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Published: 2008-03-26

1480 Drew Avenue (Davis, CA) Lease - Jim Joseph Revocable Trust and AgraQuest Inc.



CONFIDENTIAL

                                     LEASE
                                     -----

          LEASE, dated July 8, 1998, between JIM JOSEPH, not individually, but
as TRUSTEE FOR THE JIM JOSEPH REVOCABLE TRUST, having an address c/o Interland,
1480 Drew Avenue, Suite 100 Davis, California 95616 ("Lessor") and AGRAQUEST,
INC., a Delaware corporation, having an address at 1530 Drew Avenue, Davis,
California 95616 ("Lessee")

          WHEREAS, Lessor is the owner of that certain parcel of real Premises
consisting of approximately 1.28 acres located in the City of Davis, County of
Yolo, and State of California, as more particularly described in Exhibit A
                                                                 ---------
annexed hereto and made a part hereof (the "Land"); and

          WHEREAS, Lessor is constructing on the Land, in accordance with the
exhibits and outline described in Exhibit B annexed hereto and made a part
                                  ---------                               
hereof (the "Site Plan"), a building that will contain approximately 12,960
square feet of gross floor area, to be known as 1530 Drew Avenue (the
"Building"); and certain tenant improvements therein in accordance with the
plans and specifications described in Exhibit D annexed hereto, as the same may
                                      ---------                                
be modified pursuant to Paragraph 3.1 below.  The Land, the Building and the
Tenant Improvements (defined below) are collectively referred to hereinafter as
the "Premises"; and

          WHEREAS, Lessor is willing to lease to Lessee the Premises on the
terms set forth.

          NOW, THEREFORE, Lessor and Lessee hereby agree as follows:

          1.   Demise.
               ------ 

                     Lessor hereby leases to Lessee and Lessee hereby leases
from Lessor (a) the Building, which shall include an area of approximately
12,960 square feet of gross floor area, as shown on the floor plan (the "Floor
Plan") annexed hereto as Exhibit C, (b) the Tenant Improvements and the
                         --------- 
exclusive use of the entire area of the Land shown on the site plan annexed 
hereto as Exhibit B (the "Site Plan").
          ---------     

          2.   Term.
               ---- 

               2.1   The term of this Lease shall be a period of ten (10) years,
commencing on the date (the "Commencement Date") on which the following event
shall have occurred: (a) Lessor shall have received a final or temporary final
certificate of occupancy or similar governmental authorization for the Building
(including the Tenant Improvements, as hereinafter defined).

               2.2   Upon the satisfaction of the conditions described in
Paragraph 2.1 above, Lessor and Lessee shall execute a Notice of Commencement
Date specifying the actual Commencement Date of the Lease, in a form to be
approved by Lessor and Lessee.

               2.3   On the Commencement Date of this Lease, Lessee shall pay to
Lessor a deposit in the amount of One Hundred Eighty Five Thousand Seven Hundred
Dollars, ($185,700.00). Provided Lessee is in compliance with all terms and
provisions of this Lease, and is not in default hereunder, Lessor shall release
to Lessee one quarter of the deposit, or Forty Six Thousand Four Hundred and
Twenty-five Dollars, ($46,425.00), at the end of the 36th month, the 48th month,
the 60th month and the 72nd month so that the total deposit in the amount of
($185,700.00) shall be returned to Lessee by the end of the 72nd month. The
deposit shall be placed by Lessor into one-year interest earning certificates of
deposit at Wells Fargo Bank or Bank of America, and annual interest shall be
paid to Lessee within thirty days of the expiration of each one-year certificate
of deposit.

                                       1

 
          3.   Construction of Tenant Improvements.
               ----------------------------------- 

               3.1   (a)  Lessor shall construct at its sole cost and expense
the Building, in accordance with Exhibit B annexed hereto. Lessor shall also
                                 ---------
construct in the Building at its sole cost and expense except as specifically
provided herein, the Tenant Improvements in accordance with the plans and
specifications described in Exhibit D annexed hereto, as the same may be
                            --------- 
modified in accordance with this Paragraph 3.1 (the "Plans and Specifications"),
which Plans and Specifications have been approved by Lessor and Lessee. (Such
construction of the Building and the Tenant Improvements is hereinafter referred
to as the "Work".)
 
                     (b)  Lessor shall file the Plans and Specifications with
the appropriate governmental authorities and shall take whatever action shall be
necessary (including paying all filing fees and other costs, and cooperating
with Lessee in making any required modifications of the Plans and
Specifications) to obtain and maintain all governmental permits and
authorizations which may be required in connection with the Work.

                     (c)  Lessor shall, with all due diligence, perform and
complete the Work in a good and workmanlike manner, with only new materials, and
free of all mechanics', materialmen's and other liens or claims. Lessor shall
construct the Tenant Improvements according to Plans and Specifications approved
by Lessee.

                     (d)  In the performance of the Tenant Improvements, Lessor
shall use all reasonable efforts to conform with the preliminary budget of
$560,000.00 for the Tenant Improvements. If the final cost of the Tenant
Improvements, including all necessary permits and design fees, exceeds the total
allowance of $400,000.00, the additional cost shall be paid by Lessee to Lessor,
prior to the Commencement of the term of this Lease.

                     (e)  For the purposes of this Lease, the term "Tenant
Improvements" shall be deemed to include only the items identified in Exhibit D
                                                                      ---------
annexed hereto. All other improvements necessary for or related to the Premises
shall be deemed to be "Building" improvements as generally depicted in Exhibit B
                                                                       ---------
annexed hereto.

                     (f)  Tenant Improvement construction cost shall be deemed
to mean only the aggregate of the following costs incurred by Owner in
connection with the Work:

                          (i)     Payments made to the general contractor,
subcontractors, materialmen, and suppliers;
  
                          (ii)    All fees, and all permits, licenses and
inspection costs paid to governmental entities exercising jurisdiction over the
Work;

                          (iii)   Fees for engineers, architects and other
reasonably required professional consultants;

                          (iv)    Utility connection fees;

                          (v)     Signage, for interior and as required by code.

               3.2   Lessor will permit Lessee and Lessee's agents, suppliers,
contractors and workmen to enter the Building prior to the Commencement Date to
enable Lessee, at Lessee's sole expense, to install telephones, computers, alarm
systems and certain other fixtures and equipment as may be required by Lessee to
make the Building ready for Lessee's occupancy, provided that Lessee and its
agents, contractors, workmen and suppliers shall exercise commercially
reasonable efforts not to materially

                                       2

 
interfere with or delay the completion of construction of the Building or the
Tenant Improvements to be done by Lessor, and to avoid material interference
with any other activities of Lessor on the Land. If Lessor shall reasonably
determine that any such material interference or delay has been or may be
caused, Lessor shall notify Lessee in writing thereof, whereupon Lessee shall
exercise commercially reasonable efforts to cause a termination or modification
of the activities which have caused, or may cause, any such material
interference or delay for as long as and to the extent as shall reasonably be
necessary. If Lessee shall fail to cause a termination or modification of such
activities, Lessor shall have the right, on written notice to Lessee, to cause
Lessee or such agent, contractor, workman or supplier causing such material
interference or delay to leave the Building for as long as and to the extent
reasonably necessary to bring about a termination or modification of those
activities which have caused, or may cause, any such material interference or
delay. Lessee agrees that any such entry into the Building shall be at risk and
Lessor shall not be liable in any way for any injury, loss or damage which may
occur to any of Lessee's property or Lessee's installations made in the
Building, unless such injury, loss or damage shall have been proximately caused
by the negligence, gross negligence or intentional misconduct of Lessor or any
agent, employee, contractor, subcontractor, licensee or invitee of Lessor.
Subject to the conduct of Lessor referenced immediately above, Lessee agrees to
indemnify, defend and hold Lessor harmless from and against all liabilities,
costs, damages, fees and expenses arising out of the activities of Lessee or its
agents, contractors, suppliers or workmen in or about the Building prior to the
Commencement Date. In addition, prior to the initial entry to the Building by
Lessee and by each agent, contractor, supplier or workman of Lessee pursuant to
this Paragraph 3.2, Lessee shall furnish Lessor with certificates evidencing
policies of insurance covering Lessor as an insured party with the following
coverages and in the following amounts: (i) Combined Single Limit, Bodily Injury
and Premises Damage Insurance in an amount not less than $1,000,000.00 per
occurrence and $2,000.000.00 general aggregate; and (ii) Workers' Compensation
Insurance in the amount of the statutory maximum with an employees liability
coverage of at least $1,000,000.00.

          4.   Rent.
               ----

               4.1   (a)  Lessee shall pay to Lessor as rent during the term of
this Lease, the sum of $1,857,000.00 payable in advance in equal monthly
installments on or before the first day of each month during the term hereof.
The monthly rent for the first twelve months of the Lease shall be $15,475.00
per month. Said rent shall be subject to adjustment as provided in Subparagraph
(b) of this Paragraph 4, and shall be in addition to all other amounts
(including, without limitation, real property taxes and assessments, utilities,
and maintenance of the Premises, Parking Area and Common Area) required to be
paid Lessee pursuant to the provisions of this Lease.
 
                     (b)  On the first anniversary date of the Commencement Date
(or, in the event said first anniversary date occurs on a date other than the
first day of a calendar month, on the first day of the thirteenth full calendar
month of the term of this Lease,) and on each succeeding anniversary date
thereof, the annual rent for the next succeeding twelve-month period of the term
of this Lease shall be increased by the percentage increase, if any, in the
revised Consumer Price Index for All Urban Consumers--San Francisco, Oakland and
San Jose Metropolitan Area, for all items (1982-84= 100) as published by the
Untied States Department of Labor, Bureau of Labor Statistics, using the
Consumer Price Index for the month and year in which the Commencement Date
occurs, as the base with which all future comparisons will be made. In no event,
however, shall the annual rent be less than the amount paid in the previous
year. In the event the index specified above is either unavailable or is no
longer published, the most comprehensive official index then published by the
United States Department of Labor, Bureau of Labor Statistics which mostly
clearly approximates the Index specified above shall be substituted in place
thereof. The rental increase referred to herein shall be calculated on a
cumulative basis, but in no event will it exceed Four Percent (4%) nor be less
than Two Percent (2%) in any one lease year.

