary hereof, Tenant shall have no
right or claim for the collection of any deposit from such beneficiary or from
any purchaser at a foreclosure sale unless such beneficiary or purchaser shall
have actually received and not refunded the deposit, and Tenant shall comply
with any written directions by any beneficiary to pay rent due hereunder
directly to such beneficiary without determining whether an event of default
exists under such beneficiary's deed of trust.

     SECTION 22.5. COVENANTS AND CONDITIONS. All of the provisions of this
Lease shall be construed to be conditions as well as covenants as though the
words specifically expressing or imparting covenants and conditions were used
in each separate provision.

     SECTION 22.6. SECURITY MEASURES. Tenant hereby acknowledges that Landlord
shall have no obligation whatsoever to provide guard service or other security
measures for the benefit of the Premises or the Project. Tenant assumes all
responsibility for the protection of Tenant, its agents, invitees and property
from acts of third parties. Nothing herein contained shall prevent Landlord, at
its sole option, from providing security protection for the Project or any part
thereof, in which event the cost thereof shall be included within the
definition of Building Costs.

                                       22                               10/31/96

     SECTION 22.7 JAMS.

          (a)  All claims or disputes between Landlord and Tenant arising out
of, or relating to the Lease which either party is expressly authorized by a
provision hereof to submit to arbitration, shall be decided by the
JAMS/ENDISPUTE, or its successor, in Orange, California ("JAMS"), unless the
parties mutually agree otherwise. Within ten (10) business days following
submission to JAMS, JAMS shall designate three arbitrators and each party may,
within five (5) business days thereafter, veto one of the three persons so
designated. If two different designated arbitrators have been vetoed, the third
arbitrator shall hear and decide the matter. If only one designated arbitrator
has been vetoed, JAMS shall select which of the two remaining arbitrators shall
hear and decide the matter. The parties to the arbitration shall be entitled to
such discovery as would be available to them in the Superior Court of the State
of California. Any arbitration pursuant to this Section 22.7 shall be decided
within thirty (30) days of submission of JAMS. The decision of the arbitrator
shall be final and binding on the parties. All costs associated with
arbitration shall be awarded to the prevailing party as determined by the
arbitrator.

          (b)  Notice of the demand for arbitration by either party to the
Lease shall be filed in writing with the other party to the Lease and with JAMS
and shall be made within a reasonable time after the dispute has arisen. The
award rendered by the arbitrators shall be final, and judgment may be entered
upon it in accordance with applicable law in any court having jurisdiction
thereof. Except by written consent of the person or entity sought to be joined,
no arbitration arising out of or relating to the Lease shall include, by
consolidation, joinder or in any other manner, any person or entity not a party
to the Lease under which such arbitration is filed unless (1) such person or
entity is substantially involved in a common question of fact or law, (2) the
presence of such person or entity is required if complete relief is to be
accorded in the arbitration, or (3) the interest or responsibility of such
person or entity in the matter is not insubstantial.

          (c)  The agreement herein among the parties to the Lease and any
other written agreement to arbitrate referred to herein shall be specifically
enforceable under prevailing law.

LANDLORD:                                TENANT:

THE IRVINE COMPANY                       RAINBOW TECHNOLOGIES, INC.,
[LEGAL APPROVAL STAMP]                   a Delaware corporation

By:  /s/ Richard G. Sim                  By:  /s/ Walter Straub
    ------------------------------           -----------------------------------
     Richard G. Sim                      Name: Walter Straub
     Executive Vice President            Title: President


By:  /s/ Nancy Trujillo                  By:  Patrick Fevery
    ------------------------------           -----------------------------------
     Nancy E. Trujillo                   Name: Patrick Fevery
     Assistant Secretary                 Title: Secretary


                                       23                               10/31/96

                                   EXHIBIT B

                THE IRVINE COMPANY - INVESTMENT PROPERTIES GROUP

                         HAZARDOUS MATERIAL SURVEY FORM

     The purpose of this form is to obtain information regarding the use of
hazardous substances on Investment Properties Group ("IPG") property.
Prospective tenants and contractors should answer the questions in light of
their proposed activities on the premises. Existing tenants and contractors
should answer the questions as they relate to ongoing activities on the
premises and should update any information previously submitted.

     If additional space is needed to answer the questions, you may attach
separate sheets of paper to this form. When completed, the form should be sent
to the following address:

                        INSIGNIA/ESG OF CALIFORNIA, INC.
                                1 Ada, Suite 270
                                Irvine, CA 92618

     Your cooperation in this matter is appreciated. If you have any questions,
please call your property manager at (714) 753-4744 for assistance.

