<SUBMISSION>
<ACCESSION-NUMBER>0000911801-01-500005
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>8
<PERIOD>20010331
<FILING-DATE>20010515
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>EARTHSHELL CORP
<CIK>0000911801
<ASSIGNED-SIC>2650
<IRS-NUMBER>770322379
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>000-23567
<FILM-NUMBER>1638999
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>9020 JUNCTION DRIVE
<STREET2>SUITE D
<CITY>ANNAPOLIS JUNCTION
<STATE>MD
<ZIP>20701-1146
<PHONE>3019571330
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>9020 JUNCTION DRIVE
<STREET2>SUITE D
<CITY>ANNAPOLIS JUNCTION
<STATE>MD
<ZIP>20701-1146
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>EARTHSHELL CONTAINER CORP
<DATE-CHANGED>19960521
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>firstq_10q.html
<DESCRIPTION>QUARTERLY REPORT
<TEXT>

<HTML>
<HEAD>
<TITLE> Quarterly Report
</TITLE>
</HEAD>
<BODY>
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=4>UNITED STATES<BR>
                                      SECURITIES AND EXCHANGE COMMISSION<BR>
                                            WASHINGTON, D.C. 20549</FONT></H1>


<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=4>FORM 10-Q</FONT></H1>

<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3>|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)<BR>
                                    OF THE SECURITIES EXCHANGE ACT OF 1934</FONT></P>

<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>For the
 Quarterly Period Ended March 31, 2001</FONT></P>

<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3>|_| TRANSITION
 REPORT PURSUANT SECTION 13 OR 15 (d)<BR>
                                      OF SECURITIES EXCHANGE ACT OF 1934</FONT></P>

<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>For the
Transition Period From ______to_________</FONT></P>


<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Commission File Number 333-13287</FONT></P>


<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=4><B>EARTHSHELL CORPORATION</B></FONT><BR>
<FONT FACE="Times New Roman, Times, Serif" SIZE=3>(Exact name of registrant as specified in its charter)</FONT></P>

<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Delaware
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 77-0322379</B><BR>
(State or other jurisdiction of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(I.R.S. Employer<BR>
incorporation or organization)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Identification No.)</FONT></P>


<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>800 Miramonte
 Drive, Santa Barbara, California 93109</B><BR>
 (Address of principal executive office) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Zip Code)</FONT></P>

<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Registrant's
 telephone number, including area code: <B>(805) 897-2248</B></FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.<BR>
Yes |X| No |_|</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The number of shares
 outstanding of the registrant's common stock as of May 4, 2001 is 108,594,194.</FONT></P>








<PAGE>


<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3><B>EARTHSHELL CORPORATION</B></FONT></P>

<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3><B>FORM 10-Q</B></FONT></P>

<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3><B>For the Quarter Ended March 31, 2001</B></FONT></P>

<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3><B>INDEX</B></FONT></P>

<PRE>
<B><I>Part I. Financial Information</I></B>
     Item 1.    Financial Statements                                                   Page
                a)  Balance Sheets
                    as of March 31, 2001 and December 31, 2000 (unaudited).........      1

                b)  Statements of Operations
                    for the three months ended March 31, 2001 and March 31, 2000
                    (unaudited) and for the period from November 1, 1992 (inception)
                    through March 31, 2001 (unaudited).............................      2

                c)  Statements of Stockholders' Equity (Deficit)
                    for the period from November 1, 1992 (inception) to March 31,
                    2001 (unaudited)...............................................      3

                d)  Statements of Cash Flows
                    for the three months ended March 31, 2001 and March 31, 2000
                    (unaudited) and for the period from November 1, 1992 (inception)
                    through March 31, 2001 (unaudited).............................      4

                e)  Notes to Financial Statements
                    (unaudited)....................................................      5

     Item 2.    Management's Discussion and Analysis of Financial
                Condition and Results of Operations................................      6

     Item 3.    Quantitative and Qualitative Disclosures About Market Risk.........     10


<B><I>Part II. Other Information</I></B>

     Item 1.    Legal Proceedings..................................................     10
     Item 2.    Use of Proceeds....................................................     11
     Item 3.    Defaults Upon Senior Securities....................................     11
     Item 4.    Submission of Matters to a Vote for Security Holders...............     11
     Item 5.    Other Information..................................................     11
     Item 6     Exhibits and Reports on Form 8-K...................................     11
     <B><I>Signature</I></B>.....................................................................     12
</PRE>

<PAGE>




<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3>EARTHSHELL
CORPORATION<BR>(A Development Stage Enterprise)<BR> BALANCE SHEETS</FONT></H1>
<PRE>
                                                                March 31,        December 31,
                                                                  2001              2000
<B>ASSETS</B>
<B>CURRENT ASSETS:</B>
     Cash and cash equivalents...........................        $3,196,501        $7,791,654
     Prepaid expenses and other current assets...........     <U>      576,365</U>     <U>      492,889</U>
         Total current assets............................         3,772,866         8,284,543

RESTRICTED CASH..........................................         3,500,000         3,500,000

PROPERTY AND EQUIPMENT, NET..............................        36,292,183        36,265,647

INVESTMENT IN JOINT VENTURE..............................           400,928           423,428
                                                              <U>             </U>     <U>             </U>
<B>TOTAL</B>....................................................       $43,965,977       $48,473,618
                                                              =============     =============

<B>LIABILITIES AND STOCKHOLDERS' EQUITY</B>
CURRENT LIABILITIES:
    Accounts payable and accrued expenses................        $4,317,083        $5,910,897
    Trade payable to majority stockholder................     <U>     -       </U>     <U>      266,312</U>
        Total current liabilities........................     <U>    4,317,083</U>     <U>    6,177,209</U>

<B>COMMITMENTS AND CONTINGENCIES</B>

<B>STOCKHOLDERS' EQUITY:</B>
     Preferred Stock, $.01 par value, 10,000,000 shares
        authorized; 9,170,000 Series A shares designated;
        no shares issued and outstanding as of March 31,
        2001 and December 31, 2000.......................                 -                 -
     Common stock, $.01 par value, 200,000,000 shares
        authorized; 108,594,194 and 104,502,335 shares
        issued and outstanding as of March 31, 2001 and
        December 31, 2000................................         1,085,942         1,045,023
     Additional paid-in common capital...................       240,601,552       235,192,471
     Deficit accumulated during the development stage....     <U>(202,038,600)</U>     <U>(193,941,085)</U>

Total stockholders' equity...............................     <U>   39,648,894</U>     <U>   42,296,409</U>

<B>TOTAL</B>....................................................       $43,965,977       $48,473,618
                                                              =============     =============

                                     See notes to financial statements.
</PRE>

<PAGE>




<H1  ALIGN=CENTER><FONT  FACE="Times New Roman, Times,  Serif"  SIZE=3>EARTHSHELL
CORPORATION<BR>   (A   Development   Stage    Enterprise)<BR>    STATEMENTS   OF
OPERATIONS<BR> (Unaudited)</FONT></H1>
<PRE>
                                                                        November 1,
                                                                           1992
                                                    For the             (inception)
                                                     Three                through
                                          <U>      Ended March 31,     </U>   <U>  March 31,  </U>
                                          <U>     2001   </U>  <U>    2000    </U>   <U>    2001     </U>
 Expenses:
 Related party research and development       $326,307    $1,984,423     $67,251,895
 Other research and development......        4,420,431     4,069,721      67,613,052
 Related party general and administrative
    expenses.........................                -        44,301       2,240,502
 Other general and administrative
    expenses.........................        2,184,906     1,987,910      45,335,439
 Depreciation and amortization.......        1,285,183     1,422,254      14,773,101
 Related party patent expenses.......     <U>           -</U>  <U>     143,390</U>   <U>    8,693,105</U>
 Total expenses......................        8,216,827     9,651,999     205,907,094

 Interest income.....................        (119,312)     (486,431)    (10,439,034)
 Related party interest expense......                -             -       4,770,731
 Other interest expense..............     <U>           -</U>  <U>           -</U>   <U>    1,788,738</U>
 Loss Before Income Taxes............        8,097,515     9,165,568     202,027,529

 Income Taxes........................     <U>           -</U>  <U>           -</U>   <U>       11,071</U>
 Net Loss............................        8,097,515     9,165,568     202,038,600
 Preferred Dividends ................     <U>           -</U>  <U>           -</U>   <U>    9,926,703</U>
 Net Loss Available To Common
    Stockholders.....................       $8,097,515    $9,165,568    $211,965,303
                                          ============  ============   =============
 Basic And Diluted Loss Per Common
    Share............................            $0.08         $0.09           $2.38
 Weighted Average Number Of Common
    Shares...........................      106,982,760   100,045,166      89,141,612

                                      See notes to financial statements.
</PRE>

<PAGE>



<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3>EARTHSHELL CORPORATION<BR>
                                       (A Development Stage Enterprise)<BR>
                                 STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)<BR>
                                                  (Unaudited)</FONT></H1>
<PRE>

                                                                                                             Deficit
                               Cumulative Convertible  Additional                             Additional    Accumulated
                                   Preferred Stock      Paid-In                                Paid-In        during
                               <U>       Series A       </U>  Preferred    <U>      Common Stock     </U>     Common       Develop-
                                <U>  Shares  </U>  <U> Amount </U>  <U>  Capital   </U>  <U>   Shares  </U>  <U>  Amount  </U>  <U>  Capital   </U>  <U> ment Stage   </U>   <U>   Total   </U>

ISSUANCE OF COMMON STOCK
   AT INCEPTION.............             -         -             -   82,530,000      $3,150        $6,850               -        $10,000
Sale of preferred stock,
   net......................     6,988,850      $267   $24,472,734            -           -             -               -     24,473,001
Net loss....................   <U>          -</U>  <U>       -</U>  <U>           -</U>  <U>          -</U>  <U>         -</U>  <U>           -</U>  <U>  $(7,782,551)</U>   <U> (7,782,551)</U>
BALANCE, DECEMBER 31, 1993       6,988,850       267    24,472,734   82,530,000       3,150         6,850     (7,782,551)     16,700,450
Net loss....................   <U>          -</U>  <U>       -</U>  <U>           -</U>  <U>          -</U>  <U>         -</U>  <U>           -</U>  <U>  (16,582,080)</U>   <U>(16,582,080)</U>
BALANCE, DECEMBER 31, 1994       6,988,850       267    24,472,734   82,530,000       3,150         6,850    (24,364,631)        118,370
Contribution to equity......             -         -             -            -           -     1,117,723               -      1,117,723
Net loss....................   <U>          -</U>  <U>       -</U>  <U>           -</U>  <U>          -</U>  <U>         -</U>  <U>           -</U>  <U>  (13,914,194)</U>   <U>(13,914,194)</U>
BALANCE, DECEMBER 31, 1995       6,988,850       267    24,472,734   82,530,000       3,150     1,124,573    (38,278,825)   (12,678,101)
Contribution to equity......             -         -             -            -           -       650,000               -        650,000
Issuance of stock warrants..             -         -             -            -           -       246,270               -        246,270
Net loss....................   <U>          -</U>  <U>       -</U>  <U>           -</U>  <U>          -</U>  <U>         -</U>  <U>           -</U>  <U>  (16,950,137)</U>   <U>(16,950,137)</U>
BALANCE, DECEMBER 31, 1996       6,988,850       267    24,472,734   82,530,000       3,150     2,020,843    (55,228,962)   (28,731,968)
Compensation related to
   stock options and
   warrants.................             -         -             -            -           -     3,156,659               -      3,156,659
Net loss....................   <U>          -</U>  <U>       -</U>  <U>           -</U>  <U>          -</U>  <U>         -</U>  <U>           -</U>  <U>  (18,992,023)</U>   <U>(18,992,023)</U>
BALANCE, DECEMBER 31, 1997       6,988,850       267    24,472,734   82,530,000       3,150     5,177,502    (74,220,985)   (44,567,332)
262 to 1 stock split........             -    69,621      (69,621)            -     822,150     (822,150)               -              -
Conversion of preferred
   stock to common stock....   (6,988,850)  (69,888)  (24,403,113)    6,988,850      69,888    24,403,113               -              -
Issuance of common stock....             -         -             -   10,526,316     105,263   205,883,493               -    205,988,756
Preferred stock dividends...             -         -             -            -           -   (9,926,703)               -    (9,926,703)
Net loss....................   <U>          -</U>  <U>       -</U>  <U>           -</U>  <U>          -</U>  <U>         -</U>  <U>           -</U>  <U>  (26,620,052)</U>   <U>(26,620,052)</U>
BALANCE, DECEMBER 31, 1998               -         -             -  100,045,166   1,000,451   224,715,255   (100,841,037)    124,874,669
Net loss....................   <U>          -</U>  <U>       -</U>  <U>           -</U>  <U>          -</U>  <U>         -</U>  <U>           -</U>  <U>  (44,188,443)</U>   <U>(44,188,443)</U>
BALANCE, DECEMBER 31, 1999               -         -             -  100,045,166   1,000,451   224,715,255   (145,029,480)     80,686,226
Net Loss....................             -         -             -            -           -             -    (48,911,605)   (48,911,605)
Issuance of common stock....   <U>          -</U>  <U>       -</U>  <U>           -</U>  <U>  4,457,169</U>  <U>    44,572</U>  <U>  10,477,216</U>  <U>              </U>   <U>  10,521,788</U>
BALANCE, DECEMBER 31, 2000               -         -             -  104,502,335   1,045,023   235,192,471   (193,941,085)     42,296,409
Net Loss....................             -         -             -            -           -             -     (8,097,515)    (8,097,515)
Issuance of common stock....   <U>          -</U>  <U>       -</U>  <U>           -</U>  <U>  4,091,859</U>  <U>    40,919</U>  <U>   5,409,081</U>  <U>             -</U>   <U>   5,450,000</U>
BALANCE, MARCH 31, 2001                  -         -             -  108,594,194  $1,085,942  $240,601,552  $(202,038,600)    $39,648,894
                               ===========  ========  ============  ===========  ==========  ============  ==============   ============

                                       See notes to financial statements
</PRE>

<PAGE>




<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=3>EARTHSHELL CORPORATION<BR>
                                       (A Development Stage Enterprise)<BR>
                                           STATEMENTS OF CASH FLOWS<BR>
                                                  (Unaudited)</FONT></H1>

<PRE>
                                                                 For the             November 1,
                                                           Three Months Ended           1992
                                                                March 31,            (inception)
                                                                                       through
                                                       <U>                          </U>  <U>   March 31,  </U>
                                                       <U>    2001    </U>  <U>    2000    </U>  <U>     2001     </U>


<B>CASH FLOWS FROM OPERATING ACTIVITIES:</B>
Net loss..........................................     $(8,097,515)  $(9,165,568)  $(202,038,600)
Adjustments to reconcile net loss to net cash used in
operating activities:
   Depreciation and amortization..................        1,285,183     1,422,254      14,773,102
   Issuance of stock options to director, consultant
      and officer.................................                -             -       3,861,522
   Amortization of debt issue costs...............                -             -         271,277
   Loss on sale or disposal of property and equipment             -       194,937      18,486,753
   Loss from investment in joint venture..........           22,500        31,598         114,510
   Net Loss on Sale of Investments................                -             -          32,496
   Accretion of Discounts on Investments..........                -             -       (410,084)
Changes in operating assets and liabilities:
   Prepaid expense and other current assets.......         (83,476)     (244,971)       (576,365)
   Accounts payable and accrued expenses..........      (1,593,814)     (877,565)       4,317,082
   Trade payable to majority stockholder..........     <U>   (266,312)</U>  <U>   (850,941)</U>  <U>             -</U>
      Net cash used in operating activities.......     <U> (8,733,434)</U>  <U> (9,490,256)</U>  <U> (161,168,307)</U>


<B>CASH FLOWS FROM INVESTING ACTIVITIES:</B>
Purchase of short-term investments................                -   (2,101,286)    (52,419,820)
Purchase of restricted time deposit...............                -             -     (3,500,000)
Proceeds from sales and redemptions of investments                -             -      52,797,408
Proceeds from sale of property and equipment......                -             -         297,670
Investment in joint venture.......................                              -       (515,438)
Purchase of property and equipment................     <U> (1,311,719)</U>  <U> (1,499,405)</U>  <U>  (70,721,443)</U>
   Net cash used in investing activities..........     <U> (1,311,719)</U>  <U> (3,600,691)</U>  <U>  (74,061,623)</U>


<B>CASH FLOWS FROM FINANCING ACTIVITIES:</B>
Proceeds from issuance of notes payable to
      stockholders................................                -             -      14,270,000
Proceeds from drawings on line of credit with bank                -             -      14,000,000
Proceeds from issuance of common stock............        5,450,000             -     237,034,424
Common stock issuance costs.......................                -             -    (15,178,641)
Preferred dividends paid..........................                -             -     (9,926,703)
Proceeds from issuance of preferred stock.........                -             -      25,675,000
Preferred stock issuance costs....................                -             -     (1,201,999)
Repayment of line of credit with bank.............                -             -    (14,000,000)
Repayment of note payable.........................                -             -    (12,245,651)
                                                       <U>            </U>  <U>            </U>  <U>              </U>
   Net cash provided by financing activities......     <U>   5,450,000</U>  <U>           -</U>  <U>   238,426,430</U>

<B>(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS</B>..      (4,595,153)  (13,090,947)       3,196,501

<B>CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD</B>....     <U>   7,791,654</U>  <U>  26,412,553</U>  <U>             -</U>

<B>CASH AND CASH EQUIVALENTS, END OF PERIOD</B>..........       $3,196,501   $13,321,606       3,196,501
                                                       ============  ============  ==============


<B>SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION</B>:
Cash paid for:
     Income taxes.................................                -             -         $11,071
     Interest.....................................                -             -      $3,028,240
Warrants issued with debt.........................                -             -        $306,168
Transfer of property from EKI.....................                -             -         $28,745
Conversion of preferred stock to common stock.....                -             -         $69,888

                                      See notes to financial statements.
</PRE>

<PAGE>



<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3><B>EARTHSHELL CORPORATION</B></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO FINANCIAL
 STATEMENTS</B>  <I>(Unaudited)</I><BR>
MARCH 31, 2001</FONT></P>
_____________________________________________________________________________________

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Presentation of
 Financial Information</B></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The foregoing interim
financial information is unaudited and has been prepared from the books and
records of EarthShell Corporation (the &#147;Company&#148;). In the opinion of
management, the financial information reflects all adjustments necessary for a
fair presentation of the financial condition, results of operations and cash
flows of the Company in conformity with generally accepted accounting
principles. All such adjustments were of a normal recurring nature for interim
financial reporting. Certain reclassifications have been made to prior
year&#146;s financial statements to conform to the 2001 presentation. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The accompanying unaudited
financial statements and these notes do not include certain information and
footnote disclosures required by generally accepted accounting principles, which
were included in the Company&#146;s financial statements for the year ended
December 31, 2000. The information included in this Form 10-Q should be read in
conjunction with Management&#146;s Discussion and Analysis of Financial
Condition and Results of Operations and financial statements and notes thereto
for the year ended December 31, 2000 included in the Company&#146;s Annual
Report on Form 10-K. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Basic and diluted loss per
common share is calculated based on the weighted average shares outstanding of
106,982,760 and 100,045,166 for the three months ended March 31, 2001, and March
31, 2000, respectively. Basic and diluted are the same because common stock
equivalents are anti-dilutive. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Related Party Transactions</B></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>For the three months ended
March 31, 2001 and 2000, the Company paid or accrued $326,307 and $1,984,423
respectively, for services performed by EKI under the Amended and Restated
Technical Services and Sublease Agreement effective October 1, 1997, between the
Company and EKI, and $0 and $16,800 in sublease payments during the three months
ended March 31, 2001 and 2000, respectively. For the three months ended March
31, 2001 and 2000, the Company paid or accrued $0 and $44,301 respectively, for
related party general and administrative expense. On January 1, 2001 the Company
directly hired the EKI personnel critical to the Company&#146;s future
development programs. The Company has reduced the use of EKI technical services
and related expenses effective January 1, 2001. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>For the three months ended
March 31, 2001 and 2000, the Company paid or accrued $0 and $143,390
respectively, for the allocation of patent costs under the Amended and Restated
Agreement for Allocation of Patent Costs effective October 1, 1997. Effective
January 1, 2001 the Company has assumed direct responsibility to manage the
maintenance of the patent portfolio underlying its license with EKI. </FONT></P>

<PAGE>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=3><B>EARTHSHELL CORPORATION</B></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>NOTES TO FINANCIAL
 STATEMENTS</B>  <I>(Unaudited)</I> - continued<BR>
MARCH 31, 2001</FONT></P>
_____________________________________________________________________________________


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Property and Equipment</B></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>At March 31, 2001, property
 and equipment consisted of the following:</FONT></P>
<PRE>
Commercial Manufacturing Equipment: Construction in progress
Sweetheart Cup                                           $35,399,991
Company.............................................