                                       3

 
                     (c)  If the term of this Lease commences on a date other
than the first day of a calendar month, rent for the period from the date of
commencement of the term hereof through the last day of the calendar month in
which such term commences shall be prorated on the basis of a thirty-day month,
and rent for the first full or fractional month of the term of this Lease shall
be payable on the date of commencement of said term. In the event the term of
this Lease ends on a day other than the last day of the calendar month, rent for
the period from the first day of the last calendar month of such term to the end
of such term shall be prorated on the basis of a thirty-day month.

                     (d)  The installments of the rent specified herein shall be
paid, without deduction or offset, and without prior notice or demand to Lessor
at 1480 Drew Avenue, Suite 100, Davis, California 95616, or at such other
address as Lessor may from time to time specify by written notice to Lessee. All
amounts of money payable by Lessee to Lessor hereunder, if not paid when due,
shall bear interest from the due date until paid at the rate of 10% per annum.

          5.   First Right of Refusal.
               ---------------------- 

               5.1   Provided that Lessee is not in default under this Lease,
Lessor hereby grants to Lessee the exclusive right, at Lessee's option, to
negotiate a lease for a building on the remaining unimproved portion of Lot 6 of
University Research Park. Upon receipt by Lessor of a written offer by any party
for purchase or build-to-suit of the remainder of Lot 6, or should Lessor elect
to build a speculative building, Lessor shall notify Lessee, in writing, by
certified mail, whereupon Lessee shall have sixty (60) days from the date such
notice is mailed in which to exercise Lessee's right to negotiate a lease for
said remainder of Lot 6. Lessee shall exercise its right to negotiate a lease by
notifying Lessor, in writing, and by certified mail, within the initial sixty
(60) day period. In the event Lessee fails or declines to exercise its right of
first refusal to negotiate a lease for said lot, Lessor shall be free to enter
into lease negotiations with other interested parties. Lessee's rental rate per
square foot for any additional building or facility must exceed the rental rate
per square foot of the written offer by another party. In the event Lessor and
Lessee enter into lease negotiations and terms mutually agreeable to the parties
cannot be reached within an additional sixty (60) days, commencing upon Lessor's
receipt of Lessee's intent to exercise this first right of refusal, Lessor shall
be free to enter into lease negotiations with other interested parties.

               5.2   Lessee shall pay all holding costs associated with the
entirety of Lot 6, including, but not limited to, real property taxes, bonds,
landscaping, and City of Davis service fees. In the event Lessor elects to cause
Lot 6 to be divided and a parcel map to be recorded, Lessee's holding costs
shall be reduced according to its prorata share. Lessor shall be solely liable
for all costs associated with a parcel lot split.

          6.   Use; Compliance with Law: Condition of the Premises.
               --------------------------------------------------- 

               6.1   The Building shall be used and occupied only for office,
light assembly, research, and related purposes, or any other use which is
reasonably comparable, and for no other purpose. The Parking Area shall be used
only for the parking of automobiles by Lessee, or Lessee's employees, invitees
or guests, and for vehicular ingress and egress, and only as an incident to
Lessee's use and occupation of the Building. The Common Area (exclusive of any
landscaped areas) shall be used only for pedestrian circulation and as eating
and break areas by Lessee, or Lessee's employees, invitees or guests, only as an
incident to Lessee's use and occupation of the Building.

               6.2   (a)  Lessor warrants to Lessee that the Premises, in its
state existing on the Commencement Date, shall not violate any covenants or
restrictions of record, or any applicable building codes, regulations or
ordinances in effect on the Commencement Date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, at Lessor's sole cost and expense, to
rectify promptly any such violation. In the event Lessee does not give to Lessor
written notice of the violation of this warranty within one (1) year after the

                                       4

 
Commencement Date, the correction of same (other than Latent Defects) shall be
the obligation of Lessee at Lessee's sole cost subject to Paragraph 6.2 (b)
below.
 
                     (b)  Except as provided in Paragraph 6.2 (a), Lessee shall,
at Lessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, covenants, and restrictions of record, and
requirements in effect during the term or any part of the term hereof,
regulating the use by Lessee of the Building (collectively, "Legal
Requirements") except that Lessee shall not be required to make any capital
improvements of the Premises or the Building, or any alterations of the
structure, foundation, exterior walls or exterior roof of the Building, in order
to so comply. Except to the extent set forth in the preceding sentence, Lessor
shall, at its sole cost and expense, comply with all present and future
regulations, rules, laws, ordinances, and requirements of all governmental
authorities (including, without limitation state, municipal, county and federal
governments and their departments, bureaus, boards and officials) applicable to
the Building or Premises. Lessee shall not use nor permit the use of the
Building in any manner that will create waste or a nuisance.

                     (c)  (i)     Lessee shall have the right after prior
written notice to Lessor, to contest, by appropriate legal proceedings
diligently conducted in good faith, as its own cost and expense, the validity or
application of any Legal Requirement with which Lessee is required to comply,
provided that: 

                                  (A)  Such contest shall not subject Lessor to
any criminal penalty; and

                                  (B)  Lessee shall obtain and maintain during
the pendency of any such contest a bond (or other security satisfactory to
Lessor) in form and amount and issued by a surety company reasonably
satisfactory to Lessor, indemnifying and protecting Lessor, the Land and the
Building, from and against any and all damages, expenses, losses, injuries,
fees, including, but not limited to, reasonable attorneys' fees, penalties,
actions, causes of action, suits, costs, claims or judgments arising from such
contest or Lessee's compliance with any such Legal Requirements.

                          (ii)    Lessor shall execute and deliver reasonably
appropriate papers which may be necessary to permit or enable Lessee so to
contest the validity or application of any such Legal Requirement, provided
Lessor shall be reasonably satisfied with the contents of such papers and Lessee
shall indemnify and save Lessor, the band and the Building, harmless from any
costs and expenses in connection therewith including, but not limited to,
reasonable attorneys' fees.

               6.3   (a)  Lessor shall deliver the Building to Lessee clean and
free of debris on the Commencement Date, and Lessor further warrants to Lessee
that the plumbing, lighting, air conditioning, heating and loading, doors in the
Building shall be in good operating condition on the Commencement Date. In the
event that it is determined that this warranty has been violated, then it shall
be the obligation of Lessor, after receipt of written notice from Lessee setting
forth with specificity the nature of the violation, at Lessor's sole cost, to
rectify promptly such violation. Lessee's failure to give such written notice to
Lessor within one (1) year after the Commencement Date shall cause the
conclusive presumption that Lessor has complied with all of Lessor's obligations
under this Paragraph 6.3 (other than with respect to Latent Defects).

                     (b)  Except as otherwise provided in this Lease, Lessee
hereby accepts the Building in its condition existing as of the Commencement
Date, subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the Building, and
any covenants or restriction of record, and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Building for the
conduct of Lessee's business.

                                       5

 
          7.   Maintenances: Repairs and Alterations.
               ------------------------------------- 

               7.1   (a)  Lessee shall keep in good order, condition and repair
the (i) Building and every part thereof, except for the foundation and the roof,
which shall be Lessor's responsibility, including, without limiting the
generality of the foregoing, all plumbing, heating, air conditioning (Lessee
shall procure and maintain, at Lessee's expense, an air conditioning system
maintenance contract), ventilating, electrical and lighting systems, and all
equipment, fixtures, walls (interior and exterior), ceilings, floors, windows,
doors, plate glass and skylights; (ii) the Parking Area; and (iii) the Common
Area, including, without limitation, all landscaping and other improvements on
the Common Area. Lessee shall perform any and all roof maintenance necessary to
keep drains flowing. Lessor shall repair roof leaks or other necessary roof
repairs and shall be responsible for any repair or defect in the foundation. To
facilitate the performance by Lessee of those obligations of Lessee arising
under this Paragraph 7.1, on the Commencement Date, Lessor shall assign to
Lessee (to the extent assignable) all of Lessor's right, title and interest in
and to all contracts, warranties and guaranties made by or received from any
third party with respect to the Building, the Parking Area and the Common Area
(collectively, the "Guaranties").

                     (b)  All of Lessee's obligations to maintain and repair
shall be accomplished at Lessee's sole expense. If Lessee fails to maintain and
repair the interior of the Premises, Lessor may on ten (10) days prior notice,
except that no notice shall be required in case of emergency, enter the Premises
and perform such repair and maintenance on behalf of Lessee. In such case,
Lessee shall reimburse Lessor for all costs so incurred within thirty (30) days
of receipt of a written demand therefor.

               7.2   On the Expiration Date, or on any sooner termination of
this Lease in accordance with the terms hereof, Lessee shall surrender the
Building, the Parking Area and the Common Area to Lessor in the same condition
as when received, ordinary wear and tear excepted, clean and free of debris.
Lessee shall repair any damage to the Building, the Parking Area and the Common
Area occasioned by the removal of Lessee's trade fixtures, furnishing and
equipment. Lessee shall leave the air lines, power panels, electrical
distribution systems, lighting fixtures, air conditioning and plumbing in the
Building in good operating condition, ordinary wear and tear excepted.