1.   GENERAL INFORMATION

     Name of Responding Company: ______________________________________________
     Check all that apply:       Tenant          (  )    Contractor   (  )
                                 Prospective     (  )    Existing     (  )

     Mailing Address: _________________________________________________________

     Contact Person & Title: __________________________________________________
     Telephone Number: (   ) ______-________

     Current TIC Tenant(s):

     Address of Lease Premises: _______________________________________________

     Length of Lease or Contract Term: ________________________________________


     Prospective TIC Tenant(s):

     Address of Proposed Lease Premises: _______________________________________


     Address of Current Operations: ____________________________________________

     Describe the proposed operations to take place on the property, including
     principal products manufactured or services to be conducted. Existing
     tenants and contractors should describe any proposed changes to ongoing
     operations. _______________________________________________________________
     ___________________________________________________________________________
     ___________________________________________________________________________


2.   HAZARDOUS MATERIALS. For the purposes of this Survey Form, the term
     "hazardous material" means any raw material, product or agent considered
     hazardous under any state or federal law. The term does not include wastes
     which are intended to be discarded.

     2.1  Will any hazardous materials be used or stored on site?

          Chemical Products        Yes  (  )  No  (  )
          Biological Hazards/
          Infectious Wastes        Yes  (  )  No  (  )
          Radioactive Materials    Yes  (  )  No  (  )
          Petroleum Products       Yes  (  )  No  (  )

                                       1








     2.2       List any hazardous materials to be used or stored, the quantities
               that will be on-site at any given time, and the location and
               method of storage (e.g., bottles in storage closet on the
               premises).

                                        LOCATION AND METHOD
               HAZARDOUS MATERIALS           OF STORAGE          QUANTITY

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

     2.3       Is any underground storage of hazardous materials proposed or
               currently conducted on the premises? Yes  ( )   No ( )

               If yes, describe the materials to be stored, and the size and
               construction of the tank. Attach copies of any permits obtained
               for the underground storage of such substances.
                                                                ---------------
               ----------------------------------------------------------------
               ----------------------------------------------------------------

3.   HAZARDOUS WASTE. For the purposes of this Survey Form, the term "hazardous
     waste" means any waste (including biological, infectious or radioactive
     waste) considered hazardous under any state or federal law, and which is
     intended to be discarded.

     3.1       List any hazardous waste generated or to be generated on the
               premises, and indicate the quantity generated on a monthly basis.

                                         LOCATION AND METHOD
                                          OF STORAGE PRIOR
                 HAZARDOUS WASTE            TO DISPOSAL          QUANTITY

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

     3.2       Describe the method(s) of disposal (including recycling) for
               each waste. Indicate where and how often disposal will take
               place.

                                        LOCATION OF DISPOSAL
               HAZARDOUS MATERIALS             SITE            DISPOSAL METHOD

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

     3.3       Is any treatment or processing of hazardous, infectious or
               radioactive wastes currently conducted or proposed to be
               conducted on the premise?   Yes  (  )      No  (  )

               If yes, please describe any existing or proposed treatment
               methods.
                       ---------------------------------------------------------
               -----------------------------------------------------------------
               -----------------------------------------------------------------

     3.4       Attach copies of any hazardous waste permits or licenses issued
               to your company with respect to its operations on the premises.







                                       2


4.   SPILLS

     4.1  During the past year, have any spills or releases of hazardous
          materials occurred on the premises?  Yes (  )  No (  )

          If so, please describe the spill and attach the results of any
          testing conducted to determine the extent of such spills.____________
          _____________________________________________________________________
          _____________________________________________________________________

     4.2  Were any agencies notified in connection with such spills?
          Yes (  )  No (  )

          If so, attach copies of any spill reports or other correspondence
          with regulatory agencies.

     4.3  Were any clean-up actions undertaken in connection with the spills?
          Yes (  )  No (  )

          If so, briefly describe the actions taken. Attach copies of any
          clearance letters obtained from any regulatory agencies involved and
          the results of any final soil or groundwater sampling done upon
          completion of the clean-up work._____________________________________
          _____________________________________________________________________
          _____________________________________________________________________


5.        WASTEWATER TREATMENT/DISCHARGE

     5.1  Do you discharge industrial wastewater to:

          ____ storm drain?             ____ sewer?
          ____ surface water?           ____ no industrial discharge

     5.2  Is your industrial wastewater treated before discharge?
          Yes (  )  No (  )

          If yes, describe the type of treatment conducted. ___________________
          _____________________________________________________________________

     5.3  Attach copies of any wastewater discharge permits issued to your
          company with respect to its operations on the premises.