Product Development Center:
     Equipment......................................       3,793,737
     Construction in progress.......................       8,733,686
     Leasehold improvements.........................    <U>     571,361 </U>
                                                          13,098,784

Office equipment &amp; furniture........................         774,146

Less: accumulated depreciation and amortization.....    <U>(12,980,738) </U>

Property and equipment - net........................     $36,292,183
                                                        =============
</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Contingencies</B></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On August 2, 1999, Novamont
S.p.A.,  an Italian  company  specializing in the manufacture of a biodegradable
plastic  resin and  products,  filed a complaint in the United  States  District
Court for the Northern District of Illinois alleging four counts of infringement
of three patents. The Company has analyzed all three patents and believes it has
meritorious defenses and has been vigorously defending the lawsuit. During 2000,
Novamont  agreed to dismiss  three of the four  claims  without  prejudice.  The
Company has filed a motion for summary judgement and will continue to defend the
remaining  infringement  claim.  The Company believes this legal proceeding will
not have a material  adverse  effect on the  Company's  financial  condition  or
results of operations. However, the ultimate resolution of this claim is subject
to many  uncertainties.  It is possible that the Company could suffer an adverse
determination  in this proceeding  which could have a material adverse effect on
the Company's financial position,  operating results or cash flows when resolved
in a future reporting period.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Item 2.  Management's
 Discussion and Analysis of Financial Condition and Results of Operations</B></FONT></P>

<P><FONT  FACE="Times New Roman, Times, Serif"  SIZE=2>Information  contained in
this  Quarterly  Report  on Form 10-Q  including  "Management's  Discussion  and
Analysis   of   Financial   Condition   and  Results  of   Operations"   contain
forward-looking   statements  within  the  meaning  of  the  Private  Securities
Litigation Reform Act of 1995, as amended. These statements may be identified by
the  use  of  forward-looking  terminology  such  as  "may,"  "will,"  "expect,"
"anticipate,"  "estimate,"  or  "continue,"  or the  negative  thereof  or other
comparable terminology. Any one factor or combination of factors could cause the
Company's   actual  operating   performance  or  financial   results  to  differ
substantially  from those  anticipated by management that are described  herein.
Factors  influencing the Company's  operating  performance and financial results
include,   but  are  not  limited  to,  changes  in  the  general  economy,  the
availability of financing,  governmental regulations concerning, but not limited
to, environmental issues, and other risks and unforeseen circumstances affecting
the  Company's  business and should be read in  conjunction  with other  factors
discussed in the Company's  Annual Report on Form 10-K for the fiscal year ended
December 31, 2000.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Results of Operations</B></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>EarthShell Corporation (the
"Company")  was  organized in November 1992 as a Delaware  corporation  and is a
development  stage  company  engaged in the  commercialization  of a proprietary
composite  material,  designed with the environment in mind, for the manufacture
of  disposable  packaging  for the  foodservice  industry,  such  as  hinged-lid
containers, plates, bowls, sandwich wraps, and cups.</FONT></P>

<P><FONT  FACE="Times New Roman,  Times, Serif" SIZE=2>E.  Khashoggi  Industries
LLC, the Company's principal stockholder,  or its predecessors ("EKI"), has been
involved   since  July  1985,  in  the   development  of  various  new  material
technologies including the new EarthShell composite material. The Company has an
exclusive,  worldwide,  royalty-free license from EKI to use and license the EKI
technology  to  manufacture  and  sell  disposable,  single-use  containers  for
packaging or serving food or beverages  intended for consumption  within a short
period of time ("EarthShell  Products").  The Company does not have the right to
use the EKI technology for other purposes.</FONT></P>

<P><FONT  FACE="Times New Roman,  Times,  Serif" SIZE=2>The  Company licenses or
joint  ventures  with  existing  manufacturers  of  foodservice  disposables  to
manufacture and distribute  EarthShell  Products.  The Company expects to derive
revenues  primarily from license royalties and profit  distributions  from joint
ventures that are licensed to manufacture EarthShell Products.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company has experienced
aggregate  net  losses of  approximately  $202  million  from its  inception  on
November 1, 1992  through  March 31,  2001.  The Company  expects to continue to
incur  operating  losses  until  its  products  are more  broadly  used and have
achieved greater market acceptance and market  penetration.  The Company has not
recorded any revenues from operations since its inception, and proceeds received
by  Sweetheart  Cup  Company  from  sales of hinged lid  containers  to date are
credited  as  an  offset  to  the  cost  of  startup  manufacturing  operations.
Successful  future  operations will depend upon the ability of the Company,  its
licensees  and joint  venture  partners  to  commercialize  multiple  EarthShell
Products.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Key Customer</B></FONT></P>

<P><FONT  FACE="Times New Roman,  Times,  Serif" SIZE=2>As the first step in its
strategy,   the  Company  has   continued  to  work   closely  with   McDonald's
Corporation(R)   ("McDonald's")  and  McDonald's  primary  packaging   supplier,
Perseco, in developing and testing a container for the Big  Mac(R)sandwich.  The
Company  and  its   licensee,   Sweetheart,   have   constructed   a  commercial
manufacturing facility in Owings Mills, Maryland, and have progressed through an
intensive product  validation process with Perseco with respect to this product.
The debugging and start-up of the  manufacturing  facility have taken longer and
cost more money than  originally  anticipated.  However,  as of March 2001,  the
product design of the EarthShell hinged-lid container for the Big Mac(R)sandwich
has been finally approved by McDonald's for use by the McDonald's  system in the
U.S.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>To date, over seven million
EarthShell containers for the Big Mac(R)sandwich have been purchased and used on
a continuous  validation test basis in select  McDonald's  stores in the Chicago
area. In March 2001,  following a third party audit of product performance of an
improved  product  design to enhance the  functionality  and  performance of the
package  (including  a  "double-tab"  design  and  a  revised  process  for  the
application of the exterior  coating),  McDonald's  advised the Company that the
EarthShell  container  for the Big  Mac(R)sandwich  meets  the  product  design,
performance,  and  quality  criteria  for use in the  McDonald's  system.  After
necessary  adjustments to manufacturing lines to incorporate these recent design
modifications,  it is  anticipated  that  distribution  of the container will be
expanded  throughout the Chicago area to confirm full  manufacturing  capability
and economics of the sandwich container.</FONT></P>

<P><FONT  FACE="Times  New Roman,  Times,  Serif"  SIZE=2>The  Company  has been
advised that  McDonald's  intends to use the  EarthShell  container  for the Big
Mac(R) sandwich in its U.S. restaurants, based on continuing performance against
expectations and product availability,  and competitive pricing,  although there
can be no assurance of minimum  purchase  commitments.  With respect to specific
commitments to supply product to the McDonald's system, the Company continues on
a path with input from  Perseco and  McDonald's  toward a  relationship  that is
consistent with Perseco's  customary supplier  relationships.  In addition,  the
Company is free, at any time, to seek other customers for the sandwich container
produced at the Sweetheart facility.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>First Commercial Manufacturing Facility</B></FONT></P>

<P><FONT  FACE="Times  New Roman,  Times,  Serif"  SIZE=2>In  1998 and 1999, the
Company built its first commercial  manufacturing plant at Sweetheart's facility
in Owings Mills, Maryland to produce the EarthShell Big Mac(R)sandwich container
for sale to  Perseco/McDonald's.  During the first quarter, the Company operated
one of three installed  EarthShell Big Mac(R)container  manufacturing lines in a
production mode to meet the customer's immediate demand for product.</FONT></P>

<P><FONT  FACE="Times New Roman,  Times, Serif"  SIZE=2>During the quarter,  the
Company and Sweetheart  completed a product validation process with Perseco with
respect to the EarthShell Big Mac(R)sandwich  container.  EarthShell  containers
have been in daily use in 128 McDonald's  stores since late April 2000, and over
7.0 million  containers  have been used to date.  The Company has met all of the
validation  criteria and has been approved for  expansion  into the Chicago area
and Western region of the United States.</FONT></P>

<P><FONT  FACE="Times New Roman, Times, Serif" SIZE=2>The  quantities of product
manufactured  to date are small relative to the intended  capacity of the lines.
Although  certain  modifications  or  improvements  to the lines  are  needed to
achieve the recently approved design change and to achieve  commercial  capacity
of the production  manufacturing  lines,  the Company believes these three lines
will be sufficient to meet the Perseco/McDonald's system requirements.  Although
the  Company  believes  that the  production  from the first three lines will be
profitable once they have been optimized and reach full design capacity,  due to
the protracted time delays and additional costs to initially  commercialize  its
first  plant,  the Company may not realize the full  economic  potential  of the
technology  with this first  facility.  Because the Owings Mills facility is the
Company's first  commercial  implementation  of the EarthShell  technology,  the
Company  believes  that the cost  incurred  on the  manufacturing  lines in this
facility will be significantly  higher than the cost of  manufacturing  lines in
subsequent facilities.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Other Products; Other Customers</B></FONT></P>

<P><FONT  FACE="Times New Roman,  Times, Serif" SIZE=2>In keeping with its goals
to provide  environmentally  superior  disposable  packaging for use by the U.S.
Government, EarthShell has provided plates and bowls over the past two years for
demonstration projects with the U.S. Department of the Interior and other users,
demonstrating product performance and customer acceptance of such products.  The
U.S.  Department  of the  Interior  conducted  its own  tests  through  the U.S.
Department  of  Agriculture  to validate the  compostability  of the  EarthShell
containers. In March 2001, the Company signed a commercial supply agreement with
Guest Services,  Inc. ("GSI") to supply the U.S. Department of the Interior with
plates and bowls.  In addition,  the Company is in discussion  with the National
Parks Service to consider the use of plates and bowls in certain of the National
Parks during 2001.</FONT></P>

<P><FONT  FACE="Times New Roman,  Times, Serif"  SIZE=2>Sysco  Corporation,  the
leading foodservices distributor in North America, and other potential customers
are  engaged  in  discussions  with the  Company or its joint  venture  partners
regarding  purchase  commitments  for a range of EarthShell  Products  including
plates, bowls, sandwich containers and sandwich wraps.</FONT></P>

<P><FONT  FACE="Times New Roman,  Times, Serif" SIZE=2>In late 2000, the Company
developed a new fully  compostable  sandwich  wrap that has been  designed as an
alternative to the  polyethylene  laminated  paper and foil wraps that currently
dominate  the food  service  industry.  A national  fast food chain is currently
testing this new wrap for possible use in their system. As well, the Company has
entered  into a joint  development  agreement  with DuPont  Polyester to work on
sandwich  wraps and  protective  coatings  combining the  Company's  proprietary
technology   with   the   DuPont   Biomax(R)    hydrobiodegradeable    polyester
coatings/films and technology.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>While  McDonald's and other
key customers  continue to show an increased  interest in  EarthShell  Products,
should  any of these  parties  discontinue  their  interest  in  purchasing  the
Company's products for any reason, the introduction and market acceptance of one
or more of the EarthShell  Products could be delayed which could have an adverse
effect  on  the  Company's  business,   financial  condition,   and  results  of
operations.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Comparison of the Three
 Months Ended March 31, 2001, to the Three Months March 31, 2000.</B></FONT></P>

<P><FONT  FACE="Times New Roman,  Times,  Serif"  SIZE=2>The  Company's net loss
decreased  $1.1  million to $8.1  million from $9.2 million for the three months
ended March 31, 2001 compared to the three months ended March 31, 2000.</FONT></P>

<P><FONT  FACE="Times New Roman, Times, Serif"  SIZE=2><B><I>Total  Research and
Development Expenses</I></B> Total research and development expenditures for the
development of EarthShell  Products  decreased $1.3 million to $4.7 million from
$6.0 million for the three months ended March 31, 2001  compared  with the three
months  ended March 31,  2000.  The Company was billed by EKI for  research  and
development services totaling $0.3 million and $2.0 million for the three months
ended March 31, 2001 and 2000,  respectively.  Approximately $1.0 million of the
cost reduction is directly related to reducing the operating costs of the Owings
Mills  facility  related to the  continued  development  and  production  of the
EarthShell  Big  Mac(R)sandwich  container,  when comparing the first quarter of
2001 to the first quarter of 2000.</FONT></P>

<P><FONT  FACE="Times New Roman,  Times, Serif"  SIZE=2><B><I>Total  General and
Administrative   Expenses</I></B>  Total  general  and  administrative  expenses
increased  $0.2  million to $2.2  million from $2.0 million for the three months
ended March 31, 2001  compared to the three months  ended March 31,  2000.  This
increase  results  from the direct  hiring of EKI  administrative  personnel  at
January 1, 2001,  and is offset by the decrease of $1.7 million in related party
research  and  development  expense on a quarter to quarter  basis for March 31,
2001 to March 31, 2000, respectively.</FONT></P>

<P><FONT  FACE="Times New Roman,  Times,  Serif"  SIZE=2><B><I>Depreciation  and
Amortization  Expense</I></B>  Depreciation and amortization  expense  decreased
$0.1  million to $1.3 million from $1.4 million for the three months ended March
31, 2001 compared with the three months ended March 31, 2000.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif"  SIZE=2><B><I>Related Party Patent
Expenses</I></B>  Legal fees  reimbursed  to EKI under the Amended and  Restated
Agreement for  Allocation of Patent Costs with EKI decreased  $0.1 million to $0
million from $0.1  million for the three  months  ended March 31, 2001  compared
with the three  months  ended  March 31,  2000.  At January 31, 2001 the Company
assumed direct  responsibility  to mange the maintenance of the patent portfolio
underlying the license with EKI.</FONT></P>

<P><FONT   FACE="Times   New   Roman,   Times,   Serif"    SIZE=2><B><I>Interest
Income</I></B> Interest Income decreased $0.4 million to $0.1 million from $ 0.5
million for the three months  ended March 31, 2001  compared to the three months
ended March 31, 2000 due to reduced cash balances on hand.</FONT></P>

<P><FONT  FACE="Times New Roman, Times, Serif"  SIZE=2><B>Liquidity  and Capital
Resources at March 31, 2001</B></FONT></P>

<P><FONT  FACE="Times  New Roman,  Times,  Serif"  SIZE=2><I>Cash  Flow.</I> The
Company's principal use of cash for the three months ended March 31, 2001 was to
fund operations,  including the continued  development and purchase of equipment
to facilitate the development of manufacturing capacity for EarthShell Products.
Net cash used in  operations  was $8.7  million for the three months ended March
31, 2001 and $9.5 million for the three  months  ended March 31, 2000.  Net cash
used in investing activities was ($1.3) million and ($3.6) million for the three
months  ended  March  31,  2001 and 2000,  respectively.  Net cash  provided  by
financing  activities was $5.5 million and $0 million for the three months ended
March 31, 2001 and 2000, respectively. As of March 31, 2001 the Company had cash
totaling $3.2 million.</FONT></P>

<P><FONT    FACE="Times    New   Roman,    Times,    Serif"    SIZE=2><I>Capital
Requirements.</I>  The  Company  expects to spend  approximately  $10.0 to $15.0
million in capital  expenditures  in the year 2001  related  to  developing  the
manufacturing facilities and prototypes for the line of EarthShell Products. The
Company paid or accrued  approximately $1.3 million in capital  expenditures for
the first three  months ended March 31, 2001.  The Company  spent  approximately
$6.6  million  in  capital   expenditures   for  the  year  ended  December  31,
2000.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif"  SIZE=2><I>Sources of Capital.</I>
As part of the Company's  initial public offering on March 27, 1998, the Company
issued  10,526,316  shares of its common  stock,  $.01 par value,  for which the
Company  received net proceeds of $206 million.  On March 31, 2000,  the Company
filed a Registration  Statement on Form S-3 to register  5,000,000 shares of its
common stock, which became effective April 19, 2000. On May 3, 2000, the Company
signed an agreement  with Acqua  Wellington  North  American  Equities Fund, LTD
("Acqua  Wellington"),  pursuant to which the Company may, from time to time and
in its sole discretion during the 12 months following the date of the agreement,
present Acqua  Wellington with draw-down  notices  requiring Acqua Wellington to
purchase  up to  $2,500,000  of the  Company's  common  stock in respect of each
draw-down notice. The Company will issue and sell the shares to Acqua Wellington
at a per share price equal to the average  price of the  Company's  common stock
over a period of time after the  draw-down  notice  less a  discount  of 5%. The
Company may present Acqua  Wellington with up to 12 drawdown  notices during the
term of the agreement.  In addition,  the agreement  gives Acqua  Wellington the
option to purchase an additional $2.5 million of the Company's  common stock per
month for the same twelve  months,  subject to certain  conditions.  In December
2000, the Company filed a new S-3 registration  statement  covering the issuance
of up to 15 million additional shares of common stock. In addition,  the Company
obtained an extension of its commitment from Acqua  Wellington for an additional
12 months.</FONT></P>

<P><FONT  FACE="Times New Roman, Times, Serif"  SIZE=2>Although the common stock
purchase agreement with Acqua Wellington provides that the Company generally may
not draw down unless the Company's common stock is trading at $3.00 per share or
more,  Acqua  Wellington has continued to purchase  shares from the Company from
time-to-time  at  negotiated  prices,  when the market  price for the  Company's
common stock is less than $3.00 per share.</FONT></P>

<P><FONT  FACE="Times New Roman,  Times,  Serif"  SIZE=2>During the three months
ended March 31,  2000 the Company  issued  approximately  4.1 million  shares of
common stock to Acqua Wellington and received net proceeds from such issuance of
approximately $5.5 million.</FONT></P>

<P><FONT  FACE="Times New Roman,  Times, Serif" SIZE=2>The Company in continuing
to  reduce  the  overall  burn  rate  and is  focusing  its  resources  on those
activities  that are critical to  demonstrate  the  commercial  viability of the
EarthShell  business model. These activities  include,  modifying and optimizing
the Owings Mills manufacturing  equipment,  ramping up commercial  production of
the Big  Mac(R)sandwich  container,  and  continuing to develop next  generation
products and manufacturing processes.</FONT></P>

<P><FONT  FACE="Times New Roman,  Times, Serif" SIZE=2>The Company believes that
its existing cash and the financing provided through the Acqua Wellington equity
drawdown  facility will enable it to continue funding its operations,  including
the  Owings  Mills  facility,  as well as  continue  with  its  next  generation
development  of  EarthShell  Products  over the next nine  months.  The Company,
nevertheless continues discussions with certain financing institutions to secure
additional  sources  of long term  funding.  While the  Company  has no  current
commitments  for  additional  funding  apart  from  Acqua  Wellington,  based on
discussions with these institutions, the Company believes that efforts to obtain
additional  financing  will be successful.  The Company cannot assure,  however,
that commitments can be obtained on favorable terms, if at all.</FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Item 3. Quantitative and
Qualitative Disclosures About Market Risk</B></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Not applicable</FONT></P>

<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Part II. Other Information</I></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Item 1.  Legal Proceedings</B></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On August 2, 1999, Novamont
S.p.A.,  an Italian  company  specializing in the manufacture of a biodegradable
plastic  resin and  products,  filed a complaint in the United  States  District
Court for the Northern District of Illinois alleging four counts of infringement
of three patents. The Company has analyzed all three patents and believes it has
strong  meritorious  defenses  and has been  vigorously  defending  the lawsuit.
During  calendar  2000,  Novamont  agreed to  dismiss  three of the four  claims
without prejudice. The Company has filed a motion for summary judgement and will
continue to defend the remaining  infringement  claim. The Company believes this
legal  proceeding  will not have a  material  adverse  effect  on the  Company's
financial condition or results of operations.  However,  the ultimate resolution
of this claim is subject to many uncertainties.  It is possible that the Company
could  suffer an adverse  determination  in this  proceeding  which could have a
material adverse effect on the Company's financial  position,  operating results
or cash flows when resolved in a future reporting period.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Item 2.  Use of Proceeds</B></FONT></P>

<P><FONT  FACE="Times New Roman,  Times,  Serif"  SIZE=2>In  connection with the
Company's  initial public  offering (the "IPO"),  the Company issued  10,526,316
shares of its  common  stock,  $.01 par value (the "IPO  Shares"),  on March 27,
1998.  The IPO Shares were  offered and sold by the  underwriters  at an initial
public  offering  price of $21.00 per share,  resulting  in  aggregate  offering
proceeds of  $221,052,636.  In addition,  selling  stockholders  sold  2,673,684
shares of common stock. Net offering proceeds to the Company were $205,873,995.</FONT></P>


<P><FONT  FACE="Times New Roman, Times,  Serif"  SIZE=2><B>Item 3. Defaults Upon
Senior Securities</B></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Not applicable</FONT></P>

<P><FONT  FACE="Times New Roman, Times,  Serif"  SIZE=2><B>Item 4. Submission of
Matters to a Vote of Security Holders</B></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>None</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Item 5.  Other Information</B></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Not applicable</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>Item 6.  Exhibits and Reports on Form 8-K</B></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10.41
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Food Group Settlement Agreement.<BR>
10.42&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Joint Development Agreement by and between the Company and DuPont.<BR>
10.43&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Lease Agreement dated April 1, 2001 by and between the Company and Nancarrow.<BR>
10.44&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employment agreement dated March 2001 by and between the Company and Dr. Per Anderson.<BR>
10.45&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Employment agreement dated March 16, 2001 by and between the Company and Simon Hodson.<BR>
10.46&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchase and sale agreement by and between the Company and EKI for certain fixed assets.<BR>
10.47&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Letter of agreement by and between the Company and Donald Samaria.</FONT></P>

<P><FONT  FACE="Times  New Roman,  Times,  Serif"  SIZE=2>The  Company  filed no
reports on Form 8-K during the quarter ended March 31, 2001.</FONT></P>




<PAGE>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>Signature</I></FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,  the  registrant  has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.</FONT></P>

<PRE>
                                    EarthShell Corporation


Date: May 10, 2001                  By:<U>                                     </U>
                                         D. Scott Houston
                                         <I>Chief Financial Officer</I>

                                         <I>(Principal Financial and Accounting Officer</I>
                                          <I>and Duly Authorized Officer)</I>

</PRE>
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<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>2
<FILENAME>ex10_41.html
<DESCRIPTION>SETTLEMENT AGREEMENT
<TEXT>