               7.3   If Lessee fails to perform Lessee's obligations under this
Paragraph 7, Lessor may, at its option (but shall not be required to), enter
upon the Building, after ten (10) days' prior written notice to Lessee (except
in the case of an emergency, in which case no notice shall be required), to
perform such obligations on Lessee's behalf, and the cost thereof together with
interest thereon at the annual rate of two percent (2%) in excess of the Wells
Fargo Prime Rate shall become due and payable as additional rental to Lessor
together with Lessee's next rental installment. Notwithstanding anything to the
contrary contained in this Paragraph 7.3, in the event that any maintenance or
repairs required to be performed by Lessee pursuant to Paragraph 7.1 above
cannot reasonably be completed within ten (10) days after Lessee's receipt of
Lessor's notice with respect therein, Lessor shall not be permitted to exercise
its right to perform such maintenance and repairs so long as Lessee shall have
promptly commenced to perform such maintenance or repair obligation after
discovery of the necessity therefor, Lessee at all times exercises commercially
reasonable efforts to prosecute such maintenance or repairs to completion as
promptly as possible, and Lessee completes such maintenance or repairs within
ninety (90) days after its discovery of the need therefor.

               7.4   Except for the obligations of Lessor under Paragraphs
6.2(a), 6.3(a), 9 and 14, and except for any damage caused by Lessor or any of
Lessor's agents, employees, contractors, suppliers, workmen, invitees or
licensees, it is intended by the parties hereto that Lessor have no obligation,
in any manner whatsoever, to repair and maintain the Building or the equipment
therein, whether structural or non-structural, the Parking Area or the Common
Area, all of which obligations are intended to be that of the Lessee under
Paragraph 7.1 hereof. Lessee expressly waives the benefit of any statute now or
hereinafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Building, the Parking Area, and/or the Common Area in good
order, condition and repair.

                                       6

 
               7.5   (a)  Lessee shall not, without Lessor's prior written
consent, make any alterations, improvements or additions (collectively,
"Alterations") in on or about the Building other than non-structural
Alterations. In any event, except for the installation of any sign thereon,
Lessee shall make no change or alteration to the exterior of the Building
without Lessor's prior written consent. Lessor may require that Lessee remove
any or all of said Alterations, including, without limitation, any signs
installed on the Building, at the expiration of the term, and restore the
Building to its prior condition, normal wear and tear excepted. Should Lessee
make any Alterations requiring Lessor's prior approval without such approval,
Lessor may require that Lessee remove any or all of the same at Lessee's sole
cost and expense.

                     (b)  Any Alterations in or about the Building that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form, with proposed detailed plans. If Lessor
shall give its consent, the consent shall be deemed conditioned upon Lessee
acquiring, if required, a permit to make such Alterations from appropriate
governmental agencies, the furnishing of a copy thereof to Lessor prior to the
commencement of the work and the compliance by Lessee with all conditions of
said permit in a prompt and expeditious manner.

                     (c)  Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use in the Building, which claims are or may be secured by any mechanic's or
materialmen's lien against the Building, or any interest therein. Lessee shall
give Lessor not less than ten (10 days written notice prior to the commencement
of any work in the Building, and Lessor shall have the right to post notices of
non-responsibility in or on the Building as provided by law. If Lessee shall, in
good faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense, defend itself and Lessor against the same and shall
pay and satisfy any adverse judgment that may be rendered thereon before the
enforcement thereof against Lessor or the Land, upon the condition that if
Lessor shall require, Lessee shall furnish to Lessor a surety bond reasonably
satisfactory to Lessor in an amount equal to such contested lien, claim or
demand. In addition, Lessor may require Lessee to pay Lessor's reasonable
attorneys' fees and costs in participating in such action if Lessor shall decide
it is in its best interest to do.

                     (d)  Unless Lessor requires their removal, as set forth in
Paragraph 7.5(a), all Alterations (including, without limitation, the Tenant
Improvements) which may be made on or in the Building, shall become the property
of Lessor and remain upon and be surrendered with the Building at the expiration
of the term. Notwithstanding the provisions of this Paragraph 7.5(d), Lessee's
machinery and equipment, other than that which is affixed to the Building so
that it cannot be removed without material damage to the Building, shall remain
the property of Lessee and may be removed by Lessee subject to the provisions of
Paragraph 7.2.
 
               8.1   Lessee shall, at Lessee's expense, obtain and keep in force
during the term of this Lease a policy of Combined Single Limit, Bodily Injury
and Property Damage insurance insuring Lessor and Lessee against any liability
arising out of Lessee's use, occupancy or maintenance of the Building, the
Parking Area and the Common Area. Such insurance shall be a combined single
limited policy in an amount not less than $1,000,000.00 per occurrence, and not
less than $2,000,000.00 general aggregate, naming Lessor as additional insured.

               8.2   (a)  Lessee shall obtain and keep in force during the term
of this Lease a policy or policies of insurance covering loss or damage to the
Premises, in the amount of the full replacement value thereof, as the same may
exist from time to time, which replacement value shall be, when the Building is
completed not less than the full replacement cost on the Building including
either the waiver of co-insurance clause or agreed amount clause with a
deductible of no more than $1,000.00, with twelve (12) months of rental income
coverage benefiting Lessor, against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief, flood
(in the event same is required by a lender having a lien on the Building), and
special extended perils ("all risk" as such term is used in the insurance
industry). Said insurance shall provide for payment of loss thereunder to Lessor
or to the holders of mortgages or deeds of trust on the Building. If Lessee
shall fail to procure and maintain said insurance, 

                                       7

 
Lessor may, but shall not be required to, procure and maintain the same, but at
the expense of Lessee. Lessee shall be liable for such deductible amount except
if the loss or damage is proximately caused by the negligence, gross negligence
or intentional misconduct of Lessor or Lessor's authorized agent.
 
                     (b)  In addition to the foregoing, Lessee shall insure its
fixtures, equipment and the Tenant Improvements.

               8.3   Insurance required hereunder shall be in companies holding
a "General Policyholders Rating" of at least A Class VIII or better, or such
other rating as may be required by a lender having a lien on the Building, as
set forth in the most current issue of "Best's Insurance Guide". Notwithstanding
anything to the contrary contained herein, Lessor acknowledges that Lessee's
current blanket insurance policy, a schedule of which is annexed hereto as
Exhibit E, shall, when Lessor is added as an additional insured and when the
---------        
Building is included in such policy, satisfy the requirements of this Paragraph
8. No such policy shall be canceled or subject to reduction of coverage or other
modification except after thirty (30) days' prior written notice to Lessor.
Lessee shall, at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with renewals or "binders" thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee upon demand.

               8.4   Each party shall look first to any insurance in its favor
before making any claim against the other party for recovery for loss or damage
resulting from fire or other casualty. To the extent that such insurance is in
force and collectible and to the extent permitted by law, Lessor and Lessee each
hereby releases and waives all right of recovery against the other or anyone
claiming through or under the other by way of subrogation or otherwise. The
foregoing release and waiver shall be in force only if the insurance policies of
Lessor and Lessee provide that such release or waiver does not invalidate the
insurance. Each party agrees to use its commercially reasonable efforts to
include in its applicable insurance policies such a provision. If the inclusion
of said provision would involve an additional expense, either party, at its
expense, may require such provision to be inserted in the other's policy.

               8.5   (a)  Lessee shall indemnify, defend, protect and hold
harmless Lessor from and against any and all claims, demands, costs, damages or
liabilities arising from (i) Lessee's use of the Building, the Parking Area or
the Common Area, (ii) any breach or default in the performance of any
obligations on Lessee's part to be performed under the terms of this Lease, or
(iii) any negligence of Lessee, or any of Lessee's agents, employees,
contractors, subcontractors, invitees or licensees in. or about the Building,
the Parking Area or the Common Area. Notwithstanding the foregoing, Lessee shall
not be required to indemnify Lessor against any such claims, demands, costs,
damages or liabilities to the extent that any such claims, demands, costs,
damages or liabilities arise from the negligence, gross negligence or
intentional misconduct of Lessor or his agents, employees, contractors,
subcontractors, invitees or licensees.
 
                     (b)  Lessor shall indemnify, defend, protect and hold
harmless Lessee from and against all claims, demands, costs, damages or
liabilities arising from (i) Lessor's use of the Building, the Parking Area or
the Common Area, (ii) any breach or default in the performance of any
obligations on Lessor's part to be performed under the terms of this Lease, or
(iii) any negligence of Lessor, or any of Lessor's agents, employees,
contractors, subcontractors, invitees or licensees in or about the Building, the
Parking Area or the Common Area. Notwithstanding the foregoing, Lessor shall not
be required to indemnify Lessee against claims, demands or costs, damages or
liabilities to the extent that any such claims, demands, costs, damages or
liabilities arise from the negligence, gross negligence or intentional
misconduct of Lessee or his agents, employees, contractors, subcontractors,
invitees or licensees.

                     (c)  Each party shall give the other prompt written notice
of any event, or assertion of which it has knowledge concerning any claim,
demand, cost, damage or liability or other obligation as to which he may request
indemnification under this Lease. In the case of any third-party suit,
proceeding, claim or assertion which is covered by the indemnifying party's
indemnity in this Lease, the other party shall cooperate with the indemnifying
party in determining the validity of such claim or assertion. The indemnifying
party shall have the right to control the conduct of such defense with counsel

                                       8

 
reasonably satisfactory to the other party (it being understood that counsel
approved by the indemnifying party's insurer shall be deemed to be reasonably
satisfactory counsel). The other party shall have the right, at its expense, to
participate in such defense with counsel of its choice; provided, however, that
the indemnifying party shall bear the reasonable fees and expenses of such
counsel if representation by such counsel is appropriate in view of possible or
actual conflicts of interest between the indemnifying party and the other party.
The other party shall not settle or compromise any such third party suit,
proceeding, claim or assertion for which the other party will seek
indemnification hereunder from the indemnifying party without the prior consent
of the indemnifying party. If the other party has a right against a third party
(including any insurer) with respect to any matter to which any indemnity under
this Lease applies, such indemnity shall be net of any amounts recovered from
third parties (including any insurer) and any amounts paid to the other party by
the indemnifying party shall entitle the indemnifying party, to the extent of
such indemnity, to be subrogated to the rights of the other party to the extent
the indemnifying party can legally do so.