6.        AIR DISCHARGES

     6.1  Do you have any air filtration systems or stacks that discharge into
          the air?  Yes (  )  No (  )

     6.2  Do you operate any equipment that require air emissions permits?
          Yes (  )  No (  )

     6.3  Attach copies of any air discharge permits pertaining to these
          operations.


7.   HAZARDOUS MATERIALS DISCLOSURES

     7.1  Does your company handle an aggregate of at least 500 pounds, 55
          gallons or 200 cubic feet of hazardous material at any given time?
          Yes (  )  No (  )

     7.2  Has your company prepared a Hazardous Materials Disclosure - Chemical
          Inventory and Business Emergency Plan or similar disclosure document
          pursuant to state or county requirements?  Yes (  )  No (  )

          If so, attach a copy.


                                       3


     7.3  Are any of the chemicals used in your operation regulated under
          Proposition 65?

          If so, describe the procedures followed to comply with these
          requirements. _______________________________________________________
          _____________________________________________________________________
          _____________________________________________________________________

     7.4  Is your company subject to OSHA Hazard Communication Standard
          Requirements?  Yes (  )  No (  )

          If so, describe the procedures followed to comply with these
          requirements. _______________________________________________________
          _____________________________________________________________________
          _____________________________________________________________________


8.   ANIMAL TESTING

     8.1  Does your company bring or intend to bring live animals onto the
          premises for research or development purposes?  Yes (  )  No (  )

          If so, describe the activity. _______________________________________
          _____________________________________________________________________
          _____________________________________________________________________

     8.2  Does your company bring or intend to bring animal body parts or bodily
          fluids onto the premises for research or development purposes?
          Yes (  )  No (  )

          If so, describe the activity. _______________________________________
          _____________________________________________________________________
          _____________________________________________________________________


9.   ENFORCEMENT ACTIONS, COMPLAINTS

     9.1  Has your company ever been subject to any agency enforcement actions,
          administrative orders, lawsuits, or consent orders/decrees regarding
          environmental compliance or health and safety?  Yes (  )  No (  )

          If so, describe the actions and any continuing obligations imposed as
          a result of these actions.
          _____________________________________________________________________
          _____________________________________________________________________
          _____________________________________________________________________

     9.2  Has your company ever received any request for information, notice of
          violation or demand letter, complaint, or inquiry regarding
          environmental compliance or health and safety?  Yes (  )  No (  )

     9.3  Has an environmental audit ever been conducted which concerned
          operations or activities on premises occupied by you?
          Yes (  )  No (  )

     9.4  If you answered "yes" to any questions in this section, describe the
          environmental action or complaint and any continuing compliance
          obligation imposed as a result of the same.
          _____________________________________________________________________
          _____________________________________________________________________
          _____________________________________________________________________


                                                  _____________________________
                                                  _____________________________

                                                  By: _________________________
                                                      Name:____________________
                                                      Title:___________________
                                                      Date:____________________


                                       4

                                   EXHIBIT C

                             LANDLORD'S DISCLOSURES

                                    SPECTRUM


     The capitalized terms used and not otherwise defined in this Exhibit shall
have the same definitions as set forth in the Lease. The provisions of this
Exhibit shall supersede any inconsistent or conflicting provisions of the
Lease.

     1.   Landlord has been informed that the El Toro Marine Corps Air Station
(MCAS) has been listed as a Federal Superfund site as a result of chemical
releases occurring over many years of occupancy. Various chemicals including
jet fuel, motor oil and solvents have been discharged in several areas
throughout the MCAS site. A regional study conducted by the Orange County Water
District has estimated that groundwaters beneath more than 2,900 acres have
been impacted by Trichloroethlene (TCE), an industrial solvent. There is a
potential that this substance may have migrated into the ground water
underlying the Premises. The U.S. Environmental Protection Agency, the Santa
Ana Region Quality Control Board, and the Orange County Health Care Agency are
overseeing the investigation/cleanup of this contamination. To the Landlord's
current actual knowledge, the ground water in this area is used for irrigation
purposes only, and there is no practical impediment to the use or occupancy of
the Premises due to the El Toro discharges.


                                  Page 1 of 1                            2/19/97

                                   EXHIBIT D

                               TENANT'S INSURANCE

     The following standards for Tenant's insurance shall be in effect at the
Building. Landlord reserves the right to adopt reasonable nondiscriminatory
modifications and additions to those standards. Tenant agrees to obtain and
present evidence to Landlord that it has fully complied with the insurance
requirements.