<HTML>
<HEAD>
<TITLE> Exhibit 10.41
</TITLE>
</HEAD>
<BODY>
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>SETTLEMENT
AGREEMENT AND MUTUAL RELEASE</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THIS
SETTLEMENT AGREEMENT AND MUTUAL RELEASE (this &#147;Settlement Agreement&#148;)
is made this 18th day of January, 2001, but is effective as of December&#160;31,
2000, by and among EarthShell Corporation (hereinafter called
&#147;EarthShell&#148;), CH2M Hill Industrial Design Corporation, IDC
Construction Management, Inc. and the business unit known as The Food Group
(hereinafter collectively called &#147;IDC&#148;). EarthShell and IDC are
referred to hereinafter as the &#147;Parties.&#148; </FONT></P>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>INTRODUCTORY
STATEMENT</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant
to a Design, Procurement and Construction Management Service Agreement dated
May&#160;13, 1998, as amended through the date hereof (the
&#147;Agreement&#148;), the Parties, along with Sweetheart Cup Company Inc.
(hereinafter called &#147;Sweetheart&#148;), entered into a contract by the
terms of which IDC was to provide certain specified services with regard to
certain renovations to a facility owned by Sweetheart at Owings Mills Maryland
and with regard to process equipment installation at the Owings Mills facility
(collectively, the &#147;Project&#148;); and EarthShell was to make certain
payments to IDC in consideration of all such services. Thereafter, IDC provided
those certain specified services as contemplated by the Agreement. Certain
disputes regarding the performance obligations of IDC and the payment
obligations of EarthShell pursuant to the Agreement have arisen. The Parties
have agreed to settle and resolve those disputes in accordance with the terms of
this Settlement Agreement. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Now,
therefore, in consideration of the mutual covenants set forth herein, the
Parties agree as follows:</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Release   by  EarthShell</U>.  EarthShell  does
hereby  release and forever  discharge IDC and its individual  corporations  and
business units  including,  IDC Construction  Management,  Inc., CH2M Industrial
Design Corporation, The Food Group and their agents, servants,  representatives,
officers,  directors,  subsidiaries  and  affiliated  entities  from all claims,
demands,  actions  and  causes of action,  including  claims  for  indemnity  or
contribution,  relating  directly  or  indirectly  to  the  Agreement  or to the
performance  by IDC of the services or  obligations  required of IDC pursuant to
the  Agreement.  The provisions of this  Section&#160;1  are intended to include
claims for damages,  including  claims for patent or latent  defects,  which are
known or unknown or those  which have  accrued or which may accrue in the future
relating  to  IDC&#146;s  performance  or  non-performance  of its  services  or
obligations under the Agreement.  It is further  understood and agreed that this
release  includes  services  which  have  been  performed  as well as  services,
including warranty obligations, which may not have been performed as of the date
hereof relating to the Agreement.  EarthShell does hereby  acknowledge  that IDC
has no remaining  obligations  pursuant to the Agreement.  This  acknowledgement
includes  any  obligations  regarding  latent  defects or warranty  obligations.
</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Release  by  IDC</U>.  IDC and  its  individual
corporations and business units (collectively,  the &#147;IDC Parties,&#148; and
individually an &#147;IDC  Party&#148;) do hereby release and forever  discharge
EarthShell  and its  agents,  servants,  representatives,  employees,  officers,
directors,  subsidiaries and affiliated entities, including, without limitation,
Sweetheart,  any joint venture formed between  Sweetheart  and  EarthShell,  and
E.&#160;Khashoggi   Industries,   LLC   (collectively,    the   &#147;EarthShell
Parties,&#148;  and individually,  an  &#147;EarthShell  Party&#148;),  from all
claims, demands, actions and causes of action, including claims for indemnity or
contribution,  relating  directly  or  indirectly  to  the  Agreement  or to the
performance or non-performance of an EarthShell  Party&#146;s  obligations under
the Agreement,  including any payment obligations pursuant to the Agreement. The
provisions of this Section&#160;2 are intended to include obligations which have
accrued or which may have accrued in the future  relating to the Agreement.  The
provisions of this  Section&#160;2  are intended to include  claims for damages,
including  claims  for patent or latent  defects,  which are known or unknown or
those  which  have  accrued or which may  accrue in the  future  relating  to an
EarthShell  Party&#146;s  performance  or  non-performance  of its  services  or
obligations  under  the  Agreement.  IDC,  for  itself  and on behalf of the IDC
Parties, does hereby acknowledge that each EarthShell Party has performed all of
its obligations,  including payment  obligations,  pursuant to the Agreement and
that they have been fully paid for all  services or  property  provided by them.
</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>No  Admission  of  Liability</U>.  Neither  the
execution of this  Settlement  Agreement  nor any provision or term hereof shall
constitute  an admission of liability or fault on the part of any party  hereto.
The Parties  acknowledge  that this  Settlement  Agreement and Mutual Release is
intended as a settlement  of claims made  against  each other,  which claims are
denied and disputed by the party against whom made. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Indemnification.</U></FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding   the  provisions  of  Section  2,
EarthShell shall fully indemnify the IDC Parties and hold them harmless from and
against any and all claims,  demands,  actions and causes of action which may be
asserted  or  initiated  against  any of the IDC Parties by reason of any claim,
demand,  action or cause of action  asserted or initiated by EarthShell  against
the following  subcontractors of IDC:  Integrated  Packaging  Systems,  Advanced
Industrial   Systems,   Inc.,  Deca  Electric;   Goodhart  &amp;  Sons,  Kimball
Construction,  Burgermeister Bail, Gill-Simpson;  Green Construction,  M. Nelson
Barnes,   Stonhard,   Grinnell,  White  Rose  Roofing  or  My  Cleaning  Service
(collectively, the "Subcontractors"), arising from or related to the performance
or  non-performance by the Subcontractors of their services or obligations under
the  Agreement or  otherwise in respect of the Project  through the date of this
Agreement.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any  IDC Party seeking  indemnification under this
Section 4 shall promptly notify EarthShell in writing of any claim in respect of
which it is entitled to be  indemnified  under this Section 4 (a "Claim").  Such
notice  shall be given as soon as  reasonably  practicable  after  the IDC Party
becomes  aware of such Claim;  provided,  however,  that  failure to give prompt
notice shall not adversely affect any claim for indemnification hereunder except
to the extent  EarthShell's  ability to contest  any Claim by any third party is
materially  adversely affected.  Such notice shall specify the nature and amount
of such Claim (to the extent such amount is then known to such IDC Party at such
time and without prejudice to any right such IDC Party may have to thereafter be
indemnified in any greater amount) and all material  information  regarding such
Claim which is then known to the IDC Party.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;EarthShell  shall  have  the  obligation,  at  its
expense, to contest, defend and litigate, and to control the contest, defense or
litigation of, any Claim  (collectively  "Control Rights").  Except as otherwise
provided  herein,  EarthShell  shall not be obligated to reimburse any IDC Party
for any legal costs and  expenses  paid or incurred by such IDC Party in respect
of the Claim. If EarthShell reasonably exercises its Control Rights with respect
to the relevant  Claim in accordance  with the  provisions of this Section 4 and
any IDC Party notifies  EarthShell that it thereafter desires to retain separate
counsel in order to participate in or proceed  independently  with such contest,
defense or litigation,  then such IDC Party may do so at its own expense, except
that such IDC Party shall be reimbursed by EarthShell  for the  reasonable  fees
and expenses of such counsel  incurred by such IDC Party if (i)  EarthShell,  in
its  discretion,  authorized the employment of such counsel in writing,  or (ii)
EarthShell does not reasonably exercise its Control Rights, thereby exposing the
IDC Party to a greater risk of liability for the Claim that would not be covered
by EarthShell's  indemnification obligation hereunder.  EarthShell shall not, in
connection with any one action (or series of related actions), be liable for the
reasonable  fees and expenses of more than one separate  counsel (to be selected
by EarthShell)  for all such IDC Parties unless  EarthShell,  in his discretion,
authorizes the employment of additional counsel in writing.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any  IDC Party claiming indemnification  hereunder
with respect to the compromise or settlement of any Claim shall,  as a condition
precedent  to such  indemnification,  notify  EarthShell  in writing of any firm
settlement or compromise proposal it receives or intends to make with respect to
such Claim prior to  accepting  or offering  such  proposal.  No IDC Party shall
settle  or  compromise  any  Claim in  respect  of which  it is  entitled  to be
indemnified  by  EarthShell  hereunder  without  the prior  written  consent  of
EarthShell,  which consent may be withheld in EarthShell's  sole discretion,  as
long as EarthShell defends and satisfies the Claims in accordance with the terms
of the indemnity obligation under this Section 4.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Representations  and Warranties of IDC</U>. All
of the following  representations  and  warranties  made by IDC are deemed to be
continuing  warranties and representations,  and shall survive the execution and
delivery of this Settlement  Agreement.  Such representations and warranties and
each of them form a  principal  inducement  for  EarthShell  entering  into this
Settlement Agreement. IDC hereby represents and warrants as follows: </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This  Settlement  Agreement has been duly executed
and delivered by IDC and is the valid and binding agreement of IDC,  enforceable
against IDC in accordance with its terms. IDC has the ability to enter into this
Settlement   Agreement  and  to  consummate   the   transactions   provided  for
herein.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No  other  person is  required to consent to IDC's
execution and delivery of this Settlement Agreement.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The  execution  and  delivery  of this  Settlement
Agreement will not result in the breach of any contract, agreement,  commitment,
indenture,  mortgage, pledge agreement, note, bond, license, or other instrument
or any obligation to which IDC is now a party, or by which any of the properties
or assets of IDC may be bound or affected,  or  constitute a violation by IDC of
any law, rule or regulation,  of any administrative agency or governmental body,
or any order, writ, injunction or decree of any court, administrative agency, or
governmental body.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None  of the  representations or warranties of IDC
under this Settlement Agreement contains or will contain any untrue statement of
a material fact, or omits or will omit any fact necessary to make the statements
herein or therein not misleading.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;e.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IDC  is the sole  beneficial  owner of the  claims
released  pursuant to Section 2 and no other person or entity has any  ownership
or equitable interest therein.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Representations      and      Warranties     of
EarthShell</U>. All of the representations and warranties made by EarthShell are
deemed to be continuing  warranties  and  representations  and shall survive the
execution of this Settlement Agreement.  Such representations and warranties and
each of them form a principal  inducement for IDC entering into this  Settlement
Agreement. EarthShell hereby represents and warrants as follows: </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This   Agreement   has  been  duly   executed  and
delivered by EarthShell  and is the valid and binding  agreement of  EarthShell,
enforceable against EarthShell in accordance with its terms.  EarthShell has the
ability  to  enter  into  this  Settlement   Agreement  and  to  consummate  the
transactions provided for herein.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No  other  person is  required  to  consent to the
EarthShell's execution and delivery of this Settlement Agreement.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The  execution  and  delivery  of this  Settlement
Agreement will not result in the breach of any contract, agreement,  commitment,
indenture,  mortgage, pledge agreement, note, bond, license, or other instrument
or any  obligation to which  EarthShell  is now a party,  or by which any of the
properties  or assets of  EarthShell  may be bound or affected,  or constitute a
violation by EarthShell of any law, rule or  regulation,  of any  administrative
agency or  governmental  body, or any order,  writ,  injunction or decree of any
court, administrative agency, or governmental body.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;None  of  the  representations  or  warranties  of
EarthShell under this Settlement  Agreement  contains or will contain any untrue
statement of a material  fact, or omits or will omit any fact  necessary to make
the statements herein or therein not misleading.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;e.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;EarthShell  is the  sole  beneficial  owner of the
claims  released under Section 1 and no other person or entity has any ownership
or equitable interest therein.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Acknowledgment</U>. Each of the Parties to this
Settlement  Agreement  represents  and warrants that it has carefully  read this
Settlement  Agreement,  that it fully  understands its final and binding effect,
that it has had an  opportunity  to consult with an attorney of its own choosing
prior to  signing  this  Settlement  Agreement,  that the  person  signing  this
Settlement  Agreement  on its behalf has the power and  authority to execute and
deliver this Settlement Agreement on behalf of the party whom he represents, and
that he is signing this Settlement Agreement voluntarily and without coercion or
duress. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Indemnity</U>.  Each Party  hereto  does hereby
agree to defend,  indemnify  and hold  harmless the other Party from and against
any  and  all  costs,  damages,  claims,   liabilities  or  expenses  (including
reasonable  attorneys&#146;  fees), arising from or resulting from any breach of
the Party&#146;s representations,  warranties or covenants under this Settlement
Agreement. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Assistance  with Document Production</U>.  Upon
written request of EarthShell,  IDC shall assist EarthShell in the production of
documents  within the possession or control of IDC and shall provide  EarthShell
access to such personnel as EarthShell shall reasonably  request (subject to the
reasonable  availability of such personnel) to explain,  or respond to questions
regarding, the documentation requested by EarthShell.  In making such a request,
EarthShell shall  (i)&#160;identify  specifically the documents or categories of
documents  being  requested,  and  (ii)&#160;deposit  the sum of $50,000.00 as a
retainer with IDC to  compensate  it for the time and expense of complying  with
such requests.  Production by IDC shall be within a reasonable  time  consistent
with IDC&#146;s normal project assignments.  When document productions have been
completed  and upon the  written  request  of  EarthShell,  IDC shall  return to
EarthShell the unused portion of this retainer. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Miscellaneous.</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This  Settlement  Agreement  shall be construed in
accordance with the laws of the State of Maryland,  including questions relating
to conflicts of law.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This   Settlement   Agreement   is  the  full  and
integrated  understanding  among the Parties and is  intended to  supercede  any
prior or contemporaneous understandings or agreements.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All  notices,  requests, claims, demands and other
communications  hereunder  shall be in writing  and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by facsimile
or by registered or certified mail, to each other Party as follows:</FONT></P>

<PRE>
         If to EarthShell: EarthShell Corporation
                           800 Miramonte Drive
                           Santa Barbara, California 93109
                           Attention:  Scott Houston, Chief Financial Officer
                           Fax:  805-899-3517

         If to IDC:        IDC
                           2020 SW Fourth Avenue, 3rd Floor
                           Portland, Oregon 97201
                           Attention:  Mr. Dennis Carver
                           Fax:  503-224-1494
</PRE>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>or to such other address or
facsimile number as the person to whom notice is given may have previously
furnished to the others in writing in the manner set forth above. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The  descriptive  headings herein are inserted for
convenience  of  reference  only and are not intended to be part of or to affect
the meaning or interpretation of this Settlement Agreement.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;e.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each  Party  and its  counsel  has  reviewed  this
Settlement Agreement and any rule of contract  interpretation to the effect that
ambiguities or uncertainties are to be interpreted against the drafting party or
the party who caused it to exist shall not be employed in the  interpretation of
this Settlement Agreement.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;f.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each  Party shall each  promptly  sign and deliver
all  additional  documents  and  instruments  and  perform  all acts  reasonably
requested of the other Party  necessary to perform its obligations and carry out
the intent expressed in this Settlement Agreement.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;g.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The failure of any Party to insist upon the strict
performance of any of the terms or provisions of this Settlement  Agreement,  or
to exercise any option,  right or remedy herein or therein contained,  shall not
be  construed  as a waiver or as a  relinquishment  for the future of such term,
provision,  option,  right or remedy,  but the same shall continue and remain in
full force and effect.  No waiver by any party or any term or  provision  hereof
shall be deemed to have been made unless expressed in writing and signed by such
Party.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;h.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In  the event that any portion of this  Settlement
Agreement  shall be declared  invalid by order or decree of judgment of a court,
this  Settlement  Agreement  shall be  construed as if such portion had not been
inserted herein,  except when such  construction  would constitute a substantial
deviation.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;i.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as expressly set forth in Sections 1, 2 and
4, or as otherwise  expressly  provided  herein,  the  agreements  and covenants
herein are made  specifically  for the benefit of the parties to this Settlement
Agreement   and  no   rights   in   favor   of   third   parties   are   created
hereunder.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;j.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This  Settlement  Agreement may be executed in one
or more counterparts,  each of which shall be deemed to be an original,  but all
of which shall constitute one and the same agreement.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nothing  contained in this Settlement Agreement is
intended to constitute a release or discharge of any of the following persons or
entities,  none of whom shall be considered as third party beneficiaries to this
Settlement  Agreement:  Kercher  Industries,   Incorporated;   Best  Engineering
Incorporated;     Detroit    Tool;    SIFCO,    Inc.;    Nordson    Corporation;
CBW&#160;Automation and Van&#160;Dam Machine Corporation. </FONT></P>

<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>[SIGNATURE PAGE FOLLOWS]</FONT></P>



<PAGE>



<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN
WITNESS WHEREOF THE PARTIES CAUSE THIS SETTLEMENT AGREEMENT TO BE EXECUTED AND
MADE EFFECTIVE ON THE DAY, MONTH AND YEAR FIRST SET FORTH ABOVE. </FONT></P>

<PRE>
EARTHSHELL CORPORATION                  IDC CONSTRUCTION MANAGEMENT, INC.

By:       /s/ Simon K. Hodson           By:            /s/ Susan D. King
       ----------------------------             ------------------------

Name:     Simon K. Hodson               Name:          Susan D. King
       ----------------------------             --------------------

Title:    Chief Executive Officer       Title:         VP, CFO
       ----------------------------             --------------

Date:     02/07/01                      Date:          2/27/01
       ----------------------------             --------------


                                        CH2M HILL INDUSTRIAL DESIGN CORPORATION

                                        By:            /s/ Vernon E. Jackson
                                                ----------------------------

                                        Name:          Vernon E. Jackson
                                                ------------------------

                                        Title:         Vice President
                                                ---------------------

                                        Date:          2/26/01
                                                --------------


</PRE>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>ex10_42.html
<DESCRIPTION>JOINT DEVELOPMENT AGREEMENT
<TEXT>

<HTML>
<HEAD>
<TITLE>  Exhibit 10.42
</TITLE>
</HEAD>
<BODY>
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Joint
Development Agreement</U></FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under
a  Confidential  Disclosure  Agreement  dated January 26, 2001, E. I. du Pont de
Nemours and Company (hereinafter "DuPont") and E. Khashoggi Industries,  LLC and
EarthShell  Corporation  (hereinafter  "EKI/  EarthShell")  have been exchanging
information  with  respect  primarily  to DuPont's  Biomax(R)hydro/biodegradable
polyester  resins and  EKI/EarthShell's  biodegradable  materials for disposable
food service packaging applications. DuPont and EKI/EarthShell now wish to enter
into a joint development program in the following areas:</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;o
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Developing films using DuPont's Biomax(R)resins as
a component for sandwich wrap applications</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;o
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Developing  films using  Biomax&#174;  resins as a
component  of the  film as a  barrier  layer  on  EKI/EarthShell  foam  laminate
products for disposable food service applications </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;o
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Establishing  a Joint  Business  Plan with  agreed
upon economic goals for both parties</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;o
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Developing the most cost effective  route
to compounded Biomax&#174; resin blends </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>DuPont has developed
Biomax&#174;  hydro/biodegradable  polyester  resins,  which are  biodegradable.
DuPont will  provide the final  compounded  resin that meets the Fitness For Use
(FFU)  requirements as defined by  EKI/EarthShell  for wrap applications and for
EKI/EarthShell  foam laminate products in support of work according to the above
bullet points. DuPont will make available a Research Scientist for collaboration
on  formulation  issues,  an  Applications  Engineer  to assist in  establishing
Biomax&#174;  resins  film  FFU&#146;s  and  film-making  expertise,  access for
EKI/EarthShell  to all trials for resin and film  making  and  laboratories  for
measuring  physical  properties,  and a  Marketing  Manager for  involvement  in
marketing   the  end   products  to   EKI/EarthShell&#146;s   customers   and  a
Manufacturing Manager to assist in the manufacturing process. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>EKI/EarthShell has unique,
proprietary  know-how and expertise in formulation of composite  materials using
starch,  inorganics,  and  biopolymers  for  the  manufacture  of  food  service
disposables. EKI/ EarthShell will use this expertise to incorporate Biomax&#174;
into  their  composites  for  this  purpose.   EKI/EarthShell   will  provide  a
Manufacturing  Manager  that has  film-  and  wraps-manufacturing  expertise,  a
Research Scientist for collaboration on incorporating  EarthShell  inorganic and
organic additives into Biomax&#174;  resins, and a Marketing Manager to lead the
marketing visits to  EKI/EarthShell&#146;s  customers.  EKI/EarthShell will also
provide a Finance Manager to do economic modeling for both projects. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Specific goals and
milestones for this Joint Development  Agreement will be established by March 6,
2001,  or as  soon  thereafter  as may be  reasonably  practicable,  by a  Joint
Development  Team  comprising  members  appointed  by  each  party.  An  overall
objective  for the Program is to jointly  develop  and market  EarthShell&#146;s
foam laminate packaging  products and sandwich wraps using Biomax&#174;  resins.
</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The parties agrees that the
collaborative  program  be  carried  out  subject  to the  following  terms  and
conditions:</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.&nbsp;&nbsp;Confidential
technical  and/or  business  information  and samples to be disclosed  hereunder
during  the   collaborative   program  shall  be  referred  to  collectively  as
&#147;Confidential Information&#148;.  During the term of this Agreement and for
a period of three (3) years  following  termination  of this  Agreement,  unless
mutually  agreed  otherwise,   the  party  receiving  Confidential   Information
(hereinafter  &#147;the  receiving  party&#148;)  shall hold the  information in
confidence  and not use it for any purpose other than  furtherance  of the joint
development program. During the term of this Agreement, a receiving party agrees
to disclose  Confidential  information only to those of its employees who have a
need for such  information in the  performance of their duties  associated  with
work   hereunder   and  who  have  agreed  to  maintain   the   information   in
confidence.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.&nbsp;&nbsp;The confidentiality obligations of the preceding paragraph shall apply to all
information disclosed hereunder whether it is identified in writing as
confidential and is disclosed in written form or is disclosed orally or by
observation of samples or of process or equipment operation. However, the
obligations of confidentiality and restricted use shall not apply to information
disclosed during the collaborative program which:</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;prior to the  disclosure,  was of  record in the
files of the receiving party;</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;is  or  becomes  available  to the  public  from a
source other than the receiving party;</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;becomes known from a third party source having the
right to disclose the information;</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;is  developed  independently  by  employees of the
receiving  party,  which  employees  have  not  and  were  not  involved  in the
collaborative program and had no access to the disclosure; or</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;is released in writing from the obligations by the
party that disclosed the information.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.
The confidentiality agreement in effect since January 26, 2001 remains as the
dominant agreement regarding exchange of confidential information under this
Agreement. Any new confidential information disclosed by either party as a
result of this Joint Development Agreement will be viewed as an addendum to the
1/26/01 Agreement. Any obligation of confidentiality created under the 1/26/01
Agreement shall continue for the time period provided in that agreement.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.
Nothing in this Agreement shall prevent either party from providing Confidential
Information to its affiliates provided that the affiliate agrees to be bound by
the same obligations of confidentiality that apply to that party. Under this
agreement, &#147;affiliate&#148; is defined to be any company owned or
controlled either directly or indirectly by a party through ownership of at
least fifty percent (50%) of the stock normally entitled to vote for the
election of directors.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5.
During the term of this Agreement,  the parties will meet or otherwise confer on
an  as-needed  basis to decide the  developmental  work to be  performed by each
party  during the  program.  Each party  will be  responsible  for its own costs
incurred during the program.</FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6.
&nbsp;(a)  DuPont  agrees to actively  test and evaluate
all applications which DuPont and EKI/EarthShell mutually agree are of potential
commercial interest.</FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)
DuPont and  EKI/EarthShell  will have access to each other&#146;s lab equipment,
tests,  manufacturing  trials,  and data  from the  same,  provided  in a timely
manner.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7.
It is the intent of this  Agreement  that the parties  will work with each other
exclusively during the development  program in the subject areas outlined in the
bullets points in paragraph one. Accordingly, during the term of this Agreement,
it is agreed that the parties  will not enter into a joint  development  program
with any third party for the  development of  biodegradable  barrier systems for
use in food service  packaging in the subjects of interest (see bullet points in
the first paragraph) agreed to between DuPont and EKI/EarthShell.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8.
DuPont and  EKI/EarthShell  shall retain sole and exclusive  ownership of all of
their  respective  technical  information and know how relating to biodegradable
polymers and biodegradable  disposable food service packaging which they possess
as of the date of this  Agreement.  All new technical  information  and know how
developed  during  the  development  Program  relating  to  the  formulation  of
composite   materials  using  starch,   inorganics,   and  biopolymers  for  the
manufacture   of  food   service   disposables   composites   shall   belong  to
EKI/EarthShell  including  film  composites  specific  to the  bullet  points in
paragraph one. All new technical  information and know how developed  during the
development Program relating to Biomax&#174;  resins shall belong to DuPont. All
other  inventions  developed  during the  development  Program  shall be jointly
owned,  and the  following  the  provisions  shall apply to all  inventions  and
discoveries made pursuant to work conducted under the joint development  program
in the subject of interest (see bullet points in the first  paragraph) to DuPont
and EKI/EarthShell.  The parties agree to cooperate with each other in preparing
and filing patent  applications on such  inventions at joint expense,  If either
party  does  not  wish  to  participate  in the  filing  and/or  prosecution  or
maintenance of any such patent application or patent, then it shall upon request
promptly  assign its interest  therein to the other party,  and it will retain a
nonexclusive,  royalty-free  license  with  the  right  to  sublicense  only its
affiliates under any patent issuing from such application.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9.
Except as provided in paragraph 8 above, no other right or license under any
patent or patent application owned by either party is granted under this
Agreement.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10. Supply of Product:


Provided
that the Program is successful (meaning that the Program has met all goals and
milestones as established and agreed by the Joint Development Team), DuPont and
EKI/EarthShell will enter into a long-term supply agreement, at a competitive
price, for the supply of Biomax&#174; biodegradable PET resins and/or compounded
Biomax&#174; resin blends by DuPont for EKI/Earth/Shell&#146;s and/or
EKI/EarthShell&#146;s agents requirements, that facilitates market entry of the
final products and the opportunity for increased profitability for both parties.
Specific terms and conditions of such long term supply agreement, including a
minimum period of exclusivity of not less than three (3) years, will be
negotiated in good faith at a later mutually agreeable date.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>11.
Each party to this Agreement shall be responsible for its own losses and
expenses resulting from injury to, or death of, any person or loss of, or damage
to, property or the environment arising out of performance of this Agreement,
except when such loss and expenses are caused by the willful misconduct or gross
negligence of the other party.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>12.
When performing under this Agreement, DuPont and EKI/EarthShell shall act at all
times as independent parties. Nothing contained herein shall be construed or
applied so as to create the relationship of principal and agent or of employer
and employee between DuPont and EKI/EarthShell. Neither party shall make any
commitment or incur any charge or expense in the name of the other party. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>13.
This Agreement shall be effective as of the date of its acceptance by
EKI/EarthShell and shall expire one (1) year thereafter with a provision for
renewal upon the concurrence of both DuPont and EKI/EarthShell. In addition,
this Agreement may be terminated earlier than the expiration date by either
party upon thirty (30) days&#146; prior written notice to the other party. Such
expiration or termination shall not relieve either party of any obligation
created hereunder prior to expiration or termination. </FONT></P>


<PAGE>



<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>14.
The validity and interpretation of this Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to the choice of law or conflicts principles of such state which might
otherwise be applicable. </FONT></P>

        If this Agreement is satisfactory, please have a duly authorized officer of your
company sign both copies of the agreement and return one copy to us.
<PRE>
                                            Yours very truly,

                                            E. I. du Pont de Nemours and Company

                                            By:    <U> /s/ Daniel P. Finett        </U>

                                            Title: <U> Daniel P. Finett            </U>

                                            Date:  <U> 2-27-01                     </U>

ACCEPTED:

<U>/s/ Vincent J. Truant               </U>

<U>By:     Vincent J. Truant           </U>
        (Typed or Printed Name)

<U>Title:  Senior Vice President       </U>

<U>Date:    2-27-01                    </U>
</PRE>
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</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>ex10_43.html
<DESCRIPTION>REAL PROPERTY LEASE
<TEXT>

<HTML>
<HEAD>
<TITLE> Exhibit 10.43
</TITLE>
</HEAD>
<BODY>
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>800
MIRAMONTE DRIVE<BR>
SANTA BARBARA, CALIFORNIA<BR>
TRIPLE NET MONTH-TO-MONTH REAL PROPERTY LEASE</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;THIS
TRIPLE NET MONTH-TO-MONTH REAL PROPERTY LEASE (the &#147;<U>Lease</U>&#148;) is
made and entered into by and between <B>DE ETTA M. NANCARROW, TRUSTEE OF THE
NANCARROW FAMILY LIVING TRUST DATED 9/25/91</B> (hereinafter referred to as the
&#147;<U>Landlord</U>&#148;), and <B>EARTHSHELL CORPORATION</B>, a Delaware
corporation (hereinafter referred to as the &#147;<U>Tenant</U>&#148;), who,
intending to be legally bound, do hereby agree as follows: </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>LEASED PREMISES<I></I></U><I>. </I>The Landlord hereby leases to the Tenant,
and the Tenant hereby leases from the Landlord, the building located at 800
Miramonte Drive, Santa Barbara, California (the &#147;<U>Building</U>&#148;) as
described in <B><U>Exhibit A</U></B><U></U> hereto (the
&#147;<U>Premises</U>&#148;) in the City of Santa Barbara, County of Santa
Barbara, State of California, together with all furniture and fixtures described
in <B><U>Exhibit B</U></B><U></U> hereto. The Premises are accepted &#147;as
is&#148; by the Tenant, after the Tenant&#146;s inspection, without any express
or implied warranties by the Landlord, and the Tenant is responsible for all
changes of whatever nature necessary for the Tenant&#146;s intended use of the
Premises. The Tenant agrees that notwithstanding any other provisions in this
Lease, the Landlord and its brokers may enter the Premises to show the Premises
to prospective purchasers upon twenty-four (24) hours notice. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>TERM</U>. This month-to-month lease shall commence on April 1, 2001 (the
<U>&#147;Commencement Date</U>&#148;) and may terminate by either party upon one
hundred eighty (180) days&#146; prior written notice. The Tenant acknowledges
that the Premises is for sale by the Landlord and this termination provision was
an essential condition of the Landlord agreeing to enter into this Lease. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>INTENTION OF THE PARTIES</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1
&nbsp;&nbsp;&nbsp;<U>Negation  of Joint  Venture.</U>  Nothing  in this  Lease  shall  cause  the
Landlord in any way to be construed as an employer,  employee,  fiduciary,  a partner, a joint
venturer,  or  otherwise  associated  in any way  with  the  Tenant  in the  operation  of the
Premises,  or to subject the Landlord to any  obligation,  loss,  charge or expense  connected
with or arising  from the  Tenant's  operation or use of the  Premises,  except for  excessive
Operating Costs as set forth in <U>Paragraph 4.2.3</U> hereof.</FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2
&nbsp;&nbsp;&nbsp;<U>Triple  Net  Lease.</U>  Pursuant  to  Section  1652 of the
California  Civil Code, it is understood  and agreed that the general intent and
purpose  of  this  Lease  is  that,  subject  to the  limitation  set  forth  in
<U>Paragraph  4.2.3</U> hereof, this Lease shall be an absolute triple net lease
with  respect  to  the  Landlord.   Subject  to  the  limitation  set  forth  in
<U>Paragraph  4.2.3</U>  hereof,  the Tenant shall pay the actual Real  Property
Taxes, assessments, insurance, utilities and all maintenance and other Operating
Costs,  together  with the Premises and all  repairs,  remodeling,  renovations,
alterations and  improvements  shall be paid by the Tenant,  provided the square
footage of the Building is not increased. The Operating Costs will be consistent
with prior  practices  between  Landlord  and the prior  Tenant  except that the
Operating Costs will be for the entire Premises.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>RENT.</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  <U>Minimum Monthly Rent.</U> The minimum monthly
rent will be THIRTY SIX THOUSAND  DOLLARS  ($36,000)  (the  <U>"Minimum  Monthly
Rent"</U>),  payable in advance,  commencing on the  Commencement  Date, and the
first day of each month  thereafter,  without reduction or set off. The Landlord
may increase the Minimum  Monthly Rent upon one hundred eighty (180) days' prior
written notice to the Tenant.  The rent for April,  2001 will be due and payable
at the  execution  of this  Lease.  The  Tenant  will pay all  triple  net items
commencing as of the  Commencement  Date. Rent shall be prorated for any partial
rent and common area expenses.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Operating Costs.</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2.1
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Payment of Rent.</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In  addition to any other  payments due hereunder,
the Tenant shall pay to the Landlord as additional rent, on the first day of the
date specified in <U>Paragraph 4.1</U> for the commencement of rent and for each
full  calendar  month of the Lease term,  all of the  Landlord&#146;s  estimated
total  Operating  Costs for the Premises,  including  common area expenses.  The
basis for Tenants  initial  payment of Operating  Costs shall be consistent with
those payable in 2000, but for the entire Premises and may be modified as herein
provided. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;  Operating Costs for any portion of an accounting
period not included  within the term of this Lease,  or  occurring  prior to the
Tenant&#146;s  obligation to pay rent for any portion of the Premises,  shall be
prorated on a 365-day year. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The  accounting period for determining  Landlord's
total  Operating  Costs  shall be the  calendar  year,  except  that  the  first
accounting  period shall  commence on the date the Lease term  commences and the
last  accounting  period  shall  end on the  date  the  Lease  term  expires  or
terminates. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2.2
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Estimated Costs; Reconciliation of Payments.</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;   Landlord   shall   furnish  to  Tenant  at  the
commencement  of each  month  an  estimate  of the  Operating  Costs  reasonably
anticipated by Landlord for the ensuing month, and Tenant&#146;s monthly payment
will be based on the monthly estimate. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If  the actual  Operating  Costs for the preceding
month exceeds the estimated  payments made by Tenant,  then Tenant shall pay any
deficiency  to  Landlord  within  ten (10) days after  Tenant&#146;s  receipt of
Landlord&#146;s  statement.  Should the estimated payments made by Tenant during
the preceding accounting period exceed the Operating Costs, Landlord shall repay
Tenant the excess  through  adjustments  to the next  monthly  payments due from
Tenant. </FONT></P>



<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2.3
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Operating  Costs  Defined.</U>  As used herein,
the term <U>&#147;Operating  Costs</U>&#148;  shall include, without limitation,
all amounts paid or incurred by the Landlord  after the  Commencement  Date for:
Real  Property  Taxes and  assessments  and other taxes and  assessments  of any
nature levied and assessed  against the Building  and/or the Premises and common
areas,  (if any) or  assessed  against  the  Landlord  as a result of the common
areas,  Building  and/or the  Premises;  repair,  replacement,  improvement  and
operation of the common areas,  including trash removal and disposal,  supplies,
equipment,  plumbing, sewers, heating,  ventilating,  air-conditioning and glass
and doors.  Costs for maintenance and operation of the common area, the Premises
and/or the Building shall include, without limitation,  cleaning,  sweeping, and
other  janitorial  services,   policing,  purchase  and  maintenance  of  refuse
receptacles,  directional signs and other markers, car stops, lighting and other
utilities,  premiums on public liability and property damage insurance,  and all
other  required  insurance  purchased  by the  Landlord  at the  Landlord&#146;s
absolute discretion,  together with reimbursement of all deductible amounts, and
all other costs  necessary in the  Landlord&#146;s  judgment for the maintenance
and operation of the common areas and the Building. Operating Costs also include
all Real Property Taxes, as that term is defined in <U>Paragraph 5.2</U> hereof.
Operating  Costs shall also  include all items of cost  related to  maintenance,
operation  and  management  of the  Building in which the  Premises are located,
including   maintaining   and   operating   the   heating,    ventilating,   and
air-conditioning  equipment  and related  distribution  facilities  and controls
providing  climatic  control of the common areas, the Building and the Premises,
utilities, as provided in <U>Paragraph 6.</U> hereof, and all costs of utilities
used in  connection  with  the  maintenance,  operation  and  management  of the
Building. It is hereby intended that all costs of operating the Premises, of any
kind or nature,  will be charged as an Operating  Cost. Any  improvements  which
have  useful life ever six (6) months will be prorated on a month to month basis
over its useful life. The roof repairs described in <U>Paragraph  7.1.3</U> will
not be considered an Operating Cost. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2.4
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Books  and Records.</U> The Landlord shall keep
at the  Premises,  or at her  principal  place of business,  full,  accurate and
separate books of account covering the Landlord&#146;s  Operating Costs, and the
statements  of the  Landlord to the Tenant  shall  accurately  reflect the total
Operating  Costs shown on such books of account.  Said books of account shall be
retained  by the  Landlord  for at least six (6) months  after the close of each
accounting  period,  and the  Tenant  shall have the right at  reasonable  times
during the term of the Lease to inspect said books of account. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2.5
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Water  Use Surcharge.</U>  Notwithstanding  the
foregoing, Landlord reserves the right to bill Tenant, as an Operating Cost, for
any  surcharge  or penalty  incurred by Landlord as a result of water use in the
Premises or the Building. If such surcharge or penalty pertains to the Premises,
Tenant shall pay all of such penalty or surcharge.  If such surcharge or penalty
relates to the Building,  or common area,  Tenant shall pay its pro rata portion
thereof. Such payment shall be payable as an Operating Cost. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Late Payment Charges.</U></FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Should the Tenant fail to make any payment of rent
or any other amount payable to the Landlord by the Tenant  hereunder within five
(5) days of the date when such  payment  first  becomes due, or should any check
tendered  to the  Landlord  by the Tenant be  returned  to the  Landlord  by the
Tenant&#146;s  bank for insufficient  funds, or if the rent remains unpaid after
said five (5) day period and twenty-four  (24) hours after written demand by the
Landlord,  then the  Tenant  shall  pay to the  Landlord,  in  addition  to such
payment,  a late charge in the amount of Five  Percent (5%) of the rent or other
payment  due which the  parties  agree is a  reasonable  estimate  of the amount
necessary to reimburse  damages and additional  costs not  contemplated  by this
Lease  that the  Landlord  will incur as a result of the  delinquent  payment or
returned  check,  including  processing and accounting  charges and late charges
that may be imposed on the  Landlord by its lender.  Upon notice of  non-payment
given by the Landlord to the Tenant,  the entire amount then due, including such
late charge, shall thereafter bear interest at the highest rate permitted by law
on the due date for said payment, until paid in full. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acceptance  of any payment by the Landlord  shall not  constitute
waiver of any late charges or interest which may be due.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.4
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Security  Deposit.</U> At the execution of this
Lease,  the Tenant shall deposit with the Landlord  FORTY FIVE THOUSAND  DOLLARS
($45,000) (the <U>"Security Deposit"</U>). If the Tenant is in default in any of
its obligations  hereunder,  the Landlord can use the Security  Deposit,  or any
portion of it, to cure the default or to compensate the Landlord for all damages
sustained by the Landlord resulting from the Tenant's default.  The Tenant shall
immediately,  upon demand, pay to the Landlord a sum equal to the portion of the
Security  Deposit  expended  or  applied by the  Landlord  as  provided  in this
paragraph so as to maintain the Security Deposit in the sum initially  deposited
with  the  Landlord.  If the  Tenant  is not in  default  at the  expiration  or
termination of this Lease, the Landlord shall return the Security Deposit to the
Tenant. The Landlord's obligation with respect to the Security Deposit are those
of a debtor,  and not a trustee.  The Landlord can maintain the Security Deposit
separate and apart from the  Landlord's  general  funds,  or can  commingle  the
Security Deposit with the Landlord's general and other funds. The Landlord shall
pay the Tenant  interest on the  Security  Deposit at the rate of Three  Percent
(3%) per annum,  to be paid at the end of the term of this Lease, or any renewal
period, so long as the Tenant is not in default of this Lease.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.
<U>PROPERTY TAXES AND ASSESSMENTS</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Personal  Property  Taxes.</U> The Tenant shall
pay before  delinquency all taxes assessed against any personal  property of the
Tenant installed or located in or upon the Premises and that are attributable to
the term of this Lease, whether or not they are actually payable during the term
of this Lease.</FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.2
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Taxes  Defined;  Special  Assessments.</U>  The
term "Real Property Taxes," as used in this paragraph shall mean and include all
taxes, assessments and other governmental charges, general and special, ordinary
and extraordinary, of any kind and nature whatsoever, levied or assessed against
the  Premises  and other  improvements  and the  Building  and land of which the
Premises  are a part,  including  but not  limited  to,  assessment  for  public
improvements or benefits which shall be levied or assessed against the Premises,
or any part thereof, but excluding franchise,  estate, inheritance,  succession,
capital levy, transfer,  income or excess profits tax imposed upon the Landlord.
If at any time during the term of this Lease,  under the laws of California,  or
any political  subdivision thereof in which the Premises are situated,  a tax or
excise on rents or other tax, however  described,  is levied or assessed against
the Landlord on account of the rent expressly reserved hereunder, in addition to
or as a  substitute  in  whole or in part  for  taxes  assessed  or  imposed  by
California or such political  subdivision on land and/or buildings,  such tax or
excise shall be included  within the  definition of "Real Property  Taxes",  but
only to the extent of the amount  thereof which is lawfully  assessed or imposed
as a direct result of the Landlord's  ownership of this Lease,  or of the rental
accruing under this Lease.  With respect to any  assessment  which may be levied
against  or upon the  Premises,  Building,  land or  improvements  of which  the
Premises are a part and which, under the laws then in force, may be evidenced by
improvement or other bonds, or may be paid in installments,  the Tenant shall be
required  to pay each year  only the  amount  of such  installments  in a manner
specified by the Landlord,  or portion thereof as the Landlord shall be required
to pay during such year (with  appropriate  proration  for any partial year) and
shall have no obligation to continue such payments after the termination of this
Lease.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>UTILITIES</U>.  The  Tenant  shall pay when due
all utility  charges when  separately  billed to the Tenant  because of separate
installation  and  connection of service by the Tenant,  which payments shall be
deducted  from  the  Operating  Costs  and the  limitation  of  payment  of such
Operating Costs as set forth in <U>Paragraph  4.2.3</U>  hereof shall be reduced
correspondingly.   The  Tenant  shall  comply  with  all  applicable   laws  and
regulations  and rules  regarding  utilities.  The suspension or interruption in
utility  services to the Premises for reasons beyond the ability of the Landlord
to control shall not  constitute a default by the Landlord or entitle the Tenant
to any  reduction or abatement of rent.  The Tenant may have  installed,  at its
expense,  separate  meters for such  utilities  as light and power and for other
utilities as may be practical and possible. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>LANDLORD'S MANAGEMENT OF THE BUILDING</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Management  of the  Building.</U>  The Landlord
shall  have the right,  at her sole cost and  expense  payable to a third  party
which will be reimbursed by the Tenant as provided in <U>Paragraph 4</U> hereof,
to:</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1.1
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Close  the  common  areas  when and to the  extent
necessary for  maintenance or renovation  purposes or to prevent a dedication of
any part thereof or the accrual of any rights  therein in favor of the public or
any third person; </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1.2
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Make  changes  to  the  common  areas,  including,
without  limitation,  changes in the location or nature of driveways,  entrances
and exits; and</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1.3
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change  the  plan of the  Building  to the  extent
necessary for its expansion, or the remodeling or renovation thereof, so long as
the changes do not  substantially  interfere with ingress to and egress from the
Premises. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Any work due by Landlord or
their agents will be due in a manner which does not intfer with Tenants
utilization of the Premises. Notwithstanding the foregoing, Tenant acknowledges
that Landlord expects to be doing substantial repairs to the roof in the next
eighteen (18) weeks, especially on the executive wing of the Premises and
Landlord will endeavor to minimize the disruption created by the loss repairs
and Tenant agrees that the rent has been established including any inconvenience
or disruption to Tenant&#146;s operations from these repairs. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.2
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Rules  and  Regulations.</U> The Landlord shall
have the right, from time to time, to promulgate,  amend and enforce against the
Tenant and all persons upon the Building,  reasonable  rules and regulations for
the safety,  care and cleanliness of the Building,  but do not restrict the time
of usage of the Premises,  or for the  preservation of good order;  <I>provided,
however,</I>   that  all  such  rules  and   regulations   shall  apply  without
discrimination to all tenants of the Landlord in the Building,  and no such rule
or regulation shall require the Tenant to pay additional rent. The Tenant agrees
to conform to and abide by such rules and regulations, and a violation of any of
them shall constitute a default by the Tenant under this Lease.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.3
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Tenant's Use of Premises.</U> The Tenant agrees
that the  Premises  shall be used and  occupied  only for office and  laboratory
space,  prototype development and subject to all applicable zoning requirements,
and for no other  purpose or  purposes  without  the  Landlord's  prior  written
consent.  The Tenant,  at its expense,  agrees that it shall meet all applicable
requirements  imposed by the City of Santa  Barbara (the  <U>"City"</U>)  on the
Building  including,  but not  limited  to,  the  restrictions  on the number of
employees on the Premises or the number of parking spaces.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.4
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Insurance Hazards.</U> The Tenant shall neither
engage in nor permit others to engage in any activity or conduct that will cause
the  cancellation  of or an  increase  in the  premium  for any  fire  or  other
insurance  maintained  by the Landlord.  The Tenant shall,  at the Tenant's sole
cost,  comply  promptly  and at all times with all laws,  statutes,  ordinances,
regulations, covenants, servitudes, conditions,  encumbrances,  restrictions and
other  rights or  obligations  affecting  or  applicable  to the Premises or the
Tenant's  business,  and all fire and other insurance  rating  requirements  for
obtaining and maintaining  regular or  preferential  insurance rates required by
the Landlord.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.5
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Compliance  with  Law.</U> In its  contemplated
and actual use of the Premises for its proposed office and research  laboratory,
the Tenant shall, at the Tenant's sole cost and expense,  comply promptly and at
all times with all laws, requirements,  ordinances, statutes, and regulations of
all municipal, state or federal authorities and, specifically,  all requirements
of the  City,  or any board of fire  insurance  underwriters,  or other  similar
bodies,  now in force,  or which may  hereafter be in force,  pertaining  to the
Building and the  Premises and the  occupancy  thereof,  including  any law that
requires alteration, maintenance or restoration of the Premises as the result of
the  Tenant's  particular  use  thereof.  The Tenant  shall  cooperate  with the
Landlord  in  filing  its  Annual  Report  to the City as  required  by the City
regarding  occupants  and the number of employees of occupants of the  Building,
and any other  requirements  of the City. The judgment of any court of competent
jurisdiction, or the admission of the Tenant in any action or proceeding against
the Tenant,  whether the  Landlord  be a party  thereto or not,  that the Tenant
violated  any  such  ordinances  or  statutes  in the  use of  the  Premises  be
conclusive of that fact as between the Landlord and the Tenant.  The Tenant,  at
its sole expense, shall also comply with all requirements for fire extinguishers
or fire extinguisher systems required in the Premises.</FONT></P>