               8.6   Lessee hereby agrees that Lessor shall not be liable for
injury to Lessee's business or any loss of income therefrom or for damage to the
goods, wares, merchandise or other property of Lessee, Lessee's employees,
invitees, customers, or any other person in or about the Premises, nor shall
Lessor be liable for injury to the person of Lessee, Lessee's employees, agents,
or contractors, whether such damages or injury is caused by or results from
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or light fixtures, or from any other cause, whether the said
damage or injury results from conditions arising upon the Building, or from
other sources or places and regardless of whether the cause of such damage or
injury or the means of repairing the same is inaccessible to Lessee. In the
event of any injury or damage, Lessor shall indemnify, defend, protect hold
harmless Lessee from and against all claims, demands, costs, damages or
liabilities in connection therewith, and the provisions of Paragraph 8.5(b)
above shall be applicable as to such indemnification under this Paragraph 8.6,
with Lessor being the indemnifying party and Lessee being the indemnified party.

          9.   Damage or Destruction.
               --------------------- 

               9.1   Definitions.

                     (a)  "Premises Partial Damage" shall mean damage or
destruction to the Premises to the extent that the cost of repair is less than
fifty percent (50%) of the then replacement cost of the Premises as a whole.

                     (b)  "Premises Total Destruction" shall mean damage or
destruction to the Premises to the extent that the cost of repair is fifty
percent (50%) or more of the then replacement cost of the Premises as a whole.

                     (c)  "Insured Loss" shall herein mean damage or destruction
which was caused by an event required to be covered by the insurance described
in Paragraph 8.

               9.2   Subject to the provisions of Paragraphs 9.4, 9.5 and 9.6,
if at any time during the term of this Lease there is damage which is an Insured
Loss and which falls into the classification of Premises Partial Damage, then
Lessor shall, at Lessor's expense, as promptly as is reasonably practicable,
repair such damage, but not Lessee's fixtures or equipment unless the same have
become Lessor's property pursuant to Paragraph 7.5(d), and this Lease shall
continue in full force and effect. Notwithstanding the above, except if the
damage shall have been caused by the negligence or willful act of Lessor or his
agents, employees, contractors, subcontractors, licensees or invitees, if the
insurance proceeds received by Lessor are not sufficient to complete such
repair, Lessor shall give notice to Lessee of the amount required in addition to
the insurance proceeds to complete such repair along with evidence of such
insufficient funds. Lessee shall contribute the required amount to Lessor within
ten (10) days after Lessee has received notice from Lessor of the shortage in
the insurance. When Lessee shall contribute such

                                       9

 
amount to Lessor, Lessor shall complete such repair as soon as reasonably
possible. Lessee shall in no event have any right to reimbursement for any such
amounts so contributed.

               9.3   Subject to the provisions of Paragraphs 9.4, 9.5 and 9.6,
if at any time during the term of this Lease there is damage which is not an
Insured Loss and which falls within the classification of Premises Partial
Damage, unless caused by a negligent or willful act of Lessee (in which event
Lessee shall make the repairs at Lessee's expense), Lessor may at Lessor's
option either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date of the
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease. In the event Lessor elects to give such notice of Lessor's intention to
cancel and terminate this Lease, Lessee shall have the right within ten (10)
days after its receipt of such notice, to give written notice to Lessor of
Lessee's intention to repair such damage at Lessee's expense, without
reimbursement from Lessor, in which event this Lease shall continue in full
force and effect, and Lessee shall proceed to make such repairs as soon as
reasonably possible. If Lessee does not give such notice within such ten (10)
day period this Lease shall be canceled and terminated at the end of such ten 
(10) day period. Notwithstanding anything to the contrary in the foregoing, in
the event that any Premises Partial Damage is caused by a negligent or willful
act of Lessor or his agents, employees, contractors, subcontractors, licensees
or invitees, then Lessor shall repair such damage in accordance with the
requirements of this Paragraph 9.3, and Lessor shall not have the election to
terminate this Lease as hereinabove set forth.

               9.4   If at any time during the term of this Lease there is
damage, whether or not an Insured Loss (including destruction required by any
authorized public authority), which falls into the classification of Building
Total Destruction, this Lease shall terminate automatically as of the date of
such total destruction.

               9.5   If at any time during the last two (2) months of the term
of this Lease there is damage, whether or not an Insured Loss, which falls
within the classification of Building Partial Damage and which will cost in
excess of $10,000.00 to repair, Lessor may, at Lessor's option, cancel and
terminate this Lease by giving written notice to Lessee of Lessor's election to
do so within thirty (30) days after the date of occurrence of such damage.

               9.6   (a)  In the event of damage described in Paragraph 9.2 or
9.3, and Lessor or Lessee repairs or restores the Building pursuant to the
provisions of this Paragraph 9, the rent payable hereunder for the period during
which such damage, repair or restoration continues shall be abated in proportion
to the degree to which Lessee's use of the Building is impaired. Except for
abatement of rent, if any, Lessee shall have no claim against Lessor for any
damage suffered by reason of any such damage, destruction, repair or
restoration.

                     (b)  If Lessor shall be obligated to repair or restore the
Building under the provisions of this Paragraph 9 and shall not commence such
repair or restoration within sixty (60) days after the occurrence of the damage
or destruction to the Building, or, having so commenced, shall fail to complete
such repair or restoration within six (6) months after the occurrence of such
damage or destruction, in addition to any other remedies Lessee may have, Lessee
may at Lessee's option cancel and terminate this Lease by giving Lessor written
notice of Lessee's election to do so at any time prior to fifteen (15) days
after the expiration of such sixty (60) day or six (6) month period, as the case
may be. In such event this Lease shall terminate as of the date of such notice.

               9.7   Upon termination of this Lease pursuant to this Paragraph
9, an equitable adjustment shall be made concerning advance rent and any advance
payments made by Lessee to Lessor.

                                       10

 
               9.8   Lessor and Lessee waive the provisions of any statutes
which relate to termination of leases when leased Premises is destroyed and
agree that such event shall be governed by the terms of this Lease.

          10.  Real Property Taxes.
               ------------------- 

               10.1  (a)  Lessor and Lessee acknowledge that the Land and the
remainder of Lot 6 constitute a single tax lot for real property taxation
purposes. Lessee shall pay to Lessor annually as its share of the Real Property
Tax, as hereinafter defined, an amount equal to 100% of such Real Property Tax.
Lessor shall furnish Lessee with copies of the tax bill(s) from which the
determination of the Real Property Tax shall be made, and Lessee shall pay to
Lessor, not later than ten (10) days prior to the delinquency date of such Real
Property Tax, the applicable amount. If Lessee shall fail timely to pay its
share of such Real Property Tax, Lessor shall have the right to pay the same, in
which case Lessee shall repay such amount to Lessor with Lessee's next rent
installment together with interest at the rate of two percent (2%) per annum in
excess of the Wells Fargo Prime Rate.

               10.2  Lessee shall have the right to contest or review by legal
proceedings, or in such other manner as it may deem suitable (which, if
instituted, Lessee shall conduct promptly at its own expense, and free of any
expense to Lessor, and, if necessary, in the name of Lessor), any Real Property
Tax. Lessee may defer payment to Lessor of its share of a contested item upon
condition that, before instituting any such proceedings, Lessee shall furnish to
Lessor security reasonably satisfactory to Lessor, sufficient to cover the
amount of the contested item or items, with interest and penalties, for the
period which such be expected to take, securing payment of such contested items,
interest and penalties, and all costs in connection therewith. Notwithstanding
the furnishing of any such security other than a cash deposit (which cash
deposit Lessee may request Lessor to hold in an interest-bearing account),
Lessee shall promptly pay to Lessor its share of such contested item or items if
at any time the Land, the Building or any improvements on the Land shall be in
danger of being sold, forfeited or otherwise lost or Lessor shall be subjected
to criminal liability for such nonpayment. If, however, Lessee shall have made a
cash deposit, in any such event Lessee may pay such contested item or items out
of such deposit. Upon termination of any such contest, Lessee shall pay the
amount of its share of such contested items, as finally determined in such
proceeding to be due, together with its share of the costs, fees, interest,
penalties and other liabilities incurred in connection therewith. When any such
contested item or items shall have been paid or canceled, any balance of any
such cash deposit not so applied shall, if Lessee shall have requested that such
cash deposit no so applied shall, be held in an interest-bearing account, be
repaid to Lessee with all interest earned thereon. Lessor, at Lessee's expense,
but without separate charge to Lessee for Lessor's cooperation, will cooperate
with Lessee and execute and deliver any appropriate papers which may be
reasonably necessary or proper to permit Lessee to contest any such Real
Property Tax. The legal proceedings herein referred to shall include appropriate
proceedings to review tax assessments and appeals from orders therein and
appeals from any judgments, decrees or orders, but all such proceedings shall be
begun as soon as reasonably possible after the imposition or assessment of any
contested item and shall be prosecuted to final adjudication or settlement with
reasonable dispatch. If there shall be any refund with respect to any contested
item, Lessee shall be entitled to its proportionate share thereof.

               10.3  As used herein, the term "Real Property Tax" shall mean all
taxes levied upon or with respect to the Land and assessments, as described
below. Real Property Taxes shall include only all general real property taxes,
and general and special assessments other than those initiated or consented to
by Lessor after the date of this Lease, fees or assessments for transit,
housing, police, fire, or other governmental services or benefits to the Land,
the Building or other improvements on the Land that are now or hereafter levied
or assessed against Lessor by the United States of America, the State of
California, or any political subdivision, public corporation, district, or any
other political or public entity, and shall also include any other tax, fee, or
other excise that may be levied or assessed as a substitute for a Real Property
Tax, whether or not now customary or in the contemplation of the parties on the
date of this Lease. Real Property Tax shall not include, without limitation, any
franchise, transfer, inheritance, or capital stock taxes or income taxes
measured by the net income of Lessor from all sources or any other taxes,
assessments, fees, or other charges not in the nature of a real estate tax on
land or on a building.