     1.   Tenant shall, at its sole cost and expense, commencing on the date
Tenant is given access to the Premises for any purpose and during the entire
Term, procure, pay for and keep in full force and effect: (i) commercial
general liability insurance with respect to the Premises and the operations of
or on behalf of Tenant in, on or about the Premises, including but not limited
to personal injury, owned and nonowned automobile, blanket contractual,
independent contractors, broad form property damage (with an exception to any
pollution exclusion with respect to damage arising out of heat, smoke or fumes
from a hostile fire), fire legal liability, products liability (if a product is
sold from the Premises), liquor law liability (if alcoholic beverages are sold,
served or consumed within the Premises), and severability of interest, which
policy(ies) shall be written on an "occurrence" basis and for not less than the
amount set forth in Item 13 of the Basic Lease Provisions, with a combined
single limit (with a $50,000 minimum limit on fire legal liability) per
occurrence for bodily injury, death, and property damage liability, or the
current limit of liability carried by Tenant, whichever is greater, and subject
to such increases in amounts as Landlord may reasonably determine from time to
time; (ii) workers' compensation insurance coverage as required by law,
together with employers' liability insurance; (iii) with respect to
improvements, alterations, and the like required or permitted to be made by
Tenant under this Lease, builder's all-risk insurance, in an amount equal to
the replacement cost of the work; (iv) insurance against fire, vandalism,
malicious mischief, sprinkler leakage coverage and such other additional perils
as may be included in a standard "all risk" form in general use in the county
in which the Premises are situated, insuring Tenant's leasehold improvements,
trade fixtures, furnishings, equipment and items of personal property of Tenant
located in the Premises, in an amount equal to not less than ninety percent
(90%) of their actual replacement cost (with replacement cost endorsement); and
(v) business interruption insurance in amounts satisfactory to cover one (1)
year of loss. Notwithstanding anything to the contrary contained in the
foregoing, in no event shall Tenant be required to carry flood insurance (other
than the required sprinkler leakage coverage). In no event shall the limits of
any policy be considered as limiting the liability of Tenant under this Lease.

     2.   In the event Landlord consents to Tenant's use, generation or storage
of Hazardous Materials on, under or about the Premises pursuant to Section 5.3
of this Lease, Landlord shall have the continuing right to require Tenant, at
Tenant's sole cost and expense (provided the same is available for purchase
upon commercially reasonable terms), to purchase insurance specified and
approved by Landlord, with coverage not less than Five Million Dollars
($5,000,000.00), insuring (i) any Hazardous Materials shall be removed from the
Premises, (ii) the Premises shall be restored to a clean, healthy, safe and
sanitary condition, and (iii) any liability of Tenant, Landlord and Landlord's
officers, directors, shareholders, agents, employees and representatives,
arising from such Hazardous Materials.

     3.   All policies of insurance required to be carried by Tenant pursuant
to this Exhibit D containing a deductible exceeding Ten Thousand Dollars
($10,000.00) per occurrence must be approved in writing by Landlord prior to
the issuance of such policy. Such approval shall not be unreasonably withheld
or conditioned by Landlord. Tenant shall be solely responsible for the payment
of all deductibles.

     4.   All policies of insurance required to be carried by Tenant pursuant to
this Exhibit D shall be written by responsible insurance companies authorized to
do business in the State of California and with a Best's rating of not less than
"A" subject to final acceptance and approval by Landlord. Any insurance required
of Tenant may be furnished by Tenant under any blanket policy carried by it or
under a separate policy, so long as (i) the Premises are specifically covered
(by rider, endorsement or otherwise), (ii) the limits of the policy are
applicable on a "per location" basis to the Premises and provide for restoration
of the aggregate limits, and (iii) the policy otherwise complies with the
provisions of this Exhibit D. A true and exact copy of each paid up policy
evidencing the insurance (appropriately authenticated by the insurer) or a
certificate of insurance, certifying that the policy has been issued, provides
the coverage required by this Exhibit D and contains the required provisions,
shall be delivered to Landlord prior to the date Tenant is given the right of
possession of the Premises. Proper evidence of the renewal of any insurance
coverage shall also be delivered to Landlord not less than thirty (30) days
prior to the expiration of the coverage. Landlord may at any time, and from time
to time, and upon at least 24 hours written notification, inspect and/or copy
any and all insurance policies required by this Lease.