<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.6
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Waste,   Nuisance.</U>  The  Tenant  shall  not
commit, or suffer to be committed,  any waste of the Premises,  or any nuisance,
annoyance or other unreasonable  annoyance which may disturb the quiet enjoyment
of adjoining Premises or of the Building by the owners or occupants thereof.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>CARE AND MAINTENANCE</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.1
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Landlord's Maintenance.</U> Except as otherwise
provided in this Lease, the Landlord agrees to maintain, at her expense, in good
condition and repair the structural components of the Building, which structural
components include the foundation,  roof,  interior  load-bearing walls, and the
exterior  walls.  The Landlord  also agrees to maintain,  in good  condition and
repair,  (1) the common  areas and the  exterior  of the  Premises;  and (2) any
heating,  ventilating and air conditioning systems furnished by the Landlord for
common areas or the Premises,  and any machinery or equipment  owned by Landlord
and utilized in  connection  with the  operation of the  Premises,  and all such
costs  (excluding  repair and  maintenance  of structural  components)  shall be
Operating  Costs to be repaid by Tenant as  provided in  <U>Paragraph  4.2.3</U>
hereof.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.2
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Tenant's Maintenance.</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except   as  otherwise  provided  in  this  Lease,
Tenant, at its own cost and expense, agrees to:</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;maintain  throughout  the  Lease  term in good and
sanitary order,  condition and repair,  all portions of the Premises  (except as
set  forth in  <U>Paragraph  8.1</U>),  including,  without  limitation  (a) the
interior of the Premises, including flooring, exposed plumbing and wiring, paint
and finish; (b) any windows,  lights or skylights;  (c) any storefront;  and (d)
any personal property of Tenant situated in or upon the Premises; </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;notify  the Landlord promptly of any damage to the
Premises  resulting from or attributable to the acts or omissions of the Tenant,
its  invitees  or  its  authorized  representatives,  or  any  other  party  and
thereafter to promptly repair all such damage; and </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;keep the Premises clean and neat at all times, and
to  remove  immediately  therefrom  any  litter,  debris or other  unsightly  or
offensive  matter placed or deposited  thereon by the agents or customers of the
Tenant. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>IMPROVEMENT   TO   LEASED   PREMISES.</U>   Any
improvements to be constructed by the Tenant subsequent to the Commencement Date
(i.e.,  excluding other improvements to be made prior to the Commencement Date),
or its designated  agent,  in the manner  hereinafter  set forth shall be at the
cost and expense of the Tenant.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.1
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Conditions to Commencement of Construction.</U>
Before construction of the aforesaid  improvements is commenced on the Premises,
and before any building  materials have been delivered thereto by or pursuant to
the  authority  or  request of the  Tenant,  the Tenant  shall  comply  with the
following conditions, or obtain the Landlord's written waiver thereof:</FONT></P>



<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Plans and Specifications.</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The  Tenant  shall  prepare  and  deliver  to  the
Landlord  for  approval a complete  set of all  preliminary  and final plans and
specifications  to be utilized by the Tenant for the purpose of constructing the
new improvements. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The  Tenant's plans and specifications  shall
provide for  separate  metering of gas,  electricity,  water and  telephone,  if
practical  and  possible.  If any of the  above  services  are  supplied  by the
Landlord, they shall be included in the prorated common area charge. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The  Landlord  may  disapprove  of the  plans  and
specifications  by written  notice  given  within  fifteen  (15) days  following
delivery thereof.  The Landlord shall not unreasonably  withhold approval of the
plans and  specifications,  and the same shall be deemed  approved  if notice of
disapproval is not given within said fifteen (15) day period. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No review, inspection or approval by the Landlord,
or its  architect,  shall  relieve  the  Tenant of any  liability  or create any
obligation or responsibility for the Landlord.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Notice  of  Non-Responsibility.</U>  The Tenant
shall give the Landlord at least fifteen (15) days&#146; written notice prior to
(a) the  commencement  of  construction  of any Tenant  improvements  or (b) the
delivery of any building  materials to the site.  As the agent of the  Landlord,
shall   post   on   and   affix   to   the   Premises   a   &#147;<U>Notice   of
Non-Responsibility</U>&#148;  in the  name and on  behalf  of the  Landlord,  as
provided in Sections 3094 and 3129 of the California Civil Code, and shall cause
such  Notice to be  recorded  promptly  following  posting  in the Office of the
County Recorder of the County in which the Premises are located. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Evidence of Construction Insurance.</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The  Tenant shall purchase and maintain in effect,
until a Notice of  Completion  is filed and  recorded,  insurance  coverage  for
all-risk  &#147;Builders&#146;   Risk&#148;  insurance  and  &#147;Worker&#146;s
Compensation&#148;  insurance  covering all persons  employed in connection with
the  construction of the  improvements  and with respect to whom claims could be
asserted against the Landlord or the Premises. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The   Tenant   shall   furnish  to  the   Landlord
certificates  of  such  insurance,  and  evidence  of the  payment  of  premiums
therefor,  and for any other insurance  required by the provisions of this Lease
to be furnished by the Tenant. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>No  Liens.</U>  The Tenant shall pay, when due,
all claims for labor or materials furnished or alleged to have been furnished to
or for the Tenant,  and promptly shall cause the  elimination and removal of any
mechanic&#146;s,   materialmen&#146;s   or  other  liens   arising  out  of  any
improvements  performed,  materials  furnished or obligations  incurred by or on
behalf of the Tenant in connection with any Tenant improvements. </FONT></P>



<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.2
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Construction  of  Improvements.</U>  The Tenant
warrants and covenants to the Landlord that:</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The   aforesaid  improvements  shall  be  of  good
quality and the development and  construction  work shall be performed in a good
and workmanlike manner,  consistent with and comparable to standards of practice
in  the  City  of  Santa  Barbara  for  similar   office  space  of  first-class
construction; </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Tenant shall secure or cause to be secured all
permits and licenses necessary for the proper construction and completion of the
aforesaid improvements, and shall assume full responsibility for compliance with
all governmental laws, codes,  ordinances,  regulations and standards pertaining
thereto; and </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The aforesaid improvements shall be constructed in
accordance  with the plans and  specifications  and  shall be  completed  by the
Tenant or its  designated  agent and ready for occupancy  within sixty (60) days
after  construction  commences,  subject to  extensions  for  delays  beyond the
control of the Tenant and its  agents  and not  attributable  to their  fault or
neglect. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.3
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Cooperation  by the  Landlord.</U> The Landlord
agrees,  upon the request of the Tenant,  to join with the Tenant to execute and
deliver  such  documents  and  instruments  as may be  necessary  or proper,  as
determined by the Tenant,  for applying for or obtaining any permits,  licenses,
approvals or records as may be necessary or appropriate to the  construction  of
the aforesaid improvements and operation of the office space. The Landlord shall
incur no expense and no liability as a result of such cooperation.  The Landlord
shall  have the right to approve  any  conditions  imposed  by any  governmental
agency in connection with obtaining any such permits,  etc. which may impact the
Premises separate and apart from the Tenant's occupancy thereof,  which approval
shall not be unreasonably withheld.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.4
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Inspection and Notices.</U> The Landlord or her
representative  shall  have  the  right  to go upon and  inspect  the  Premises,
including the improvements being constructed  thereon,  at all reasonable times,
and shall have the right to post and keep posted  thereon  notices such as those
provided for by Section 3094 of the California Civil Code, or which the Landlord
may deem to be proper  for the  protection  of the  Landlord's  interest  in the
Premises.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.5
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Notice of Completion.</U> The Tenant shall give
notice to the Landlord of the imminent  completion of the  improvements not less
than ten  (10)  days  prior to their  expected  completion,  and  shall  cause a
<U>"Notice of  Completion,"</U>  as described in Section 3093 of the  California
Civil Code,  to be filed and  recorded in the manner  provided by said  Section.
Upon such completion,  the Tenant shall deliver to the Landlord one complete set
of "as built" plans and specifications  for the improvements  constructed by the
Tenant.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9.6
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Ownership   of  Improvements.</U>   Subject  to
<U>Paragraph  10.1</U> hereof, all of the Tenant's improvements  hereunder,  and
all subsequent additions and alterations thereto and replacements thereof, shall
be deemed  affixed to, become and remain a part of the Premises and shall not be
removed,  encumbered,  transferred or materially altered,  except as provided by
this Lease.  Upon the expiration of the Lease term, or any renewal  thereof,  or
upon the sooner  termination of this Lease, all of the improvements,  other than
the Tenant's  removable trade fixtures and equipment,  shall become the property
of the Landlord without further obligation to the Tenant.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>ALTERATIONS</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.1
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Changes  by the  Tenant.</U>  Any  alterations,
additions,  improvements or changes,  including any remodeling or  redecorating,
that the Tenant may desire to make in, to or upon the Premises, shall be made at
the Tenant's sole cost and expense,  and only after first  submitting  the plans
and  specifications  therefor to the Landlord and  obtaining  the consent of the
Landlord thereto in writing.  The Landlord's rights and remedies with respect to
such alterations, additions, improvements or changes shall be identical to those
rights and remedies concerning the Tenant construction and improvements,  as set
forth in  <U>Paragraph  9</U>  hereof.  Should the  Landlord so elect,  any such
alterations,  additions,  improvements  or  changes  shall  become a part of the
Premises at the  expiration or sooner  termination  of this Lease,  and shall be
surrendered  to the Landlord upon the  expiration or sooner  termination of this
Lease.  Alternatively,  at any time  prior to the ten (10)  days  following  the
expiration or sooner  termination of this Lease,  the Landlord may elect to have
the Tenant remove any such alterations,  additions, improvements or changes made
by the Tenant or its predecessor.  In such case, the Tenant shall so remove such
items ten (10) days following the Tenant's  receipt of the Landlord's  notice of
election,  and shall restore the Premises to their condition at the commencement
of this Lease.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.2
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Mechanics' Liens.</U> The Tenant agrees to keep
the  Premises,  and any  improvements  thereon,  at all times free of mechanic's
liens and other  liens for labor,  services,  supplies,  equipment  or  material
purchased  by or directly or  indirectly  furnished  to the Tenant.  The Tenant,
however, shall have the right to contest the validity or amount of any such lien
as filed upon posting a bond in an amount  sufficient to discharge the lien, and
upon  the  final  determination  of  such  contest,  shall  immediately  pay and
discharge any judgment rendered,  together with all costs and charges incidental
thereto,  and shall  cause the lien  thereof to be released  from the  Premises.
Should the Tenant  fail,  within  thirty (30) days after notice of the filing of
any such lien,  to discharge or cause the release of such liens or charges or to
contest the same and post bond as above provided for, then the Landlord,  at the
Landlord's option, may satisfy said liens by payment thereof, and in such event,
the amount of such payment,  together with interest  thereon at the maximum rate
permitted by law, from the time the payment is so made until repayment  thereof,
shall be payable by the Tenant at the time  installment  of rental  shall be due
and payable.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>TENANT'S PERSONAL PROPERTY</U></FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.1
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Installation   of  Property.</U>  The  Landlord
shall have no interest in any removable  equipment,  furniture or trade fixtures
owned by the Tenant or installed in or upon the Premises  solely at the cost and
expense of the Tenant.  Prior to creating or permitting the creation of any lien
or security or reversionary  interest in any removable  personal  property to be
placed in or upon the Premises, the Tenant shall obtain the written agreement of
the party holding such interest to make such repairs necessitated by the removal
of such  property  and any damage  resulting  therefrom  as may be  necessary to
restore the Premises to good  condition and repair,  excepting  only  reasonable
wear and  tear,  in the event  said  property  is  thereafter  removed  from the
Premises by said party, or by any agent or  representative  thereof or purchaser
therefrom, pursuant to the exercise or enforcement of any rights incident to the
interest so created, without any cost or expense to the Landlord.</FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11.2
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Removal  of Personal  Property.</U>  The Tenant
shall have the right to remove, at its own cost and expense, upon the expiration
of this Lease all removable  equipment,  furniture or trade fixtures owned by or
installed at the expense of the Tenant on the  Premises  during the term of this
Lease (and not owed by the  predecessor to Tenant).  All such personal  property
shall be  removed  prior to the close of  business  on the last day of the Lease
term, and the Tenant shall make such repairs necessitated by the removal of said
property and any damage  resulting  therefrom as may be necessary to restore the
Premises to good condition and repair,  excepting only  reasonable wear and tear
since the  inception of the Lease.  Any such  property  not so removed  shall be
deemed  to have been  abandoned  or, at the  option  of the  Landlord,  shall be
removed and placed in storage for the account and at the cost and expense of the
Tenant.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>WAIVER AND INDEMNITY.</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12.1
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Indemnification  Agreement.</U>  This  Lease is
made  upon the  express  condition  that  the  Landlord  is to be free  from all
liability  and  claims  for  damages  by reason of any  injury to any person and
damage  to any  property  (including  the  Tenant's),  resulting  from any cause
whatsoever  while in, upon,  about, or in any way connected with the Premises or
the Building, during the term of this Lease. The Tenant hereby waives all claims
against the  Landlord  for,  and agrees to defend  with  counsel  acceptable  to
Landlord,  and to indemnify and hold the Landlord harmless from, any actual loss
or  liability,  and from all costs or expenses,  including  attorneys'  fees and
costs of defense, arising from or attributable to any such injury or damage from
any cause at any time, other than those caused solely by the fault or neglect of
the Landlord.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>INSURANCE, PUBLIC LIABILITY AND PROPERTY DAMAGE</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.1.A.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Insurance  Coverage.</U>  The Tenant  agrees to
maintain in force  throughout  the term hereof,  at the  Tenant's  sole cost and
expense, public liability insurance insuring against any liability to the public
for any claim  for  damages  due to death,  bodily  injury  or  property  damage
incident to the use of or resulting from any accident  occurring in or about the
Premises,  with  single  limit  coverage  of not less than ONE  MILLION  DOLLARS
($1,000,000)  for any loss and FIVE MILLION DOLLARS  ($5,000,000) for any policy
period.  Said policy shall insure the  contingent  liability of the Landlord and
the performance by the Tenant of its indemnity obligations under this Lease. The
Landlord shall be named as an additional insured in such policy, and such policy
shall contain a cross-liability endorsement.</FONT></P>