                                       11

 
Lessee shall not be liable for any increase in Real Property Tax arising from
any transfer or other conveyance by Lessor which may result in a change of
ownership or otherwise result in an increase in such assessment of the Property
during the term of this Lease.

               10.4  (a)  Lessee shall pay prior to delinquency all taxes
assessed against and levied upon the trade fixtures, furnishings, equipment and
all other personal property of Lessee contained in the Building, or elsewhere.
When possible, Lessee shall cause said trade fixtures, furnishings, equipment
and all other personal property to be assessed and billed separately from the
real property of Lessor.
 
                     (b)  If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessor shall send Lessee a written
statement setting forth the taxes applicable to Lessee's personal property,
along with evidence thereof, and Lessee shall pay to Lessor such taxes not later
than ten (10) days prior to the delinquency date of the payment of such taxes.

          11.  Utilities.
               --------- 

                     Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Building and the
Land. Lessor shall not be in default hereunder or be liable for any damages
directly nor indirectly resulting from, nor shall the Rent be abated by reason
of (1) the installation, use or interruption of use of any equipment in
connection with the furnishing of any of the foregoing services, (ii) failure to
furnish or delay in furnishing any such services where such failure or delay is
caused by accident or any condition or event beyond the reasonable control of
Lessor, or by the making of necessary repairs or improvements to the Premises,
or the Building, or (iii) the limitation, curtailment, or rationing of, or
restrictions on, the use of water, electricity, gas of any other form of energy
serving the Premises, or the Building, so long as such interruption in services,
or failure to furnish or delay in furnishing such services is not due to
negligence or willful misconduct of Lessor.

          12.  Assignment and Subletting.
               ------------------------- 

               12.1  Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage, sublet, or otherwise transfer or encumber all of any part of
Lessee's interest in this Lease or in the Building without Lessor's prior
written consent, which consent shall not be unreasonably withheld. It shall be
reasonable for Lessor to withhold his consent to any proposed assignment or
subletting if the financial strength and credit history of the proposed assignee
or sublessee is less favorable than Lessee, or if the proposed assignee or
sublessee is less experienced than Lessee in the operation of a business. Lessor
shall respond to Lessee's request for consent hereunder in a timely manner, and
any attempted assignment, transfer, mortgage, encumbrance or subletting without
such consent shall be void, and shall constitute a material breach of this
Lease.

               12.2  Notwithstanding the provisions of Paragraph 12.1 hereof,
Lessee may assign this Lease or sublet the Building, or any portion thereof,
without Lessor's consent, to any entity which controls, is controlled by or is
under common control with Lessee, or to any entity resulting from a merger or
consolidation with Lessee, or to any person or entity which acquires all the
assets of Lessee as a going concern of the business that is being conducted in
the Building, provided that said assignee assumes, in full, the obligations of
Lessee under this Lease. Any such assignment shall not, in any way, affect or
limit the liability of Lessee under the terms of this Lease.

               12.3  Regardless of Lessor's consent, no subletting or assignment
shall release Lessee of Lessee's obligation or alter the primary liability of
Lessee to pay the rent and to perform all other obligations to be performed by
Lessee hereunder. The acceptance of rent by Lessor from any other person shall
not be deemed to be a waiver by Lessor of any provision hereof. Consent to one 
( I ) assignment or subletting shall not be deemed consent to any subsequent
assignment or subletting. In the event of a default by any assignee of Lessee or
any successor of Lessee, in the performance of any of the

                                       12

 
terms hereof, Lessor may proceed directly against Lessee without the necessity
of exhausting remedies against said assignee. Lessor may consent to the
subsequent assignments or subletting of this Lease or amendments or
modifications to this Lease with an assignee of Lessee, without notifying
Lessee, or any successor of Lessee, and without obtaining its or their consent
thereto and such action shall not relieve Lessee of liability under this Lease.

          13.  Defaults: Remedies.
               ------------------ 

               13.1  The occurrence of any one (1) or more of the following
events shall constitute a material default and breach of this Lease by Lessee:

                     (a)  The abandonment of the Building by Lessee.

                     (b)  The failure by Lessee to make any payment of rent or
any other payment required to be made by Lessee hereunder, as and when due,
where such failure shall continue for a period of ten (10) days after written
notice thereof from Lessor to Lessee. Such written notice shall not constitute a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes.

                     (c)  The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee, other than described in Paragraph 13.1(b) above, where such failure
shall continue for a period of thirty (30) days after written notice thereof
from Lessor to Lessee; provided, however, that if the nature of Lessee's default
is such that more than thirty (30) days are reasonably required for its cure,
then Lessee shall not be deemed to be in default if Lessee shall commence such
cure within said thirty (30) day period and thereafter diligently prosecute such
cure to completion within ninety (90) days after receipt of Lessor's written
notice of default.

                     (d)  (i)     The making by Lessee of any general
arrangement or assignment for the benefit of creditors; (ii) Lessee becomes a
"debtor" as defined in 12 U.S.C. (S)101 or any successor statute thereto
(unless, in the case of a petition filed against Lessee, the same is dismissed
within sixty (60) days); (iii) the appointment of a trustee or receiver to take
possession of substantially all of Lessee's assets located at the Building, or
of Lessee's interest in this Lease, where possession is not restored to Lessee
within sixty (60) days; or (iv) the attachment, execution or other judicial
seizure of substantially all of Lessee's assets located at the Building, or of
Lessee's interest in this Lease, where such seizure is not discharged within
sixty (60) days. Provided, however, in the event that any provision of this
Paragraph 13.1 (d) is contrary to any applicable law, such provision shall be of
no force or effect.

                     (e)  The discovery by Lessor that any financial statement
given to Lessor by Lessee, any assignee of Lessee, any sublessee of Lessee or
any successor in interest of Lessee, or any of them, was materially false.

               13.2  Remedies.  In the event of any such material default or 
                     --------    
breach by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without limiting Lessor in the exercise of any right or remedy which
Lessor may have by reason of such default or breach:

                     (a)  Terminate Lessee's right to possession of the Building
and use of the Parking Area and Common Area, by any lawful means, in which case
this Lease shall terminate and Lessee shall immediately surrender possession of
the Building and use of the Parking Area and Common Area, to Lessor. In such
event Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default, including, but not limited to, the cost of
recovering possession of the Building, the Common Area and the Parking Area;
expenses of reletting, including necessary renovation and alteration of the
Building, reasonable attorney's fees, and any real estate commission actually
paid (provided that Lessor shall use commercially reasonable efforts to relet
the Building as and to the extent required by law for a term or terms which may
be less than or may exceed the period which would otherwise have constituted the
balance of this Lease). Any other amount reasonably necessary to

                                       13

 
compensate Lessor for all the detriment proximately caused by Lessee's failure
to perform its obligations under this Lease or which, in the ordinary course of
things, would be likely to result therefrom; and with respect to this Lease that
portion of the brokerage commission, if any, paid by Lessor applicable to the
unexpired term of this Lease.

                     (b)  Maintain Lessee's right to possession in which case
this Lease shall continue in effect whether or not Lessee shall have abandoned
the Building. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.

                     (c)  Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the State of California. Unpaid
installments of rent and other unpaid monetary obligations of Lessee under the
terms of this Lessee shall bear interest from the date due at the rate of two
percent (2%) per annum in excess of the Wells Fargo Prime Rate.

               13.3  Lessor shall not be in default unless Lessor fails to
perform obligations required of Lessor within, if not otherwise specified
herein, a reasonable time, but in no event later than thirty (30) days after
written notice by Lessee to Lessor, specifying wherein Lessor has failed to
perform such obligation; provided, however, that if the nature of Lessor's
obligation is such that more than thirty (30) days are reasonably required for
performance, then, subject to Paragraph 9.6(b) above, Lessor shall not be in
default if Lessor commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion.

               13.4  Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Building. Accordingly, if any
installment of rent or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge equal to three percent (3%) of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable estimate of
the costs Lessor will incur by reason of late payment by Lessee. Acceptance of
such late charge by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from exercising
any of the other rights or remedies granted hereunder. In the event that a late
charge is payable hereunder, whether or not collected, for three (3) consecutive
installments of rent, then rent shall automatically become due and payable
quarterly in advance, rather than monthly, notwithstanding Paragraph 4 or any
other provision of this Lease to the contrary.

               13.5  In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee tinder the terms of this Lease during the term of
this Lease, Lessee shall pay to Lessor, if Lessor shall so request, in addition
to any other payments required under this Lease, a monthly advance installment,
payable at the same time as the monthly rent, as estimated by Lessor, for Real
Property Taxes and insurance expenses on the Building which are payable by
Lessee under the terms of this Lease. Such fund shall be established to insure
payment when due, before delinquency, of any or all such Real Property Taxes and
insurance premiums. If the amounts paid to Lessor by Lessee under the provisions
of this Paragraph 13.5 are insufficient to discharge the obligations of Lessee
to pay such Real Property Taxes and insurance premiums, as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums necessary
to pay such obligations. All moneys paid to Lessor under this Paragraph 13.5 may
be intermingled with other moneys of Lessor and shall not bear interest. In the
event of a default in the obligations of Lessee to perform under this Lease,
then any balance remaining from funds paid to Lessor under the provisions of
this Paragraph 13.5 may, at the option of Lessor, be applied to the payment of
any monetary default of Lessee in lieu of being applied to the payment of Real
Property Tax and insurance premiums.