     5.   Each policy evidencing insurance required to be carried by Tenant
pursuant to this Exhibit D shall contain the following provisions and/or
clauses satisfactory to Landlord: (i) a provision that the policy and the
coverage provided shall be primary and that any coverage carried by Landlord
shall be noncontributory with respect to any policies carried by Tenant except
as to workers' compensation insurance; (ii) a provision including Landlord, the
Additional Insureds identified in Item 11 of the Basic Lease Provisions, and
any other parties in interest designated by Landlord as an additional insured,
except as to workers' compensation insurance; (iii) a waiver by the insurer of
any right to subrogation against Landlord, its agents, employees, contractors
and representatives which arises or might arise by reason of any payment under
the policy or by reason of any act or omission of Landlord, its agents,
employees, contractors or representatives; and (iv) a provision that the
insurer will not cancel or change the coverage provided by the policy without
first giving Landlord thirty (30) days prior written notice.

     6.   In the event that Tenant fails to procure, maintain and/or pay for,
at the times and for the durations specified in this Exhibit D, any insurance
required by this Exhibit D, or fails to carry insurance required by any
governmental authority, Landlord may at its election procure that insurance and
pay the premiums, in which event Tenant shall repay Landlord all sums paid by
Landlord, together with interest at the maximum rate permitted by law and any
related costs or expenses incurred by Landlord, within ten (10) days following
Landlord's written demand to Tenant.

                                  Page 1 of 1                         08/02/96



                                   EXHIBIT E

                             RULES AND REGULATIONS

          This Exhibit sets forth the rules and regulations governing Tenant's
use of the Premises leased to Tenant pursuant to the terms, covenants and
conditions of the Lease to which this Exhibit is attached and therein made
part thereof. In the event of any conflict or inconsistency between this
Exhibit and the Lease, the Lease shall control.

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

          2.   The walls, walkways, sidewalks, entrance passages, courts and
vestibules shall not be obstructed or used for any purpose other than ingress
and egress of pedestrian travel to and from the Premises, and shall not be used
for loitering or gathering, or to display, store or place any merchandise,
equipment or devices, or for any other purpose. The walkways, entrance
passageways, courts, vestibules and roof are not for the use of the general
public and Landlord shall in all cases retain the right to control and prevent
access thereto by all persons whose presence in the judgment of the Landlord
shall be prejudicial to the safety, character, reputation and interests of the
Building and its tenants, provided that nothing herein contained shall be
construed to prevent such access to persons with whom Tenant normally deals in
the ordinary course of Tenant's business unless such persons are engaged in
illegal activities. No tenant or employee or invitee of any tenant shall be
permitted upon the roof of the Building.

          3.   No awnings or other projection shall be attached to the
outside walls of the Building. No security bars or gates, curtains, blinds,
shades or screens shall be attached to or hung in, or used in connection with,
any window or door of the Premises without the prior written consent of
Landlord. Neither the interior nor exterior of any windows shall be coated or
otherwise sunscreened without the express written consent of Landlord.

          4.   Tenant shall not deface any part of the Premises or the
Building. Tenant shall not lay linoleum, tile, carpet or other similar floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by Landlord in writing. The expense of repairing any
damage resulting from a violation of this rule or removal of any floor covering
shall be borne by Tenant.

          5.   The toilet rooms, urinals, wash bowls and other plumbing
apparatus shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose employees or
invitees, caused it.

          6.   Landlord shall direct electricians as to the manner and location
of any future telephone wiring. No boring or cutting for wires will be allowed
without the prior consent of Landlord. The locations of the telephones, call
boxes and other office equipment affixed to the Premises shall be subject to
the prior written approval of Landlord, which approval shall not be unreasonably
withheld, conditioned or delayed.

          7.   The Premises shall not be used for manufacturing or for the
storage of merchandise except as such manufacturing or storage is consistent
with Item 3 of the Basic Lease Provision and Article V of the Lease, or such
storage is incidental to the permitted use of the Premises. No exterior storage
shall be allowed at any time without the prior written approval of Landlord.
The Premises shall not be used for cooking or washing clothes without the prior
written consent of Landlord, or for lodging or sleeping or for any immoral or
illegal purposes.

          8.   Tenant shall not make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of this or neighboring
buildings or premises or those having business with them, whether by the use of
any musical instrument, radio, phonograph, noise, or otherwise. Tenant shall
not use, keep or permit to be used, or kept, any foul or obnoxious gas or
substance in the Premises or permit or suffer the Premises to be used or
occupied in any manner offensive or objectionable to Landlord or other
occupants of this or neighboring buildings or premises by reason of any odors,
fumes or gases.