<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Adjustment  to Coverage.</U> The Tenant further
agrees that the amount of the insurance  coverage  shall be reviewed every three
(3) years,  at least sixty (60) days before the  expiration  of a three (3) year
period. If the parties are unable to agree upon the amount of said coverage, the
Tenant  shall be  required  to  maintain  for the next three (3) year period (or
prior to the expiration of the term of this Lease, whichever is less) the amount
of coverage shall be adjusted to the amounts of coverage  recommended in writing
by an insurer selected by the Landlord.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.2
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Tenant's  Property  Insurance.</U>  Unless  the
Tenant  elects to  self-insure,  the  Tenant,  at its own cost,  shall  maintain
insurance on its personal property and removable fixtures and equipment situated
in, on or about the Premises,  a policy of standard  fire and extended  coverage
insurance,  to the extent of at least One Hundred Percent (100%) of their actual
cash value. The proceeds of any such policy that become payable due to damage or
loss  shall be used by the Tenant for the  repair or  replacement  thereof.  The
Landlord will maintain  insurance on the Landlord's  personal property described
in <B><U>Exhibit B</U></B> hereto, and subject to the limitations set forth in
<U>Paragraph  4.2.3</U> hereof, the cost of this insurance may be included as an
Operating Cost.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.3
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Miscellaneous Insurance Provisions.</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Proof   of   Insurance.</U>   Each   policy  of
insurance required of the Tenant by this Lease shall be a primary policy, issued
by an insurance  company  reasonably  satisfactory  to the  Landlord,  and shall
contain an endorsement requiring thirty (30) days&#146;  written notice from the
insurer to the Landlord before  cancellation  or change in the nature,  scope or
amount of coverage.  Each policy, or a certificate of the policy,  together with
evidence of the payment of premiums, shall be deposited with the Landlord at the
Commencement Date, and at the commencement of any renewal term. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Waiver of Subrogation.</U> The Landlord and the
Tenant each release the other, and their respective agents and  representatives,
from any claims for damage to any person or to the  Premises and to the fixtures
and personal property  situated  therein,  resulting from or attributable to any
risk insured under any insurance policies carried by the parties and in force at
the time of the damage.  Each party shall cause any insurer providing  insurance
to it  pursuant  to this  Lease  to  waive  all  rights  or  recovery  by way of
subrogation against either party by virtue of the payment of any loss under such
insurance,  such waiver to be  effective  as long as such  insurance is required
under the provisions of this Lease. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.4
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Casualty Insurance; Damage or Destruction.</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Replacement  Cost  Insurance.</U>  The Landlord
shall,  at all  times  during  the term of this  Lease,  keep the  Building  and
improvements in which the Premises is situated insured against loss or damage by
fire and the perils  covered by an  extended  coverage or  &#147;all  risk&#148;
insurance,  with inflation guard, vandalism and malicious mischief endorsements,
zoning ordinance coverage,  and any other endorsements selected by the Landlord,
and the  Landlord,  at its  discretion,  may  purchase an  earthquake  policy of
insurance and zoning  ordinance  coverage,  in any amount  sufficient to prevent
either  the  Landlord  or the  Tenant  from  becoming  a  co-insured  under  the
provisions  of the  policies,  and in no event in an  amount  less  than  Eighty
Percent (80%) of the actual costs of  replacement or restoration of the building
and other  improvements  in which the Premises is situated.  All such  insurance
shall be  payable  to the  Landlord  and the  holder  of any  trust  deed on the
Premises as their interests may appear.  The Tenant shall reimburse its share of
the costs and expenses paid for said insurance pursuant to the percentage of the
common area costs allocated to the Tenant as provided in
<U>Paragraph 4.2</U> hereof, subject to the limitation set forth in <U>Paragraph
4.2.3</U> hereof. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.5
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Insurable Casualty Loss.</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Landlord  to Restore.</U> Except as provided in
<U>Subparagraph  B</U>,  below,  in the event the  Premises  or the  Building is
damaged or destroyed as the result of any risk required to be insured against by
this <U>Paragraph 13</U>, then the Landlord shall forthwith restore the Premises
or the Building to substantially the same condition as existed immediately prior
to such damage or destruction,  and any insurance  proceeds  remaining after the
completion  of said work  shall  belong  to the  Landlord.  Except as  otherwise
provided in <U>Subparagraph  B</U>,  below, any amount by which the cost of such
repair and the deductible amount required by such insurance  policies exceed the
amount of such insurance proceeds shall be deemed a common area cost pursuant to
<U>Paragraph 4.2</U> hereof. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Landlord's  Option  to  Terminate.</U>  In  the
event  that,  at any time  during the term of this  Lease,  the  Building or the
Premises  are  totally  destroyed,  or are  sufficiently  damaged to render them
unusable  without  substantial  repair  or  reconstruction,  due  to a  casualty
required to be insured  against as provided  herein,  or should then  applicable
laws or zoning ordinances  preclude the restoration or repair of the Building or
the  Premises,  or should  the costs of  restoration  exceed  the  amount of the
insurance  proceeds,  then the Landlord  shall have the option,  exercisable  by
giving at least ten (10)  days&#146;  prior written  notice to the Tenant within
sixty (60) days after the  occurrence of any such  casualty,  to terminate  this
Lease. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.6
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Uninsured Casualty Loss.</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Minor  Damage.</U>  If,  during the Lease term,
the Premises or the Building are damaged or partially  destroyed from a risk not
required to be insured against by this <U>Paragraph  13</U>,  the Landlord shall
restore the Premises to substantially the same condition as existed  immediately
prior to such damage or destruction. The costs of repair or restoration incurred
by the Landlord pursuant to this provision will be common area costs pursuant to
<U>Paragraph  4.2</U>  hereof,  and  subject  to the  limitations  set  forth in
<U>Paragraph </U>4.2.3 hereof. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Substantial  Damage.</U> If the costs of repair
or restoration  necessitated by an uninsurable casualty loss exceed Five Percent
(5%) of the then  replacement  value of the Building or the  Premises,  then the
Landlord  shall  have the  option,  exercisable  by  giving  at  least  ten (10)
days&#146;  prior written  notice to the Tenant within sixty (60) days after the
occurrence of any such casualty, to terminate this Lease. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13.7
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Termination; Abatement of Rent.</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This  Lease shall not be  terminated by any damage
to or  destruction of the Premises or other  improvements  of which the Premises
are a part,  unless notice of termination is given by the Landlord to the Tenant
as  provided  by this  <U>Paragraph  13</U>,  and the Tenant  hereby  waives the
provisions  of Section  1932(2)  and 1933(4) of the  California  Civil Code with
respect to any such damage or destruction. </FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Should  the Premises or the Building be damaged or
destroyed at any time during the term of this Lease, there shall be an abatement
or reduction of the Minimum  Monthly Rent,  between the date of destruction  and
the date of  completion  of  restoration,  based  on the  extent  to  which  the
destruction interferes with the Tenant&#146;s use of the Premises. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Should  then-applicable  laws or zoning ordinances
preclude the  restoration  or replacement of the Building or the Premises in the
manner  hereinbefore  provided,  then  the  Landlord  shall  have  the  right to
terminate this Lease immediately by giving notice to the Tenant. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>CONDEMNATION</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14.1
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Entire Premises.</U> Should title or possession
of the  whole of the  Premises  or the  Building  be  taken by duly  constituted
authority in condemnation proceedings under the exercise of the right of eminent
domain,  or should a partial taking render the remaining portion of the Premises
wholly  unacceptable  for  occupation,  then this Lease shall terminate upon the
vesting of title or taking of possession.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14.2
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Partial Taking.</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The  Landlord  shall  have the right to  terminate
this Lease upon such thirty (30) days&#146; notice if any such partial taking is
such as to prevent the Tenant from using the Premises,  or the remaining portion
thereof,  in  substantially  the same  manner as they  were  used  prior to such
taking.  If the Landlord does not terminate this Lease as provided herein,  then
this Lease shall  remain in full force and effect.  In such event,  the Landlord
shall promptly make any necessary repairs or restoration at the cost and expense
of the  Landlord,  and the minimum  monthly  rent from and after the date of the
taking  shall be  reduced  in the  proportion  that the value of the area of the
portion  of  the  Premises  taken  bears  to the  total  value  of the  Premises
immediately prior to the date of such taking or conveyance. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each  party waives the provisions of Code of Civil
Procedure  Section 1265.130 allowing either party to petition the Superior Court
to terminate  this Lease in the event of a partial  taking of the Premises.  Any
dispute  between the parties  concerning the extent to which a partial taking by
eminent  domain  interferes  with the use and  occupancy  of the Premises by the
Tenant  shall be  settled  by  arbitration  in  Santa  Barbara,  California,  in
accordance  with  the  rules of the  American  Arbitration  Association  then in
effect. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14.3
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Conveyance  Under  Threat of  Condemnation.</U>
Any sale or  conveyance by the Landlord to any person or entity having the power
of eminent domain,  either under threat of  condemnation  or while  condemnation
proceedings are pending,  shall be deemed to be a taking by eminent domain under
this <U>Paragraph 14.</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14.4
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Awards  and  Damages.</U>  All payments made on
account of any taking by eminent  domain shall be made to the  Landlord,  except
that  the  Tenant  shall  be  entitled  to any  payment  or  award  made  for or
attributable  to the reasonable  removal and  relocation  costs of any removable
property that the Tenant has the right to remove,  or for loss and damage to any
such property that the Tenant elects or is required not to remove.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>ASSIGNING, MORTGAGING, SUBLETTING OR CHANGE IN OWNERSHIP.</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.1
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Limitation.</U>  The Tenant shall not transfer,
assign,  sublet,  mortgage,  hypothecate,  share  rights  in this  Lease  or the
Tenant's interest in the Premises,  or permit any other person or entity,  other
than an affiliated or controlled entity, to utilize the Premises,  without first
procuring  the  written  consent of the  Landlord,  which  consent  shall not be
unreasonably  withheld.  The  Tenant  shall pay to the  Landlord  the sum of ONE
THOUSAND  DOLLARS  ($1,000)  with each such  request  for  consent  to cover the
Landlord's  expenses  in  connection  with  processing  each such  request.  Any
attempted transfer, assignment,  subletting,  mortgage, hypothecation or sharing
of rights, other than an affiliated or controlled entity, without the Landlord's
written  consent shall be void and confer no rights upon any third  person.  Any
such event  shall  constitute  a material  default  under  this  Lease,  and the
Landlord  reserves  the  right of  immediate  re-entry  in the event of any such
attempted  transfer.  The Tenant also agrees to  reimburse  the Landlord for the
Landlord's  reasonable  attorneys' fees (if any) incurred in connection with the
documentation  of any transfer by the Tenant of the Tenant's  rights  hereunder,
which  reimbursement  shall be in addition to, and not a part of, the processing
fee referred to above.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.2
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Conditions.</U>   Each  transfer,   assignment,
subletting, mortgage, hypothecation or sharing of rights to which there has been
consent  shall be by an  instrument in writing,  in a form  satisfactory  to the
Landlord,  and in each instance shall be executed by the  transferor,  assignor,
sublessor,  hypothecator or mortgagor and the transferee,  assignee,  sublessee,
mortgagee  or other  person  or  entity,  as the case may be.  Each  transferee,
assignee, sublessee,  mortgagee or other person or entity shall agree in writing
for the benefit of the  Landlord  to assume,  to be bound by, and to perform the
terms,  covenants and conditions of this lease to be done, kept and performed by
the Tenant,  including  the payment of all amounts due, or to become due,  under
this Lease. In addition,  as conditions  precedent to the Landlord's  consent to
any transfer, assignment,  subletting,  mortgage or hypothecation of this Lease,
or the Tenant's interest in the Premises, the Landlord may require any or all of
the following:</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.2.1
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The  Tenant  shall  remain fully liable under this
Lease during the unexpired term thereof;</FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.2.2
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The   Tenant  shall   provide  the  Landlord  with
evidence  reasonably  satisfactory  to  the  Landlord  that  the  value  of  the
Landlord&#146;s  interest  under this Lease will not  thereby be  diminished  or
reduced.  Such  evidence  shall  include,  but not need be limited to,  evidence
respecting the relevant  business  experience and financial  responsibility  and
status of the third party concerned; </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.2.3
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If  the Tenant's  transfer of rights or sharing of
the  Premises  provides  for the  receipt by, on behalf of, or on account of the
Tenant of any consideration or any kind whatsoever (including, but not by way of
limitation,  a  premium  rental  for the  sublease  or lump sum  payment  for an
assignment)  in excess of the rental and other sums due the Landlord  under this
Lease, the Tenant shall pay said excess, less the Tenant&#146;s reasonable costs
(not to exceed  Five  Percent  (5%) of said  excess)  to the  Landlord.  If said
consideration consists of cash paid to the Tenant, payment to the Landlord shall
be made upon receipt by the Tenant of the cash payment; </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.2.4
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Written  agreement from any third party  concerned
that, in the event the Landlord gives such third party notice that the Tenant is
in default  under this  Lease,  such third  party  shall  thereinafter  make all
payments otherwise due the Tenant directly to the Landlord,  which payments will
be received by the Landlord  without any  liability on the  Landlord,  except to
credit such payments against those due under the Lease, and any such third party
shall agree to attorn to the Landlord,  or its  successors  and assigns,  should
this Lease be terminated for any reason;  <I>provided,  however,</I>  that in no
event shall the Landlord,  or its successors or assigns,  be obligated to accept
such attornment; </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.2.5
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The  Tenant shall not be then in default hereunder
in any respect;</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.2.6
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Such  third  party's  proposed use of the Premises
shall be similar to, and consistent with, the Tenant's permitted use;</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.2.7
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The  Landlord  shall not be bound by any provision
of any agreement pertaining to the Tenant's transfer of rights or sharing of the
Premises; and</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.2.8
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The  Tenant shall  deliver to the Landlord one (1)
executed copy of any and all written  instruments  evidencing or relating to the
Tenant's assignment, transfer or sharing of the Premises.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.2.9
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Landlord  hereby consents to any Sublease  license
or tenancy  created in Tenant to Condas  International,  LLC and E. K. Khashoggi
Industries, LLC.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Tenant hereby agrees and acknowledges  that the conditions  permitted to be
imposed upon the granting of the Landlord's consent hereunder are reasonable and
the Landlord's imposition of such conditions shall under no circumstances impair
or limit the Landlord's  rights and remedies under California Civil Code Section
1951.4, or any related successor similar provision of law.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.3
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Limitation   on  Consent.</U>   The  Landlord's
consent to the  Tenant's  transfer of rights,  or sharing of the Premises on any
one occasion,  shall apply only to the specific  transaction thereby authorized.
Such consent  shall not be  construed as a waiver of the duty of the Tenant,  or
any  transferee,  to obtain the  Landlord's  consent to any other or  subsequent
transfer of rights or sharing of the  Premises,  or as modifying or limiting the
Landlord's  rights  hereunder in any way. The Landlord's  acceptance of rent, or
any other  payment  directly  from any third party,  shall not be construed as a
waiver of any of the Landlord's rights or as the Landlord's  agreement to accept
the attornment of any third party,  in the event of a termination of this Lease.
In no event shall the  Landlord's  enforcement  of any  provision  of this Lease
against  any third party be deemed a waiver of the  Landlord's  right to enforce
any term of this Lease against the Tenant or any other person.</FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15.4
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Applicability  to  Successors.</U> In the event
that the  Landlord  gives  consent  to a  transfer  of rights or  sharing of the
Premises,  such third  party in respect of which said  consent  was given may in
turn apply to the Landlord for its consent to subsequent  transfers of rights or
sharing of the  Premises,  in which  case the  provisions  of this  <U>Paragraph
15</U>  shall apply as fully as possible  to such third  party  (including  this
<U>Paragraph  15.4</U>  in the  case of  more  remote  transfers);  <I>provided,
however,</I>  that as an additional  condition of the granting of the Landlord's
consent, the Premises will not, in the Landlord's opinion, thereby become unduly
fractionalized.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any such  transfer  shall be  subject to all the terms and  conditions  of this
Lease,  and  each  such  successive  transfer  shall  be  made  only  upon  like
conditions.  Tenant  agrees to remain  fully  responsible  to  Landlord  for the
performance of all of the Tenant's  obligations  under this Lease.  Tenant shall
pay Landlord's reasonable legal fees and costs incurred in reviewing any request
of Tenant pursuant to <U>Paragraph 15.1</U> above.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>DEFAULT BY TENANT; LANDLORD'S REMEDIES</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.1
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Insolvency by the Tenant.</U> In the event all,
or  substantially  all,  of the  Tenant's  assets  are  placed in the hands of a
receiver or trustee, and such receivership or trusteeship continues for a period
of thirty (30) days, or should the Tenant make an assignment  for the benefit of
creditors, or be finally adjudicated as bankrupt, or should the Tenant institute
any proceedings  under the Bankruptcy Act, as the same now exists,  or under any
amendment  thereof  which may  hereinafter  be  enacted,  or under any other act
relating to the subject of bankruptcy wherein the Tenant seeks to be adjudicated
as a  bankrupt,  or to be  discharged  of its  debts,  or to  effect  a plan  of
liquidation, composition or reorganization, or should any involuntary proceeding
be filed against the Tenant under any such  bankruptcy  laws and such proceeding
not be recovered  within thirty (30) days  thereafter,  then this Lease,  or any
interest of the Tenant in and to the Premises,  shall not become an asset in any
of such  proceedings  and,  in any such  events and in  addition  to any and all
rights or remedies of the Landlord  hereunder,  or by law provided,  it shall be
lawful for the  Landlord to declare the terms  hereof  ended and to re-enter the
Premises, and take possession thereof, and remove all persons therefrom, and the
Tenant shall have no further claim thereon or hereunder.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.2
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Bankruptcy.</U>  Notwithstanding the foregoing,
a  Debtor-in-Possession,  or a Trustee  in  bankruptcy,  shall have the right to
assume or assign this Lease, but only if any default hereunder is cured promptly
and  adequate  assurance  of future  performance  of the terms of this  Lease is
concurrently  therewith  provided to the  Landlord.  Adequate  assurance of such
performance is hereby defined as requiring (a) that the source of rent and other
consideration due and owing to the Landlord under the Lease will be assured; (b)
that the assumption or assignment of the Lease will not substantially breach any
provisions of any agreement relating to the Premises,  whether the Landlord is a
party thereto or not (including,  but not limited to, any other lease, financing
agreement,  master  agreement or lease  relating to the Premises,  or underlying
property);  and (c) that an  assumption  or  assignment  of the  Lease  will not
disrupt substantially any Tenant mix or balance of occupants in the Building.</FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.3
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Breach  of Covenant; Abandonment,  Etc.</U> If,
during the term of this Lease, the Tenant (1) shall default in fulfilling any of
the  covenants or  conditions  of this Lease (other than the  covenants  for the
payment of rent or other charges payable by the Tenant hereunder);  or (2) shall
abandon the Premises for a period of three (3) days, and if at the expiration of
three (3) days after the service of such notice the default or contingency  upon
which said notice was based shall continue to exist, or in the case of a default
or contingency which cannot with due diligence be cured within a period of three
(3) days,  if the Tenant  fails to proceed  promptly  after the  service of such
notice to prosecute  the curing of such default with all due  diligence,  and to
actually cure such default within a reasonable  period of time, the Landlord may
terminate  this  Lease and,  upon such  termination,  the Tenant  shall quit and
surrender the Premises and the  improvements  thereon to the  Landlord,  but the
Tenant shall remain liable as hereinafter  provided.  <U>"Abandonment"</U>
shall not occur so long as the Tenant is otherwise  performing  its  obligations
hereunder and is attempting to sublease the Premises.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.4
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Failure  to Pay Rent,  Etc.</U>  If the  Tenant
shall make default in the payment of the rent expressly reserved  hereunder,  or
any part of the same,  or shall make default in the payment of any other rent or
charge required to be paid by the Tenant hereunder, or any part of the same, and
such default  shall  continue for three (3) days after written  notice  thereof,
which will also serve as notice by the Landlord under  California  Code of Civil
Procedure  Section  1161(2)  and shall not be in addition  to such  notice,  the
Landlord may terminate  this Lease and upon such  termination,  the Tenant shall
quit and  surrender the Premises and the  improvements  thereon to the Landlord,
but the Tenant shall remain liable as hereinafter provided.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.5
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Termination  of Lease.</U> It is understood and
agreed that all the covenants and conditions of this Lease herein  contained are
covenants  by the Tenant and the  conditions  of the  Tenant's  occupancy of the
Premises.  In  default  of the  Tenant's  fulfillment  of any of the  same,  the
Landlord may, at any time  thereafter,  unilaterally  terminate this Lease.  Any
holding  over  thereafter  by the Tenant shall be construed to be a tenancy from
month to month only, for the rental payable  pursuant to <U>Paragraph  23.2</U>,
below. It is further agreed that in the event of any breach of this Lease by the
Tenant,  then the  Landlord,  besides  other rights or remedies the Landlord may
have,  shall have the immediate right of re-entry and may remove all persons and
property from the Premises.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.6
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Landlord's  Damages.</U> If the Tenant breaches
this Lease and  abandons  the  Premises  before  the end of the term,  or if the
Tenant's rights of possession is terminated by the Landlord because of breach of
this Lease  pursuant to any of the foregoing  provisions of this  paragraph,  or
otherwise,  then in any such case,  the Landlord may recover from the Tenant all
damages  suffered by the Landlord as a result of the Tenant's failure to perform
the Tenant's obligations hereunder,  including, but not limited to, the worth at
the time of the award  (computed in  accordance  with  paragraph  (b) of Section
1951.2 of the California Civil Code) of the amount by which the rent then unpaid
hereunder  for the balance of this Lease term  exceeds the amount of such rental
loss for the same period which the Tenant proves could be reasonably  avoided by
the Landlord. It is further agreed that even though the Tenant has breached this
Lease and abandoned the property,  this Lease may continue in effect for as long
as the Landlord  does not terminate the Tenant's  right to  possession,  and the
Landlord may enforce all of the rights and remedies under this Lease,  including
the right to recover the rent as it becomes  due under the lease (in  accordance
with  paragraph (b) of Section  1951.4 of the  California  Civil Code).  Nothing
contained  herein  shall  diminish  the right of the  Landlord  to  obtain  such
equitable  relief  against  the  Tenant as may be  appropriate.  In  calculating
damages, a maximum base term of six (6) months will be utilized.</FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16.7
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Remedies  Not Exclusive.</U>  The Landlord,  in
addition  to the rights  hereinbefore  given in case of the  Tenant's  breach or
default,  may pursue any other  remedy  available  to the  Landlord at law or in
equity.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;17.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>POWER   OF  RECEIVER</U>.   If  a  receiver  be
appointed at the  instance of the  Landlord in any action  against the Tenant to
take  possession of the Premises  and/or to collect the rents or profits derived
therefrom,  the Tenant  irrevocably  agrees  that said  receiver  may,  if it be
necessary or convenient in order to collect such rents and profits,  conduct the
business  then being  carried on by the  Tenant on said  Premises  and that said
receiver may take  possession of any personal  property  belonging to the Tenant
and used in the  conduct of such  business,  and may use the same in  conducting
such  business  on the  Premises  without  compensation  to the  Tenant for such
business,  and may use the same in  conducting  such  business  on the  Premises
without compensation to the Tenant for such use. Neither the application for nor
the  appointment  of such a receiver  shall be  construed  as an election on the
Landlord&#146;s  part to terminate  this Lease  unless a written  notice of such
intention is given by the Landlord. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;18.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>LANDLORD&#146;S RIGHT TO CURE DEFAULTS</U>. The
Landlord,  at any time after the Tenant commits a default in the  performance of
any of the Tenant&#146;s obligations under this Lease, shall be entitled to (but
is not obligated to) cure such default, or to cause such default to be cured, at
the sole cost and  expense of the  Tenant.  If, by reason of any  default by the
Tenant,  the  Landlord  incurs any expense or pays any sum, or performs  any act
requiring  the  Landlord  to incur  any  expenses  or to pay any sum,  including
reasonable  fees and  expenses  paid or  incurred  by the  Landlord  in order to
prepare and post or deliver any notice  permitted or required by the  provisions
of this Lease, or otherwise permitted or contemplated by law, then the amount so
paid or incurred by the  Landlord  shall be  immediately  due and payable to the
Landlord by the Tenant as  additional  rent.  The Tenant hereby  authorizes  the
Landlord to deduct said sums from any security deposit held by the Landlord.  If
there is no security deposit,  said sums shall be paid by the Tenant immediately
upon demand by the Landlord,  and shall bear interest at the rate of Ten Percent
(10%) per annum, or such greater sum as may be permitted by law from the date of
such demand until paid in full. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>WAIVER  OF BREACH</U>.  Any waiver,  express or
implied,  by any party  hereto,  of any breach by any party or any  covenant  or
provision  of this Lease,  shall not be, nor be construed to be, a waiver of any
subsequent  breach of the same or any other term or provision hereof. No payment
by the Tenant or receipt by the  Landlord of a lesser  amount of rent,  or other
payments due hereunder,  shall  constitute a waiver of any breach of this Lease.
Any such  payment  actually  received by the  Landlord  shall be deemed to be on
account of the earliest rent or other payment due. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;20.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>SUBORDINATION OF LEASE</U></FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;20.1
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Subordination  Agreement.</U> The Tenant agrees
to execute,  acknowledge and deliver to the Landlord upon request such documents
and  instruments  that may be  necessary  to  subordinate  this Lease to (1) any
mortgages  or trust  deeds that now exist or may  hereafter  be placed  upon the
Premises  by the  Landlord,  (2) to any  and  all  advances  made  or to be made
thereunder,  (3) to the interest on all obligations secured thereby,  and (4) to
all  renewals,  modifications,   consolidations,   replacements  and  extensions
thereof; provided, however, that in each case the mortgagee or beneficiary named
in any such  mortgage or trust deed shall agree in writing  that, as long as the
Tenant performs its obligations under this Lease, no foreclosure or deed in lieu
of foreclosure, or sale under the encumbrance or other procedures to enforce the
rights incident  thereto,  shall affect the Tenant's rights under this Lease. If
the Tenant shall fail at any time to execute,  acknowledge  and deliver any such
subordination  instrument,  then the Landlord, in addition to any other remedies
available  to it, may execute,  acknowledge  and deliver the  instrument  as the
attorney-in-fact  of the Tenant and in the Tenant's name,  place and stead,  and
the Tenant hereby irrevocably makes,  constitutes and appoints the Landlord, its
successors and assigns, such attorney-in-fact for that purpose.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;20.2
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Attornment.</U>  The Tenant shall attorn to any
purchaser at any foreclosure sale or to any grantee or transferee  designated in
any deed given in lieu of foreclosure.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;20.3
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Estoppel  Certificate.</U> Within ten (10) days
after  receipt  of a written  request  therefor,  the  Tenant  shall  deliver in
recordable form a written  statement  certifying (if such be the case) that this
Lease is in full  force and effect  and that  there are no  defenses  or offsets
thereto,  or stating  those claimed to exist and such other  information  as the
Landlord may reasonably  request be included in such  statement.  The failure of
the Tenant to deliver  such  certificate  within  said  15-day  period  shall be
conclusive  upon  the  Tenant  for the  benefit  of the  Landlord,  its  lender,
mortgagee or assignee,  and their respective  successors in interest,  that this
Lease is in full  force and effect  and has not been  modified  except as may be
represented by the Landlord in its written  request for such  statement.  If the
Tenant  shall fail at any time to  execute,  acknowledge  and  deliver  any such
estoppel  certificate,  then the  Landlord,  in addition  to any other  remedies
available to it, may execute,  acknowledge,  and deliver the  instrument  as the
attorney-in-fact  of the Tenant and in the Tenant's name,  place and stead,  and
the Tenant hereby irrevocably makes,  constitutes and appoints the Landlord, its
successors and assigns, such attorney-in-fact for that purpose.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;21.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>LANDLORD'S ENTRY ON PREMISES.</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;21.1
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Right   of  Entry.</U>  The  Landlord  and  its
authorized  representatives  shall have the right without  liability and without
abatement of rent to enter the  Premises at all  reasonable  times for,  without
limitation, any of the following purposes:</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to  determine  whether  the  Premises  and/or  the
Building are in good  condition,  and whether the Tenant is  complying  with its
obligations under this Lease;</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to   do  any   necessary   maintenance,   repairs,
restoration or remodeling to the Premises  and/or the Building that the Landlord
has the right or obligation to perform;</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to   serve,  post,  or  keep  posted  any  notices
required or allowed  under the  provisions  of this Lease,  including  &#147;for
rent&#148;  or &#147;for  lease&#148;  notices during the term of the Lease,  or
during any period  while the Tenant is in default,  and any notices  provided by
law  for  the  protection  of the  Landlord&#146;s  interest  in  the  Premises;
</FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to  shore the  foundations,  footings and walls of
the Building,  and to erect  scaffolding  and protective  barricades  around and
about the Building is located,  but not so as to prevent  entry to the Premises,
and to do any other act or thing necessary for the safety or preservation of the
Premises if any excavation or other construction is undertaken or is about to be
undertaken on any adjacent property or area; and </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;E.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;to  show  the  Premises  and/or  the  Building  to
prospective  purchasers,  lenders,  tenants,  brokers  and others  for  business
purposes,  and for such other  purposes as the  Landlord  may deem  appropriate.
</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;21.2
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Exercise   of  Right.</U>  The  Landlord  shall
exercise  her rights  under this  <U>Paragraph  21</U> in a manner that will not
interfere  unreasonably  with the  Tenant's use and  occupancy of the  Premises;
provided  that the  Landlord's  entry  and  activities  do not  result  from the
Tenant's  default.  The Landlord shall not be liable in any other manner for any
inconvenience,  disturbance, loss of business, nuisance, or other damage arising
out of the Landlord's  entry on the Premises as provided  herein,  except damage
resulting  from  the  acts  or  omissions  of the  Landlord  or  her  authorized
representatives.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;22.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>SALE   OR  TRANSFER  OF  PREMISES</U>.  If  the
Landlord sells or transfers all or any portion of the Premises, or the Building,
improvements  and land of which the Premises is a part,  then the Landlord shall
be released from any liability thereafter accruing under this Lease upon (a) the
consummation  and (b) the Landlord  accounting  to any such  transferee  for any
security deposit and prepaid rent of the Tenant hereunder. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;23.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>SURRENDER ON TERMINATION; HOLDING OVER</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;23.1
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Surrender</U>.  On the last day of the term, or
upon  sooner  termination  of this  Lease,  the Tenant  shall  surrender  to the
Landlord  the  Premises and all Tenant's  improvements  and  alterations,  broom
clean, maintained and repaired in accordance with <U>Paragraph 8</U> hereof, and
otherwise in the same condition as when  received,  except  reasonable  wear and
tear and except for  improvements  and alterations that the Tenant has the right
to remove under the provisions of this Lease. The Tenant shall remove all of its
personal  property  within the above stated time, but any such removal shall not
affect the Landlord's lien on such personal  property until all amounts owing by
the Tenant  hereunder are paid in full.  The Tenant shall  promptly  perform all
restoration  made necessary by the removal of any improvements or alterations or
Tenant's personal property within the time periods stated in this paragraph. The
Tenant shall promptly  repair any physical  damage to the Premises  arising as a
result of the Tenant's vacation of the Premises.</FONT></P>