                                       14

 
          14.  Condemnation.
               ------------ 

                     If the Building or any portion thereof is taken under the
power of eminent domain ("Condemnation"), this Lease shall terminate as to the
part so taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than ten percent (10%) of the floor area of the
Building, or more than twenty-five percent (25%) of the land area of the Common
Area which is not occupied by any building, is taken by condemnation, Lessee
may, at Lessee's option, to be exercised in writing only within thirty (30) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within thirty (30) days after the condemning authority
shall have taken possession), terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Building or Common Area, as applicable, remaining,
except that the rent shall be reduced in the proportion that the floor area of
that portion of the Building or Common Area, as applicable, taken bears to the
total floor area of the Building or Common Area, as applicable. No reduction of
rent shall occur if the only area taken is that which does not have a building
located thereon. Any award for taking of all or any part of the Building or
Common Area, as applicable, under the power of eminent domain or any payment
made under the threat of the exercise of such power shall be the property of
Lessor, whether such award shall be made as compensation for diminution in value
of the leasehold or for the taking of the fee, or as severance damages;
provided, however, that Lessee shall be entitled to any award for loss or damage
to Lessee's trade fixtures, removable personal property, or any improvements to
the Building (excluding the Tenant Improvements) constructed by Lessee at
Lessee's sole cost and expense in accordance with the terms and conditions of
this Lease. In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of severance damages received by Lessor
in connection with such condemnation, repair any damage to the Building caused
by such condemnation except to the extent that Lessee has been reimbursed
therefor by the condemning authority.

          15.  Broker.
               ------ 

                     Lessor and Lessee represent to the other that no broker
represents Lessee and Donald C. Lewis represents Lessor, and that there was no
other broker, finder, consultant or similar person entitled to a commission, fee
or other compensation in connection with the consummation of this Lease. Lessor
and Lessee shall indemnify the other against all costs, expenses, damages and
liabilities, including reasonable attorneys' fees and costs, arising from any
claims for brokerage commissions, finder's fees or other compensation resulting
from or arising out of any conversations, negotiations or actions had by the
indemnifying party or any one acting on behalf of such party with any broker,
finder, consultant or similar person other than Donald C. Lewis. The provisions
of this Paragraph 15 shall survive the expiration or earlier termination of this
Lease.

          16.  Estoppel Certificate.
               -------------------- 

               16.1  Lessor and Lessee shall at any time, upon not less than
twenty (20) days prior written notice from the other party, execute, acknowledge
and deliver to such party a statement in writing (i) certifying that this Lease
is unmodified and in full force and effect (or, if modified, stating the nature
of such modification and certifying that this Lease, as so modified, is in full
force and effect) (ii) stating the date to which Base Rent and additional rent
and other charges are paid in advance, if any, and (iii) acknowledging that
there are not, to such party's knowledge, any uncured defaults on the part of
the other party hereunder, or specifying, such defaults if any are claimed. Any
such statement may be conclusively relied upon by any prospective purchaser,
sublessor or encumbrances of the Building, and by any prospective assignee of
this Lease.

               16.2  At Lessor's option, Lessee's failure to deliver such
statement within such time shall be a material breach of this Lease or shall be
conclusive upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no

                                       15

 
uncured defaults in Lessee's performance, and (iii) that not more than one (1)
month's rent has been paid in advance, or such failure may be considered by
Lessor as a default by Lessee under this Lease.

               16.3  Lessor's failure to deliver such statement within such time
shall be conclusive upon Lessor that (i) this Lease is in full force and effect,
without modification except as may be represented by Lessee, and (ii) there are
no uncured defaults hereunder on the part of Lessee.

          17.  Lessor's Liability.
               ------------------ 

                     The term "Lessor" as used herein shall mean only the owner
or owners at the time in question of the fee title, and except with respect to
any indemnification obligation of Lessor based on an event occurring prior to
any transfer of such title or interest, in the event of any transfer of such
title or interest, Lessor herein named (and in case of any subsequent transfers
then the transferor) shall be relieved from and after the date of such transfer
of all liability as respects Lessor's obligations thereafter to be performed,
provided that any funds in the hands of Lessee or the then transferor after the
time of such transfer, in which Lessee has an interest, shall be delivered to
the transferee. The obligations contained in this Lease to be performed by
Lessor shall, subject as aforesaid, be binding on Lessor's successors and
assigns, only during their respective periods of ownership.

          18.  Severability.
               ------------ 

                     The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.

          19.  Interest on Past-Due Obligations.
               -------------------------------- 

                     Except as expressly herein provided, any amount due to
Lessor not paid when due (after any applicable notice and grace period) shall
bear interest at the rate equal to the lesser of (i) two percent (2%) per annum
over the Wells Fargo Prime Rate from the date due (after any applicable notice
and grace period), or (ii) the maximum rate of interest then allowable by law.
Payment of such interest shall not excuse or cure any default by Lessee under
this Lease.

          20.  Incorporation of Prior Agreement: Amendments.
               -------------------------------------------- 

                     This Lease contains all agreements of the parties with
respect to any matter mentioned herein. No prior agreement or understanding
pertaining to any such matter shall be effective. This Lease may be modified in
writing only, signed by parties in interest at the time of the modification.
Except as otherwise stated in this Lease, Lessee hereby acknowledges that
neither Lessor or any employees or agents of any of said persons has made any
oral or written warranties or representations to Lessee relative to the
condition or use of the Building, Common Area or Parking Area by Lessee. Lessee
acknowledges that Lessee assumes all responsibility regarding the Occupational
Safety Health Act, the legal use and adaptability of the Building and the
compliance thereof with all applicable laws and regulations in effect during the
term of this Lease, except as otherwise specifically stated in this Lease.

                                       16

 
          21.  Notice.
               ------ 

               21.1  All bills, statements, notices, demands, requests, consents
or other communications given or required to be given under this Lease shall be
effective only if given in writing and sent by (a) certified or registered U.S.
mail, postage prepaid, return receipt requested, (b) personal delivery, or (c) a
recognized national overnight courier service, addressed as follows:

                     (i)      If to Lessee:

                              AgraQuest, Incorporated
                              1530 Drew Avenue
                              Davis, California 95616
                              Attention: Pam Marrone, President
                                         Bruce Holm, Chief Financial Officer

                     (ii)     If to Lessor:

                              Jim Joseph, Trustee of The Jim Joseph Revocable
                              Trust c/o Interland
                              1480 Drew Avenue, Suite 100
                              Davis, California 95616
                              Attention: Mr. Donald C. Lewis

                              With a copy to:

                              Steefel, Levitt & Weiss
                              One Embarcadero Center
                              29th Floor
                              San Francisco, California 94111
                              Attention: Alvin T. Levitt, Esq.

               21.2  Any such bill, statement, notice, demand, request, consent
or other communication shall be deemed to have been rendered or given on the
date which is three (3) business days

                                       17

 
after the date mailed, one (1) business day after deposit with a courier service
(or if the same is not a business day, then on the next business day after
delivery) or on the date of personal delivery (or if the same is not a business
day, then on the next business day after delivery), or on the date sent by
facsimile, followed by U.S. mail, as the case may be. Either party may change
its address for delivery by giving notice to the other party as provided in
Paragraph 21.1 above, except that upon Lessee's taking possession of the
Building, the Building shall constitute Lessee's address for notice purposes.

          22.  Waiver.
               ------ 

               No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or any subsequent breach by Lessee of the
same or any other provision. Lessor's consent to, or approval of, any act shall
not be deemed to render unnecessary the obtaining of Lessor's consent to or
approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessee's knowledge of such preceding breach at the time of
acceptance of such rent.

          23.  Recording.
               --------- 

               Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.

          24.  Holding Over.
               ------------ 

               If Lessee, with Lessor's consent, remains in possession of the
Building or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month-to-month upon all the provisions of this
Lease pertaining to the obligations of Lessee.

          25.  Cumulative Remedies.
               ------------------- 

               No remedy or election hereunder shall be deemed exclusive but
shall, wherever possible, be cumulative with all other remedies at law or in
equity.

          26.  Binding Effect: Choice of Law.
               ----------------------------- 

               Subject to any provisions hereof restricting assignment or
subletting by Lessee and subject to the provisions of Paragraph is, this Lease
shall bind the parties, their personal representatives, successors and assigns.
This Lease shall be governed by the laws of the State of California.

          27.  Subordination.
               ------------- 

               (a)   This Lease, at Lessor's option, shall be subordinate to any
ground lease, mortgage, deed of trust, or any other hypothecation or security
now or hereafter placed upon the Land and to any and all advances made on the
security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding such subordination,
Lessee's right to quiet possession of the Building shall not be disturbed if
Lessee is not in default and so long as Lessee shall pay the rent and observe
and perform all of the provisions of this Lease, unless this Lease is otherwise
terminated pursuant to its terms. If any mortgagee, trustee or ground lessor
shall elect to have this Lease prior to the lien of its mortgage, deed of trust
or ground lease, and shall give written notice thereof to Lessee, this Lease
shall be deemed prior to such mortgage, deed of trust, or ground lease, whether
this Lease is dated prior or subsequent to the date of said mortgage, deed of
trust or ground lease or the date of recording thereof.

                                       18

 
               (b)   Lessee agrees to execute any documents required to
effectuate an attornment, a subordination or to make this Lease prior to the
lien of any mortgage, deed of trust or ground lease, as the case may be.
Lessee's failure to execute such documents within ten (10) days after written
demand shall constitute a material default by Lessee hereunder.

          28.  Attorney's Fees.
               ---------------

               If either party brings an action to enforce the terms hereof or
declare rights hereunder, the prevailing party in any such action, or trial or
appeal, shall be entitled to his reasonable attorney's fees to be paid by the
losing party as fixed by the court.

          29.  Lessor's Access.
               ---------------

               Lessor and Lessor's agents shall have the right to enter the
Building at reasonable times for the purpose of inspecting the same, showing the
same to prospective purchasers, lenders, or lessees, and making such repairs to
the Building as Lessor may have the right to do under this Lease. Lessor may at
any time place on or about the Building any ordinary "For Sale" signs and Lessor
may at any time during the last ninety (90) days of the term hereof place on or
about the Building any ordinary "For Lease" signs, all without rebate of rent or
liability to Lessee. Lessor shall provide Lessee with not less than four (4)
hours, prior telephonic notice prior to entering the Premises as permitted
hereunder. No such entry by Lessor permitted hereunder shall interfere
unreasonably with Lessee's use, occupation or quiet enjoyment of the Premises.