          9.   No animals shall be permitted at any time within the Premises.

          10.  Tenant shall not use the name of the Building or the Project in
connection with or in promoting or advertising the business of Tenant, except
as Tenant's address, without the written consent of Landlord. Landlord shall
have the right to prohibit any advertising by any Tenant which, in Landlord's
reasonable opinion, tends to impair the reputation of the Project or its
desirability for its intended uses, and upon written notice from Landlord any
Tenant shall refrain from or discontinue such advertising.

          11.  Canvassing, soliciting, peddling, parading, picketing,
demonstrating or otherwise engaging in any conduct that unreasonably impairs
the value or use of the Premises or the Project are prohibited and each Tenant
shall cooperate to prevent the same.

          12.  No equipment of any type shall be placed on the Premises which
in Landlord's opinion exceeds the load limits of the floor or otherwise
threatens the soundness of the structure or improvements of the Building.


                                       1
                                                                        08/02/96

          13.  No air conditioning unit or other similar apparatus shall be
installed or used by any Tenant without the prior written consent of Landlord.

          14.  No aerial antenna or satellite dish shall be erected on the roof
or exterior walls of the Premises, or on the grounds, without in each instance,
the prior written consent of Landlord. Any aerial antenna or satellite dish so
installed without such written consent shall be subject to removal by Landlord
at any time without prior notice at the expense of the Tenant, and Tenant shall
upon Landlord's demand pay a removal fee to Landlord of not less than $200.00.

          15.  The entire Premises, including vestibules, entrances, doors,
fixtures, windows and plate glass, shall at all times be maintained in a safe,
neat and clean condition by Tenant. All trash, refuse and waste materials shall
be regularly removed from the Premises by Tenant and placed in the containers
at the locations designated by Landlord for refuse collection. All cardboard
boxes must be "broken down" prior to being placed in the trash container. All
styrofoam chips must be bagged or otherwise contained prior to placement in the
trash container, so as not to constitute a nuisance. Pallets may not be
disposed of in the trash container or enclosures. The burning of trash, refuse
or waste materials is prohibited.

          16.  Tenant shall use at Tenant's cost such pest extermination
contractor as Landlord may direct and at such intervals as Landlord may require.

          17.  All keys for the Premises shall be provided to Tenant by
Landlord and Tenant shall return to Landlord any of such keys so provided upon
the termination of the Lease. Tenant shall not change locks or install other
locks on doors of the Premises, without the prior written consent of Landlord
which consent shall not be unreasonably withheld, conditioned or delayed. In
the event of loss of any keys furnished by Landlord for Tenant, Tenant shall
pay to Landlord the costs thereof.

          18.  No person shall enter or remain within the Project while
intoxicated or under the influence of liquor or drugs. Landlord shall have the
right to exclude or expel from the Project any person who, in the absolute
discretion of Landlord, is under the influence of liquor or drugs.

               Landlord reserves the right to amend or supplement the foregoing
Rules and Regulations and to adopt and promulgate additional rules and
regulations applicable to the Premises, provided, however, that such amended,
supplemental or additional rules and regulations do not materially and
adversely affect either the rights of Tenant under this Lease or Tenant's
leasehold interest in the Premises, and/or materially increase Tenant's
obligations under the Lease. Notice of such rules and regulations and
amendments and supplements thereto, if any, shall be given to the Tenant.


                                        2                              08/02/96


                                   EXHIBIT X

                                  WORK LETTER

                                DOLLAR ALLOWANCE
                           [SECOND GENERATION SPACE]

The Tenant Improvement work (herein "Tenant Improvements") shall consist of any
work required to complete the Premises pursuant to approved plans and
specifications. All of the Tenant Improvement work shall be performed by the
"TI Contractor" selected by Landlord, all in accordance with the procedures and
requirements set forth below.

I.   ARCHITECTURAL AND CONSTRUCTION PROCEDURES

     A.   Within ninety (90) days prior to the Commencement Date of this Lease,
          Tenant shall provide in writing to Landlord or Landlord's architect
          all specifications and information for Tenant's proposed Tenant
          Improvements work in the Premises, including without limitation
          Tenant's final selection of wall and floor finishes, complete
          specifications and locations (including load and HVAC requirements) of
          Tenant's equipment, and details of all "Non-Standard Improvements" (as
          defined below) to be installed in the Premises (collectively,
          "Programming Information"). Tenant understands that final construction
          documents for the Tenant Improvements shall be predicated on the
          Programming Information, and accordingly that such information must be
          accurate and complete.