<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Landlord  can elect to retain or dispose of in any  manner any  improvements  or
alterations  or the  Tenant&#146;s  personal  property  that the Tenant does not
remove from the Premises on expiration or  termination of the term as allowed or
required by this Lease by giving at least ten (10) days&#146;  written notice to
the Tenant.  Title to any such  improvements or alterations or the Tenant&#146;s
personal property that the Landlord elects to retain or dispose of on expiration
of the ten (10) day period  shall vest in the  Landlord.  The Tenant  waives all
claims  against the  Landlord  for any damage to the Tenant  resulting  from the
Landlord&#146;s  retention  or  disposition  of  any  such  alterations  of  the
Tenant&#146;s personal property. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;23.2
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Holding  Over.</U>  If the Tenant,  without the
Landlord's  consent,  remains in possession of the Premises after  expiration or
termination  of the Lease  term,  or after the date in any  notice  given by the
Landlord to the Tenant  terminating  this Lease,  such  possession by the Tenant
shall be deemed to be a month to month  tenancy  terminable on thirty (30) days'
notice  given at any time by either party at a minimum rent equal to one and one
half (1 1/2) times the  Minimum  Monthly  Rent and  monthly  operating  costs in
effect  on the date of such  expiration  for the  first  month of hold  over and
thereafter three (3) times the Minimum Monthly Rent and monthly Operating Costs.
Such  Minimum  Monthly  Rent and  monthly  Operating  Costs  shall be subject to
adjustment as provided hereunder. Such tenancy shall otherwise be subject to all
of the terms and conditions of this Lease,  except those  pertaining to term and
option to extend, if any. Any holding over without the Landlord's  consent shall
not give the Tenant tenure hereunder.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;24.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>NOTICES</U>.   Any  and  all   notices  by  the
Landlord to the Tenant,  or by the Tenant to the  Landlord,  shall be in writing
and delivered  personally or by U.S.  certified mail, return receipt  requested,
addressed  to the parties at the  addresses  specified  on the  signature  page.
Either party may, at any time, change the address by written notice to the other
party in accordance with this paragraph. If notice is mailed, it shall be deemed
received on the third  business  day  following  the date on which it is mailed.
</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;25.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>BINDING  ON  SUCCESSORS,  ETC.</U> The Landlord
and the Tenant agree that each of the terms,  conditions and obligations of this
Lease  shall  extend to and bind,  or inure to the  benefit  of (as the case may
require),  the  respective  parties  hereto,  and  each and  every  one of their
respective heirs,  executors,  administrators,  representatives,  successors and
assigns. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;26.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>ATTORNEYS&#146; FEES</U>. In the event that any
legal  action is  instituted  by  either of the  parties  hereto to  enforce  or
construe  any of the  terms,  conditions  or  covenants  of this  Lease,  or the
validity  thereof,  the party prevailing in any such action shall be entitled to
recover from the other party all court costs and reasonable attorneys&#146; fees
to be set by the  court,  and the  costs  and fees  incurred  in  enforcing  any
judgment entered therein. Attorneys&#146;  fees and costs, whenever mentioned in
this  Lease,   shall  include  those   incurred  with  respect  to   arbitration
proceedings, if any. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;27.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>PARTIAL   INVALIDITY</U>.   If  any   term   or
provision,  in whole or in part, of this Lease or the application thereof to any
person or  circumstance  shall,  to any extent,  be invalid,  unenforceable,  or
inapplicable  in  the  stated  circumstances  or  for  stated  purposes,  in any
jurisdiction,  then the remainder of this Lease, or the application of such term
or  provision to persons or  circumstances  other than those to which it is held
invalid, unenforceable or inapplicable,  shall not be affected thereby, and each
term and  provision  of this  Lease  shall be valid  and be  enforceable  to the
fullest extent permitted by law. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;28.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>RECORDATION; QUITCLAIM.</U></FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;28.1
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Memorandum  of  Lease.</U>  Neither party shall
record this Lease. Upon the request of either party, the Landlord and the Tenant
shall  execute and  acknowledge  in  recordable  form a  Memorandum  of Lease in
content  mutually  agreeable to the parties.  The reasonable costs and expenses,
including  attorneys'  fees,  incurred by the parties in  preparing,  filing and
recording  the  Memorandum of Lease shall be borne by the party  requesting  the
same.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;28.2
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Quitclaim   Deed.</U>   Concurrent   with   the
execution  of any  Memorandum  of Lease as  provided in  <U>Paragraph  28.1,</U>
above,  the Tenant  shall  execute  and deliver to the  Landlord  for filing and
recording,  upon the  expiration or  termination of this Lease, a quitclaim deed
designating the Landlord,  its successors and assigns,  as the transferee of the
Premises.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;29.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>COMPLETE  AGREEMENT</U>.  This  Lease,  and the
attachments and exhibits  hereto,  constitute the entire  agreement  between the
parties and may not be altered,  amended,  modified  or  extended,  except by an
instrument in writing  signed by all parties  hereto.  The parties  respectively
acknowledge and agree that neither has made any representations or warranties to
the other not expressly set forth herein. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;30.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>CONSENT  OF PARTY.</U>  If this Lease  requires
the consent of a party hereto,  such consent shall not be unreasonably  withheld
or delayed.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;31.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>AUTHORITY</U>.  If the Tenant is a partnership,
each individual  executing this Lease on behalf of said  partnership  represents
and warrants that he or she is duly authorized to execute and deliver this Lease
on behalf of said  partnership,  and that all future  forms,  reports,  fees and
other documents necessary to comply with applicable laws will be filed when due.
</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;32.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>TIME.</U>  Time is of the essence of this Lease
and each and every term, covenant and condition hereof.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;33.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>SIGNS</U>. The Tenant shall not place, or cause
to be placed or maintained, on any exterior door, wall or window of the Premises
any sign,  awning or canopy,  or advertising  matter or other thing of any kind,
and will not place or maintain any decoration,  lettering or advertising  matter
on the glass of any window or door of the Premises,  without first obtaining the
Landlord&#146;s prior written approval and consent in each instance.  The Tenant
further  agrees  to  maintain  at all  times  any  such  sign,  awning,  canopy,
decoration,  lettering, advertising matter or other thing as may be approved, in
good  condition,  and  in  full  compliance  with  all  applicable  governmental
regulations  and the sign  criteria  for the Building  established  from time to
time. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Tenant agrees that the Landlord may post in  conspicuous  places "For Sale"
or "For Rent" signs on the Premises.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;34.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>ACCORD  AND SATISFACTION</U>. No payment by the
Tenant or  receipt  by the  Landlord  of a lesser  amount  than the rent  herein
stipulated  shall  be  deemed  to be  other  than  on  account  of the  earliest
stipulated  rent,  nor shall any  endorsement  or  statement on any check or any
letter  accompanying  any check or  payment  as rent be  deemed  an  accord  and
satisfaction,  and the  Landlord  may  accept  such  check  or  payment  without
prejudice  to the  Landlord&#146;s  right to recover the balance of such rent or
pursue any other remedy provided in this Lease. </FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;35.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>CONSTRUCTION  OF LEASE.</U> The language in all
parts of this Lease shall in all cases be construed as a whole  according to its
fair meaning and not strictly for nor against the Landlord or the Tenant.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;36.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>LIMITATION  OF  LANDLORD&#146;S  LIABILITY</U>.
The Tenant hereby  acknowledges and agrees that (i) no present or future general
or limited  partner of the  Landlord,  or its  assign,  shall have any  personal
liability  of any kind or nature  whatsoever  for or by reason of any  matter or
thing  whatsoever  arising under,  related to, or in any way connected with this
Lease,  and the rights and  obligations of the parties  hereunder,  and (ii) the
Tenant  shall look solely to the  building in which the  Premises is located and
any other  property  owned by the Landlord (as opposed to property  owned by the
individual  partners  of  the  Landlord)  for  the  enforcement  of  its  rights
hereunder. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;37.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>SUPERSEDES  PROPOSAL TO LEASE; INTEGRATION</U>.
This Lease  supersedes  any  proposals  regarding  the leasing of the  Premises,
whether  written or oral, and any such  proposals will be terminated,  and of no
force or effect, effective upon the execution of this Lease. This Lease contains
the entire understanding and agreements of the parties. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;38.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>ENVIRONMENTAL  MATTERS</U>.  The Tenant  hereby
acknowledges that the Premises are being leased in &#147;as is&#148;  condition.
The  Landlord  does  not  have  actual  knowledge  of any  toxic  contamination,
including  asbestos,  but has not conducted an investigation  into such matters.
The Tenant has had sufficient  opportunity to satisfy itself of the condition of
the Premises  prior to the execution  hereof.  Accordingly,  the Tenant shall be
responsible  for any and all  liability,  and shall  indemnify the Landlord with
respect to the same to the extent  provided  in  <U>subparagraph  (c)</U>  below
(relating  to  toxic  contamination  matters),  unless  the  Tenant  is  able to
establish,  upon the basis of  reasonable  proof,  that any toxic  contamination
which is  discovered  after the Tenant goes into  occupancy  of the  Premises is
attributable  to a  condition  which  pre-existed  the  Tenant&#146;s  occupancy
hereunder.  In such  event,  the  Landlord&#146;s  liability  will be limited to
complying  with  all  applicable   environmental  laws,  without  any  liability
whatsoever to the Tenant including,  but not limited to, relocation  expenses or
loss of business damages. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Tenant also covenants as follows:</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The  Tenant shall at all times and in all respects
comply with all federal,  state and local laws,  ordinances and regulations (the
&#147;<U>Hazardous  Material  Laws</U>&#148;)  relating to  industrial  hygiene,
environmental protection or the use, analysis, generation, manufacture, storage,
disposal or transportation of any oil,  flammable  explosives,  asbestos,  urea,
formaldehyde,  radioactive  materials  or  wastes  or  other  hazardous,  toxic,
contaminated or polluting materials,  substances or wastes,  including,  without
limitation,  any  hazardous  substances  which are the subject of any such laws,
ordinances    or    regulations     (collectively,     the    &#147;<U>Hazardous
Materials</U>&#148;). </FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The  Tenant  shall,  at its own expense,  procure,
maintain  in effect,  and comply  with all  conditions  of any and all  permits,
licenses  and  other  governmental  and  regulatory  approval  required  for the
Tenant&#146;s use of the Premises,  including, without limitation,  discharge of
(appropriately  treated)  materials  or wastes which may be  discharged  into or
through any  sanitary  sewer  serving the  Premises.  The Tenant  shall,  in all
respects,  deal with the Hazardous  Materials in  conformity  with the Hazardous
Materials Laws. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The  Tenant  shall  indemnify,  defend (by counsel
reasonably acceptable to the Landlord),  protect, and hold the Landlord and each
of the Landlord&#146;s partners,  employees,  agents, attorneys,  successors and
assigns,  free and  harmless  from and against any and all claims,  liabilities,
penalties,  forfeitures,  losses or expenses (including  attorneys&#146;  fees),
damages  or  death  of or  injury  to any  person  or  damage  to  any  property
whatsoever,  arising from or caused in whole or in part, directly or indirectly,
by the  Tenant&#146;s  failure to comply with any  Hazardous  Materials  Law, or
other  health  or  safety  law,  regulation  or  ordinance.   The  Tenant&#146;s
obligations hereunder shall include, without limitation, and whether foreseeable
or  unforeseeable,  all costs of any required or necessary  repair,  clean-up or
detoxification  or  decontamination  of the Premises,  and the  preparation  and
implementation  of any  closure,  remedial  action  or other  required  plans in
connection therewith, and shall survive the expiration or earlier termination of
the term of this Lease.  For purposes of this indemnity  provision,  any acts or
omission of the Tenant,  or by  employees,  agents,  assignees,  contractors  or
subcontractors  of the Tenant,  or others  acting for or on behalf of the Tenant
(whether or not they are negligent,  intentional,  willful or unlawful) shall be
strictly attributable to the Tenant. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;39.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>BROKERS.</U> The Tenant will indemnify and hold
harmless the Landlord from any brokers' claims for  compensation or a commission
related to this Lease.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;40.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>IMPROVEMENTS   BY   PRIOR   OCCUPANT</U>.   The
Tenant&#146;s  affiliate,  E. KHASHOGGI  INDUSTRIES was the previous occupant of
the Premises.  The Tenant has executed a Letter  Agreement  dated March 30made a
part hereof by this reference, including, without limitation, the obligation for
such  repairs  up to a  maximum  of  TWENTY  FIVE  THOUSAND  DOLLARS  ($25,000).
</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;41.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>INDEPENDENT   COUNSEL.</U>   The   Tenant   has
received the advice of counsel prior to executing this Lease.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;42.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>BOARD  OF  DIRECTORS.</U>  At the  execution of
this Lease,  the Tenant will  deliver a certified  resolution  from the Tenant's
Board of Directors authorizing the execution of this Lease.</FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN
WITNESS WHEREOF, the parties hereto have executed this Lease on this ____ day of
________________, 2001 at Santa Barbara, California. </FONT></P>

<PRE>
                           LANDLORD:

                           DE ETTA M. NANCARROW,
                           Trustee of the Nancarrow Family Living Trust
                           Dated 9/25/91


                           By:    <U>/s/ De Etta M. Nancarrow            </U>
                                  De Etta M. Nancarrow, Trustee

                           <U>Address:</U>
                           6326-A Lindmar Drive
                           Goleta, CA 93117



                           TENANT:

                           EARTHSHELL CORPORATION,
                           A Delaware Corporation


                           By:    <U>/s/ Scott Houston                   </U>
                                  Name:  Scott Houston
                                  Title: CFO

                           <U>Address:</U>
                           800 Miramonte Drive
                           Santa Barbara, CA 93109
</PRE>





<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>EXHIBIT A</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>DESCRIPTION
OF PREMISES</FONT></H1>






<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>EXHIBIT B</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>FURNITURE
AND FIXTURES</FONT></H1>






<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>EXHIBIT C</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>LETTER
AGREEMENT DATED MARCH 30, 2001</FONT></H1>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>5
<FILENAME>ex10_44.html
<DESCRIPTION>EMPLOYMENT AGREEMENT
<TEXT>