          30.  Signs.
               -----

               Lessee shall have the right, without Lessor's consent, to place
any sign(s) on or in the Building provided that such sign(s) comply with all
local ordinances; and further provided that Lessee shall remove such signs at
Lessee's sole cost and expense upon the expiration or earlier termination of
this Lease and repair any damage to the Building caused by the installation or
removal of such signs.

          31.  Merger.
               ------ 

               The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.

          32.  Consents.
               --------

               Wherever in this Lease the consent of one (1) party is required
to an act of the other party, such consent shall not be unreasonably withheld or
delayed.

          33.  Quiet Possession.
               ----------------

               Upon Lessee paying the rent due hereunder and observing and
performing all of the covenants, conditions and provisions on Lessee's part to
be observed and performed hereunder, Lessee shall have quiet possession of the
Building, the Parking Area and the Common Area, for the entire term hereof
Subject to all of the provisions of this Lease.

          34.  Common Area Rules.
               ----------------- 

               Lessee agrees that Lessee will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the Common Area and the Parking
Area, and any common area within the Building if any portion of the

                                       19

 
Building is occupied by any Lessee other than Lessee. The violations of any such
rules and regulations shall be deemed a material breach of this Lease by Lessee.
Lessor agrees that it shall enforce all such rules and regulations equitable
between all parties subject to those rules and regulations.

          35.  Security Measures.
               -----------------

               Lessee hereby acknowledges that the rental payable to Lessor
hereunder does not include the cost of guard service or other security measures,
and that Lessor shall have no obligation whatsoever to provide same. Lessee
assumes all responsibility for the protection of Lessee, its agents and invitees
from acts of third parties.

          36.  Easements.
               ---------

               Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of parcel maps and restrictions, so long as such
easements, right, dedications, maps and restrictions do not unreasonably
interfere with the use of the Building, the Parking Area or the Common Area by
Lessee. Lessee shall sign any of the aforementioned documents upon request of
Lessor and failure to do so shall constitute a material breach of this Lease.

          37.  Performance Under Protest.
               ------------------------- 

               If at any time a dispute shall arise as to any amount or sum of
money to be paid by one party to the other under the provisions hereof, the
party against whom the obligation to pay the money is asserted shall have the
right to make payment "under protest" and such payment shall not be regarded as
a voluntary payment, and there shall survive the right of the part of said party
to institute suit for recovery of such suit. If it shall be adjudged that there
was no legal obligation on the part of said party to pay such sum or any part
thereof, said party shall be entitled to recover such sum or so much thereof as
it was not legally required to pay under the provisions of this Lease.

          38.  Authority.
               ---------

               Each individual executing this Lease on behalf of Lessee
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. Lessee shall, within thirty (30) days after
execution of this Lease, deliver to Lessor evidence of such authority reasonably
satisfactory to Lessor.

          39.  Hazardous Materials.
               -------------------

               39.1  "Hazardous Materials" shall mean (a) any oil, flammable
substances, explosives, radioactive materials, hazardous wastes or substances,
toxic wastes or substances or any other wastes, materials or pollutants which
cause the Building to be in violation of any Hazardous Materials Laws; (b)
asbestos in any form which is or during the term of this Lease becomes friable,
urea formaldehyde foam insulation, transformers or other equipment which contain
dielectric fluid containing levels of polychlorinated biphenyls in excess of
federal or California standards, whichever is more stringent, or radon gas; (c)
any chemical, material or substance defined as or included in the definition of
"hazardous substances", "hazardous wastes", "hazardous materials, "extremely
hazardous waste", "restricted hazardous waste, or toxic substances" or words of
similar import under any applicable local, state or federal law or under the
regulations adopted or publications promulgated pursuant thereto, including, but
not limited to, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. {{9601, et seq.; the Hazardous
Materials Transportation Act, as amended, 49 U.S.C. {{1801, et seq.; the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. {{6901, et seq.;
the Federal Water Pollution Control Act, as amended, 33 U.S.C. {{1251, et seq.;
Sections 25115, 25117, 25122.7, 25140, 25249.8, 25281, 25316, 25501, and 25316
of the California Health and Safety Code; and Article 9

                                       20

 
or Article 11 of Title 22 of the California Administrative Code, Division 4,
Chapter 20; or (d) any other chemical, material or substance, exposure to which
is prohibited, limited or regulated by any governmental authority having
jurisdiction over the Building.

               39.2  "Hazardous Materials Claims" shall mean any and all
enforcement, cleanup, removal, remedial or other governmental or regulatory
actions, agreements or orders threatened, instituted or completed pursuant to
any Hazardous Materials Laws, together with any and all claims made or
threatened by any third party against Lessor, Lessee or the Building arising out
of a violation of any Hazardous Materials Law.

               39.3  "Hazardous Materials Laws" shall mean any federal, state or
local laws, ordinances, regulations or policies relating to the environment,
health and safety, any Hazardous Materials (including, without limitation, the
use, handling, transportation, production, disposal, discharge or storage
thereof) or to industrial hygiene or the environmental conditions on, under or
about the Building, including, without limitation, soil, groundwater and indoor
and ambient air conditions.

               39.4  Lessee shall immediately advise Lessor in writing of (i)
any and all Hazardous Materials Claims, (ii) the presence of any Hazardous
Materials on, under or about the Building in accordance with, without
limitation, the requirements of California Health and Safety Code Section
25359.7, (iii) any remedial action taken by Lessee in response to any (A)
Hazardous Materials on, under or about the Building or (B) Hazardous Materials
Claims, (iv) Lessee's discovery of the presence of Hazardous Materials on, under
or about any Premises adjoining the Building, and (v) Lessee's discovery of any
occurrence or condition on any Premises adjoining the Building that could cause
the Building any part thereof to be as "border-zone property" tinder the
provisions of Health and Safety Code, Sections 25220 et seq. or any adopted in
                                                     -------
accordance therewith, or to be otherwise any restrictions on the ownership,
occupancy, or use of the Building under any Hazardous Materials Laws. In
addition, Lessee shall provide Lessor with copies of all communications with
federal, state and local governments or agencies relating to Hazardous Materials
Laws and all communication with any person relating to Hazardous Materials
Claims.

               39.5  Lessee shall promptly take any and all necessary remedial
action in response to the discharge, deposit, injection, dumping, spilling,
leaking, disposal or release of any Hazardous Materials by Lessee or any of
Lessees agents, employees, contractors, subcontractors, suppliers, invitees,
licensees or guests, on, under or about the Land, including, without limitation,
the Building and any off-site contamination resulting therefrom. In the event
Lessee takes any such remedial action, Lessee shall conduct and complete such
remedial action (i) in compliance with all applicable federal, state and local
laws, regulations, rules, ordinances and policies, and (ii) in accordance with
the orders and directives of all federal, state and local governmental
authorities. For the purposes of this Paragraph 39.5, Lessee shall be deemed to
have taken all necessary remedial action if Lessee shall have reduced any
discharged, deposited, injected, dumped, spilled, leaked, disposed of, or
released Hazardous Material to the lowest maximum level of concentration
required for such Hazardous Material by any applicable Hazardous Materials Law
or federal, state or local governmental authorities having jurisdiction over the
Land and any other areas that may be contaminated; provided, however, that if
there shall be no such maximum level of concentration, then (A) Lessee shall
have 180 days to obtain rulings from all governmental agencies having
jurisdiction over the Land and any other areas that may be contaminated with
respect to such level and thereafter shall promptly reduce such Hazardous
Material to the lowest maximum level set forth in such rulings, or (B) if Lessee
is unable timely to obtain such rulings, Lessee shall promptly reduce such
Hazardous Material to a level agreed to by Lessor and Lessee, or (C) if Lessor
and Lessee cannot agree to a level of concentration, then Lessee shall promptly
reduce each Hazardous Material for which a level is not otherwise established in
accordance with this Paragraph 39 to a level thereafter agreed to by a
governmental agency having jurisdiction over the Land and any other area that
may be contaminated. Nothing contained in this Paragraph 39.5 shall be deemed to
amend, modify or limit in any way whatsoever the indemnification obligations of
Lessee arising under Paragraph 39.6 below.

               39.6  Lessee shall not create or permit to continue in existence
any lien upon the Building imposed pursuant to any Hazardous Materials Law;
provided, however, that Lessee may, at its

                                       21

 
expense, contest the validity of any such lien by appropriate legal proceedings
promptly initiated and conducted in good faith and with due diligence, in which
case Lessee shall, at its sole cost and expense, defend itself and Lessor
against the same and shall pay and satisfy or comply with any adverse judgment
that may be rendered thereon before the enforcement thereof against Lessor or
the Land, provided that Lessor is reasonably satisfied that (i) neither the Land
nor any part thereof or interest therein will be in danger of being sold,
forfeited, terminated, canceled or lost as a result of such contest, and (ii)
Lessee shall have posted a bond or furnished such other security as may be
reasonably required from time to time by Lessor and is reasonably satisfactory
to Lessor.

               39.7  Lessor shall have the right to join and participate in, as
a party if it so elects, any legal proceedings or actions initiated in
connection with any Hazardous Materials Claims.