     B.   Within thirty (30) days after receipt by Landlord of Tenant's
          Programming Information, Landlord shall provide both (i) a detailed
          space plan for the Premises, prepared by Landlord's architect, for
          Tenant's proposed Tenant Improvement work based on the Programming
          Information submitted by Tenant, which shall include, to the extent
          applicable, interior partitions, ceilings, interior finishes, interior
          office doors, suite entrance, floor coverings, window coverings,
          lighting, electrical and telephone outlets, plumbing connections,
          heavy floor loads and other special requirements ("Preliminary Plan"),
          and (ii) an estimate, prepared by Landlord's construction manager, of
          the cost for which Landlord will complete or cause to be completed the
          Tenant Improvements ("Preliminary Cost Estimate"). Tenant shall
          approve or disapprove each of the Preliminary Plan and the Preliminary
          Cost Estimate by signing copies of the appropriate document and
          delivering same to Landlord within five (5) working days of its
          receipt by Tenant. If Tenant disapproves any matter, Tenant shall
          specify in detail the reasons for disapproval and Landlord shall
          attempt to modify the Preliminary Plan and the Preliminary Cost
          Estimate to incorporate Tenant's suggested revisions in a mutually
          satisfactory manner.


     C.   The Tenant Improvements shall incorporate only Landlord's building
          standard materials and specifications ("Standards"), whether or not
          the full amount of the Landlord's Contribution is used for the
          construction thereof. No deviations from the Standards may be
          required by Tenant with respect to doors and frames, finish hardware,
          entry graphics, the ceiling system, light fixtures and switches,
          mechanical systems, life and safety systems, and/or window coverings;
          provided that Landlord may, in its sole discretion, authorize in
          writing one or more of such deviations, in which event Tenant shall
          pay to Landlord, prior to the commencement of construction and in
          addition to sums otherwise due hereunder from Tenant, an amount equal
          to the cost, as reasonably estimated by Landlord, of replacing the
          deviating item(s) with the applicable Standard item(s) upon the
          expiration or termination of this Lease. All other non-standard items
          ("Non-Standard Improvements") shall be subject to the reasonable
          prior approval of Landlord. Landlord shall in no event be required to
          approve any Non-Standard Improvement if Landlord determines that such
          improvement (i) is of a lesser quality than the corresponding
          Standard, (ii) fails to conform to applicable governmental
          requirements, (iii) requires building services beyond the level
          normally provided to other tenants, or (iv) would have an adverse
          aesthetic impact from the exterior of the Premises.

     D.   Within thirty (30) days after Tenant's approval of the Preliminary
          Plan and Preliminary Cost Estimate, Landlord's architect and
          engineers shall prepare and deliver to Tenant working drawings and
          specifications ("Working Drawings and Specifications"). Within five
          (5) working days after the completion of the competitive bid process
          described below, the "Bid Amount" (as defined below) together with
          Landlord's final cost estimate of the Completion Cost of the Tenant
          Improvements work (the "Final Cost Estimate") shall be delivered to
          Tenant. Tenant shall have five (5) working days from the receipt
          thereof to approve or disapprove the Working Drawings and
          Specifications and the Final Cost Estimate. Tenant shall not
          unreasonably withhold or delay its approval, and any disapproval or
          requested modification shall be limited to items not contained in the
          approved Preliminary Plan or Preliminary Cost Estimate. Should Tenant
          disapprove the Working Drawings and Specifications and the Final Cost
          Estimate, such disapproval shall be accompanied by a detailed list of
          revisions. Any revision requested by Tenant and accepted by Landlord
          shall be incorporated within ten (10) business days of the receipt of
          Tenant's list of


                                                                   April 6, 2000
                                       1                                   06/97

          revisions into a revised set of Working Drawings and Specifications
          and Final Cost Estimate, and Tenant shall approve same in writing
          within five (5) business days of receipt without further revision.

     E.   In the event that Tenant requests in writing a revision in the
          approved Working Drawings and Specifications ("Change"), Landlord
          shall advise Tenant by written change order as soon as is practical of
          any increase in the Completion Cost (as defined below) and/or any
          delay in the construction of the Tenant Improvements that such Change
          would cause. Tenant shall approve or disapprove such change order in
          writing within two (2) working days following its receipt from
          Landlord. Tenant's approval of a Change shall be accompanied by
          Tenant's payment of any resulting increase in the Completion Cost.
          Landlord shall have the right to decline Tenant's request for a Change
          for any of the reasons set forth in Article I.C above for Landlord's
          disapproval of a Non-Standard Improvement. It is understood that
          Landlord shall have no obligation to interrupt or modify the Tenant
          Improvement work pending Tenant's approval of a change order.