<HTML>
<HEAD>
<TITLE> Exhibit 10.44
</TITLE>
</HEAD>
<BODY>
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>EMPLOYMENT
AGREEMENT<BR>
BETWEEN<BR>
EARTHSHELL CORPORATION<BR>
AND<BR>
DR. PER JUST ANDERSEN</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Employment Agreement (the &#147;Agreement&#148;) is entered into this 30th day
of March, 2001, but is to be effective as of January 1, 2001 (the
&#147;Effective Date&#148;), by and between EarthShell Corporation, a Delaware
corporation with its principal office located at 800 Miramonte Drive, Santa
Barbara, California (the &#147;Company&#148;), and Dr.&#160;Per&#160;Just
Andersen, a resident of the City of Santa Barbara, California
(&#147;Executive&#148;). </FONT></P>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>AGREEMENT</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Services Provided to the Company.</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Commencing
as of the  Effective  Date,  Executive  shall be  employed by the Company as its
Chief Science Officer, and Executive agrees to such employment.  Executive shall
report directly to the Company's Chief Executive Officer. Because of Executive's
position of  responsibility  and technical  expertise,  he will be considered an
"exempt" employee for labor law purposes.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Compensation to Executive.</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Base   Salary.</U>  During  the  term  of  this
Agreement,  the  Company  shall pay to  Executive a base salary in the amount of
$280,000 per annum (the "Base Salary"),  payable  semi-monthly.  The Base Salary
shall  commence to accrue on the  Effective  Date.  Increases to the Base Salary
shall be determined and set from time to time by the Compensation Committee (the
"Compensation  Committee") of the  EarthShell  Board of Directors (the "Board"),
guided by the  accomplishments  of critical  milestones  agreed to in writing by
Executive and the Company on an annual basis.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Car  Allowance.</U>  In  addition  to the  Base
Salary,  during  the term of this  Agreement,  Executive  will  receive a $1,300
monthly  allowance for the lease,  operation and maintenance of an automobile of
Executive's choosing (the "Automobile Allowance"). The automobile will be leased
in Executive's  name and Executive will be responsible for discharging all costs
and expenses attributable to the automobile.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Additional Compensation.</U> Executive may also
be entitled to receive (i) an annual bonus in an amount equal to one year's Base
Salary provided  certain  financial and other  milestones are met by the Company
and Executive,  as determined by Executive and the Compensation  Committee,  and
(ii) options or other rights to acquire the Company's  common stock  pursuant to
the Company's 1995 Stock Incentive Plan,  under such terms and conditions as are
determined by the Stock Option  Committee (the "Option  Committee") of the Board
in its sole discretion.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Employee   Benefits.</U>   The  Company   shall
provide to Executive at the Company's expense, coverage under the major medical,
hospitalization, disability and other insurance and employee programs maintained
by the Company for its officers  generally,  or if none is made for its officers
generally,  its  employees  generally,  including  any  benefit  plans  that are
provided by the Company  subsequent to the date of this Agreement.  In addition,
Executive  shall accrue after on the Effective  Date all other  Company-provided
benefits, including sick pay and vacation benefits, that are, from time to time,
made  available by the Company to its officers  generally or, if not made to its
officers generally, its employees generally.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Vacation.</U>    Executive   will   begin   his
employment  with the  Company  having an  accrued  vacation  of eight (8) weeks.
Executive  additionally  shall be  entitled  to four (4) weeks of paid  vacation
during each twelve (12) month period during the term of this Agreement (prorated
for any partial  12-month  period).  Executive will make  reasonable  efforts to
arrange his vacation schedule so as not to conflict with any special requests by
the Company for his time.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Termination</U>.   Executive&#146;s  employment
hereunder  shall be for the period ending  November&#160;30,  2002,  (subject to
such  extension as the Company and the Executive may mutually  agree);  provided
either the Company or the Executive may terminate this  Agreement  prior to such
date at upon six (6)  months&#146;  written  notice.  Upon  termination  of this
Agreement,  Executive  shall be  entitled  to receive  such  portion of the Base
Salary and  Automobile  Allowance  which has been accrued  through the effective
date of termination.  If the Company terminates  Executive&#146;s employment for
other than cause,  Executive shall be entitled to receive severance pay equal to
the lesser of (i) 100% of his Base  Salary,  or (ii) the annual Base Salary that
would have been paid to Executive had he continued to be employed by the Company
through  November 30, 2002.  Cause means the  occurrence of any of the following
events:  (i)&#160;willful  and continued failure (to include such failure due to
(a)&#160;death or  (b)&#160;disability  for a consecutive  period of ninety (90)
days or more) by the  Executive  to  substantially  perform  his duties with the
Company;  provided,  however,  that Executive must be notified by the Company of
any such  failure to perform his duties and shall have thirty (30) days from the
date of such notice to cure such  failure;  (ii)&#160;any  act by  Executive  of
fraud, misappropriation, dishonesty, embezzlement or similar conduct against the
Company;  (iii)&#160;indictment  of a  criminal  felony,  or (iv) any  breach by
Executive of this  Agreement or the  Confidentiality  Agreement and which is not
cured  within ten (10) days of  written  notification  of the  breach  hereof or
thereof. Any severance pay payable to Executive under this Agreement as a result
of the Company&#146;s  termination of his employment without cause shall be paid
no later than the date of termination of  Executive&#146;s  employment and shall
be in full  settlement  of any claims  Executive may have against the Company in
connection with this Agreement. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Confidential  and Proprietary  Information.</U>
Executive   agrees  to  execute  and   deliver  to  the  Company  the   attached
confidentiality  agreement  with  respect  to  the  Company's  confidential  and
proprietary information.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General Provisions.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Successors   and  Assigns.</U>  This  Agreement
shall be binding  upon and shall  inure to the  benefit of the  Company  and any
successors  whether by merger,  consolidation,  transfer  of  substantially  all
assets or similar  transaction,  and it shall be binding upon and shall inure to
the benefit of Executive and his heirs and legal representatives. This Agreement
is personal to Executive and shall not be assignable by Executive.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Entire  Agreement/Amendment</U>. This Agreement
and the Confidentiality  Agreement shall constitute the entire agreement between
the  parties  hereto  with  respect  to the  subject  matter  hereof,  and shall
supersede   all  previous  oral  and  written  and  all   contemporaneous   oral
negotiations,  commitments,  agreements and understandings  relating hereto. Any
amendment  to this  Agreement  shall be  effective  only if it is in writing and
signed by the parties to this Agreement.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Applicable   Law.</U>   The  validity  of  this
Agreement and the  interpretation  and  performance of all of its terms shall be
construed  and enforced in  accordance  with the laws of the State of California
without reference to choice or conflict of law principles.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Severability.</U>   Any   provision   of   this
Agreement that is deemed invalid,  illegal or  unenforceable in any jurisdiction
shall, as to that jurisdiction and subject to this paragraph,  be ineffective to
the extent of such invalidity, illegality or unenforceability, without affecting
in any way the remaining  provisions  hereof in such  jurisdiction  or rendering
that or any other provision of this Agreement invalid,  illegal or unenforceable
in any other jurisdiction.  If any covenant should be deemed invalid, illegal or
unenforceable because its scope is considered excessive,  such covenant shall be
modified so that the scope of the covenant is reduced only to the minimum extent
necessary to render the modified covenant valid, legal and enforceable.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Jurisdiction; Legal Proceedings; Arbitration.</U></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If   any  dispute,  claim  or  controversy  exists
between  the  parties  arising  out of or  relating  to any  provision  of  this
Agreement or the Confidentiality Agreement,  including any alleged breach hereof
or  thereof  (a   &#147;Controversy&#148;),   and  litigation   concerning  such
Controversy  is  commenced  at a time when  Executive  is residing in the United
States,  such  litigation  shall be brought  in the  Federal  courts,  or in the
absence of Federal  jurisdiction,  in the state  courts  having  subject  matter
jurisdiction  over the  Controversy,  in Los  Angeles,  California.  Each  party
irrevocably and  unconditionally  submits to the jurisdiction of such courts and
agrees  to  take  any  and  all  further  action  necessary  to  submit  to  the
jurisdiction  of such courts  (including  the acceptance of service of process).
Each party  irrevocably  waives any  objection  that it now has or hereafter may
have to the  laying of venue of any suit,  action or  proceeding  brought in any
such court and further  irrevocably  waives any claim that any such suit, action
or  proceeding  brought  in any such court has been  brought in an  inconvenient
forum. Final judgment against any party in any such suit shall be conclusive and
may be enforced in other  jurisdictions by suit on the judgment,  a certified or
true copy of which  shall be  conclusive  evidence of the fact and the amount of
any indebtedness or liability of such party, or by appropriate proceedings under
any applicable treaty or otherwise. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any   Controversy  that  arises  at  a  time  when
Executive  is residing  outside the Untied  States and which is not related to a
litigation  proceeding  that was  commenced  while  Executive is residing in the
United  States,  shall be  submitted  to, and  determined  by, any court  having
competent jurisdiction. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nothing  in this Agreement  shall limit the rights
of any of the  parties  to seek in any  court  of  competent  jurisdiction  such
equitable  or interim  relief as may be needed to  maintain  the status  quo, to
prevent  irreversible  harm or to  otherwise  protect the subject  matter of any
Controversy until the matter shall have been finally resolved. For the avoidance
of doubt, any actual or threatened beach of the Confidentiality  Agreement shall
be  considered  a  circumstance   in  which   equitable  or  interim  relief  is
appropriate. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN
WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first
written above.</FONT></P>
<PRE>
                       EARTHSHELL CORPORATION,
                       a Delaware corporation


                       By:<U>   /s/ Scott Houston                           </U>

                       Title:<U> Chief Financial Officer                    </U>


                       DR. PER JUST ANDERSEN


                       <U>   /s/ Per J. Andersen                            </U>


</PRE>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>6
<FILENAME>ex10_45.html
<DESCRIPTION>EMPLOYMENT AGREEMENT RENEWAL
<TEXT>

<HTML>
<HEAD>
<TITLE> Exhibit 10.45
</TITLE>
</HEAD>
<BODY>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>March 16, 2001</FONT></P>





<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Simon K. Hodson<BR>
Chief Executive Officer<BR>
EarthShell Corporation<BR>
800 Miramonte Drive<BR>
Santa Barbara, CA 93109</FONT></P>



<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Re:
Renewal of Employment Agreement dated October 1, 1997</FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Dear Simon:</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On October 1, 1997,
EarthShell  Corporation entered into the attached employment agreement with you.
Pursuant to paragraph 2 of this  agreement,  the Company  hereby  exercises  its
option to renew the  agreement for the period of one year.  Notwithstanding  the
notice provision, the Board confirms that it would like you to continue to serve
in your capacity as Chief  Executive  Officer and requests that you  acknowledge
your acceptance of this extension of your employment agreement by signing below.
</FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>/s/ Essam Khashoggi                 </U><BR>
Essam Khashoggi<BR>
Chairman</FONT></P>




<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Please sign to acknowledge acceptance</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>/s/ Simon K. Hodson                 </U><BR>
Simon Hodson</FONT></P>
</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>7
<FILENAME>ex10_46.html
<DESCRIPTION>PURCHASE AND SALE AGREEMENT
<TEXT>

<HTML>
<HEAD>
<TITLE> Exhibit 10.46
</TITLE>
</HEAD>
<BODY>
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PURCHASE AND
SALE AGREEMENT</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>THIS
PURCHASE AND SALE AGREEMENT</B> (this &#147;Agreement&#148;), dated as of
January 18, 2001 (the &#147;Execution Date&#148;), but made effective as of
December&#160;31, 2000 (the &#147;Effective Date&#148;), is entered into between
E.&#160;Khashoggi Industries, LLC, a Delaware limited liability company
(&#147;Seller&#148;), and EarthShell Corporation, a Delaware corporation
(&#147;Buyer&#148;), with reference to the following facts: </FONT></P>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>RECITALS:</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller owns certain items of equipment, machinery,
tools,  supplies,  computer  equipment  and  furniture  that are  listed  on the
attached Exhibit A (the "Owned Property").</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller  also leases  certain  items of  equipment,
computer  equipment and machinery that are listed on the attached Exhibit B (the
&#147;Leased   Property,&#148;   and  together  with  the  Owned  Property,  the
&#147;Tangible Personal Property&#148;). </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant  to the  terms and  conditions  set forth
herein,  Seller  desires  to sell,  and Buyer  desires  to  purchase,  the Owned
Property,  and Seller also desires to assign to Buyer all of Seller&#146;s right
and  interest in and to the Leased  Property,  and Buyer  desires to accept such
assignment, and to assume all of Seller&#146;s obligations under the leases with
respect to the Leased Property (the  &#147;Leases&#148;),  as more  particularly
identified on the attached Exhibit B. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller  has  utilized and  currently  utilizes the
Tangible  Personal  Property to perform  technical  services  for the benefit of
Buyer,  and  Buyer  is  therefore   familiar  with  the  value,   condition  and
functionality of the Tangible Personal Property. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
consideration of the mutual promises set forth herein and for other good and
valuable consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereto agree as follows: </FONT></P>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>AGREEMENT:</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>1.</B>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Sale   of  Owned  Property</U>.   </B>Seller
hereby  sells,  transfers,  conveys and  quitclaims  to Buyer,  and Buyer hereby
purchases,  accepts and assumes,  all of Seller&#146;s right, title and interest
in and to all of the Owned Property.  In consideration for the sale of the Owned
Property,  Buyer shall pay $900,000 to Seller upon the execution and delivery of
this Agreement by Seller. Such sum shall be paid by wire transfer of immediately
available funds to Seller&#146;s  account (as shall be separately  designated in
writing by Seller) within three days following the Execution  Date. The purchase
and sale of the Owned  Property  shall be deemed  effective as of the  Effective
Date. The transfer of the Owned Property shall be evidenced by the parties&#146;
concurrent  execution of a Bill of Sale, the form of which is attached hereto as
Exhibit C. All risk of loss with respect to the Tangible Personal Property shall
be deemed transferred to Seller as of the Effective Date. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>2.</B>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Assignment  and  Assumption  of  Leases</U>.
</B>Seller  hereby  assigns  to Buyer  all of  Sellers&#146;  right,  title  and
interest in, to and under the Leases and the Leased  Property,  and Buyer hereby
accepts such  assignment  and agrees to assume and timely perform and discharge,
and indemnify  Seller against and hold it harmless  from,  all of  Seller&#146;s
liabilities and obligations  under the Leases which are incurred during or which
arise or which relate to any period commencing on or after January 1, 2001. Such
assignment and  assumption  shall be evidenced by the  parties&#146;  concurrent
execution and delivery of an Assignment  and Assumption  Agreement,  the form of
which is attached  hereto as Exhibit D. The  assignment  and  assumption  of the
Leases and the Leased  Property  shall be  effective as of the  Effective  Date.
Seller  further  assigns  to  Buyer,  without  additional   consideration,   all
manufacturer  warranties  and guaranties  with respect to the Tangible  Personal
Property. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>3.</B>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Status   of  the  Property  &#150;  &#147;As
Is&#148;;  No  Representations  or  Warranties</U>.  </B>Seller  represents  and
warrants that it has good and  marketable  title to the Owned  Property and that
the Owned Property is sold and transferred to Buyer free and clear of all liens,
claims  and/or  encumbrances  of whatever  kind or nature,  other than usual and
customary  liens for  property  taxes not yet due and payable  and for  transfer
taxes that may arise upon the sale of the Owned Property. Buyer acknowledges and
agrees  that the Leased  Property is being  assigned  and  transferred  to Buyer
subject  to the  terms and  conditions  of the  Leases.  Seller  has  previously
delivered  to Buyer true and correct  copies of all Leases  with  respect to the
Leased  Property,  as amended through the Effective Date.  Seller makes no other
representations  or warranties  concerning the Tangible Personal  Property.  The
Tangible  Personal  Property  is being  sold  and  assigned  &#147;as  is,&#148;
&#147;where  is&#148; and with &#147;all  faults,&#148;  and Buyer shall have no
recourse  against Seller for the Tangible  Personal  Property (other than as set
forth in Section  4(a)).  Seller  expressly  disclaims  any  representations  or
warranties as to the value,  condition or functionality of the Tangible Personal
Property or its suitability  for any particular  purpose.  Buyer  represents and
warrants  that  it  is  familiar   with,   and  has  made  such   inquiries  and
investigations  as it deems  necessary  with respect to, the  Tangible  Personal
Property and its current value, condition and functionality. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>4.</B>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Indemnification Obligations.</U></B></FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Seller  indemnifies Buyer against, and holds Buyer
harmless from, any and all losses, claims, expenses,  costs, causes of action or
obligations  (including  reasonable attorneys fees) incurred in connection with,
or arising  from (i)  Seller's  ownership,  possession,  use or operation of the
Tangible Personal Property during any period ending on or prior to the Effective
Date,  or (ii)  Seller's  breach of any of its  representations,  warranties  or
covenants under this Agreement.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Buyer indemnifies Seller against, and holds Seller
harmless  from,  any  losses,  claims,  expenses,  costs,  causes  of  action or
obligations  (including  reasonable attorneys fees) incurred in connection with,
or arising from (i) Buyer's ownership, possession, use, operation or disposition
of the  Tangible  Personal  Property  during any period  commencing  on or after
January  1,  2001,  or  (ii)  Buyer's  breach  of any  of  its  representations,
warranties or covenants under this Agreement.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>5.</B>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Governing  Law</U>.</B> This Agreement shall
be governed  by, and  construed  in  accordance  with,  the laws of the State of
California  applicable to contracts made and to be performed  wholly within such
State, without giving effect to the conflict of laws principles thereof.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>6.</B>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Taxes   and  Transfer  Costs</U>.  </B>Buyer
shall be  responsible  for  filing  all  required  sales and use tax  returns in
connection with the transfer of the Tangible Personal Property. Buyer shall also
pay, and indemnify  Seller  against,  all required sales and use taxes and other
transfer  costs  and  expenses  that  arise as a result of the  transfer  of the
Tangible  Personal  Property.  Seller  shall  pay all  personal  property  taxes
associated  with the  ownership  or use of the  Tangible  Personal  Property and
accrued  for the period  ending  December  31, 2000 and Buyer shall pay all such
personal property taxes that accrue thereafter. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>7.</B>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Multiple      Counterparts.</U></B>     This
Agreement  may be  executed  in any number of  counterparts  and the  signatures
delivered by telecopy,  each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>8.</B>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><U>Further   Assurances.</U>   </B>The  parties
agree to cooperate with each other and to execute, deliver and record such other
agreements  and  documents  and to take such  other  actions  as are  reasonably
necessary  or  helpful  to  more   effectively   consummate   the   transactions
contemplated under this Agreement and to carry out its purpose and intent.  Upon
reasonable  notice,  Seller shall provide Buyer with  reasonable  access to, and
allow it to copy,  any  books  and  records  concerning  the  Tangible  Personal
Property as are in Seller&#146;s possession or control. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be duly executed as of the day and
year first above written. </FONT></P>

<PRE>
SELLER:                        E. KHASHOGGI INDUSTRIES, LLC,
                               a Delaware limited liability company


                               By: _______________________________
                               Print Name: ________________________
                               Title: ______________________________

BUYER:                         EARTHSHELL CORPORATION,
                               a Delaware corporation


                               By: ______________________________
                               Print Name: _______________________
                               Title: _____________________________

</PRE>




<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>EXHIBIT A</U></FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>LIST OF OWNED PROPERTY</U></FONT></H1>
<PRE>
                           General Description         Manufacturer         Identification No.
        <U>Quantity</U>                 <U>of Items</U>                <U>(if any)</U>                <U>(if any)</U>
</PRE>





<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>EXHIBIT B</U></FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>LIST OF LEASED PROPERTY AND</U></FONT></H1>
<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>IDENTIFICATION OF PERSONAL PROPERTY LEASES</U></FONT></H1>

<PRE>
I.      LIST OF LEASED PROPERTY
------------------------- ----------------------- ----------------------- -----------------------

     <U>Name of Lessor</U>                <U>Item</U>             <U>Commencement Date</U>        <U>Termination Date</U>


</PRE>



<PRE>

II.     IDENTIFICATION OF PERSONAL PROPERTY LEASES
------------------------- ----------------------- ----------------------- -----------------------

     <U>Name of Lessor</U>                <U>Item</U>             <U>Commencement Date</U>        <U>Termination Date</U>

</PRE>








<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>EXHIBIT C</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>BILL OF SALE</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
valuable consideration, the receipt of which is acknowledged, E. Khashoggi
Industries, LLC, a Delaware limited liability company (&#147;Seller&#148;),
hereby sells, conveys, transfers and quitclaims to EarthShell Corporation, a
Delaware corporation (&#147;Buyer&#148;), all of Seller&#146;s right, title and
interest in and to all that tangible personal property described in the
<U>Exhibit&#160;A</U> attached hereto (the &#147;Owned Property&#148;). Such
sale, conveyance, transfer and quitclaim shall be deemed effective as of
December 31, 2000. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Owned Property are being transferred &#147;as is,&#148; &#147;where is&#148; and
with &#147;all faults,&#148; and Buyer shall have no recourse against Seller.
The Owned Property are being delivered free and clear of all liens, claims
and/or encumbrances of whatever kind other than usual and customary liens for
personal property taxes not yet due and payable and all transfer taxes due and
owing as a result of the transfer of ownership of the Owned Property. Seller
expressly disclaims any representations or warranties as to the value, condition
or functionality of the Owned Property or its suitability for any particular
purpose. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Bill of Sale shall be governed by, and construed in accordance with, the laws of
the State of California applicable to contracts made and to be performed wholly
within such State, without giving effect to the conflict of laws principles
thereof. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
Bill of Sale may be executed in any number of counterparts and the signatures
delivered by telecopy, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. </FONT></P>
<PRE>
SELLER:                          E. KHASHOGGI INDUSTRIES, LLC,
                                 a Delaware limited liability company


                                 By: _______________________________
                                 Print Name: ________________________
                                 Title: ______________________________

BUYER:                           EARTHSHELL CORPORATION,
                                 a Delaware corporation


                                 By: ______________________________
                                 Print Name: _______________________
                                 Title: _____________________________

</PRE>


<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>EXHIBIT D</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ASSIGNMENT
AND ASSUMPTION OF PERSONAL PROPERTY LEASES</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>THIS
ASSIGNMENT AND ASSUMPTION OF PERSONAL PROPERTY LEASES </B>(this
&#147;<B>Assignment</B>&#148;) is made effective as of the December 31, 2000 by
and between E.&#160;KHASHOGGI INDUSTRIES, LLC, a Delaware limited liability
company, having an office at 800&#160;Miramonte Drive, Santa Barbara, California
93109 (&#147;<B>Assignor</B>&#148;) and EARTHSHELL CORPORATION, a Delaware
corporation, having an office at 800&#160;Miramonte Drive, Santa Barbara,
California 93109 (&#147;<B>Assignee</B>&#148;). </FONT></P>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>RECITALS:</U></FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assignor  is  the  lessee  of  certain  equipment,
machinery and computer  equipment  more  particularly  described in the attached
<U>Exhibit A</U>. In connection therewith,  Assignor is a party to those certain
lease agreements more  particularly  described in the attached  <U>Exhibit A</U>
(the &#147;Leases&#148;). </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assignor has agreed with Assignee to assign all of
Assignor&#146;s  right,  title and  interest in, to and under the Leases and the
Leased  Property  to  Assignee  and  Assignee  has  agreed to assume  all of the
liabilities and obligations of Assignor thereunder,  all as more fully set forth
herein. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
consideration of the foregoing and other good and valuable consideration, the
sufficiency and receipt of which , prior to the execution hereof, is hereby
acknowledged, the parties hereto, intending to be legally bound, do hereby agree
as follows: </FONT></P>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>AGREEMENT:</U></FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assignor   hereby   assigns  to  Assignee  all  of
Assignor's right,  title and interest in, to and under the Leases and the Leased
Property.</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assignee  hereby accepts the foregoing  assignment
and agrees to timely  perform and discharge all of  Assignor&#146;s  liabilities
and  obligations  under the Leases which are incurred,  or which arise or relate
to, any period commencing on or after January 1, 2001. </FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Assignee  further  agrees to be bound  by,  and to
comply with, all of the terms, covenants and conditions of the Leases to be kept
and performed by Assignor as lessee thereunder.</FONT></P>



<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>IN
WITNESS WHEREOF</B>, the parties hereto have executed and delivered this
Assignment as of the day and year first written above. </FONT></P>
<PRE>
                             ASSIGNOR:

                             E. KHASHOGGI INDUSTRIES, LLC


                             By:    <U>/s/ John Daoud                      </U>
                             Name:  <U>John Daoud                          </U>
                             Title: <U>CFO                                 </U>


                             ASSIGNEE:

                             EARTHSHELL CORPORATION


                             By:    <U>/s/ Scott Houston            4/23/01</U>
                             Name:  <U>Scott Houston                       </U>
                             Title: <U>CFO                                 </U>
</PRE>
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<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>8
<FILENAME>ex10_47.html
<DESCRIPTION>DON SAMARIA AGREEMENT
<TEXT>

<HTML>
<HEAD>
<TITLE> Exhibit 10.47
</TITLE>
</HEAD>
<BODY>
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>March 1, 2001</FONT></P>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Mr. Don Samaria<BR>
The Bentley Group<BR>
2235 Camino del Vecino<BR>
Alpine, CA  91901</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Dear Don:</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>This letter confirms the
arrangement that we entered into with you early last month to perform certain
investor and market relations functions on behalf of EarthShell Corporation. The
objectives of your consulting services has been to assist EarthShell to heighten
market awareness, to broaden retail ownership and to increase trading volumes in
order to minimize share price volatility. We previously forwarded to you product
samples and promotional literature along with a list of our shareholders and
other contacts who have expressed an interest in the Company, which should be
useful in communicating the EarthShell story to your investment community
contacts. Please continue to keep me apprised in writing of market attitudes
toward ERTH every day or two, and let me know how we can better interface with
the market. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We agreed to pay you a
fixed fee for your consulting services of 150,000 shares of ERTH stock, plus a
fixed amount of $50,000 for direct expenses. In consideration for your work over
the past several weeks, upon receipt of this countersigned letter, we will
deliver to you the first installment of 75,000 shares of ERTH stock and our
check for your expenses of $50,000. The second installment of your service fee
will be made in the form of 75,000 shares of ERTH on or before March 15, 2001. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>If this letter is
consistent with your understanding, please countersign and return to me. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Sincerely,</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>/s/ Simon Hodson</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Simon Hodson<BR>
President and Chief Executive Officer</FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>AGREED AND ACCEPTED:</FONT></P>

<PRE>
<U> /s/ Don Samaria            </U>       <U>                  </U>
Don Samaria                         Date
</PRE>
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