               39.8  Lessee shall protect, indemnify and hold Lessor, its
directors, officers, employees and agents, and any successors to Lessor's
interest in the Building, and any other person who acquires any portion of the
Building, and any successors to any such other person, and all directors,
officers, employees and agents of all of the aforementioned indemnified parties,
harmless from and against any and all actual or potential claims, liabilities,
damages, losses, fines, penalties, judgments, awards, costs and expenses
(including, without limitation, attorneys, fees and costs and expenses of
investigation) which arise out of or relate in any way to any use, handling,
production, transportation, disposal or storage of any Hazardous Materials in or
on the Building whether by Lessee or any of Lessee's agents, employees,
contractors, subcontractors, suppliers, invitees or licensees, including,
without limitation, (i) all foreseeable and all unforeseeable consequential
damages directly or indirectly arising out of (a) the use generation, storage,
discharge or disposal of Hazardous Materials by Lessee, or any of Lessee's
agents, employees, contractors, subcontractors, suppliers, invitees or licensees
on or about the Building, or (b) any residual contamination affecting, any
natural resource or the environment, and (ii) the costs of any required or
necessary repair, cleanup, or detoxification of the Building and the preparation
of any closure or other required plans. In addition, Lessee agrees that in the
event any Hazardous Material is caused to be removed from the Building by
Lessee, Lessor or any other person, the number assigned by the Environmental
Protection Agency to such Hazardous Material shall be solely in the name of
Lessee and Lessee shall assume any and all liability for such removed Hazardous
Material. Lessee understands and agrees that its liability to the aforementioned
indemnified parties shall arise upon the earlier to occur of (a) discovery of
any Hazardous Materials on, under or about the Building, or (b) the institution
of any Hazardous Materials Claim, and not upon the realization of loss or
damage.

               39.9  Except as required by law or by a governmental agency or as
otherwise provided herein, Lessee shall not, without the prior written consent
of Lessor, divulge any information or release any written material regarding
matters pertaining to the discharge, deposit, injection, dumping, spilling,
leaking, disposal or release of any Hazardous Materials on, under, about or in
the vicinity of the Land, to any person, entity or governmental agency or
authority. All reports, data, samples and memoranda concerning such matters
shall be the property of Lessor. Lessee shall not enter into any agreements with
any governmental agencies or authorities relating to such matters without
Lessor's prior written consent.

               39.10  Lessee's obligations under this Paragraph 39 shall survive
the expiration or earlier termination of this Lease.

          40.  Lessor's Representations. Covenants and Warranties Pertaining to
               ----------------------------------------------------------------
Hazardous Materials.
-------------------
                     Lessor hereby represents, covenants and warrants as
follows:

                     (a)  To the best of Lessor's knowledge, without any
investigation or inquiry, (i) no Hazardous Materials have been spilled, disposed
of, or stored, on, under, or at the Land, whether by accident, burying,
drainage, or storage in containers, tanks or holding areas, or by any other
means whatsoever; and (ii) the Land has never been used as a dump or landfill.
Notwithstanding the

                                       22

 
foregoing, Lessee hereby acknowledges that Lessor has disclosed to Lessee that
the Land was used at one time for farming purposes and, in that connection, it
is likely that certain unknown pesticides and/or herbicides may have been
discharged on the Land and that traces thereof may remain on, under, or at the
Land.

                     (b)  Lessor shall take any and all necessary remedial
action required by any Hazardous Materials Laws in response to the presence of
any Hazardous Materials on, under or about the Land or the Building existing on
or before the Commencement Date, and as required by any federal, state or local
governmental entity having jurisdiction over the Land or the Building, at the
time, in the manner and to the extent required by any such governmental entity.

          41.  ARBITRATION OF DISPUTES.
               ----------------------- 

               41.1  THE PARTIES HERETO SHALL NOT BE DEEMED TO HAVE AGREED TO
DETERMINATION BY ARBITRATION OF ANY DISPUTE ARISING OUT OF THIS LEASE UNLESS
DETERMINATION IN SUCH MANNER SHALL HAVE BEEN SPECIFICALLY PROVIDED FOR IN THIS
LEASE.

               41.2  THE PARTY DESIRING ARBITRATION SHALL GIVE NOTICE TO SUCH
EFFECT TO THE OTHER PARTY AND SHALL IN SUCH NOTICE APPOINT A PERSON AS
ARBITRATOR ON ITS BEHALF. WITHIN TEN (10) DAYS AFTER SUCH NOTICE IS GIVEN, THE
OTHER PARTY BY NOTICE TO THE ORIGINAL PARTY SHALL APPOINT A SECOND PERSON AS
ARBITRATOR ON ITS BEHALF. THE ARBITRATORS THUS APPOINTED SHALL APPOINT A THIRD
PERSON, AND SUCH THREE (3) ARBITRATORS SHALL AS PROMPTLY AS POSSIBLE DETERMINE
SUCH MATTER, PROVIDED, HOWEVER, THAT:

                     (a)  IF THE SECOND ARBITRATOR SHALL NOT HAVE BEEN APPOINTED
AS AFORESAID, THE FIRST ARBITRATOR SHALL PROCEED TO DETERMINE SUCH MATTER; AND

                     (b)  IF THE TWO ARBITRATORS APPOINTED BY THE PARTIES SHALL
BE UNABLE TO AGREE, WITHIN TEN (10) DAYS AFTER THE APPOINTMENT OF THE SECOND
ARBITRATOR, UPON THE APPOINTMENT OF A THIRD ARBITRATOR, THEY SHALL GIVE WRITTEN
NOTICE TO THE PARTIES OF SUCH FAILURE TO AGREE, AND, IF THE PARTIES FAIL TO
AGREE UPON THE SELECTION OF SUCH THIRD ARBITRATOR WITHIN TEN (10) DAYS AFTER THE
ARBITRATORS APPOINTED BY THE PARTIES GIVE NOTICE AS AFORESAID, THEN WITHIN FIVE
(5) DAYS THEREAFTER EITHER OF THE PARTIES, UPON NOTICE TO THE OTHER PARTY, MAY
REQUEST SUCH APPOINTMENT BY THE AMERICAN ARBITRATION ASSOCIATION (OR ANY
ORGANIZATION SUCCESSOR THERETO), OR IN THE ABSENCE, REFUSAL, FAILURE OR
INABILITY TO ACT OF SUCH ORGANIZATION, MAY APPLY FOR A COURT APPOINTMENT OF SUCH
ARBITRATOR.

               41.3  EACH ARBITRATOR SHALL BE A FIT PERSON WHO SHALL HAVE HAD AT
LEAST 10 YEARS' EXPERIENCE IN THE STATE OF CALIFORNIA IN A CALLING CONNECTED
WITH THE MATTER OF THE DISPUTE, AND, IN ADDITION, THE THIRD ARBITRATOR SHALL BE
IMPARTIAL.

               41.4  THE ARBITRATION SHALL BE CONDUCTED, TO THE EXTENT
CONSISTENT WITH THIS PARAGRAPH 41, IN ACCORDANCE WITH THE THEN PREVAILING
COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION (OR ANY
ORGANIZATION SUCCESSOR THERETO). THE DECISION AND AWARD SHALL BE RENDERED BY THE
ARBITRATORS, UPON THE CONCURRENCE OF AT LEAST TWO OF THEIR NUMBERS, WITHIN
THIRTY (30) DAYS. AFTER THE APPOINTMENT OF THE THIRD ARBITRATOR OR IN THE CASE
OF A DETERMINATION BY A SINGLE ARBITRATOR

                                       23

 
PURSUANT TO PARAGRAPH 41.2(a) ABOVE, WITHIN THIRTY (30) DAYS AFTER THE
EXPIRATION OF THE PERIOD DURING WHICH A SECOND ARBITRATOR MAY BE APPOINTED. SUCH
DECISION AND AWARD SHALL BE IN WRITING AND SHALL BE FINAL AND CONCLUSIVE ON THE
PARTIES, AND COUNTERPART COPIES THEREOF SHALL BE DELIVERED TO EACH OF THE
PARTIES. IN RENDERING SUCH DECISION AND AWARD, THE ARBITRATORS SHALL NOT ADD TO,
SUBTRACT FROM OR OTHERWISE MODIFY THE PROVISIONS OF THIS LEASE. JUDGMENT MAY BE
HAD ON THE DECISION AND AWARD OF THE ARBITRATOR(S) SO RENDERED IN ANY COURT OF
COMPETENT JURISDICTION.

               41.5  EACH PARTY SHALL PAY THE FEES AND EXPENSES OF THE
ARBITRATOR APPOINTED BY OR FOR SUCH PARTY. THE FEES AND EXPENSES OF THE THIRD
ARBITRATOR AND ALL OTHER EXPENSES OF THE ARBITRATION (OTHER THAN THE FEES AND
DISBURSEMENTS OF ATTORNEYS OR WITNESSES FOR EACH PARTY) SHALL BE BORNE BY THE
PARTIES EQUALLY.

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

                              LESSOR:  /s/ DCL


                              LESSEE: /s/ PM

          42.  Force Majeure.
               -------------

                     In the event that either party hereto shall be delayed or
hindered in or prevented from the performance of any act required hereunder by
reason of strikes, lock-outs, labor troubles, inability to procure materials,
failure of power, restrictive governmental laws or regulations, riots,
insurrection, war on other reason beyond the reasonable control of the party
delayed in performing work or doing acts required under the terms of this Lease,
then performance of such act shall be excused for the period of the delay and
the period for performance of any such act shall be extended for a period
equivalent to the period of such delay. The provisions of this Paragraph 42
shall not operate to excuse Lessee from the payment of Base Rent, additional
rent or any other payments required by the terms of this Lease within the time
periods and otherwise in accordance with the requirements of this Lease.

          43.  Successors and Assigns.
               ----------------------

                     Subject to the provisions of Paragraph 12 hereof, this
Lease and all of the provisions hereof shall bind and inure to the benefit of
the successors and assigns of each of Lessor and Lessee.

                                       24

 
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND BY EXECUTION OF THIS LEASE SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES COVERED BY THIS LEASE.

                     IN WITNESS WHEREOF, Lessor and Lessee have executed and
delivered this Lease on the date first above written.



                      /s/ Jim Joseph by Donald C. Lewis
                      -------------------------------------
                      Jim Joseph "LESSOR" Trustee, 
                      The Jim Joseph Revocable Trust  [Attorney in Fact]


                      /s/ Pamela Marrone
                      -------------------------------------
                      Pam Marrone, "LESSEE" President
                      AgraQuest, Incorporated

                                       25