     F.   Landlord shall submit the Working Drawings and Specifications to a
          competitive bidding process involving at least three (3) licensed and
          reputable general contractors. If requested by Tenant, Landlord shall
          provide copies of the bid responses to Tenant. After adjustments for
          any inconsistent assumptions to reflect an "apples to apples"
          comparison, Landlord shall select the lowest qualified bidder and
          that bid so selected shall be referred to as the "Bid Amount". In the
          event Landlord selects other than the lowest bidder, it shall do so
          based on commercially reasonable factors which it shall demonstrate
          to Tenant. Upon selection of the bidder, Landlord shall enter into a
          "lump sum" or "fixed price" construction contract with the chosen
          contractor (the "TI Contractor") for construction of the Tenant
          Improvements in accordance with the approved and final Working
          Drawings and Specifications for the Bid Amount (the "TI Contract").

     G.   It is understood that the Tenant Improvements shall be constructed
          during Tenant's occupancy of the Premises. In this regard, Tenant
          agrees to assume any risk of injury, loss or damage which may result.
          Tenant further agrees that no rental abatement shall result while the
          Tenant Improvements are completed in the Premises.

     H.   Tenant hereby designates its Director, Human Resources, Telephone No.
          (949) 450-7300, as its representative, agent and attorney-in-fact for
          the purpose of receiving notices, approving submittals and issuing
          requests for Changes, and Landlord shall be entitled to rely upon
          authorizations and directives of such person(s) as if given directly
          by Tenant. Tenant may amend the designation of its construction
          representative(s) at any time upon delivery of written notice to
          Landlord.

II.  COST OF TENANT IMPROVEMENTS

     A.   Landlord shall complete, or cause to be completed, the Tenant
          Improvements, at the construction cost shown in the approved Final
          Cost Estimate (subject to the provisions of this Work Letter), in
          accordance with final Working Drawings and Specifications approved by
          both Landlord and Tenant. Landlord shall pay towards the final
          construction costs ("Completion Cost") as incurred a maximum of Two
          Hundred Thirty Four Thousand Nine Hundred Twenty-Two Dollars
          ($234,922.00) ("Landlord's Contribution"), based on $3.88 per rentable
          square foot of the Premises, and Tenant shall be fully responsible for
          the remainder ("Tenant's Contribution"). If the actual cost of
          completion of the Tenant Improvements is less than the maximum amount
          provided for the Landlord's Contribution, such savings shall inure to
          the benefit of Landlord and Tenant shall not be entitled to any credit
          or payment. Notwithstanding anything to the contrary contained in this
          Work Letter and/or in the Lease, Landlord shall not be obligated to
          fund any portion of the Landlord's Contribution prior to July 1, 2000,
          and Landlord's obligation to fund the Landlord's Contribution shall
          cease as to any portion of the Tenant Improvements if Working Drawings
          and Specifications are not approved and contracts are not let by
          Landlord for such portion of the Tenant Improvements prior to June 15,
          2001.

     B.   The Completion Cost shall include all direct costs of Landlord in
          completing the Tenant Improvements, including but not limited to the
          following: (i) the TI Contractor's Bid Amount, (ii) payments made to
          architects, engineers, contractors, subcontractors and other third
          party consultants in the performance of the work, (iii) permit fees
          and other sums paid to governmental agencies, (iv) costs of all
          materials incorporated into the work or used in connection with the
          work, and (v) keying and signage costs. The Completion Cost shall also
          include an administrative/supervision fee to be paid to the Landlord
          in the amount of five percent (5%) of all such direct costs.

     C.   Prior to start of construction of the Tenant Improvements, Tenant
          shall pay to Landlord in full the amount of the Tenant's Contribution
          set forth in the Final Cost Estimate. If the actual Completion Cost
          of the Tenant Improvements is less than the Final Cost Estimate, any
          portion of the Tenant's


                                                                  April 6, 2000
                                       2                                  06/97


Contribution paid by Tenant but not expended towards the Completion Cost shall
be credited to rent next due under this Lease. If the actual Completion Cost is
greater than the Final Cost Estimate because of modifications or extras not
reflected on the approved working drawings, then Tenant shall pay to Landlord,
within ten (10) days following submission of an invoice therefor, all such
additional costs, including any additional architectural fee. If Tenant
defaults in the payment of any sums due under this Work Letter, Landlord shall
(in addition to all other remedies) have the same rights as in the case of
Tenant's failure to pay rent under the Lease.


                                                                  April 6, 2000
                                       3                                  06/97

EX-99.(A)

exv99wxay